Is $60/Bbl WTI still considered a break even for Shale Oil

What happens to US tight oil output if the long term Brent oil price in 2017$ is $70/bo?

To investigate this I adjusted my usual oil price scenario (EIA AEO 2018 reference oil price scenario) which uses constant 2017 US$ to one that follows the AEO reference oil price scenario up to $70/bo in 2017$ and then holds the oil price constant at that level until December 2079.  A separate scenario is used for the Permian Basin, Eagle Ford, North Dakota Bakken/Three Forks, Niobrara, and the rest of US tight oil (that is not part of the first 4 plays mentioned).  The mean USGS TRR estimate is assumed for the Permian (74 Gb), ND Bakken/TF (11 Gb), and Eagle Ford (10 Gb).  I made guesses for mean TRR of Niobrara (3.5 Gb) and the rest of US tight oil (7 Gb).  The total is about 106 Gb for a mean TRR estimate.

The economics of producing the oil will determine actual production so oil prices and well costs, royalty payments, taxes, and operating costs will all matter.  I assume natural gas sales are used to offset some of the operating costs, though in many cases a substantial proportion of natural gas is flared rather than sold so this assumption may be too optimistic.

In the chart below the "high output" scenario corresponds with the higher oil price scenario (AEO 2018 reference oil price case) and the "low output" scenario corresponds with the modified oil price scenario where oil prices never rise above $70/b in 2017$.

The peak in US tight oil output for this low scenario is in 2021 at 8 Mb/d (about 600 kb/d above the EIA's estimate for March 2019).  For the high scenario the peak is in 2025 at 10.7 Mb/d.

tight oil scenarios1905.png

Share this post


Link to post
Share on other sites

2 hours ago, D Coyne said:

Mr. Edwards,

I just want to make sure I understand you correctly.  You expect the Brent Oil Price in 2018 US$ will be between $25/b and $40/b over the 15 years from 2019 to 2034, with perhaps an average of about $33-$35/b in 2018 US$.  And possibly a bottom as low as $15/bo, an oil price not seen since 1972?  For nominal oil prices, we did see $12/b for Brent centered 52 week average oil price as recently as 1998, so perhaps it is a possibility we might return to that low point, if Iranian, Venezuelan, and Libyan oil production all comes back online at about the time that Canadian oil sands production finds an easier way to refineries.  This seems a low probability (about 5% or less) event.

Note that about 1130 Gb of C+C was produced from 1971 to 2018, of 1380 Gb cumulative C+C produced by the end of 2018.

As the resource becomes more depleted it is likely to become more expensive to produce on average.  At under $40/b there is not enough oil that can be produced profitably to meet World demand for C+C at that oil price, so a 15 year time period with the average price of oil below $40/b is not likely to occur until perhaps 2050 to 2065 when the rise of electrified land transportation and more efficient water and air transport might reduce demand for C+C to relatively low levels.

From 1988 to 2003, the average price of oil was indeed $33/bo in 2017$ and perhaps you believe this will be repeated.  Note that the average oil price from 1971-2017 was about $57/bo, and from 1994-2017 the average oil price was $61/bo with a range in annual average oil price from $19/b (1998) to $121/b(2011) in 2017$.  The earlier 1971-1993 period had average oil prices at $52/b in 2017$.

Note that the chart's linear trend suggests Mr Kirkman's "hoped for" $70/b is about right for 2015, in 2019 the trend line is at about $74/bo.

oil price1905.png

No need for constant US$ - nominal US$ is also fine - easier for un-economists to read and appreciate. Hence our view also that Oil remains very much in bear market - cycles are quite long (bull/bear above/below the line).

Share this post


Link to post
Share on other sites

(edited)

2 hours ago, D Coyne said:

Mr. Edwards,

I just want to make sure I understand you correctly.  You expect the Brent Oil Price in 2018 US$ will be between $25/b and $40/b over the 15 years from 2019 to 2034, with perhaps an average of about $33-$35/b in 2018 US$.  And possibly a bottom as low as $15/bo, an oil price not seen since 1972?  For nominal oil prices, we did see $12/b for Brent centered 52 week average oil price as recently as 1998, so perhaps it is a possibility we might return to that low point, if Iranian, Venezuelan, and Libyan oil production all comes back online at about the time that Canadian oil sands production finds an easier way to refineries.  This seems a low probability (about 5% or less) event.

