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

(edited)

1 hour ago, Ward Smith said:

Other than the golf clubs no longer fitting in the trunk, there is the further loss in mileage on a BTU basis versus diesel. NREL study

So I suppose that millions of Brasilians  That use GNV as a country who were net exporters in 2014, 4 years before the US have got it all wrong, with half the production of the USA. The use of many different alternative carbon base fuels sources put them light years ahead of the gas guzzling USA.

But don’t fret Brasil is knocking on the door of Shale Patch as a non OPEC Producer, monster pre salt fields bigger than Texas, but Everything is bigger In Texas🤔

https://www.worldoil.com/news/2019/2/20/brazils-burgeoning-crude-production-is-opec-s-next-headache

Golf-Wasted walk, but I have thrown the club further than the ball 👌🏻

Edited by James Regan
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(edited)

3 hours ago, ronwagn said:

Why does the oil industry have such a magical draw on so many entrepreneurs? It seems like a moth to a flame. Maybe it is all the natural gas flares. In most industries, you look at how others are doing before you decide to get into the competition. There are some hidden factors here methinks.

It's a good question. Resource plays, like the Austin Chalk in the late 1970's and the current shale oil thing, seems to bring people wanting to emulate JR EWing, out of the woodwork, sort of like rats. Both resource plays, then and now, required little geological/engineering experience; those plays were so vast anybody with a stake could go plop a location in the ground, and both plays required an abundance of outside capital, or, the use of other people's money to develop. In the present tense, shale oil resources are so vast anybody with some money to borrow could go buy big blocks of acreage and flip those blocks to real operators... ta-da, they were oilmen. Entrepreneurs seldom make real oilmen and they go bust dragging good people down with them. Its too hard. The use of the term "wildcatters" with regard to shale oil makes me want to hurl. My buddy Art Berman says the shale oil phenomena is a retirement party for the oil industry and that is about right. 

Exploration, real exploration, risking your own money; those days are gone. Few people have the guts for that anymore. They don't build companies for the long term, they build them to flip. If 80% of the shaley carbonate players in the Permian Basin don't find somebody to buy them out in the next 3 years, they are toast. That was part of their business model from the get go and that portion of the model is failing also. 

The internet has made "oilmen" out of plumbers from Portland. Everybody with a computer now thinks they are experts and able to analyse the shale oil industry. 

Few "entrepreneurs" I know wanting to get in the oil business to make a quick buck would do the labor, or risk the danger to actually make it all happen; they would not get up in the middle of the night to go log a well in the freezing rain, or go to someone's family whose dad has just been hurt working on a rig they have hired. They  just want to make money and they do not care who gets burned behind them. Most of America, it seems, is now like that. Its all about the dollars and how fast they can make them before the roof caves in.

And make no mistake about it...everyone, I repeat everyone, in the US shale oil business is worried about the roof caving in.

 

 

Edited by Mike Shellman
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Mike, companies have been made to flip since IPOs became popular and that goes back to the late 70s.  Intel was the big IPO that got it all started.  Since then it's been elevator pitches and stories, not real businesses.  There is a lot of that in the oil business as well, that is the nature of financialization taking over capitalization of business.  Selling stock and a story is the most important thing and whatever story it takes to sell the stock is the story that is woven.

I watched it play out in my business and I tried to bring in capital only to expand but was told that I didn't have a company, I had a business and selling a business isn't a good way to make money quickly.  A company was a specific type of stock structure along with a type of management that would attract investment.  The goal of the first investments was to bring in more investments while developing a product.  That wasn't my goal and so I passed on outside investment and my business went nowhere.

I would love to see you try to make a business from nothing to oh say $100m/yr without playing their game.  Wall Street tells them what to do, just like ZaZa who leased 3400 acres of Eaglebine from us in 2013 only to eventually go out of business.  You are complaining about something you can't do anything about.

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29 minutes ago, Mike Shellman said:

The internet has made "oilmen" out of plumbers from Portland. Everybody with a computer now thinks they are experts and able to analyse the shale oil industry. 

Gawd aint that the truth!! Since I was just a vertical ruffneck I aint no expert either !!

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1 hour ago, Mike Shellman said:

It's a good question. Resource plays, like the Austin Chalk in the late 1970's and the current shale oil thing, seems to bring people wanting to emulate JR EWing, out of the woodwork, sort of like rats. Both resource plays, then and now, required little geological/engineering experience; those plays were so vast anybody with a stake could go plop a location in the ground, and both plays required an abundance of outside capital, or, the use of other people's money to develop. In the present tense, shale oil resources are so vast anybody with some money to borrow could go buy big blocks of acreage and flip those blocks to real operators... ta-da, they were oilmen. Entrepreneurs seldom make real oilmen and they go bust dragging good people down with them. Its too hard. The use of the term "wildcatters" with regard to shale oil makes me want to hurl. My buddy Art Berman says the shale oil phenomena is a retirement party for the oil industry and that is about right. 

Exploration, real exploration, risking your own money; those days are gone. Few people have the guts for that anymore. They don't build companies for the long term, they build them to flip. If 80% of the shaley carbonate players in the Permian Basin don't find somebody to buy them out in the next 3 years, they are toast. That was part of their business model from the get go and that portion of the model is failing also. 

The internet has made "oilmen" out of plumbers from Portland. Everybody with a computer now thinks they are experts and able to analyse the shale oil industry. 

Few "entrepreneurs" I know wanting to get in the oil business to make a quick buck would do the labor, or risk the danger to actually make it all happen; they would not get up in the middle of the night to go log a well in the freezing rain, or go to someone's family whose dad has just been hurt working on a rig they have hired. They  just want to make money and they do not care who gets burned behind them. Most of America, it seems, is now like that. Its all about the dollars and how fast they can make them before the roof caves in.

And make no mistake about it...everyone, I repeat everyone, in the US shale oil business is worried about the roof caving in.

Few "entrepreneurs" I know wanting to get in the oil business to make a quick buck would do the labor, or risk the danger to actually make it all happen; they would not get up in the middle of the night to go log a well in the freezing rain, or go to someone's family whose dad has just been hurt working on a rig they have hired. They  just want to make money and they do not care who gets burned behind them. Most of America, it seems, is now like that. Its all about the dollars and how fast they can make them before the roof caves in.

Mike,

You make valid points which we never really see here on this forum the guys who actually go out and do the graft and what has happened to them since? I maybe am going off on a tangent and in my heart of hearts being upfront I will admit for me Shale has helped destroy the international offshore market.

lots of fat cats here spouting off about millions of acres and wells drilled and royalties, good for them but many people have suffered due to the rampant fiscally inept “nodding donkeys”.

Your post has made me remember a number of good men who have committed suicide due to big oil that took so much of their life “time” away while at work running enough pipe to put handrails around the globe a thousand times and then dumping them like trash.

There are serious repercussions to the state of the offshore industry and should be addressed, if Shale can be called a fair play with the debt and kickbacks then the industry as a whole owes the families to manage their fiscal policies and capex budgets with a little bit of compassion.

Serious business for serious people.

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1 hour ago, wrs said:

Mike, companies have been made to flip since IPOs became popular and that goes back to the late 70s.  Intel was the big IPO that got it all started.  Since then it's been elevator pitches and stories, not real businesses.  There is a lot of that in the oil business as well, that is the nature of financialization taking over capitalization of business.  Selling stock and a story is the most important thing and whatever story it takes to sell the stock is the story that is woven.

