BHP eats its earlier investment in US shale

[Rodent + 1,424]

BHP sold its US shale oil assets for $10.8 billion, which it purchased a few years ago for over $20 billion. Ouch.

If they are willing to eat $10 billion, they must have wanted out very badly.

https://oilprice.com/Latest-Energy-News/World-News/BHP-Billiton-Sells-US-Oil-Assets-To-BP.html 

BP is getting it on the cheap. Or are they?

[Tom Kirkman + 8,860]

Related.  Old quote from a 2015 Oil Price pdf about oil investment fraud:

"... when some analysts—such as well-known trader Dan Dicker—think that the whole business of shale is a Ponzi scheme.  Maybe not in the intentional, sinister sense, but in reality.  This is why, he says: “…the business of drilling for [shale oil] creates an endless circular appetite for more drilling for lesser returns.
[…] Constant fresh capital is needed to generate false gains and pay off early investors.”

[Dan Warnick + 6,100]

5 hours ago, Tom Kirkman said:

Related.  Old quote from a 2015 Oil Price pdf about oil investment fraud:

"... when some analysts—such as well-known trader Dan Dicker—think that the whole business of shale is a Ponzi scheme.  Maybe not in the intentional, sinister sense, but in reality.  This is why, he says: “…the business of drilling for [shale oil] creates an endless circular appetite for more drilling for lesser returns.
[…] Constant fresh capital is needed to generate false gains and pay off early investors.”

Thanks, Tom (and Rodent for starting the thread).  Since I joined OP there has been a lot of information presented about the realities of shale.  Eye opening, to say the least.  What is the general consensus, if there is one, as to the predicted longevity of shale production.  Is it viable over the next 10, 20, 50 or even 100 years?  Or are they simply squeezing the sponge (my take on it)?

[jaycee + 348]

18 hours ago, Rodent said:

BHP sold its US shale oil assets for $10.8 billion, which it purchased a few years ago for over $20 billion. Ouch.

If they are willing to eat $10 billion, they must have wanted out very badly.

https://oilprice.com/Latest-Energy-News/World-News/BHP-Billiton-Sells-US-Oil-Assets-To-BP.html 

BP is getting it on the cheap. Or are they?

It was activist hedge fund Elliott Management that pushed BHP to sell he was campaigning for a long time when oil was low pointing out shale was a drag on the company’s value now he has finally got his wish via securing enough votes. The sale I think is at the wrong time and for the wrong price, just when shale is rising a little more patience may have got them their full investment price back.

Edited July 28, 2018 by jaycee

[Tom Kirkman + 8,860]

13 hours ago, Dan Warnick said:

Thanks, Tom (and Rodent for starting the thread).  Since I joined OP there has been a lot of information presented about the realities of shale.  Eye opening, to say the least.  What is the general consensus, if there is one, as to the predicted longevity of shale production.  Is it viable over the next 10, 20, 50 or even 100 years?  Or are they simply squeezing the sponge (my take on it)?

Thanks Dan.  There is no "general consensus" as far as I can tell.  Heck, reading MSM everything seems hunky dory in the U.S. tight oil industry.  Most just seem to ignore the fracking hamster wheel of neverending debt, using money from new wells to pay off the debts from previous wells.

All of the best "sweet spots" for fracking have been drilled and completed already.  And the bulk of the oil & gas is produced within 18 months - huge decline rates.  See Enno Peters musings.

I've previously heard mention that the bulk of the oil & gas produced from fracking will be mostly depleted before 2024.  A bit more than 5 years from now.  Then all this foolhardy talk of "U.S. Energy Independence" will be shown to have a massive depletion rate just like a tight oil well.

[Jan van Eck + 7,558]

7 hours ago, Tom Kirkman said:

Then all this foolhardy talk of "U.S. Energy Independence" will be shown to have a massive depletion rate just like a tight oil well.

Not really.  I would maintain that the USA is energy independent the moment it makes up its mind that that is the goal.  Right now, "energy independence," which I interpret to mean zero imports, is emphatically not the goal.  And how would you get there, if that was indeed the goal?  Might I suggest:

1.   There is this great volume of locked-in gas, with no pipeline capacity for the stuff.  Instead of loading that gas as LNG and exporting it, the gas can easily be converted to methanol. Methanol is a drop-in fuel for many applications, from diesel to gasoline to heating oil. Those conversion plants can be built right in the well fields, so instead of waiting for new pipeline capacity you have this liquid that you can transport by rail tanker car. 