Note that about 1130 Gb of C+C was produced from 1971 to 2018, of 1380 Gb cumulative C+C produced by the end of 2018.

As the resource becomes more depleted it is likely to become more expensive to produce on average.  At under $40/b there is not enough oil that can be produced profitably to meet World demand for C+C at that oil price, so a 15 year time period with the average price of oil below $40/b is not likely to occur until perhaps 2050 to 2065 when the rise of electrified land transportation and more efficient water and air transport might reduce demand for C+C to relatively low levels.

From 1988 to 2003, the average price of oil was indeed $33/bo in 2017$ and perhaps you believe this will be repeated.  Note that the average oil price from 1971-2017 was about $57/bo, and from 1994-2017 the average oil price was $61/bo with a range in annual average oil price from $19/b (1998) to $121/b(2011) in 2017$.  The earlier 1971-1993 period had average oil prices at $52/b in 2017$.

Note that the chart's linear trend suggests Mr Kirkman's "hoped for" $70/b is about right for 2015, in 2019 the trend line is at about $74/bo.

oil price1905.png

Spin it however makes you feel good, Dennis. I am just applying the best historical data PLUS comprehensive logic to my assessment. If your "logic" differs, then you will get a different result. I will stick with mine.

You are off base with the paragraph. "As the resource becomes more depleted it is likely to become more expensive to produce on average.  At under $40/b there is not enough oil that can be produced profitably to meet World demand for C+C at that oil price, so a 15 year time period with the average price of oil below $40/b is not likely to occur until perhaps 2050 to 2065 when the rise of electrified land transportation and more efficient water and air transport might reduce demand for C+C to relatively low levels." You are forgetting the huge impact on demand of the almost certain worldwide depression during the next 15 years. Further, the numbers that I put confidence in say that there is plenty of reserves that can be produced at $40/B. So forget any shortage of supply.

Keep dreaming!

Edited by William Edwards
  • Upvote 1

Share this post


Link to post
Share on other sites

The chart below shows World C+C output minus tight oil and minus Canadian oil sands output(12 month trailing average) as well as simply World C+C minus tight oil output.  For the former the slope from Jan 2005 to Jan 2019 is 124 kb/d for annual rate of increase in output, for latter the annual rate of increase is 267 kb/d.  If oil is stuck at $70/b and tight oil declines by 2000 kb/d from 2021 to 2028 (an average annual rate of decrease of 285 kb/d), then the rest of the World may find it difficult to make up the difference if 2005 to 2018 is any guide.

world minus tight+bitumen.png

Share this post


Link to post
Share on other sites

2 minutes ago, William Edwards said:

Spin it however makes you feel good, Dennis. I am just applying the best historical data PLUS logic to my assessment. If your "logic" differs, then you will get a different result. I will stick with mine.

You are off base with the paragraph. "As the resource becomes more depleted it is likely to become more expensive to produce on average.  At under $40/b there is not enough oil that can be produced profitably to meet World demand for C+C at that oil price, so a 15 year time period with the average price of oil below $40/b is not likely to occur until perhaps 2050 to 2065 when the rise of electrified land transportation and more efficient water and air transport might reduce demand for C+C to relatively low levels." You are forgetting the huge impact on demand of the almost certain worldwide depression during the next 15 years. Further, the numbers that I put confidence in say that there is plenty of reserves that can be produced at $40/B. So forget any shortage of supply.

Keep dreaming!

William,

Your faith in OPEC reserves is interesting, you are sadly mistaken.  The depression that you believe is certain is unlikely to be permanent and is far from certain.  A depression may indeed reduce demand, but note that in 2009 the World output of crude fell by about 1.7% over a year (using 12 month trailing output averages from Nov 2008 to Nov 2009, EIA data).  This was the worst World recession since 1933.  Perhaps we will see another depression in 2030 or so, we have learned much about how to manage the economy since the dark ages of 1929, so a repeat of the Great Depression seems unlikely in my view.

Share this post


Link to post
Share on other sites

23 minutes ago, AcK said:

No need for constant US$ - nominal US$ is also fine - easier for un-economists to read and appreciate. Hence our view also that Oil remains very much in bear market - cycles are quite long (bull/bear above/below the line).