I watched it play out in my business and I tried to bring in capital only to expand but was told that I didn't have a company, I had a business and selling a business isn't a good way to make money quickly.  A company was a specific type of stock structure along with a type of management that would attract investment.  The goal of the first investments was to bring in more investments while developing a product.  That wasn't my goal and so I passed on outside investment and my business went nowhere.

I would love to see you try to make a business from nothing to oh say $100m/yr without playing their game.  Wall Street tells them what to do, just like ZaZa who leased 3400 acres of Eaglebine from us in 2013 only to eventually go out of business.  You are complaining about something you can't do anything about.

Mike loves to think he is the only real OILMAN in the world... he wont  tell us the answers to the ?s he skipped answering? how many barrels of oil does he  produce from "stripper wells"? how many thousands of stripper wells he has? how many thousands or hundreds of thousands of stripper and or other conventional leased acres he has and own and operates? how many hundreds of thousands of barrels of oil and bcf of gas do they produce? how many shale acreage he has leased and operates?how many shale wells? how many people does he employ  across his vast oil empire? Wonder how many hundreds of millions of his own money he has invested in "real exploration"? I guess since Mike is the only real oilman and real operator and the only one with guts , he must have invested a lot of his own money, hundreds of millios of dollars or perhaps billions. By that virtue , he should be able to employ and deploy all kinds of techs to turn stripper wells into gushers.

I guess people who build their companies up and sell them are also not worthy according to Mike. I guess George Mitchell neither worthy nor an oilman? is that what we could infer from Mike's portrayal?

Now according to Mike investors and oil companies are like "rats" going into resource plays!!!

" Both resource plays, then and now, required little geological/engineering experience; those plays were so vast anybody with a stake could go plop a location in the ground, and both plays required an abundance of outside capital, or, the use of other people's money to develop. In the present tense, shale oil resources are so vast anybody with some money to borrow could go buy big blocks of acreage and flip those blocks to real operators... "

That is what I had said a while ago under a different topic but related to the past and the wild rush by people to blindly lease acreage without knowing the quality of the rocks and geology under those acreages and I had said , yes people were throwing flags and using water sticks to just pick out places to drill without any geotech basis. That is why the wells were dismal, you could get a well that produced 500bpd or you had one that produced 5bpd. Hit and miss!!  Both resources plays then and now needed and need the best seismic and other geotechnical data to be obtained and analyzed and then the exploratory wells done to further the production and development stages. Those are some of the main reasons companies including rats failed, over paying for crappy rock underlying large acreages. Shell had to get out too , because they paid 100,000$/acre and their production was not so good, the rancher that leased them the acreage was very happy.

Shale companies with no fiscal, technical discipline and experience will fail , if they have bad geology underlying their acreage, most people wont buy it. It will be third  the rout of the get rich quick oil companies (rats) coming soon.

Technology prevails and is the driving factor for success in any kind of oil formation.

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1 minute ago, Shreyansh_bhai said:

Hi

I am an active trader in crude oil.

 

Hi Back! What have you actively traded today in crude oil? paper? physical?

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29 minutes ago, Shreyansh_bhai said:

Hi

I am an active trader in crude oil.

 

Shreyanash Welcome to the forum

👏👏

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(edited)

8 hours ago, D Coyne said:

Perhaps,

I have never seen personal vehicles being filled with natural gas, perhaps this is used in some fleets of commercial vehicles.

Do you have any data?  How much natural gas was consumed by land transport vehicles in 2018?  You seem to be gung ho on this, any data to back up your assertions?

I am not mainly talking about personal vehicles. I am talking about large vehicles. Personal vehicles that use CNG are usually found in other countries around the world. The United States is way behind in personal NGV use. South America, China, Pakistan, Iran,  and India use CNG and LNG for a lot of commercial and private vehicles. 

I have more information than you would want to absorb. Let me know if you have further questions.Here are a few of my references:

https://docs.google.com/document/d/19Yf0MWpo91vrlu-mmJtjB1ERukjJo5W41oi4RZVQBug/edit

https://docs.google.com/document/d/1_QZTgxCECgIj7EItX9P6Q2J4BjsSt_nPyrDG1zAl4b0/edit

http://www.cngprices.com/station_map.php

http://www.ngvglobal.com/

https://en.wikipedia.org/wiki/Natural_gas_vehicle

http://www.cngchat.com/forum/

Edited by ronwagn
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3 hours ago, ceo_energemsier said:

Mike loves to think he is the only real OILMAN in the world... he wont  tell us the answers to the ?s he skipped answering? how many barrels of oil does he  produce from "stripper wells"? how many thousands of stripper wells he has? how many thousands or hundreds of thousands of stripper and or other conventional leased acres he has and own and operates? how many hundreds of thousands of barrels of oil and bcf of gas do they produce? how many shale acreage he has leased and operates?how many shale wells? how many people does he employ  across his vast oil empire? Wonder how many hundreds of millions of his own money he has invested in "real exploration"? I guess since Mike is the only real oilman and real operator and the only one with guts , he must have invested a lot of his own money, hundreds of millions of dollars or perhaps billions. By that virtue , he should be able to employ and deploy all kinds of techs to turn stripper wells into gushers.

 

Poor debate form. 

One doesn't actually have to run any wells to be correct; nor does running many wells make you correct.

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2 hours ago, Enthalpic said:

Poor debate form. 

One doesn't actually have to run any wells to be correct; nor does running many wells make you correct.

I tend to agree and would love to know the definition of an “OILMAN”? 

Is it a restricted term for a person who commands large tracts of land with a plethora of Wells?

When I think of OILMAN I picture JR Ewing or some lethario that never set foot on a drilling rig pissing with oil based mud or tripping sideways with a Kelly in the middle of hurricane force winds ( some places in the world we never ran from a bit of wind), shutting in wells with 7500psi SICP and a 400Bbl Influx then staying with the boys to kill a well!

Does Mike call himself an OILMAN?

Lots of people on this forum who made it from pushing water rounds decks to Presidents of companies, with real experience from all around the world ( and other places too!)

Would I personally want to be called an oilman, haha or “hand” or maybe even “boy”- No just some kid that worked his ass off and managed to make some things happen and saw every corner of the world ( as I possess a passport).

I really don’t care how rich you are or how many “oil-wells” you own, lease, but do care about the industry.

Oilman haha F-my boots, some of you guys are from another planet.😉

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1 hour ago, James Regan said:

Is it a restricted term for a person who commands large tracts of land with a plethora of Wells

No, its not. And the answers asked of me to prove whether I understand shale oil economics or shale oil corporate finances sound like grade school girl stuff. I don't know what the term oil man means either; I've only thought of myself as someone IN the oil business. I grew up working in it, since I was a child, dug ditches in it, roughnecked my way around N. America and was in the blowout business for one of the largest well control companies in the world. My passports are all full. I began operating 40 years ago, shallow wells, deep wells, whatever...I don't need to provide people check stubs or run tickets, nor say how much production I have; again, that's all stupid stuff and does not prove anything. I am, however confident enough in my experience and my opinions to use my full name on public forums. It is difficult to know much about anybody when they comment anonymously and slinging insults, anonymously, from a keyboard, speaks for itself. 

Understanding well economics, deep, shallow, millions or hundreds of millions, anywhere, is not difficult. It helps to have written checks and worked from a check book your whole life, trust me. It's safe to swim in the bait ball but breaking away from that and thinking for yourself is risky; people don't like that. They want you to believe what they belief and if you don't, you are the enemy. I apologize to the oilprice community for my presence here. It appears to be disruptive.

