Raymond James - Why the EIA DUC Count is More Daffy than Donald

[wrs + 893]

17 hours ago, D Coyne said:

Most producers are using a lot more proppant now than they did in 2016, this likely affects output, there have also been changes in the number of frac stages per foot, the frac fluids used, etc.  Eventually an optimal setup is determined and there is little further progress, the Permian may reach this stage fairly soon, probably by 2022, after that further progress in well productivity per lateral foot is likely to be very limited.  Also keep in mind the random variation seen in the recent 6 wells you posted with a range of about 25% in wells spaced closely together and completed over a two month period.  The difference between the lowest of these wells and the 2016 well is about 54%, it is pretty easy to imagine that over a 2 or 3 year period (you didn't give the month in 2016 that the first XTO well was completed) that the drilling and completion methods might have changed enough to lead to a 54% change in IP, we have been given very limited information in this case, some of the difference might be simply a bad location due to fewer natural fractures where the first well was drilled, in addition several wells fracked close together might have led to better results for initial production, but might result in faster decline rates with most of the gain in cumulative output realized over the first 24 months and with potentially lower output in later months.  Petroleum engineers that I have talked with have suggested that the most likely scenario for these high IP wells due to more frack stages and high levels of proppant is very little change in overall cumulative output, but simply a higher IP steeper decline and lower output later in the life of the well, the area under the output vs time curve is unlikely to change by much.  This is basically what we see for the North Dakota Bakken from 2008 to 2017.  I have been following this for quite a while and have learned a lot from the professionals in the oil industry.

You make a good point and I agree that there is a possibility that the latest completion techniques might be simply draining faster but not more efficiently.  They have put these wells on gas lift from the start and I know that helps with IP numbers.  My independent operator waits to put them on gas lift until later in the life of the well after it's been swabbed a few times.  I hope these numbers are not at the expense of production down the line but there is no way to know until next year.  The original well was completed in June of 2016 so it's about a two and a half year time frame in which completion techniques "seem" to have improved.  

Here is another interesting detail and this I do not understand.  In reviewing the W-2 reports for these wells, the APIs are all 41-43 while the API on the original well is 49.  The API on the wells in Culberson for Wolfcamp A are just over 50.  The Bone Springs wells are not as prolific as the Wolfcamp and I guess XTO was just testing that formation out to see where the best production would be since they seemed to target two different levels. 

10 hours ago, Mike Shellman said:

I don't believe the shale oil phenomena is a "Ponzi" scheme. That's a poor, over used term to describe something very complicated.  I am not in the least bit jealous of the shale oil thing,  or envious of its capital availability; none of that. I am not "mad," nor am I a communist, which you have called me in the past. I comment occasionally here because, after 50 years of being an operator, I understand well economics and decline/depletion and think I might have something to offer. 

You represent less than 1% of the American population blessed to have mineral interest under the shale phenomena and a beneficiary of approximately $400B of free royalty and lease bonuses. That's a wonderful thing about living in America; congratulations. Where I come from, however, if you need to brag about how many oil wells you own, how much money you make, you don't have much of either. All hat, no cattle, as we say. 

The shale oil phenomena is deeply in debt and still unable to generate profit, that after ten years and close to 70,000 wells. In 2018, in spite of low costs, lies about breakeven calculations in the $20's, and OPEC's help propping up prices  the shale oil industry, once again, as it has since its inception, outspent revenue.   https://www.reuters.com/article/usa-shale-finances-idUSL1N211001.

If you can't make money at $67 (weighted WTI for 2018), replace reserves, make investors happy and deleverage debt, you should get out of the oil business and into the pizza business.  

 

 

 

 

 

 

I didn't post these wells to brag and I think you are taking it the wrong way.  I posted them because it's raw data and it's what I have experienced in the Permian shale.  I have been involved with it since 2011 and so I know that in the beginning the wells were really not very good and in no way profitable.  Our first well in Culberson was a science experiment well using slick water frac and with a North South orientation.  I think when they first started they were drilling the horizontals east west because it was "against the grain" of the formation and they thought it would open up more of the formation.  Counter intuitively it turns out that drilling with the formation and fracking against the grain is what produced the best results along with using more sand and slick water instead of gel.  The template for our well was one drilled by Cimarex on an adjacent section in the summer of 2013.  After the operators out there started switching to that general drilling and completion plan, the production started to increase dramatically.  