I used real oil prices because Mr Edwards suggested $40/b on average for the price of oil.  Since 1861 using BP data, the average price of oil in 2017$ has been $35.50/b.  For nominal oil prices it has been about $12/b over the 1861 to 2017 period.  I was trying to be consistent with Mr. Edwards starting point.

Mr. Edwards seems to believe there is plenty of oil that can be produced profitably at $40/b.  I would suggest that much of this cheap oil is mythical and that OPEC proven reserves are not as large as stated by OPEC nations.  Generally the cheapest oil to produce is developed first, the oil that is left to produce is usually more challenging technically.

  • Upvote 1

Share this post


Link to post
Share on other sites

14 minutes ago, D Coyne said:

I used real oil prices because Mr Edwards suggested $40/b on average for the price of oil.  Since 1861 using BP data, the average price of oil in 2017$ has been $35.50/b.  For nominal oil prices it has been about $12/b over the 1861 to 2017 period.  I was trying to be consistent with Mr. Edwards starting point.

Mr. Edwards seems to believe there is plenty of oil that can be produced profitably at $40/b.  I would suggest that much of this cheap oil is mythical and that OPEC proven reserves are not as large as stated by OPEC nations.  Generally the cheapest oil to produce is developed first, the oil that is left to produce is usually more challenging technically.

There is plenty of oil that can be produced between 30-40$/bbl, companies/investors have mostly ignored those in recent years due to the short cycle, quick payout of shale. However, a sound and balanced portfolio investor/oil company should include these prospects for development to production. There are billions and billions of untapped conventional low cost oil and gas resources, that have been bypassed, under evaluated, over looked and skipped all together by companies. I also believe that many of the OPEC countries also have the same issue of missed, bypassed/overlooked low cost oil and gas assets , missed and undiscovered structures holdings billions of barrels of conventional oil reserves. This is not a guessing game but one based on geological data and actual exploration, drilling and production.

 

  • Like 1

Share this post


Link to post
Share on other sites

(edited)

23 minutes ago, ceo_energemsier said:

There is plenty of oil that can be produced between 30-40$/bbl, companies/investors have mostly ignored those in recent years due to the short cycle, quick payout of shale. However, a sound and balanced portfolio investor/oil company should include these prospects for development to production. There are billions and billions of untapped conventional low cost oil and gas resources, that have been bypassed, under evaluated, over looked and skipped all together by companies. I also believe that many of the OPEC countries also have the same issue of missed, bypassed/overlooked low cost oil and gas assets , missed and undiscovered structures holdings billions of barrels of conventional oil reserves. This is not a guessing game but one based on geological data and actual exploration, drilling and production.

 

The marginal barrel is certainly not $40/bo or most of the tight oil and extra heavy oil would not be produced.  

The price will be determined in the long run by the cost to produce the most expensive barrels, if it costs more to produce a barrel than the price at which that barrel can be sold, then those barrels should not be produced.  If there were truly lots of $40/b oil (total costs of development etc included in the "cost of production") out there, the price of oil would fall to $40/b.

We will wait and see if we see $40/b without a severe recession over the next 10 years, over any 52 week period going forward I expect the average price of oil will be well above $40/bo, probably more like $65/bo or higher (for Brent crude).

Note that I do not dispute that there is some oil that is cheap to produce (under $40/b), just not enough to satisfy World demand at $40/b.

Edited by D Coyne
  • Upvote 1

Share this post


Link to post
Share on other sites

1 hour ago, D Coyne said:

I used real oil prices because Mr Edwards suggested $40/b on average for the price of oil.  Since 1861 using BP data, the average price of oil in 2017$ has been $35.50/b.  For nominal oil prices it has been about $12/b over the 1861 to 2017 period.  I was trying to be consistent with Mr. Edwards starting point.

Mr. Edwards seems to believe there is plenty of oil that can be produced profitably at $40/b.  I would suggest that much of this cheap oil is mythical and that OPEC proven reserves are not as large as stated by OPEC nations.  Generally the cheapest oil to produce is developed first, the oil that is left to produce is usually more challenging technically.

Your statement "Generally the cheapest oil to produce is developed first, the oil that is left to produce is usually more challenging technically." is contradicted by the fact that Oil Sands is being produced at $30-50/B while Saudi oil at $3-10/B is being shut in. Please reconcile the facts with your dreamworld state before you advise us.

Share this post


Link to post
Share on other sites

Doesn’t seem to matter what the break even price is Shale looks to be fundamentally cash broke and seriously in debt!