I care about the oil industry also; truthfully I care about the worldwide oil industry. This shale oil thing has disrupted the entire world oil order and not in a good way. We will all pay a very serious price for that one day down the road. In fact we already are. Americans that believe shale oil will allow our country to become energy independent, allow ourselves to be rid of OPEC and Russian oil, that shale oil will last forever, that technology will save the day and make the US LTO industry profitable...are in deep denial. Again, Mr. Regan, your question regarding break'even was a good one. It is a meaningless metric, is different for every well and every lease or unit, and changes every day. 

 

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(edited)

58 minutes ago, Mike Shellman said:

No, its not. And the answers asked of me to prove whether I understand shale oil economics or shale oil corporate finances sound like grade school girl stuff. I don't know what the term oil man means either; I've only thought of myself as someone IN the oil business. I grew up working in it, since I was a child, dug ditches in it, roughnecked my way around N. America and was in the blowout business for one of the largest well control companies in the world. My passports are all full. I began operating 40 years ago, shallow wells, deep wells, whatever...I don't need to provide people check stubs or run tickets, nor say how much production I have; again, that's all stupid stuff and does not prove anything. I am, however confident enough in my experience and my opinions to use my full name on public forums. It is difficult to know much about anybody when they comment anonymously and slinging insults, anonymously, from a keyboard, speaks for itself. 

Understanding well economics, deep, shallow, millions or hundreds of millions, anywhere, is not difficult. It helps to have written checks and worked from a check book your whole life, trust me. It's safe to swim in the bait ball but breaking away from that and thinking for yourself is risky; people don't like that. They want you to believe what they belief and if you don't, you are the enemy. I apologize to the oilprice community for my presence here. It appears to be disruptive.

I care about the oil industry also; truthfully I care about the worldwide oil industry. This shale oil thing has disrupted the entire world oil order and not in a good way. We will all pay a very serious price for that one day down the road. In fact we already are. Americans that believe shale oil will allow our country to become energy independent, allow ourselves to be rid of OPEC and Russian oil, that shale oil will last forever, that technology will save the day and make the US LTO industry profitable...are in deep denial. Again, Mr. Regan, your question regarding break'even was a good one. It is a meaningless metric, is different for every well and every lease or unit, and changes every day. 

 

In a brief period of my youth I worked in West Texas, mainly for several years from Ft. Stockton, had an old gruff driller nobody liked but once you learned his mannerisms he was really a good man with the best of intentions for his crew. Safety was always no.1 priority. And our crew learned without words spoken when something was not right. Experience is best teacher. When I divorced I moved to Lovington, N.M. and worked on older rigs, even a double, in H2s infested Maljamar and Loco Hills area. Over to Andrews, Tx, Jal-Loving, NM. 

So when you look at a career such as @Mike Shellmanone can learn to have a respect for what he has done for the industry while surviving the ups and downs over the years. It's a brutal living and if one has never worked in the oilpatch, you can slip right over the respect one deserves. Kudos to you Mike. I for one do know and understand. Though I chose a harsher existence to make my living I still get drawn back to 79735 as I lost a loved one there and have some friends still there. 

Edited by Old-Ruffneck
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@Old-Ruffneck, you are very kind to say that, sir. It is not necessary, I am just a hand, like you. I am uncomfortable saying those things about my past and should not have to here. I should not have to defend thousands of good men and women who operate stripper wells throughout our nation when the topic is the shale oil phenomena, in the case of this thread, break'evens.

You should be very proud of your time, the risks and hardships you endured working in the oil and gas industry. Keep your stories and pass them down; they are important. Thank you again. 

 

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5 hours ago, Old-Ruffneck said:

In a brief period of my youth I worked in West Texas, mainly for several years from Ft. Stockton, had an old gruff driller nobody liked but once you learned his mannerisms he was really a good man with the best of intentions for his crew. Safety was always no.1 priority. And our crew learned without words spoken when something was not right. Experience is best teacher. When I divorced I moved to Lovington, N.M. and worked on older rigs, even a double, in H2s infested Maljamar and Loco Hills area. Over to Andrews, Tx, Jal-Loving, NM. 

So when you look at a career such as @Mike Shellmanone can learn to have a respect for what he has done for the industry while surviving the ups and downs over the years. It's a brutal living and if one has never worked in the oilpatch, you can slip right over the respect one deserves. Kudos to you Mike. I for one do know and understand. Though I chose a harsher existence to make my living I still get drawn back to 79735 as I lost a loved one there and have some friends still there. 

Oil and gas is a very tough industry and it Mike isnt the only person on this forum to have the experiences in the industry. Mike comes across as all high and might and should be put on a pedestal because he has 40 years+ of experience. Many many people do, you dont see them going around belittling, humiliating, insulting , demonizing , name calling people in a certain segment of an industry because you dont like the outcome? the economics? shale boom has happened and will continue to happen on and off.  According to Mike everyone in the shale sector is a scum bag, lying idiot , cooking the books, and except Mike no one else risks their own $$$$. Mike goes on bashing the shale sector of flaring, water issues and so on, not once I have seen him present anything close to any possible or potential solutions and when those are offered, they are just brushed off as hype and BS.

Stripper wells die off too and claiming that they are the best in the world and better , sure OK. I have nothing against stripper wells  and or stripper well operators, I have owned and managed and grown many such operations and have used technology to improve production and recovery from 5-10bpd to lot more. Evaluating the formations these wells produce from or the trap they produce from and  if feasible , reworking the existing wells or drilling new wells to improve production, ultimate recovery and the issues of wax build ups in the old well bores and wells, managing water cut and handling the produced water, handling any associated gas or other liquids, applying new techs for workovers, using the right kind of EORs etc , if the hydrocarbons reserves meet a certain threshold etc. I have a couple of companies that specifically focus on investing as an equity partner, and or owner of leases that redevelop such prospects and projects. We own and maintain our own hitech rigs and crew for these and work with other oil service providers as well.

I am involved in the natural resources, mining, oil and gas and energy petchem business at different levels and in different capacities, upstream, midstream, downstream , transportation , logistics etc and technology(ies) that can and will and have improved the lives of people, the employees, the safety, health and environment. I have very strict policies with it comes to environmental guidelines and operational safety and conservation , preservation and the proper use of our natural resources. I despise the fact that the shale operators flare as much gas as they do and personally in our operations I have no tolerance for it whatsoever, we wont produce till we can manage each hydrocarbon stream flowing from the wells. I will not permit the waste of fresh water for operations, there are many many solutions to these water issues that we have implemented in our operations, plus demand from our service providers. If they cant, then we move on develop and innovate or own and or contract with companies that can.

Working on developing a gas fired desal plant along the USGC that would not only provide water for public use but also for oil and gas operations and develop an infrastructure for water pipelines and storage /treatment recycling. I am not at all a fan of deep water injection wells. It is not a solution at all , it is a waste of yet another resource that can be used, recycled and used again . We used solar and gas powered modular water treatment units in remote places around the world and in the shale basins as well successfully.

Flaring, water use, better use of technology and so on. He bashes technology as nothing , there is no new tech, there cant and wont be any more innovations or improvements. Well, there is news for you if you stick your head in the sand, technology is not on hold. People across different industries put forth new and innovation breakthroughs everyday from across different industries that can be and are applied to the oil and gas industry and shale .

Tens of billions and hundreds of billions of $$$$ have been invested and are being invested in upgrading oil refineries to be able to use the light crudes, condensates, petchem facilities are being built and upgraded along the USGC and around the world to take in the new feedstock streams, all these people are idiots because their refineries , petchem plants and other facilities to add value to oil and gas will be sitting idle in 5 years? because shale production dies off?