Now I want to address your concerns about WAHA and gas payments.  We just got a check yesterday for two wells of production in January and they paid $2.77/mcf for the processed gas plus additional for ethane, propane and butane.  I think the total is around $6.75/mcf.  They flared about 10% of January gas production but the gas money in the royalty check amounts to 27% of the total this month. The processed gas at $2.77 was 11% and the products were 16% so on that basis the products were worth more than the gas.  I really don't think any operator would want to burn up that much money and so like I said before, good operators make sure they have commitments for their products before they start producing.  Those are also pretty good prices for the gas and associated products, it's on the high side of what we normally get.  Ethane is getting $.35/gallon these days and in the past it's been as low as seven cents.  I have heard that this is due to the Chinese getting out of the plastics recycling game but any excuse will do.

Not all shale operators are losing money or flaring gas wastefully and BOE does matter.

 

 

[wrs + 893]

26 minutes ago, Mike Shellman said:

I am glad you said it. Its true. Years of price volatility, due entirely to overleveraged oversupply of US LTO, and reaction to that by other international producers, has changed the entire world oil order forever. Its harmed entire social structures around the world. While most people have their heads up their ass about America shale oil, net exports from other countries in the world are declining at an alarming rate. In a few months Mexico will cease to be an oil exporter entirely. Lack of exploration investment for instance in deep water, is going to hurt the international oil industry's ability to keep up with demand. Here in America we are being led by idiots set on developing our last remaining oil resources as fast as possible, on credit, to export for use as a foreign policy tool. In 5-8 years shale oil production in the US will be on the down hill slide, dropping like a rock, and we'll be wishing we had kept American oil IN America. And had all that flared gas back. Then we will be crying for OPEC oil again. Begging for it. 

Gross mismanagement of shale oil and shale gas, a wonderful amazing gift to America that is being pissed away, is going to ultimately cause a great deal of harm. But you have to be able to think past next week to understand that and for most Americans the future is now. Something like 60% of Americans don't have a thousand dollars saved for emergencies, same for conserving America's oil resources. 

 

Who do you think is supposed to manage it?  As for the price volatility, producers have no control over that without cartels.  It's the traders that control the price so why blame people out there working hard to make a living and produce a product the whole world needs as wasteful idiots?  Even though the dotcom boom produced a bust, it produced a lot of innovation and the web is bigger and more prevalent than it was 20 years ago around the time of the boom.  Who says shale won't be the same, you can't.  After all, peak oil has been proven wrong.

[James Regan + 1,776]

55 minutes ago, Mike Shellman said:

I am glad you said it. Its true. Years of price volatility, due entirely to overleveraged oversupply of US LTO, and reaction to that by other international producers, has changed the entire world oil order forever. Its harmed entire social structures around the world. While most people have their heads up their ass about America shale oil, net exports from other countries in the world are declining at an alarming rate. In a few months Mexico will cease to be an oil exporter entirely. Lack of exploration investment for instance in deep water, is going to hurt the international oil industry's ability to keep up with demand. Here in America we are being led by idiots set on developing our last remaining oil resources as fast as possible, on credit, to export for use as a foreign policy tool. In 5-8 years shale oil production in the US will be on the down hill slide, dropping like a rock, and we'll be wishing we had kept American oil IN America. And had all that flared gas back. Then we will be crying for OPEC oil again. Begging for it. 

Gross mismanagement of shale oil and shale gas, a wonderful amazing gift to America that is being pissed away, is going to ultimately cause a great deal of harm. But you have to be able to think past next week to understand that and for most Americans the future is now. Something like 60% of Americans don't have a thousand dollars saved for emergencies, same for conserving America's oil resources. 