162984D7-5083-4B0A-AD95-5056226F1CD6.jpeg

  • Like 1

Share this post


Link to post
Share on other sites

93E9A96E-03FF-4084-B368-71EED0943E0A.jpeg

  • Like 1

Share this post


Link to post
Share on other sites

3 hours ago, D Coyne said:

What happens to US tight oil output if the long term Brent oil price in 2017$ is $70/bo?

To investigate this I adjusted my usual oil price scenario (EIA AEO 2018 reference oil price scenario) which uses constant 2017 US$ to one that follows the AEO reference oil price scenario up to $70/bo in 2017$ and then holds the oil price constant at that level until December 2079.  A separate scenario is used for the Permian Basin, Eagle Ford, North Dakota Bakken/Three Forks, Niobrara, and the rest of US tight oil (that is not part of the first 4 plays mentioned).  The mean USGS TRR estimate is assumed for the Permian (74 Gb), ND Bakken/TF (11 Gb), and Eagle Ford (10 Gb).  I made guesses for mean TRR of Niobrara (3.5 Gb) and the rest of US tight oil (7 Gb).  The total is about 106 Gb for a mean TRR estimate.

The economics of producing the oil will determine actual production so oil prices and well costs, royalty payments, taxes, and operating costs will all matter.  I assume natural gas sales are used to offset some of the operating costs, though in many cases a substantial proportion of natural gas is flared rather than sold so this assumption may be too optimistic.

In the chart below the "high output" scenario corresponds with the higher oil price scenario (AEO 2018 reference oil price case) and the "low output" scenario corresponds with the modified oil price scenario where oil prices never rise above $70/b in 2017$.

The peak in US tight oil output for this low scenario is in 2021 at 8 Mb/d (about 600 kb/d above the EIA's estimate for March 2019).  For the high scenario the peak is in 2025 at 10.7 Mb/d.

tight oil scenarios1905.png

Not much point projecting to 2079. To get to that point oil producers would probably have to instigate dictatorships. Maybe that's the plan in the USA but I doubt it (although there are certain disconcerting indicators in this administration). I wouldn't bother with anything past 2060 because by then the issue of anthropogenic climate change will be so blatantly obvious that governments around the globe will likely be tripping over themselves to ban fossil fuels assuming that many haven't done so already, especially as alternatives for the majority of large volume uses will almost certainly be cheaper and more effective at that point. How long can a shale industry dependent on cheap cash survive without a broader market to dump large volumes to while a "friendly" administration works to provide them with sufficient space to do so no matter how destabilizing the various required geopolitical actions might be? My guess is not very long and China for one (the largest car market in the world) will most certainly be looking to ban as much of the stuff as they can as soon as they can (by banning ICEV sales for instance), especially after all the trade war shenanigans this administration is now famous for. They won't be the only ones by the looks of it. That's assuming that the shale play hasn't collapsed already by then due to mounting yield issues. "Drill baby drill" only works if finite stuff that is "extractable" also results in decent extraction values. Although, in terms of the progression, the peak does seem more likely to be after 2025 than in 2021 but we'll have to wait and see.

Share this post


Link to post
Share on other sites

2 hours ago, William Edwards said:

Your statement "Generally the cheapest oil to produce is developed first, the oil that is left to produce is usually more challenging technically." is contradicted by the fact that Oil Sands is being produced at $30-50/B while Saudi oil at $3-10/B is being shut in. Please reconcile the facts with your dreamworld state before you advise us.

Mr. Edwards,

You are correct.  The obvious answer is that Saudis are restricting their output, which seems to be the case as OPEC currently is limiting output.  

My thinking here is that within any OPEC nation they will develop the reserves that are easiest to produce initially.

It is far from clear that Saudi Arabia can produce very much oil at $3/b, this may have been true in 1970, but I doubt it is the case today.   We know very little about Saudi costs of production in 2019, but I think in terms of the total cost of production including capital, maintenance and all other overhead, seems unlikely that all of the $9.7 Mb/d is produced at a cost of $10/b.

Perhaps some of the non-upgraded bitumen is produced at $40/b, again those are likely to be the cheapest of the bitumen resources, as the easier deposits deplete, production will become more expensive.

In any area where oil is produced, producers will choose to produce the cheapest resource that they have access to and over time production will tend to become more challenging and more expensive.