I see people going on about huge decline rates, so it happens, what are they doing about it? nothing!!

The decline rates can be managed and controlled and EOR techs for shale can, will and are recovering more oil , just like it happens in conventional formations, EOR works.

My own experience in shale over 10 years has given me decline rates of 3-8% . EOG is working and proving on shale EOR and recovery for the long run. Companies will have to become better of fail, they will have to improve at each and every point and stage of the life cycle of the sector.

Any form of disagreement with Mike's opinions and views or with the idea of not agreeing with shale bashing is now a a form of disrespectful savagery?
He keeps on bashing the shale industry at every chance.  Calling out the shale sector and some of its problems is fine, I dont have any issue with that, I also agree that the shale industry needs to clean up its books and have lower debts.... however it is not just the shale industry that is debt ridden and riddled with debt, the entire country is under debt, student loans (perhaps then the students are total idiots to go to college and load up on debt?), the entire housing industry is based on debt, without debt there would be no housing finance industry and a majority of people would not be home owners, the auto industry is based on debt, without it there would be no auto financing and auto industry, wall street is debt !!! so should we just shut them all down.
Mike rants, raves and rails about saving the future of our kids and grand kids, we all do want  that, but he starts sounding like the anti oil group that keeps on ranting and raving and railing against fossil fuels and to keep it all in the ground. I dont want to see the next generation to have to deal with a horrible environment.. we do what we can and technology is the answer as well for these problems. And our kids and grand kids will be able to vote in who and what they want, already happening.
 

At the end of the day, debt ridden, badly managed, badly operated  shale companies, with blinders on and short sighted goals  with bad quality rocks under their overpaid acreages will fail. The shale patch will innovate, improvise, improve and thrive , some will some wont, as we have seen in the past boom and bust cycles. Consolidation, M&A's, asset buy outs etc will happen, only the best will survive. If oil prices drop down to the 40s, probably more than half the herd will be culled again.

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Natural Gas is the Green New Deal

Last month, America observed the 50th anniversary of the unofficial holiday known as Earth Day.

Good Samaritans cleaned beaches, picked up trash from highways, and marched peaceably in many cities in support of battling climate change — mainly by reducing our consumption of fossil fuels. But a major milestone went unmentioned on Earth Day, namely that America’s greenhouse gas emissions, or GHGs, are lower today than they were 20 years ago even as the economy has expanded by more than half.

How was this accomplished? Not as a result of environmental regulations and mandates or the huge subsidies given to renewables like wind and solar, but rather by using more, not less, of a fossil fuel called natural gas.

It’s a well-known fact that natural gas burns a lot cleaner than coal or oil. The simple chemical composition of the gas lends itself to fewer impurities in combustion, and because it burns cleanly, carbon dioxide emissions are less than half that of coal and a third less than fuel oil, diesel or gasoline.

At the same time, thanks to the so-called “shale revolution,” natural gas is abundant and inexpensive, and likely to remain so for the foreseeable future.

Consequently, the power-generation sector, which is responsible for about 25 percent of GHGs in the U.S., has moved quickly to adopt natural gas. Electric utilities have shuttered more than 250 coal plants since 2010, and a dozen more will close this year.

A decade ago, coal-fired generation accounted for about 50 percent of the electrons coursing through the nation’s power grids, but by last year, that had dropped to 27 percent. No utility in the nation has plans to build a new coal plant in the future.

Opponents of fossil fuels acknowledge that gas has a smaller carbon footprint than coal but nonetheless object to its use because of the methane releases associated with its production and transportation. Because the heat-trapping characteristics of methane are 20 times greater than carbon dioxide, environmentalists have good reason to be concerned.

However, again they fail to acknowledge the tremendous progress that has been made in recent years to contain methane emissions.

According to data from the Environmental Protection Agency and the Energy Information Administration, methane emissions from onshore U.S. oil and natural gas production fell 24 percent between 2011 and 2017 even as production increased by almost 50 percent and 730,000 miles of new transmission and distribution pipelines were added.

What’s more, the Oil and Gas Climate Initiative, a coalition of global energy companies, has committed to cutting average methane intensity by at least 20 percent and total emission levels by one-third by 2025.

America’s natural gas boom is also helping reduce greenhouse gas emissions abroad. From virtually zero a few years ago, liquefied natural gas, or LNG, exports approached 800 billion cubic feet last year. With capacity expected to double by the end of this year, export volumes will continue to grow exponentially. Indeed, by 2024 the U.S. is projected to be the world’s second-largest exporter of LNG, after Qatar.

Countries such as China, India and Japan that still rely heavily on coal for power generation are among the largest purchasers of American LNG. To the degree they substitute our “clean gas” for their domestic or imported “dirty coal,” the air becomes cleaner while global greenhouse gas emissions are reduced.

Cheap natural gas, made available by hydraulic fracturing, has already made the U.S. the world leader in carbon emissions reduction.

Though President Donald Trump took us out of the Paris climate treaty, we will surely exceed the carbon reduction targets in that agreement, and well ahead of schedule.

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Marathon Oil Completes Kurdistan Exit As US Shale Focus Grows

Marathon Oil Corp. continues to narrow its focus on U.S. shale with the completion of its Kurdistan divestiture on May 31.

The transaction, which represented a complete country exit for the Houston-based company, included Marathon’s 15% participating interest in the Atrush Block in Kurdistan. Production from the assets averaged 2,400 net barrels of oil equivalent per day (boe/d), 100% oil, during the first quarter.

Both the buyer of the assets and the terms of the transaction were not disclosed. Marathon had previously announced the sale during its second-quarter results last year. The company originally had expected to close the transaction by year-end 2018.

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Siemens Enters Permian Gas Processing Market With Electric Compression Technology

Siemens was awarded a contract to provide three residue compression trains for two, 250 million (500 million total) standard cubic feet per day (MMscf/d) cryogenic gas plants in the Delaware Basin on May 30.

Each train consists of a 22,000 horsepower motor, gearbox, and multistage Dresser-Rand DATUM centrifugal compressor, all mounted onto a single skid. The compressors, motors, and drives will all be built by Siemens in the U.S. and is scheduled for commissioning the latter part of 2020.

Mid-size gas treatment plants traditionally use reciprocating compressors driven by electric motors or gas engines. However, with the increase in production from shale plays, larger gas plants—in the range of 200 to 300 MMscf/d—are being constructed, forcing gas processing companies to consider alternative compression solutions in order to reduce costs, footprint, and maintenance.

While the traditional approach would require 10 large reciprocating units for this project, Siemens’ centrifugal compressor solution met the entire plant duty for this 500 MMscf/d project using just three compression units while ensuring low turndown capability. The plot space and the ancillary infrastructure—such as foundations, piping, wiring, cabling and electrical systems—was also remarkably reduced resulting in significant capital cost savings for the customer.

The high efficiency of the DATUM compressors, coupled with their easy maintenance, was a major factor for selecting this configuration. With a DATUM fleet availability of more than 99.7%, the plant will have minimum downtime despite the un-spared compressor configuration and will ensure minimal loss of production, bringing significant value to the customer in meeting contractual production guarantees.

“This project is an excellent example of Siemens’ ability to offer its customers a complete integrated solution,” Patrice Laporte, vice president of Oil and Gas for Siemens America, said.