2.   There is this vast volume of coal.  Coal can easily be converted to both diesel and gasoline; the Germans ran the entire WWII on the stuff. Again, no need to haul the coal, you can build conversion plants right in the coal fields. 

3.   You can build stupendous numbers of small nuke reactors, based on the thorium concept.  The molten-salt reactors use old nuclear fuel as the feedstock, there are hundreds of years of spent fuel rods and other nuclear debris able to be burned up by tossing it into a pot of molten salt.  You do have to jettison the crazies that rant about evil nuke power, and lock up the hysterical that disrupt construction, but it is not as if that cannot be done. And once you start building those, then:

4.   You can use the heat from the reactors to boil out the oil collected in the Colorado rock, there is probably 500 years' supply of oil right there, waiting for the technology to extract it.  

It can be done; it does require political will, just like Kennedy declaring that the US would go to the moon before a decade was out.  And the US did!  Eight years flat, as I recall. Never underestimate the power of technology.  And we haven't even gotten to deep-bore geothermal heat extraction or solar boiling towers. 

Edited July 29, 2018 by Jan van Eck
scrivener error; "about" to "able"

[DanilKa + 443]

17 hours ago, Jan van Eck said:

I would maintain that the USA is energy independent the moment it makes up its mind that that is the goal.

your 1, 2 and 4 are relying on #3 for source of energy and LFTRs are quite a few years from massive implementation. I wouldn´t speculate as to a reason why; I do see a potential there unlike fusion fantasy which is 20 years away for past 60 years.   

[DanilKa + 443]

On ‎7‎/‎28‎/‎2018 at 8:19 PM, Dan Warnick said:

Thanks, Tom (and Rodent for starting the thread).  Since I joined OP there has been a lot of information presented about the realities of shale.  Eye opening, to say the least.  What is the general consensus, if there is one, as to the predicted longevity of shale production.  Is it viable over the next 10, 20, 50 or even 100 years?  Or are they simply squeezing the sponge (my take on it)? 

Organic shale is predictable widely distributed resource which can be produces for many years. Devil is in details, namely - profitability. One need to make money from most of the wells because statistical approach doesn't seems to be working and industry is getting deeper in debt with no chance to every pay if off shall we stop drilling new wells - production declines are too steep. I'm not sure how good of a deal it is for BP; certainly half-price of what BHP forked out.

Not really qualified to value to deal. On a surface, 4.6B boe discovered resource at 10% recovery (arbitrary number for primary depletion) puts it at $23.48/bbl. For reference, touted Aramco $2T IPO puts values their 270B proven reserves to $7.41. We would have to factor in value of current production. Even with 50% pa decline rate, 190,000 bopd still can make ~ $3.3B in 7 years assuming $50/bbl. May not be a bad deal, provided BP will have a discipline to execute at a low cost and make money on most of the wells. Oil price going through the roof should help.  

[Binod 0]

I read comments on US shale oil investment and production as a "ponzi" scheme when WTI dropped to ~$26 per bbl, and I still read it's a ponzi scheme even WTI price climbed to over -$70 per bbl briefly last month. 

 Does anyone konw what's the break-even price per barrel for shale oli production ? I know depends on which source- Permian or Bakken or from elsewhere. 

Edited July 30, 2018 by Binod
Grammar

[Dan Warnick + 6,100]

2 hours ago, DanilKa said:

Organic shale is predictable widely distributed resource which can be produces for many years. Devil is in details, namely - profitability. One need to make money from most of the wells because statistical approach doesn't seems to be working and industry is getting deeper in debt with no chance to every pay if off shall we stop drilling new wells - production declines are too steep. I'm not sure how good of a deal it is for BP; certainly half-price of what BHP forked out.

Not really qualified to value to deal. On a surface, 4.6B boe discovered resource at 10% recovery (arbitrary number for primary depletion) puts it at $23.48/bbl. For reference, touted Aramco $2T IPO puts values their 270B proven reserves to $7.41. We would have to factor in value of current production. Even with 50% pa decline rate, 190,000 bopd still can make ~ $3.3B in 7 years assuming $50/bbl. May not be a bad deal, provided BP will have a discipline to execute at a low cost and make money on most of the wells. Oil price going through the roof should help.  