  • Great Response! 1

Share this post


Link to post
Share on other sites

1 hour ago, David Jones said:

Not much point projecting to 2079. To get to that point oil producers would probably have to instigate dictatorships. Maybe that's the plan in the USA but I doubt it (although there are certain disconcerting indicators in this administration). I wouldn't bother with anything past 2060 because by then the issue of anthropogenic climate change will be so blatantly obvious that governments around the globe will likely be tripping over themselves to ban fossil fuels assuming that many haven't done so already, especially as alternatives for the majority of large volume uses will almost certainly be cheaper and more effective at that point. How long can a shale industry dependent on cheap cash survive without a broader market to dump large volumes to while a "friendly" administration works to provide them with sufficient space to do so no matter how destabilizing the various required geopolitical actions might be? My guess is not very long and China for one (the largest car market in the world) will most certainly be looking to ban as much of the stuff as they can as soon as they can (by banning ICEV sales for instance), especially after all the trade war shenanigans this administration is now famous for. They won't be the only ones by the looks of it. That's assuming that the shale play hasn't collapsed already by then due to mounting yield issues. "Drill baby drill" only works if finite stuff that is "extractable" also results in decent extraction values. Although, in terms of the progression, the peak does seem more likely to be after 2025 than in 2021 but we'll have to wait and see.

David,

I agree on projection to 2079.  The model was in a simple python program I wrote so projecting out further is no more effort.  The point was the assumption of $70/b in 2017$ for the foreseeable future.  Any projection is likely to be inaccurate after about 3 days or maybe 3 seconds, I use a set of assumptions and see how a scenario plays out that satisfies the assumptions of the model.

The basic underlying assumptions of the model are the TRR estimates, the price of oil, well cost, royalties and taxes, transport costs, and operating and other costs.  For the North Dakota Bakken/Three Forks and Eagle Ford I assume that new well EUR starts to decrease starting in Jan 2019, for US "other LTO" EUR decrease begins in Jan 2022, and for Permian and Niobrara I assume new well EUR starts to decrease in Jan 2023.  In every model the rate of decrease in new well EUR depend on the number of wells drilled, more wells drilled per month results in a higher rate of decrease.

Also for plays where EUR starts in Jan 2022 or Jan 2023, the new well EUR is assumed to be constant from Jan 2018 until the EUR starts to decrease.  Also the "high" scenario has a relatively aggressive increase in the rate of well completion, so reality will probably be somewhere between the above two scenarios.

Mr. Edwards $35/b scenario would of course result in a lower scenario than my "low scenario".  Perhaps only 30 Gb of tight oil, with a peak in 2018 or 2019.  That scenario would be very low probability in my view, perhaps 2% or less.

Share this post


Link to post
Share on other sites

13 minutes ago, D Coyne said:

David,

I agree on projection to 2079.  The model was in a simple python program I wrote so projecting out further is no more effort.  The point was the assumption of $70/b in 2017$ for the foreseeable future.  Any projection is likely to be inaccurate after about 3 days or maybe 3 seconds, I use a set of assumptions and see how a scenario plays out that satisfies the assumptions of the model.

The basic underlying assumptions of the model are the TRR estimates, the price of oil, well cost, royalties and taxes, transport costs, and operating and other costs.  For the North Dakota Bakken/Three Forks and Eagle Ford I assume that new well EUR starts to decrease starting in Jan 2019, for US "other LTO" EUR decrease begins in Jan 2022, and for Permian and Niobrara I assume new well EUR starts to decrease in Jan 2023.  In every model the rate of decrease in new well EUR depend on the number of wells drilled, more wells drilled per month results in a higher rate of decrease.

Also for plays where EUR starts in Jan 2022 or Jan 2023, the new well EUR is assumed to be constant from Jan 2018 until the EUR starts to decrease.  Also the "high" scenario has a relatively aggressive increase in the rate of well completion, so reality will probably be somewhere between the above two scenarios.

Mr. Edwards $35/b scenario would of course result in a lower scenario than my "low scenario".  Perhaps only 30 Gb of tight oil, with a peak in 2018 or 2019.  That scenario would be very low probability in my view, perhaps 2% or less.