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U.S. E&Ps Cut Costs in Response to Price Decreases

 

U.S. oil and gas producer share prices got a nice boost in mid-April from the Chevron/Occidental Petroleum bidding war for Anadarko Petroleum, which sold for more than a 40% premium to its price before Chevron’s opening bid. But the optimism was only temporary; the S&P E&P stock index has since retreated 13% to mid-February levels, during a month in which companies released their first quarter 2019 earnings reports. That suggests that, despite a 38% quarter-on-quarter increase in the pre-tax operating profit of the 44 E&Ps we track, investors found nothing in the first quarter results to dispel the generally negative sentiment that has hung like a dark cloud over the oil and gas industry since late 2014. Today, we analyze the first quarter financial performance of our 44 E&Ps and review the outlook for an industry ripe for further consolidation because of depressed equity valuations.

2018 financial results of 44 major U.S. E&P companies provided strong evidence that belied investor doom and gloom about the industry. U.S. E&Ps successfully reworked their portfolios, reduced their costs and embraced a new emphasis on financial discipline that enabled a return to profitability levels near those they enjoyed in the $100+/bbl oil price environment in 2014. After a dramatic plunge from $57 billion in pre-tax operating profit in 2014 to $128 billion in losses in 2015 and $30 billion in losses in 2016, the industry clawed its way back to breakeven in 2017. Although average revenues rose just 20% between 2017 and 2018, the 44 E&Ps’ net profit jumped mightily to $11.26/barrel of oil equivalent (boe) in 2018, from just $0.07/boe earned in the previous year. The disproportionate increase in net profit was the result of significantly lower costs, including DD&A (depreciation, depletion and amortization) expenses, Impairments, and Exploration/Other expenses, which fell 8%, 59%, and 38% year-on-year, respectively. Underscoring the health of the industry — and nudged by U.S. corporate tax reform — the E&Ps repurchased nearly $16 billion in common shares in 2018, about 50% more than in 2014.

Although overall per-unit revenues were 10% lower in the first quarter of 2019 at $32.88/boe, compared with $36.65/boe in the fourth quarter of 2018, that solid performance in net profits continued in 2019. As seen in Figure 1, profitability in the first quarter of 2019 was higher than fourth quarter 2018 and on par with the first and second quarters of 2018. Our universe of 44 E&Ps earned $10.38/boe (blue bar segment to far right in Figure 1) in the first quarter of 2019. Fourth quarter profitability was depressed by $7.3 billion in impairment charges, which largely stemmed from M&A divestiture proceeds that were lower than the companies’ book values for the assets sold. In contrast, impairment charges were negligible in the first quarter of 2019, and other operating expenses (lifting costs, DD&A, Exploration/Other) were down 2% as producers continued to concentrate on operational efficiency. The reduction in revenues did decrease cash flows by $3.75/boe to $22.72/boe. Anticipating lower cash flows, the companies we track had budgeted an average 12% decrease in 2019 capital expenditures. Producers further adjusted by reducing share buybacks by 20% to $2.9 billion in the first quarter of 2019. The Diversified E&P Peer Group led the three peer groups in earnings by posting a profit of $12.69/boe — 13% better than the Oil-Weighted E&Ps and more than twice the per-boe profit of the Gas-Weighted E&Ps. Oil and gas production (gray line) slid by 1.2% in first quarter 2019 to 1.14 billion boe — the first decline in many years — on sharply lower output by the Gas-Weighted E&Ps. 

Fig1_FirstQuarterFinancial1.PNG?itok=7Uq

Figure 1. E&Ps’ Cash Flow, Profits and Production, 4Q2018 to 1Q2019. (Click to Enlarge)

Source: Oil & Gas Financial Analytics, LLC

 

 

Oil-Weighted E&Ps

The 18 Oil-Weighted E&Ps earned $11.19/boe (blue bar segment to right in Figure 2) in the first quarter of 2019, more than double the fourth-quarter 2018 results, but 18% lower than the total 2018 results. Realized prices were $38.22/boe, about 9% below the $41.69/boe received in the previous quarter and the lowest since the third quarter of 2017. West Texas Intermediate (WTI) oil prices fell $4/bbl in the first quarter to $54.87/bbl, but basis differentials in the Midland Basin shrank considerably, yielding an actual $1/bbl price increase for Permian producers. The price of natural gas, which accounts for about 25% of this peer group’s production, was a different story. Henry Hub quotes fell $0.85/MMBtu, or about 23%, to $2.88/MMBtu.

Lower expenses compensated for the revenue shortfall. Most dramatic was a $3 billion reduction in impairment charges, or a decline from $8.69/boe (gray bar segment) in the fourth quarter of 2018 to $0.42/boe in the first quarter of 2019. However, other expenses were lower as well. Lifting costs were $11.31/boe (yellow bar segment to right), or about 3% below the $11.67/boe posted in the fourth quarter of 2018. All of the reduction was due to decreases in operating expenses as production taxes were virtually the same. DD&A expenses in the first quarter of 2019 (orange bar segment to right) were 5% lower than in fourth quarter 2018 at $14.67/boe, while exploration/other expenses (gold bar segment) were slashed by nearly 60% to $0.63/boe.

Fig2_FirstQuarterFinancial1.PNG?itok=Mf_

Figure 2. Oil-Weighted E&Ps’ Per-Unit Profit Comparison, 4Q2018 vs. 1Q2019. (Click to Enlarge)

Source: Oil & Gas Financial Analytics, LLC

Cash flow amounted to $26.90/boe, down from nearly $30/boe in fourth quarter 2018 as the decline in cash expenses was insufficient to offset the decline in oil and gas prices. The peer group’s oil and gas production grew by 1.4% in first quarter 2019 to 373 MMboe, driven by strong gains from Anadarko Petroleum and Diamondback Energy. The decline in cash flow resulted in share repurchases being cut in half to $541 million. Dividends, which are expected to be paid over time, fell 2% to $931 million as Pioneer Natural Resources pays a semiannual dividend in the second and fourth quarters. If Pioneer is excluded, the peer groups dividend payments increased by 1%. Year-on-year dividend payments were up 8% in the first quarter of 2019

 

Diversified E&Ps

The 16 companies in the Diversified E&P Peer Group earned $12.69/boe (blue bar segment to right in Figure 3) in first-quarter 2019, nearly 9% more than the $11.67/boe in fourth quarter 2018. As with the Oil-Weighted Peer Group, the Diversified E&Ps benefited from a sharp decline in impairment charges. The peer group garnered revenues of $37.33/boe, about 10% below the $41.84/boe received in fourth quarter of 2018. As mentioned earlier, both oil and gas prices fell during the quarter, leading to the revenue shortfall. Production from the peer group is about 60% oil/liquids and 40% gas.

The lower revenues were more than offset by reduced expenses, particularly the gutting of impairment charges. Lifting costs (yellow bar segment to right) fell $0.20/boe to $10.95/boe as a $0.37/boe decline in production costs was partially offset by a $0.17/boe increase in production taxes. DD&A expenses (orange bar segment to right) also fell slightly, down $0.12/boe to $12.80/boe. Like the oil-focused group, the Diversified E&Ps benefited from a huge decline in impairment charges (gold bar segment to right). In fourth quarter 2018, the peer group posted impairment charges of $4.78/boe, compared with only $0.10/boe in first quarter 2019. Exploration/Other expenses fell by 40% to $0.79/boe (gray bar segment to right).