Thank you for the further insight, DanilKa.

[BillKidd + 139]

The problem with economics is every time the price rises significantly, the vendors increase their rates and prices and you don't gain ground on profitability like you think they would.

Another thing I will point out is that, yes, there are shale wells that are profitable. Not hard to see, simple arithmetic when you know the drilling/completion costs, and those numbers are available from state agencies and also presentations from public companies... but... these are good wells in the core of the plays. A lot of crappy wells are drilled. Art Berman has made a living showcasing the disconnect of an industry that seems to forget all of the crappy wells, lol.

If oil, for example, could be $80 - $100 and if D&C costs would NOT rise commensurately, game on... in the core of the plays. Now, how much that amounts to, I don't know offhand but I'd guess it's not more than 10% to 20% of the areal extent of a given play. Yikes!

[Ian Austin + 131]

6 minutes ago, BillKidd said:

The problem with economics is every time the price rises significantly, the vendors increase their rates and prices and you don't gain ground on profitability like you think they would.

Another thing I will point out is that, yes, there are shale wells that are profitable. Not hard to see, simple arithmetic when you know the drilling/completion costs, and those numbers are available from state agencies and also presentations from public companies... but... these are good wells in the core of the plays. A lot of crappy wells are drilled. Art Berman has made a living showcasing the disconnect of an industry that seems to forget all of the crappy wells, lol.

If oil, for example, could be $80 - $100 and if D&C costs would NOT rise commensurately, game on... in the core of the plays. Now, how much that amounts to, I don't know offhand but I'd guess it's not more than 10% to 20% of the areal extent of a given play. Yikes!

I’ve done quite a bit of shale work in my career. There are a number of other factors as well, including

- true well spacing

- stimulation/frac hits/wellbore communication

- production hydraulics

- fluid mobility within reservoir (this will lessen as we get further away from “high grade” plays)

Most producers, although at it for years, can’t yet explain why wells on the same pad perform differently, so I’m not too sure industry knows a good from crappy well yet. And why would anybody begrudge the service industry making a dollar - right now about 80% are working for nothing more than practice 

[Jan van Eck + 7,558]

3 hours ago, DanilKa said:

your 1, 2 and 4 are relying on #3 for source of energy and LFTRs are quite a few years from massive implementation. I wouldn´t speculate as to a reason why; I do see a potential there unlike fusion fantasy which is 20 years away for past 60 years.   

Not really.  #i and #2 are self-energizing, and if you are not happy with molten salt, then General Atomics will be happy to build you a 100 MW unit designed for a sub or aircraft carrier, gets you all the power you want (but does not eat old fuel), give you the time to finish up the thorium units.  Those are now in the prototype construction stage in Canada, apparently.  I anticipate the first one will be running within two years, maybe faster.  If you throw some money at it, these things tend to go much faster (assuming you keep the loonies under control, of course). 

The real problem in all of these is the behavior of the fringe loonies.  I know of no mechanism to keep them from making a total hash of any new power project. The loonies understand nothing, are not engineers, yet seem to think they know more than all the physicists, geologists, and engineers combined ever born on the planet.  Amazing stuff. 

[Dan Warnick + 6,100]

6 minutes ago, Jan van Eck said:

Not really.  #i and #2 are self-energizing, and if you are not happy with molten salt, then General Atomics will be happy to build you a 100 MW unit designed for a sub or aircraft carrier, gets you all the power you want (but does not eat old fuel), give you the time to finish up the thorium units.  Those are now in the prototype construction stage in Canada, apparently.  I anticipate the first one will be running within two years, maybe faster.  If you throw some money at it, these things tend to go much faster (assuming you keep the loonies under control, of course). 

The real problem in all of these is the behavior of the fringe loonies.  I know of no mechanism to keep them from making a total hash of any new power project. The loonies understand nothing, are not engineers, yet seem to think they know more than all the physicists, geologists, and engineers combined ever born on the planet.  Amazing stuff. 

Admit it, Jan, you just like using the word "loonies", don't you?  

[Jan van Eck + 7,558]

Just now, Dan Warnick said:

Admit it, Jan, you just like using the word "loonies", don't you?  