Well, precise projection, as in exactly what price it'll end up being at any one moment along the trajectory is always next to impossible to pin down with so many variables but some elements like environmental developments due to the product itself which carry immense costs (probably about as much as cumulative global GDP up to this point in time) and the response of some nations to them have very high chance of becoming reality at this point. It's thermodynamics on a grand scale and there is little chance of repercussions remaining at their current levels in a few decades rather than becoming substantially more severe. The product is basically associated with a critical externality that is at this point more or less a certainty in one form or another. Ultimately though, other than +100 oil having a very low likelihood of prolonged occurrence in a healthy oil industry and at any point in the future, I can't say for certain what precise price we'll have in say 2025 but mostly, I don't see the oil industry being able to ask a lot for a barrel in the future, people just won't accept it now that functional and in some cases very attractive alternatives are actually available, and my guess is while the industry is still in relative control, we may well see prices go down considerably below 50 and stay there, say maybe towards the end of next decade assuming they can improve production processes sufficiently to be able to sustain such price levels. That probably means the smaller producers will get hit very hard and it may also mean that production initially doesn't fall quite so quickly if yields permit it. Eventually though, I don't think it'll be possible to keep lowering the prices further while keeping a healthy setup and this along with the kind of denial I'm seeing here in response to the climate situation, suggests a real possibility for a chain reaction collapse due to stubbornly refusing to move on.

Share this post


Link to post
Share on other sites

2 hours ago, David Jones said:

Well, precise projection, as in exactly what price it'll end up being at any one moment along the trajectory is always next to impossible to pin down with so many variables but some elements like environmental developments due to the product itself which carry immense costs (probably about as much as cumulative global GDP up to this point in time) and the response of some nations to them have very high chance of becoming reality at this point. It's thermodynamics on a grand scale and there is little chance of repercussions remaining at their current levels in a few decades rather than becoming substantially more severe. The product is basically associated with a critical externality that is at this point more or less a certainty in one form or another. Ultimately though, other than +100 oil having a very low likelihood of prolonged occurrence in a healthy oil industry and at any point in the future, I can't say for certain what precise price we'll have in say 2025 but mostly, I don't see the oil industry being able to ask a lot for a barrel in the future, people just won't accept it now that functional and in some cases very attractive alternatives are actually available, and my guess is while the industry is still in relative control, we may well see prices go down considerably below 50 and stay there, say maybe towards the end of next decade assuming they can improve production processes sufficiently to be able to sustain such price levels. That probably means the smaller producers will get hit very hard and it may also mean that production initially doesn't fall quite so quickly if yields permit it. Eventually though, I don't think it'll be possible to keep lowering the prices further while keeping a healthy setup and this along with the kind of denial I'm seeing here in response to the climate situation, suggests a real possibility for a chain reaction collapse due to stubbornly refusing to move on.

Mr. Jones

Clearly nobody knows the future price of oil, the point of the exercise was what do things look like for two different oil price scenarios.  I agree at some point oil prices are likely to decrease, but only after they increase from today's levels.  If oil should peak in 2021 due to $70/b oil, I imagine the lack of supply would drive oil prices higher until enough demand is destroyed to match supply with demand.  Note that the EIA's reference oil price scenario assumes supply is always sufficient to meet demand, I contend that at the AEO reference oil prices, supply will be short of demand and oil prices will in fact be higher than the AEO reference price.  This is the long-winded way of suggesting that the "high scenario" may be more likely up to 2025.  I expect by 2035 demand for oil may fall below supply due to the EV and autonomous vehicle (AV) transition.  The time from 2025 to 2035 will be a time of turmoil as legacy auto manufacturers will be in crisis as sales fall for those late to adopt EVs and as oil prices may peak at $150/b by 2030 in order for demand to match supply, prices will gradually fall back to $100/b by 2035 and then start to fall below $100/b as demand falters  (all prices in 2017$).

 

Share this post


Link to post
Share on other sites

6 hours ago, D Coyne said:

Mr. Jones

Clearly nobody knows the future price of oil, the point of the exercise was what do things look like for two different oil price scenarios.  I agree at some point oil prices are likely to decrease, but only after they increase from today's levels.  If oil should peak in 2021 due to $70/b oil, I imagine the lack of supply would drive oil prices higher until enough demand is destroyed to match supply with demand.  Note that the EIA's reference oil price scenario assumes supply is always sufficient to meet demand, I contend that at the AEO reference oil prices, supply will be short of demand and oil prices will in fact be higher than the AEO reference price.  This is the long-winded way of suggesting that the "high scenario" may be more likely up to 2025.  I expect by 2035 demand for oil may fall below supply due to the EV and autonomous vehicle (AV) transition.  The time from 2025 to 2035 will be a time of turmoil as legacy auto manufacturers will be in crisis as sales fall for those late to adopt EVs and as oil prices may peak at $150/b by 2030 in order for demand to match supply, prices will gradually fall back to $100/b by 2035 and then start to fall below $100/b as demand falters  (all prices in 2017$).