 

Mike great reply, maybe some people will get their heads out of the asses in time! I worked and still work oil fields world wide many years working for American IOCs in West Africa with the sole goal of protecting the US National oil reserves, hell good or bad if you can invest in a third world country bringing jobs and developing fields which would never be developed by local companies, and also keep a fleet of tankers round tripping from Angola to Galveston then why drain your own reserves, it’s a win win. We all know the current government in the USA is looking for quick visible results to maintain the mandate and next vote, however this is totally shortsighted and will make Subprime Mortgage Crises look like child’s play, the same techniques and fundamentals are evident. Problem is 99% of the population don’t realize that the 20 centuries world wars, division of the Middle East, Palestine/Israel placement by the UK etc etc was for what, sand don’t think so but what’s underneath it..... and so on and on and on, we’re playing with the fundamental commodity that does make the world go round and will continue to do so. IMO

[wrs + 893]

15 minutes ago, James Regan said:

Mike great reply, maybe some people will get their heads out of the asses in time! I worked and still work oil fields world wide many years working for American IOCs in West Africa with the sole goal of protecting the US National oil reserves, hell good or bad if you can invest in a third world country bringing jobs and developing fields which would never be developed by local companies, and also keep a fleet of tankers round tripping from Angola to Galveston then why drain your own reserves, it’s a win win. We all know the current government in the USA is looking for quick visible results to maintain the mandate and next vote, however this is totally shortsighted and will make Subprime Mortgage Crises look like child’s play, the same techniques and fundamentals are evident. Problem is 99% of the population don’t realize that the 20 centuries world wars, division of the Middle East, Palestine/Israel placement by the UK etc etc was for what, sand don’t think so but what’s underneath it..... and so on and on and on, we’re playing with the fundamental commodity that does make the world go round and will continue to do so. IMO

 

Who died and made you king of the assets?  You don't think that people here in the US that actually own these minerals want them sitting in the ground forever?  Furthermore, money policy isn't decided by the president and the Fed has made cheap money a standing policy since 2008.  In case you haven't noticed, the shale revolution has spanned three different administrations.  What part of capitalism includes centralized management?

Furthermore, when you use hyperbole such as money grabbers you expose a bias that assumes you are not a "money grabber" but then you are in the same business, producing oil.  What gives you and Mike some moral high ground and superior knowledge?  Nothing that I can see, in fact all I see is just a couple of people typing on the internet with opinions and assholes, not much there IMO.  The shale business isn't any better or worse than any other.  You guys make it sound worse than narco trafficking.  Sounds like sour grapes to me.

Edited April 3, 2019 by wrs

[James Regan + 1,776]

What gives you and Mike some moral high ground and superior knowledge? 

“The truth will set you free, but first it will piss you off.”

 

Gloria Steinem

[wrs + 893]

9 minutes ago, James Regan said:

What gives you and Mike some moral high ground and superior knowledge? 

“The truth will set you free, but first it will piss you off.”

 

Gloria Steinem

Assuming you have the truth but who is the arbiter of that?  Not you and me.  Time will tell all and in the meantime, I am perfectly happy with the results the shale revolution has produced for me and I think that a lot of people are, probably more than not.  If not for shale, oil would probably still be over $100/bbl. 

That is the crazy part of this because originally shale was a response to high oil prices being a marginally profitable product at those price points.  That was the original assumption but overproduction and KSA deliberately trying to kill the industry still haven't killed it.  You need to give credit where credit is due, the shale industry is resilient and the free market of investors has continued to support it.  How is it different than Amazon for example?

Edited April 3, 2019 by wrs

[D Coyne + 305]

8 hours ago, wrs said:

You make a good point and I agree that there is a possibility that the latest completion techniques might be simply draining faster but not more efficiently.  They have put these wells on gas lift from the start and I know that helps with IP numbers.  My independent operator waits to put them on gas lift until later in the life of the well after it's been swabbed a few times.  I hope these numbers are not at the expense of production down the line but there is no way to know until next year.  The original well was completed in June of 2016 so it's about a two and a half year time frame in which completion techniques "seem" to have improved.  

Here is another interesting detail and this I do not understand.  In reviewing the W-2 reports for these wells, the APIs are all 41-43 while the API on the original well is 49.  The API on the wells in Culberson for Wolfcamp A are just over 50.  The Bone Springs wells are not as prolific as the Wolfcamp and I guess XTO was just testing that formation out to see where the best production would be since they seemed to target two different levels. 