That's a rodger-dodger!

[DanilKa + 443]

21 hours ago, Jan van Eck said:

Not really.  #i and #2 are self-energizing, and if you are not happy with molten salt, then General Atomics will be happy to build you a 100 MW unit designed for a sub or aircraft carrier, gets you all the power you want (but does not eat old fuel), give you the time to finish up the thorium units.  Those are now in the prototype construction stage in Canada, apparently.  I anticipate the first one will be running within two years, maybe faster.  If you throw some money at it, these things tend to go much faster (assuming you keep the loonies under control, of course). 

The real problem in all of these is the behavior of the fringe loonies.  I know of no mechanism to keep them from making a total hash of any new power project. The loonies understand nothing, are not engineers, yet seem to think they know more than all the physicists, geologists, and engineers combined ever born on the planet.  Amazing stuff. 

Economics for gas to methanol or coal to petrol isn't there yet. Germans didn't do it because it was cheap; they had no other choice and some historians argue WW2 was in part about access to hydrocarbons. 

"Fringe loonies" have to be dealt with by mechanism of state power. "Social license to operate" is a construct invented by minority groups to undermine passive majority. And mind some "loonies" are perfectly rational. They will take your money and won't hesitate using fruit of resource industries they are protesting. Overpowering indulgence of self-rightness may have something to do with it, I guess. Not to mention some groups are funded by special interests - there are many examples. Coal and railroad funded "fracktivists" in early years of shale development in US (rail become one of large benefactors once they started to move sand and oil); Putin funded European greens to protest gas development; Rockefeller fund supports many anti-fossil fuel groups including 350.org which activity in Canada also greatly benefit US by lowering cost of Canadian oil imports (land-locked) etc. Just a good business.

Using nuclear to get process heat would make perfect sense and would lower the cost of transport fuels. I like LFTR for its ability to fully utilize the fuel and expect China to develop it first. They have incentive, means and ways of dealing with special interest groups... (not that I endorse heavy-handed state policing)

[DanilKa + 443]

22 hours ago, Ian Austin said:

And why would anybody begrudge the service industry making a dollar - right now about 80% are working for nothing more than practice 

that's the corner stone of "shale oil innovation" - squeeze service companies to lower your cost by ~40%...

Tables are turning, albeit slowly.

[Suzanne Nicole Stahle + 1]

Hello All!! I am a former Petroleum Technology student hoping to meet professionals who have experience in the oil field and knowledge of the inner workings of the oil & gas industry. 

[Bhimsen Pachawry + 72]

On 7/29/2018 at 10:08 AM, Jan van Eck said:

Not really.  I would maintain that the USA is energy independent the moment it makes up its mind that that is the goal.  Right now, "energy independence," which I interpret to mean zero imports, is emphatically not the goal.  And how would you get there, if that was indeed the goal?  Might I suggest:

1.   There is this great volume of locked-in gas, with no pipeline capacity for the stuff.  Instead of loading that gas as LNG and exporting it, the gas can easily be converted to methanol. Methanol is a drop-in fuel for many applications, from diesel to gasoline to heating oil. Those conversion plants can be built right in the well fields, so instead of waiting for new pipeline capacity you have this liquid that you can transport by rail tanker car. 

2.   There is this vast volume of coal.  Coal can easily be converted to both diesel and gasoline; the Germans ran the entire WWII on the stuff. Again, no need to haul the coal, you can build conversion plants right in the coal fields. 

3.   You can build stupendous numbers of small nuke reactors, based on the thorium concept.  The molten-salt reactors use old nuclear fuel as the feedstock, there are hundreds of years of spent fuel rods and other nuclear debris able to be burned up by tossing it into a pot of molten salt.  You do have to jettison the crazies that rant about evil nuke power, and lock up the hysterical that disrupt construction, but it is not as if that cannot be done. And once you start building those, then:

4.   You can use the heat from the reactors to boil out the oil collected in the Colorado rock, there is probably 500 years' supply of oil right there, waiting for the technology to extract it.  

It can be done; it does require political will, just like Kennedy declaring that the US would go to the moon before a decade was out.  And the US did!  Eight years flat, as I recall. Never underestimate the power of technology.  And we haven't even gotten to deep-bore geothermal heat extraction or solar boiling towers. 