 

It's definitely interesting to examine different scenarios but I think if you are right and oil is anywhere near $150 in 2030 the decadal consequences will be devastating to the oil industry as a whole (keeping in mind for instance, that batteries have a decent chance of approaching or exceeding 500Wh/kg beyond 2030 making them extremely attractive products financially even at low oil prices). In short, both high and low price points are concurrently their friend and their enemy but high prices are likely to be critically damaging to long term demand. Either way, it seems the oil industry and fossil fuel industries as a whole are a bad long term investment any way one looks at it which is also disconcerting considering how much is being invested in them globally. I'm generally quite concerned about what the potential realisation of a relatively sudden demise might do assuming the transition hasn't been sufficiently completed yet due to excessive feet dragging, especially in combination with higher anthropogenic climate change damages that are very likely in the coming decades. Of course, if the idea is to trade the price, any movement is of use as long as one can have a sense of where it's going. That however is not my focus.

Share this post


Link to post
Share on other sites

18 hours ago, D Coyne said:

William,

Your faith in OPEC reserves is interesting, you are sadly mistaken. 

We have found more new oil via horizontal drilling/Fracking/3d seismic than we have pumped from them to begin with.... That has happened in nearly 100% of every field in the USA.  Why would this not be true around the world?  .... Including in OPEC nations?  More expensive?  Seems that way, but not by much.  Some certainly is more expensive. 

And then there is NG.... We have found many many many many many many more times NG with FRACKING etc than we have ever used before and dwarfs anything we knew of previously, so.... no, world will not run out of energy anytime in next several hundred years even if 100% of humanity used as much energy as the most power hungry nations and this is not counting the absolute gigantic mind blowing NGL/NG resources in the permafrost or Methane Hydrates. 

Share this post


Link to post
Share on other sites

18 hours ago, James Regan said:

Doesn’t seem to matter what the break even price is Shale looks to be fundamentally cash broke and seriously in debt!

Yep.  Almost a year ago:

 

  • Like 2
  • Upvote 1

Share this post


Link to post
Share on other sites

2 minutes ago, Tom Kirkman said:

Yep.  Almost a year ago:

 

Rig count now showing a reply to the endless supply of money that has been in decline last 3-4 months. 

  • Like 1

Share this post


Link to post
Share on other sites

(edited)

14 minutes ago, Old-Ruffneck said:

Rig count now showing a reply to the endless supply of money that has been in decline last 3-4 months. 

As per latest numbers , granted cherry picked from the article but sums up the Shale business at present.

You can only flog a horse for so long, until that horse falls over....

CFDB0D94-CEAD-4A72-BBFC-BE6970850A44.jpeg

Edited by James Regan
Content
  • Like 1

Share this post


Link to post
Share on other sites

On 5/26/2019 at 7:29 PM, Mike Shellman said:

A hypothetical break'even oil price is the worse metric ever invented to analyze the future of US shale oil. It discounts completely the cost of paying back long term debt and all those tens of thousands of shale oil wells that were drilled in America 5-6 years ago that now can never be paid back. It implies that nobody entering into their 2nd marriage has baggage. Every shale oil company in America is racked with debt. 

Break'even changes regularly with regard to product prices, hedging, debt maturities, interest rates, slowing production and associated decline in revenue streams, market availability, market deductions, the quality of LTO and where, and if, it can be utilized, the value of the dollar, American energy policy, unrest in the Middle East and a host of other issues; the longer legacy debt is deferred, the harder it gets to pay it back and the higher "break'even" prices get.

Break'even was invented by the shale oil industry just a few years ago for a reason...it implies that any price over break'even means the shale oil industry is kicking ass. Its good news and no body in America likes bad news; the US shale oil industry is a master of deceit. The truth about shale oil profitability is in the current financial condition of the US shale oil industry and the SEC filings it must lawfully make, every quarter;  whether it is profitable, or not, and how fast it can get out of long term debt before its assets no longer cover its liabilities. Everything else is essentially just...bullshit. Don't be conned by break'even. Its meaningless. The MSM loves it because it is not capable of understanding well economics or doing its SEC homework.  