I didn't post these wells to brag and I think you are taking it the wrong way.  I posted them because it's raw data and it's what I have experienced in the Permian shale.  I have been involved with it since 2011 and so I know that in the beginning the wells were really not very good and in no way profitable.  Our first well in Culberson was a science experiment well using slick water frac and with a North South orientation.  I think when they first started they were drilling the horizontals east west because it was "against the grain" of the formation and they thought it would open up more of the formation.  Counter intuitively it turns out that drilling with the formation and fracking against the grain is what produced the best results along with using more sand and slick water instead of gel.  The template for our well was one drilled by Cimarex on an adjacent section in the summer of 2013.  After the operators out there started switching to that general drilling and completion plan, the production started to increase dramatically.  

Now I want to address your concerns about WAHA and gas payments.  We just got a check yesterday for two wells of production in January and they paid $2.77/mcf for the processed gas plus additional for ethane, propane and butane.  I think the total is around $6.75/mcf.  They flared about 10% of January gas production but the gas money in the royalty check amounts to 27% of the total this month. The processed gas at $2.77 was 11% and the products were 16% so on that basis the products were worth more than the gas.  I really don't think any operator would want to burn up that much money and so like I said before, good operators make sure they have commitments for their products before they start producing.  Those are also pretty good prices for the gas and associated products, it's on the high side of what we normally get.  Ethane is getting $.35/gallon these days and in the past it's been as low as seven cents.  I have heard that this is due to the Chinese getting out of the plastics recycling game but any excuse will do.

Not all shale operators are losing money or flaring gas wastefully and BOE does matter.

 

 

WRS,

I agree BOE matters, I believe the point is that it can be deceiving in terms of revenue.  Let's take your $6.75/MCF, that is about $39/boe for the natural gas vs $55/bo, yes it helps and it is certainly better to get that income rather than burn it by flaring, the fact is that there is not enough pipeline capacity to move all the natural gas and not all operators are "good" operators, I believe that is Mr. Shellman's point, he believes it is wasteful to flare all that natural gas.  I imagine if your royalties were going up in smoke, you would agree.  In any case I am glad your natural gas earns some income and hope your wells do fine, less rapid development (lower rates of well completion would help keep prices up and allow pipeline capacity to catch up with output of oil and natural gas) might help.

Edited April 3, 2019 by D Coyne

[John Foote + 1,135]

8 hours ago, wrs said:

Who died and made you king of the assets? 

Remember a lot of these assets are owned by the state of Texas, or the Federal government. All Americans, to some degree, own a part of many of these assets.

Additionally, it's not as simple as landowners saying go for it, or not. And government is typically intervening to allow pipelines, it's not like every landowner says yes. I don't want one in my back yard, a lot on NIMBY involved. Eminent domain forces the issue. And if the government took the same cut as say, the governments of the Middle East, drilling activities would drastically curtail. The margins wouldn't allow for that big a cut.

A major reason a lot of this sat in the ground wasn't the shale revolution, for the IPOs a lot cheaper to go elsewhere. 

[D Coyne + 305]

22 hours ago, wrs said:

Who do you think is supposed to manage it?  As for the price volatility, producers have no control over that without cartels.  It's the traders that control the price so why blame people out there working hard to make a living and produce a product the whole world needs as wasteful idiots?  Even though the dotcom boom produced a bust, it produced a lot of innovation and the web is bigger and more prevalent than it was 20 years ago around the time of the boom.  Who says shale won't be the same, you can't.  After all, peak oil has been proven wrong.

On your last point, I believe you are incorrect, eventually peak oil will arrive, my guess is 2025+/-5, with 2025 being my best guess with a 50/50 chance it will before or after July 1, 2025 (for centered moving 12 month average of C+C output as reported and revised by the EIA).

[Rasmus Jorgensen + 1,169]

On 4/3/2019 at 2:08 PM, James Regan said:

I don’t mind saying it Shale has damaged the world oil industry

Why? And how? 

ps. I am no shale fan, but I can't see how shale is damaging the world oil industry. I can follow @Mike Shellmans argument although I don't neccesarily agree 100%.  

Edited April 4, 2019 by Rasmus Jorgensen

[wrs + 893]

15 hours ago, D Coyne said:

WRS,

I agree BOE matters, I believe the point is that it can be deceiving in terms of revenue.  Let's take your $6.75/MCF, that is about $39/boe for the natural gas vs $55/bo, yes it helps and it is certainly better to get that income rather than burn it by flaring, the fact is that there is not enough pipeline capacity to move all the natural gas and not all operators are "good" operators, I believe that is Mr. Shellman's point, he believes it is wasteful to flare all that natural gas.  I imagine if your royalties were going up in smoke, you would agree.  In any case I am glad your natural gas earns some income and hope your wells do fine, less rapid development (lower rates of well completion would help keep prices up and allow pipeline capacity to catch up with output of oil and natural gas) might help.