Fig3_FirstQuarterFinancial1.PNG?itok=jt3

Figure 3. Diversified E&Ps’ Per-Unit Profit Comparison, 4Q2018 vs. 1Q2019. (Click to Enlarge)

Source: Oil & Gas Financial Analytics, LLC

Cash flow amounted to $26.35/boe, or about $4/boe lower than the $30.60/boe posted in fourth quarter 2018. The cash flow shortfall led companies to cut back on share repurchases, which fell by about $100 million to $2.2 billion. Dividend payments grew by $33 million in the first quarter of 2019 to $733 million, a 4.7% increase, primarily because Concho Resources initiated a dividend. The peer group’s oil and gas production rose 1% to 457.4 MMboe in the first quarter of 2019, stemming an extended decline. Half the peer group universe posted stronger output, including a 5-MMboe increase from Encana

 

Gas-Weighted E&Ps

The 10 Gas-Weighted E&Ps’ earnings rebounded in first quarter 2019 to $6.04/boe (blue bar segment to right in Figure 4) from the $5.20/boe reported in fourth quarter 2018 (blue bar to left). As with the other peer groups, fourth quarter 2018 earnings for the gas-focused companies were depressed by impairment charges, which led to positive earnings comparisons in the first quarter of 2019. Per-unit revenues were $20.01/boe, 17% lower than the $23.96/boe received in fourth quarter 2018. The price of natural gas, which accounted for 83% of production, fell sharply in the first quarter. Appalachian prices slid slightly more than Henry Hub quotes, where the majority of the peer group’s production originates.

Lifting costs declined by 1.5% to $7.60/boe (yellow bar segment to right), all because of a decline in production expenses as severance and ad valorem taxes were unchanged. DD&A expenses (orange bar segment to right) spiked in contrast to the trend of the other two peer groups, increasing 16% to $5.83/boe. As mentioned earlier, impairment charges (gold bar segment to right) plunged in first quarter 2019 to $0.40/boe from $5.83/boe in the fourth quarter of 2018.

Fig4_FirstQuarterFinancial1.PNG?itok=mf8

Figure 4. Gas-Weighted E&Ps’ Per-Unit Profit Comparison, 4Q2018 vs. 1Q2019. (Click to Enlarge)

Source: Oil & Gas Financial Analytics, LLC

Cash flow declined by nearly 25% to $12.40/boe. The declining cash flow forced a sharp curtailment in share repurchases, which were down 80% to $122 million. Despite the cash flow difficulties, dividend payments increased 2.6% to $80 million. Oil and gas production broke its multi-year rise, declining 6% from the fourth quarter of 2018 to 312.7 MMboe. Seven companies in the Gas-Weighted Peer Group posted declining production, with the output of Antero Resources and Gulfport Resources falling more than 2 MMboe each. The full-year forecast we unveiled recently for the Gas-Weighted E&Ps calls for a 2% gain in production during 2019.

 

Looking Forward

Nearly two-thirds of our way through the second quarter of 2019, E&P profitability looks to be on the upswing for the Oil-Weighted and Diversified peer groups, with oil prices up 15% so far this quarter over the first quarter. Natural gas prices, however, are about 10% lower, which will hurt profits for the Gas-Weighted E&Ps and offset some of the oil-related gains for the Diversified E&Ps. Full-year profitability will be challenged to meet 2018 results, excluding any extraordinary and one-time charges. As they stand now, oil prices in 2019 look like they will be about 10% lower than 2018 prices, while natural gas prices are a few percentage points worse than that. This will push cash flows lower and may have a negative impact on capital spending and share repurchases.

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Is the Shale Revolution Here to Stay?

Critics of the U.S. shale industry question its staying power.

 

Summary

U.S. shale oil is a booming business. As it drives up global oil supply and puts downward pressure on oil prices, U.S. production of shale oil poses a geopolitical threat to other oil-producing states. But critics say that the boom won’t last. If true, that changes the geopolitical calculus.

How much longer will shale oil be a booming business? The answer to that question, while fuzzy, has long-term geopolitical implications. U.S. shale oil production has grown steadily, putting downward pressure on the global price of oil. We’ve written before about the power of shale oil and the impact it has on other geopolitically important oil producers like Russia and Saudi Arabia, which rely heavily on oil revenue to either fund their government spending or support their economies. Our forecasts for these countries are built in part on the assumption that, as the global supply of oil increases, its price will hit a ceiling that could strain these countries’ public finances, which in turn would have political ramifications. But shale skeptics maintain that the industry is not sustainable. If they’re right, and if the shale industry were to die out in the next couple of years, tanking oil supply and spiking oil prices, the geopolitical calculus for Russia and Saudi Arabia would change substantially.

The critics’ argument is threefold. First, they claim that the shale boom depended on huge amounts of debt that was doled out without serious consideration for whether shale producers would be able to pay it back. Second, critics are worried that there’s less shale oil available than originally believed, reflected in shale wells’ depletion rates. Third, they see limited room for growth in the profitability of shale production as shale’s break-even price has stagnated. Combine these factors, the critics say, and you get an industry that will not endure. This Deep Dive will take a closer look at these criticisms and explore whether, in fact, U.S. shale really is an economically sustainable industry.

Shale: A Primer

To understand the criticisms of the industry, it’s important to understand what shale is and how oil is extracted from it – a technically complex and expensive process. Shale rock, embedded thousands of feet under the Earth’s surface, is less permeable than other types of rock. And yet it’s here that shale oil, or “tight oil,” is found. The extraction process for this oil is known as hydraulic fracturing – or “fracking” – and it requires drilling down to the shale deposits, and then drilling horizontally through the rock. The drillers then inject a water-based solution at high velocity to break apart the rock, creating fissures through which oil can flow. (This process can also be used to extract natural gas from shale deposits.)Fracking_Process.png

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The U.S. shale industry really took off in 2009. Thanks to the United States’ extensive shale formations, it has benefited hugely from the shale revolution. The combined technologies of hydraulic fracturing and horizontal drilling vastly increased the productivity of shale wells, and overall U.S. oil production has increased apace. In 2018, the U.S. produced an average of nearly 11 million barrels per day of crude oil, almost 60 percent of which came from shale. It’s helped the U.S. surpass Russia and Saudi Arabia in the production of hydrocarbons and is pushing the U.S. toward becoming a net energy exporter, a benchmark it’s expected to reach next year.

Financing: The Catalyst

Financing was, in many ways, the engine that drove the rise of shale oil, but the industry’s reliance on debt has also threatened to bring it down. In the wake of the 2008 financial crisis, interest rates fell, making debt cheaper and borrowing easier. In the low-interest rate environment, investors were looking everywhere for yield. Shale looked particularly appealing for debt investors since reserves could be used as collateral – if companies failed to pay their debts, the banks could simply take control of the reserves. This created the appearance of added security.

The availability of cheap, accessible debt coincided with two other important moments that created a turning point: skyrocketing oil prices and technological developments that had made the economics of shale drilling viable (though still expensive). Shale production took off, reversing a decadeslong decline in U.S. oil production that had begun in the 1970s.

Debt, however, is a double-edged sword. In exchange for immediate access to capital, firms assume higher operating costs down the road. This can lead to firms becoming over-leveraged as they assume so much debt that they cannot afford to both pay off the debt and pay regular operating expenses. So when oil prices tanked in 2015-16, many over-leveraged companies went out of business, causing U.S. oil production to drop from about 9.4 million bpd in 2015 to 8.8 million bpd in 2016. Notably, this was not an accident. Global oil supply had been climbing thanks to shale production. When supply is too high, OPEC typically cuts production to drive prices back up. But in 2015-16, OPEC chose not to cut supply, hoping that low prices would drive shale producers out of business and thus allow OPEC countries to reclaim market share they had lost to shale.