 

Breakeven wasnt invented by the shale oil industry just a few years ago. Breakeven price modeling has been in place for a long time and used by just about every industry way before shale drilling became the flavour of the day!

  • Like 1
  • Upvote 2

Share this post


Link to post
Share on other sites

(edited)

16 minutes ago, ceo_energemsier said:

Breakeven wasnt invented by the shale oil industry just a few years ago. Breakeven price modeling has been in place for a long time and used by just about every industry way before shale drilling became the flavour of the day!

In legal terms breakeven amounts to paying quantities.  There are a list of things that are allowed to be included in that figure but capital investment is not one of them, nor is interest on debt.  In addition, it's a unique number for each well and operator.  Stipper operators game the heck out of it to hold on to leases that should have expired years ago.

Edited by wrs
  • Upvote 1

Share this post


Link to post
Share on other sites

(edited)

1 hour ago, ceo_energemsier said:

Breakeven wasnt invented by the shale oil industry just a few years ago. Breakeven price modeling has been in place for a long time and used by just about every industry way before shale drilling became the flavour of the day!

Horse dookey. Even the term "breakeven" is stupid. In the oil business we're not in it to break even, we're in to make money. Time to payout, ROI and NPV have historically been the metrics the real oil business has always focused on. 

And dung heap on the stripper well comment by the other man with no name. In legal terms production in paying quantities means just that and has absolutely nothing to do with breakeven prices. There is no legal precedence for the use of breakeven prices in any legal argument or case precedence. It's too qualitative and too vague. Any lawyer with an IQ equal to the price of oil would eat that term up. 

You two guys should start a Shale R US/ Abolish All Stripper Wells forum.  Its perfect; you can pat each other on the back all the time, delete opinions you don't like, and copy and paste links without acknowledging its author, ALLLLLLLL day long. You can even give out award points for name calling and insults. An 'LOL' gets you a big bonus! 

 

Edited by Mike Shellman
  • Great Response! 1

Share this post


Link to post
Share on other sites

11 minutes ago, wrs said:

In legal terms breakeven amounts to paying quantities.  There are a list of things that are allowed to be included in that figure but capital investment is not one of them, nor is interest on debt.  In addition, it's a unique number for each well and operator.  Stipper operators game the heck out of it to hold on to leases that should have expired years ago.

https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD

 

Breakeven for KSA by FRB, however some people here think or rather call the FRB as a bunch of idiots who dont know anything and parrot what "shale companies" lie to them about.

And some people here throw the term "cherry pick links" copy and paste, but the same people , will "cherry pick" the data provided by a consulting company and use that for putting down shale companies, but under a different topic, yet still related to shale, they denounced the same consulting company, as it didnt fit their anti shale narrative.

HBP is one of the worst clauses in a lease, which I believe should be revised due to the developments in the oil and gas EP sector and changes and advances in land leasing and land management.

Most "Stripper" well operators will be out of business if the prices get to 30$/bbl or probably even 40$/bbl. Stripper wells,  marginal wells, produce a significant amount of oil in the US. I have nothing against the operators and owners of these marginal wells (onshore) , and they need a higher oil price to stay in business and be profitable and use all kinds of 'accounting' methods and "stripper well" tax credits to keep operating.

It seems shale is the mortal enemy of "stripper" well operators. In 2014 , with the very low oil prices taking hold of the markets, majority of stripper wells operators were under the threat of shutting down and TX threw them a lifeline by giving a tax break of 20-25% for every barrel of produced oil. Talk about shale companies loading up with debt? wasnt that a debt transferred to other tax payers from the stripper well operators? There is also a 3$/bbl Federal tax credit for stripper wells, in addition to other state incentives.

I have nothing against stripper wells. I have a company that actually re-evaluates stripper wells and their underlying formations and when there is good geology and good identifiable structures, we drill new wells ( or in some cases re-work the old wells if feasible) using new drilling techs and completion techs (rarely hydraulic fracturing) and increase the production and recovery from such formations and structures. There are thousands of overlooked, bypassed, under-evaluated oil and gas fields, that are abandoned producing marginally.

 

 

 

 

  • Upvote 2

Share this post


Link to post
Share on other sites