OK, here is the interesting thing and it doesn't often work out this way.  On a BOE basis we got paid $39.15/boe on the gas and for the oil we got 40.81/bbl last month.

[D Coyne + 305]

11 minutes ago, wrs said:

OK, here is the interesting thing and it doesn't often work out this way.  On a BOE basis we got paid $39.15/boe on the gas and for the oil we got 40.81/bbl last month.

Wow, that is surprising, why so low for the oil? Maybe recheck calculations, perhaps the transit cost is much higher than I realized, difficult to make much money at $41/b.  Reeves county is in the Delaware Basin where well cost is often around $10 million (full cycle cost), remind me what percentage of your boe is oil vs gas?

Edited April 4, 2019 by D Coyne

[wrs + 893]

10 minutes ago, D Coyne said:

Wow, that is surprising, why so low for the oil?

That's what I have been explaining and I guess people are missing it.  There are discounts on the oil for API and for the pipeline.  We haven't gotten close to WTI on the oil since a year ago. Our oil ends up going to Midland for now.  The other operator has a Cactus connection and will be able to put oil in that pipeline later this year, that oil should get better prices than the Midland oil.  There is a Midland-Cushing discount applied to all barrels and it's been as high as $19/bbl late last summer.  So when oil hit $70, we were getting $55.  Last Feb and Mar we were getting $60 when WTI was $63.  This is what the operator is getting, not WTI.

[D Coyne + 305]

wrs,

Yes I definitely missed that, it is surprising that the gas and NGL price is so high, it is not as highly valued and I would think there would be similar pipeline constraints for both oil and natural gas, but it seems I am wrong, happens more often than I would like.   I was figuring maybe a $5/b discount for transit cost, but no doubt it is very variable, I didn't realize how high the variation was.

Edited April 4, 2019 by D Coyne

[wrs + 893]

3 minutes ago, D Coyne said:

wrs,

Yes I definitely missed that, it is surprising that the gas and NGL price is so high, it is not as highly valued and I would think there would be similar pipeline constraints for both oil and natural gas, but it seems I am wrong, happens more often than I would like.

Usually we don't get hit on the NG because the operators have commitments for specific volumes in the pipeline.  If they exceed their commitment then they might get a penalty and this is what they are reporting as negative or zero prices at WAHA.  That doesn't apply to all barrels in the line, only to uncommitted or over-committed gas.  

The reason we are getting so much on the NGLs is that ethane is paying $.35/gallon.  The prices for Butane and Propane were around $.80/gallon and natural gasoline is priced at $45-50/bbl.  So currently, liquids prices are good, they are not always this high.  On average we see about 20% of the royalty revenue being from NG and NGLs.  This month it was 27% and that helps offset some of the discount on the oil because for sure these are premium prices on the NGLs.

[D Coyne + 305]

1 minute ago, wrs said:

Usually we don't get hit on the NG because the operators have commitments for specific volumes in the pipeline.  If they exceed their commitment then they might get a penalty and this is what they are reporting as negative or zero prices at WAHA.  That doesn't apply to all barrels in the line, only to uncommitted or over-committed gas.  

The reason we are getting so much on the NGLs is that ethane is paying $.35/gallon.  The prices for Butane and Propane were around $.80/gallon and natural gasoline is priced at $45-50/bbl.  So currently, liquids prices are good, they are not always this high.  On average we see about 20% of the royalty revenue being from NG and NGLs.  This month it was 27% and that helps offset some of the discount on the oil because for sure these are premium prices on the NGLs.

I was wondering about physical output rather than dollars so to be clear let's say you have 100,000 boe of output from your wells in a month, typically would it be 80,000 bo and 20,000 boe of NG, where 20,000 boe NG= 116,000 MMcf of NG?  I would call the previous example 80% oil and 20% NG in boe terms, clearly it is variable but I imagine it doesn't change a lot month to month.