This downturn threatened to prove right concerns that, without high oil prices and access to cheap, plentiful debt, shale is not an economically viable industry. Companies had taken on unsustainable amounts of debt to fuel growth. When interest rates began to climb, the need to service that debt was a further incentive for shale companies to continue production – even if operations were barely or not at all profitable. These firms’ lending used to set up new wells created debt service expenses, which led to total operating expenses exceeding cash coming in from operations for too long; if interest rates had continued to rise, the entire industry would be, if not sunk, at least forced to slow production. This was not lost on debt investors, who of course feared that bankruptcies would wipe out most of their investment. As oil prices fell, access to debt capital decreased, forcing cash-strapped shale companies to turn instead to equity financing (that is, to issue more stock).US_Shale_Financing.png

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Bankruptcies did, in fact, increase substantially when oil prices plummeted in 2015-16. Banks, as they are wont to do, had offered loans based on current or recent conditions, without consideration for what would happen when oil prices dropped – an inevitability in a cyclical industry like oil. Meanwhile, larger companies bought up the assets of the smaller, less efficient ones, leading to industry consolidation.

But the cycle continued, despite OPEC’s best efforts to keep prices down long enough to destroy the shale industry, and conditions improved. As a number of companies went bankrupt, oil supplies decreased, and prices rose once again. The companies that survived were forced to cut their capital expenditures, which actually led to an improvement in cash flow. Since 2016, bankruptcies have declined significantly.US_Oil_Bankruptcy.png

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Still, some industry observers continued to insist that the economics of the industry itself – not just of individual companies – were fundamentally unsustainable because they relied too heavily on debt. They claimed that debt was not just one factor in shale’s growth but in fact the decisive factor. Without it, they said, the industry couldn’t survive, because total expenses, including debt services fees, would continue to exceed revenue. Since 2016, however, shale drillers have moved toward positive, or at least neutral, cash flow. As of early 2018, a greater share of shale companies was beginning to cover the cost of new wells with operating cash flow, rather than debt. Rystad Energy, an oil and gas market research firm, anticipates that in 2019 shale drillers will generate enough cash to cover capital expenses and pay dividends, though just barely.US_Oil_CashFlowBarrel.png

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If shale companies have enough cash remaining to pay dividends – even just a little bit – it’s a sign that they have enough cash on hand to better pay their debts. As of the fourth quarter of 2018, about 40 percent of companies in a 33-company sample of shale producers were cash-flow positive. To be economically viable, more companies will need to at least break even – in the case of shale, that means they need to generate enough cash from operations to cover their operating expenses without external capital.US_Oil_CapexCashFlow.png

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So, while a good number of shale companies do seem to be in precarious financial situations, many are trending toward positive cash flow. And just because some companies are at risk of going out of business doesn’t mean that shale oil production will cease. Truly cash-strapped companies can sell their assets to major international oil companies that have diversified revenue streams and can keep shale machinery offline until oil prices rise. In other words, as time goes on, the shale industry will mature and, like any industry, experience both bankruptcies and consolidation as some companies prove to be more efficient operators than others.

Oil Reserves: Estimating What’s Out There

But it’s not just financing that shale skeptics criticize. They’re concerned, too, that shale companies substantially overestimated their reserves. They’re not wrong; many oil companies have had to revise their total reserve estimates downward, and it seems their initial overestimations were directly related to the question of financing. If companies had higher reserves – a form of collateral – they could take on more of the debt they needed to get underway. Similarly, when debt financing dried up in 2015-16 and companies started to issue stock, they overestimated their reserves so that it would be easier to raise money from investors.

How were oil companies able to convince banks and investors that their oil reserves were larger than they actually were? Oil-producing companies in the U.S. are required to file with the Securities and Exchange Commission estimates of their “total proven oil reserves” – the reserves for which there is a 90 percent chance that the oil will be recovered. But as the fledgling shale industry was starting to raise money, companies began to use a metric called “estimated ultimate recovery” instead. EUR simply refers to existing reserves, without indicating the likelihood of recovery. The metric is also based on the assumption that, as time goes on, companies would be able to replicate their early success – that additional wells would produce as much as already tapped wells. In retrospect, this was flawed logic; the initial wells are almost always the most productive ones. Shale drillers also assumed they could pack shale wells close together. But packed too tightly, the wells would pull from shared reserves, decreasing the amount that each could draw. Both assumptions contributed to overly optimistic EUR numbers.

In response, investors are now scrutinizing shale producers’ claims. They began by questioning shale companies’ estimates of their reserves – and therefore whether they were worth investing in – and have started pushing for greater accountability in firms’ capital expenditures and demanding higher returns. As a result, shale companies are now exercising more oversight of capital expenditures, cutting spending, moving toward positive cash flow, and using that cash flow to return dividends to investors or to buy back shares. All of this is bolstering the economic sustainability of the industry.

Shale producers’ estimates affect more than just financing. Market research firms and the U.S. Energy Information Administration (which is responsible for collecting and reporting economic data on the energy industry that is used in policymaking and economic forecasting) take into consideration the reserve estimates that companies put out. Historically, forecasts of U.S. shale oil production have been outstripped by actual production, and current forecasts are almost uniformly positive – the EIA and industry consulting firms Rystad Energy and Wood Mackenzie all anticipate substantial increases in oil production over the next 10 years, even with lower oil prices. That’s good news for the shale industry – even with more conservative estimates of their reserves, shale oil isn’t going anywhere.US_Oil_ProductionForecasts.png

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The industry also stands to benefit from pipelines scheduled to come online in late 2019 and early 2020. Production has been constrained by a lack of transportation infrastructure in the U.S., and these pipelines will facilitate transport of resources from the Permian Basin, the source of nearly one-third of U.S. oil output, to refineries and export centers in places like the Gulf Coast. It seems shale oil production will continue growing, though at a somewhat slower pace than the industry initially anticipated.Global_Oil_Reserves.png

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Supply and Profitability: The Geopolitical Question

Ultimately, what affects geopolitics is not the durability of one shale company or another – it is the price of oil and whether the supply of oil continues to increase. And even if the growth in U.S. shale oil production slows, the industry will likely persist for at least the next decade. Skeptics have questioned the shale industry’s ability to sustain high levels of production since it took off over a decade ago. But U.S. production has often outperformed forecasts, and we have to keep this in mind when examining claims that the shale industry is not financially viable.

One of the primary concerns here is the industry’s profitability. As the industry has grown and matured, the break-even price per well has come down. But some doubters claim that there are fewer gains to be made through technological advances. If true, this would mean that the break-even point will not come down much further, leaving little room for growth in the profitability of shale. This may be a valid criticism. But that still puts the profitable oil price for a lot of shale companies well below Saudi Arabia’s fiscal break-even point (the point at which the government can balance its budget), which the International Monetary Fund says is currently about $80-$85 per barrel.US_Oil_BreakevenPrice.png

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Another, more convincing critique examines the relationship between long-term supply and profitability. It’s based on comparing production rates in the Bakken Formation and the Eagle Ford Group, some of the earliest shale basins to be tapped, with the Permian Basin, whose development only took off in 2013. The U.S. has seen net oil production gains since 2016, and much of those gains were from new wells, especially in the Permian Basin. Meanwhile, however, production in Bakken and Eagle Ford has declined following the 2015-16 downturn. (Eagle Ford has stagnated, while Bakken has only recently inched above its pre-2015 production levels.)US_Oil_Basins.png

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Since Eagle Ford and Bakken are older discoveries than the Permian, critics suggest that the former are more representative of what shale basins will be capable of producing after several years of drilling, and that those production levels will be much lower than following the initial discovery, when only the choicest wells were being drilled. The Permian’s production has an outsize effect on total U.S. production. If it follows the trend of its predecessors, that effect would be problematic.US_Oil_Regional_Production.png

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New wells usually produce more oil at the outset, and the rate at which oil flows thereafter is called the decline rate. The Permian’s decline rates are rising faster than expected. Take, for example, Wolfcamp – one of the drilling areas within the Permian Basin. When drilling in the Permian got underway in 2013, observers expected decline rates of 5-10 percent; but Wolfcamp’s rate is now closer to 15 percent annually. Shale companies will need to drill more wells just to keep producing the same volume of oil. If Eagle Ford, Bakken and Permian production all stagnate or decline, that could constrain the amount of oil the U.S. is able to produce in the long run.