 

This is USA oil consumption - 20.8MBPD

This is the break up of USA oil production:

1. 10.8MBPD oil

2. 4.7MBPD NGL

3. 1MBPD ethanol

4. Refinery gain of 1MBPD

Total USA oil production is 17.5MBPD. Import from canada is 2.9-3MBPD. Rest 0.3-0.4MBPD is imports

USA can't consume all the NGL it produces and hence exchanges NGL for crude oil on an energy swap basis. USA exports LNG as storing gas is a difficult task and since NGL has to be produced, there is no alternative to gas production. So, the gas have to be exported. Also, this export covers up for the import of USA oil.

Now, about your points:

1. Gas is not infinite. USA has enough gas to last till 2035 and not more. I have told why gas is extracted in large quantity above and it can't be avoided.

2. Coal is a solid. It requires transportation. Also, extracting coal in such large quantity is too difficult. USA will have to extract coal in 5-6 billion tonnes to make up for the oil it consumes. Converting it into diesel on the spot is also difficult as it is water intensive. Moreover, USA relies on gasoline than diesel and gasoline is difficult to obtain from coal. Germany realised this in WW2 and was one of the main reason for their planes running on liquefied gasoline to have poor performance.

3. Thorium reactor is too difficult to make. The breeder reactor you are suggesting is known to have regular failures and fires due to sodium leakage.

4. Oil sand or other bitumen are like coal liquefaction. Unless you have light crude to mix, the only way to get oil is by liquefaction.

 

The only practical option is coal liquefaction. But even that is not enough to solve USA problems due to its huge consumption. The number of workers that will be needed to make coal liquefaction is very large to dig out coal, wash, haul it etc. The sheer quantity of coal required will be a massive problem to extract.

[Gerry Maddoux + 3,627]

Maybe it has been mentioned, and if so I apologize, but I didn't see anything about consistent improvement of shale oil recovery techniques. In a good field, somewhere between 5-8% of the basin is recovered. Surely we can do better than that as technology marches on. True, right now every driller is going for the IP of at least a thousand boe/day--at sixty dollar oil at the wellhead that's nearly two million the first month. Take three months of that and who cares about the parabolic decline . . . the well is paid for and the rest is gravy. Or is it? The Permian is a frenzy right now. "Death Road" has seen 93 vehicle deaths already this year. The process removes vast volumes of water from the water life cycle and places it in forever-sequestered depository wells. The shale oil business is like a duck paddling against the rapids. But what if you could claim 20% of reserves instead of say 7%? Like has been mentioned, we are going to be more and more awash in natural gas, which is--bar none--the most clean-burning fossil fuel. Not only that but there are some very exciting experiments going on for "carbon capture" to make it even cleaner. Summary: We definitely have the reserves, tools, brain power and will power to make America energy-independent. Technology, I'm predicting, will allow us to slow down this frenetic, suicidal scramble. I hope so, I have several family members traveling Death Road in West Texas every day and statistics are statistics. You can't ever eliminate roadway deaths, but put a bunch of truckers working 14 hours a day, seven days a week, some of them getting paid by the load, and boy, you've got a real mess. If like a snapshot frozen in time, shale oil is currently a sort of Ponzi scheme. Like the Model T, it will improve year over year, and one day we'll have . . . a Tesla? Oh my God, this note went terribly wrong! Pardon me!

[DanilKa + 443]

1 hour ago, Gerry Maddoux said:

Maybe it has been mentioned, and if so I apologize, but I didn't see anything about consistent improvement of shale oil recovery techniques. In a good field, somewhere between 5-8% of the basin is recovered

We are dealing with really crappy reservoirs here - single digits porosity and TOC, permeability lower than that of concrete. This precludes any secondary recovery and primary sucks as well. Millions of ft2 of contact area needs to be created to drain HC and industry is still having illusions on how many clusters are getting effectively stimulated and how far sand can travel. Gold-rush-like land buying drives acreage price through the roof and too many wells are getting jammed into block, causing frac hits, interference and excessive GOR. 

There are smarter ways to complete the wells but this is not how statistical game is played. So on average, it’s a loss. Some doing OK. 

There are incremental improvements but due to nature of the beast do not expect much better recoveries. 

[tbeims@aogr.com 0]

NM

Edited August 2, 2018 by tbeims@aogr.com