[wrs + 893]

2 minutes ago, D Coyne said:

I was wondering about physical output rather than dollars so to be clear let's say you have 100,000 boe of output from your wells in a month, typically would it be 80,000 bo and 20,000 boe of NG, where 20,000 boe NG= 116,000 MMcf of NG?  I would call the previous example 80% oil and 20% NG in boe terms, clearly it is variable but I imagine it doesn't change a lot month to month.

Yes, I see where you are coming form there.  What's important to me and of course the operator is the $ because that's what makes the investment pay off.  The BOE stuff I don't normally calculate and of course to that extent BOE isn't important and MCF is what matters.  Mostly what we care about is GOR.  If the GOR is rising then the value of the output of the well tends to be dropping and of course that does happen with shale wells over time.  They tend to decline faster in oil than gas.

[Mike Shellman + 548]

1 hour ago, Rasmus Jorgensen said:

...although I don't neccesarily agree 100%.

May I suggest you first start by determining the truth about the 70% collapse in world oil prices in 2014-2015. It was not OPEC that caused that. Price volatility, not necessarily low prices, is the death of all drilling budgets and the short investment cycle of shale oil has caused extreme price volatility worldwide. Look then at ensuing international rig counts, offshore and on, since 2014. The number of unemployed oil workers worldwide is, I've read, still around 500,000 (but improving). Then look at GDP for oil producing countries since 2014. Look at GDP to debt. Ask @Tom Kirkmanor @Ian Austinif their respective countries oil industries have not been set back, severely, since 2014. Massive layoffs always, I repeat always, lead to a permanent exodus of qualified people from  my industry. Look at all the floaters and jacks up cold stacked around the world and ask yourself if they are not rusting away. The lack of exploration investment because of low volatile oil prices is wrecking the worldwide oil industry and its ability to keep up with demand. When this shale oil "miracle" runs out of gas, literally, and money, or a different political persuasion assumes command in 2020, with an anti-oil agenda, the price of oil is going thru the roof. The world will not be able to afford $100 oil and demand will tank. 

Low, volatile oil prices has led to a disruption in renewable research and development. This current US president, under the false pretense of shale oil abundance has removed mileage standards from vehicles and recent told the American public that cheap shale oil is "limitless and America no longer need to conserve oil." Cheap? What happens in the largest oil consuming nation in the world affects the entire world. https://oilprice.com/Energy/Crude-Oil/How-Shale-Oil-will-Change-the-World.html  there are countless articles like this floating around. 

Ask the people of Venezuela. Google shale oil as a foreign policy tool by this US administration and how it has altered politics and the balance of power in the middle east, the relationship between Iran and Russia, Russia and Venezuela, etc. etc., all of which in my opinion has been changed by the American shale oil phenomena.   

[D Coyne + 305]

Mike Shellman,

Mostly I agree with your analysis above.  One small place I disagree is that $100/b oil will lead demand to tank. As you argued above it was an oversupply of oil in 2014-5 that led to oil prices falling, rather than a fall in demand, supply growth simply outstripped demand growth and the market expected OPEC would simply cut back on output to balance the market, this expectation proved incorrect.  Note that the price of Brent Oil (the World price of oil) averaged about $114/b in 2017$ from 2011 to 2014 (nominal average Brent price was $108/b.)  From 2011-2014 the average annual real growth rate of the World economy was about 2.75% per year, for 2015 to 2018 it was 2.92% per year according to IMF data at market exchange rates, for the more commonly used PPP exchange rates real GDP grew at 3.72%/year from 2011 to 2014 and at 3.55%/year from 2015 to 2018.

Basically I would call it no difference in World GDP growth from the high oil price period (2011-2014) to the low oil price period (2015-2018) and think that $100/b is unlikely to lead to severe economic problems.

https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/index.aspx

Edited April 4, 2019 by D Coyne

[wrs + 893]

I would argue that price volatility is the fault of traders, not the producers.  Any barrel could be a marginal barrel, not just shale.  In fact it's pretty easy for KSA to add or subtract barrels at the margin so to blame any producer for volatility is incorrect.

Producers react slowly to changes in price whereas traders react quickly and usually in larger measure to small weekly changes in inventory or production.  In effect, traders trade noise and produce instability.  You can't blame producers for prices they have no direct control over.