That’s assuming no new reserves are discovered. But, in fact, new reserves are discovered often – even in the Permian itself. In December, the U.S. Department of the Interior reported that the Permian’s Wolfcamp and Bone Spring Formations contain the most oil and gas resources of any location ever assessed. Still, that was not an assessment of proven reserves – those that can be recovered using existing technology – but rather of undiscovered reserves – defined by the department as “resources postulated, on the basis of geologic knowledge and theory, to exist outside of known fields of accumulations” – and technically recoverable reserves – defined as “resources producible using currently available technology and industry practices.” For now, companies are poised to continue producing enough to fuel growth in U.S. oil production. But if Permian production stagnates, they may well have to keep finding more reserves – and ways to extract them – to make it last.

What’s Ahead for Shale

The cycle of the oil industry goes on. Demand for oil may decline as countries shift toward fuel-efficient and electric vehicles. But demand for petrochemicals (chemical products for which oil is an input) will continue to grow as more people in the world’s most populous countries – namely, India and China – move into the middle class. The growing demand for oil will drive prices up, enabling shale drillers to increase production and, therefore, producers to rely less on debt – and even to start paying dividends.

It’s no surprise, then, that countries that rely heavily on the oil industry are having to rethink the underpinnings of their economies. (Saudi Arabia, for example, is working to reconfigure its economy to depend less on oil.) The U.S. could also become energy independent, which could have significant geopolitical implications.

The combination of hydraulic fracturing and horizontal drilling, which paved the way for the shale revolution in the U.S., is out of the box and can’t be put back in. The technology will continue to allow the U.S. to produce large quantities of oil for the foreseeable future. Shale isn’t going anywhere – and it will have a major influence over the global economics of oil for at least the next decade.

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New completion designs, breakevens help Bakken break records

 

A historic, decades-old oilfield in North Dakota is responsible for one of the highest barrel per day initial production rates ever recorded from a well on land in the U.S. The record-breaking well highlights how advanced completions in the Bakken shale play have become, and why the play is still leading the world in technological advancements deployed in the field. The Antelope field hosted a well that surpassed 10,000 barrels of oil per day (16,000 barrels of oil equivalent if the natural gas produced from the well was factored in), according to Lynn Helms, director of the department of mineral resources for North Dakota. Helms talked about the well and the impact of enhanced completions on the Bakken during his monthly update to industry and stakeholders.

“We are seeing the effects of remarkable wells,” he said. “There is almost no where you can drill where you can’t make money.”

New completion designs are expanding the perceived core of the Bakken and Three Forks formation by roughly 40 to 50 miles in some cases. According to Helms, the wells still decline but they start out with production rates that are 50 percent higher than previous versions and also remain producing at sustained levels that are also

 

50 percent higher than wells producing for a similar time frame that were also previously drilled and completed in a similar area.

“Virtually everywhere is economic,” he said.

Starting in mid-March, the Bakken reached roughly 25 frack crews after weather hampered operations in the Williston Basin for the winter months. By mid-summer, there should be approximately 50 frack crews operating in the state.  “Everything is moving at a rapid pace now. Road restrictions are off,” he said, adding that some counties have seen a big uptick in activity and workover and completion work is really taking off.

Later this year, oil production should once again begin breaking records. Natural gas production continues to rise. In March, natural gas production rose 6.5 percent from the previous month. Prices remain low for gas and natural gas liquid takeaway capacity still remains inadequate. Other states with shale gas plays have expressed similar issues as North Dakota, he noted, adding that all states are now accustomed to massive gas production volumes from new wells. In North Dakota, the volume of gas captured is at an all-time high, but supply is outpacing takeaway capacity.

On the crude-by-rail front, the state intends to file a lawsuit against the state of Washington related to new crude-by-rail vapor pressure restrictions the state has planned to start later this summer. According to Helms, the lawsuit is based on a violation of interstate commerce laws and the science behind the Washington law.

With 1,800 job openings for oil and gas positions in the state, Helms said they are also sharing the same issues of other states that have shale plays: they all need more workforce. The state has plans to develop new options for high school workers and streamline the process of getting into certain jobs. In the next two years, projections show the state will need to fill 3,500 jobs each year to meet the need of the oil and gas industry.

Permitting for new wells is still strong at roughly 100 to 150 permits per month. Oil prices are expected to rise due to global turmoil and throughout the year, Helms expects the Bakken and Three Forks (where 99 percent of the new wells are being drilled) to add drilling rigs.

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On 5/31/2019 at 6:48 PM, James Regan said:

Er I Do!

In Brasil it’s very common Petrol stations offer Petrol, Deisel, GNV, álcool. The GNV (Gas Natural Vehicular) it’s filled from the motor or adapter on the Petrol cap, the tank sits in the boot or Trunk ( if your from across the pond) you fill up and off you pop. A little bit of unleaded in the tank for reserve and extra lubrification. 

Quite common really no big deal just another excellent carbon based fuel to efficiently power the human race fwd.

http://www.ngvjournal.com/category/s1-news/c5-products/

11383FDD-08EE-4314-B075-60E9E6BEF4C1.jpeg

Not a lot of data there.  How much natural gas is consumed in Brazil in personal vehicles in billions of cubic meters per year?

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On 6/1/2019 at 2:23 AM, ronwagn said:

I am not mainly talking about personal vehicles. I am talking about large vehicles. Personal vehicles that use CNG are usually found in other countries around the world. The United States is way behind in personal NGV use. South America, China, Pakistan, Iran,  and India use CNG and LNG for a lot of commercial and private vehicles. 

I have more information than you would want to absorb. Let me know if you have further questions.Here are a few of my references:

https://docs.google.com/document/d/19Yf0MWpo91vrlu-mmJtjB1ERukjJo5W41oi4RZVQBug/edit

https://docs.google.com/document/d/1_QZTgxCECgIj7EItX9P6Q2J4BjsSt_nPyrDG1zAl4b0/edit

http://www.cngprices.com/station_map.php

http://www.ngvglobal.com/

https://en.wikipedia.org/wiki/Natural_gas_vehicle

http://www.cngchat.com/forum/

Correct, that is more than I am interested in reading.  How about a single link with data on the total amount of natural gas consumed by road vehicles of any type Worldwide for any of the past 5 years.  That is all I am interested in.  My guess is it is about 1% or less than the amount of barrels of oil equivalent consumed in the form of gasoline (petrol) and or diesel.

A single link please.

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2 hours ago, D Coyne said:

Not a lot of data there.  How much natural gas is consumed in Brazil in personal vehicles in billions of cubic meters per year?

6.1 Billion Cubic Meters in 2018

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