Edited April 4, 2019 by wrs

[D Coyne + 305]

WRS,

At some point in this conversation, you said "good operators", don't complete wells where they will need to flare, the natural gas produced.  This implies the existence of "not so good" operators that indeed complete wells where the natural gas is indeed flared.

In West Texas there is a lot of this going on and my understanding is the sky is pretty bright at night from all the flaring, one need only look out their window for evidence.

It is also my understanding that there are rules in place to prevent excessive flaring of natural gas as most people understand it is inherently wasteful.  The rules should be enforced by the RRC, perhaps fines should be raised to get the flaring under control.  There are oil and gas regulations for a reason and they should be used.

[wrs + 893]

4 minutes ago, D Coyne said:

WRS,

At some point in this conversation, you said "good operators", don't complete wells where they will need to flare, the natural gas produced.  This implies the existence of "not so good" operators that indeed complete wells where the natural gas is indeed flared.

In West Texas there is a lot of this going on and my understanding is the sky is pretty bright at night from all the flaring, one need only look out their window for evidence.

It is also my understanding that there are rules in place to prevent excessive flaring of natural gas as most people understand it is inherently wasteful.  The rules should be enforced by the RRC, perhaps fines should be raised to get the flaring under control.  There are oil and gas regulations for a reason and they should be used.

Each well that is flaring has gotten a flare permit from the RRC.  I don't know what it takes to get the permit.  I have been out there and seen the flaring in the evening lately and it's worse than ever before.  I don't know why an operator would complete a well with no potential gas connection but it is happening.  Here are some pictures I took from Culberson county looking east to Reeves county back in December. They were taken at dusk so forgive the lousy focus.

 

[Mike Shellman + 548]

No, that is wrong, and don't call me more damn names, pardnor. You've done that twice, that's enough !  

The US shale oil phenomena put 4.5MM BOPD on a balanced world oil market and beginning in 2014 the world had enough; the price collapsed. "Traders" had nothing to do with that whatsoever that was all overleveraged LTO oversupply and fundamentals 101. OPEC responded to that beginning 2Q15 in an effort to regain market share. The US shale oil industry, of course, whined about the fact that OPEC would not cut its production and make room for American shale oil, as though that was its obligation. Now, of course, OPEC has cut its production, to make room for American shale oil, and for every BO OPEC cut America has put the same BO right back on. 

Apples to apples, shale oil is not a "marginal" barrel. Its entire existence is based on credit, debt. Even Ecuador has finding costs, for the most part the US shale oil industry's finding costs are limited to interest expense per BO. Public and private upstream and gathering infrastructure debt  of the US shale oil industry is a little south of $300 billion. Its produced 10G BO to date. At $55 oil prices its weighted take home pay, after all costs are deducted, not just some costs, is  about $22-25 per BO. That means it must produce 12G BO more oil than it has already produced....just to get out of debt. In other words, it hasn't even paid for itself yet. The entire gig is out of control now, lenders are calling the shots, the industry has to pay +$15 B a year in interest expense, money is leaving the building and only seven upstream E&P's in America in 2018 had any free cash flow. The industry is STILL outspending revenue. The whole thing needs to be fixed, so we'll have something left to give our kids other than a big bill. 

 

 

 

 

Edited April 4, 2019 by Mike Shellman

[D Coyne + 305]

11 minutes ago, wrs said:

Each well that is flaring has gotten a flare permit from the RRC.  I don't know what it takes to get the permit.  I have been out there and seen the flaring in the evening lately and it's worse than ever before.  I don't know why an operator would complete a well with no potential gas connection but it is happening.  Here are some pictures I took from Culberson county looking east to Reeves county back in December. They were taken at dusk so forgive the lousy focus.

 

Perhaps the permits should be more expensive, prohibitively so.

[D Coyne + 305]

Mike Shellman,

It is not clear how to fix the problem, would making the permits for flaring more expensive be an option?  They could set some limit on flaring allowed (this may exist already, I don't know the rules like you would) and then auction off the permits each month to the highest bidder (perhaps this is already done, again I have no idea).  Over time the flaring allowed could gradually be reduced if practical with the ultimate goal of little to no flaring of natural gas, (maybe some would be needed when waiting for pipeline hookups or if a pipeline goes down for maintenence etc, no doubt it can easily be figured out.)  The RRC could also limit output as was done up to 1970.

No doubt you as an industry person would have better ideas.