Will We Ever See 100$+ OIL?

[Gerry Maddoux + 3,627]

2 hours ago, Old-Ruffneck said:

Since you've never worked in the oilfield I give you the benefit of ignorance on how from Searching for oil to cutting in the roads to spudding in and completion. 

Please explain to the group here why in the 1st year depletion is at a high rate.

I actually did work in the oilfield. In 1960. I was sixteen. But I'm sure your comment had to do with working in the Shale Field, so you're technically correct. I also worked on a seismograph crew at one point. And 3D seismography was performed on my land in the nineties. I have watched a great number of wells being spudded, even paid for some of them. Sweated out the drilling, then the completion. I'm sure you're much more knowledgeable than I in these matters and I don't pretend to be an expert. The one field where I was an expert had absolutely nothing to do with oil. And contrary to your allegation, I have absolutely no idea what the price should be, only an observation that most companies don't seem to be making a profit at $55. If they were making a profit, Wall Street would reward them with better share prices. Whiting, for example, is a pretty good company. Their share price sat at $90+ in 2014. They exercised some faulty judgement in a purchase transaction but have wonderful core properties which they handle with arguably the best completion techniques in the world. Their share price is now $11. Look, I don't want to argue with you, and if it does you some good to put me down, then good on you, but I've watched this movie before: up and down, boom and bust. Surely there's a better way. Surely a constant $75 is better than $25 to $100, and then back, up and down. But hey, I'm just like you: I live with whatever the market tells me is the right price. I just happen to think we're drilling ourselves into the ground, that's all.

As to why there's such rapid depletion the first year, it's pretty simple--but complicated too. The oil contained within dense layers of black shale is released from bondage using a technique to fracture the rock. The slick-water fracture method used to be performed using guar gum. Now it's mostly just tons and tons of a fine-cut of sand flushed in at high pressure, using millions of gallons of water. Hundreds of millions of small pores are opened up in the shale. When the oil within a fracture point has escaped, usually with a concomitant pressure drop, the flow of oil slows. There are ways to mitigate the rapid decline. One of them is the injection of natural gas liquids--containing methane, ethane and propane gases primarily--back down the wellbore. One of the reasons that Whiting has become so adept at completion is that the natural gas in the Williston Basin is about 70% methane, 20% ethane, 10% propane, in contrast to many other shale basins where even 10% ethane is pretty rich. Ethane seems to be a good stimulant. Probably the very best injectate that has been found, however, is carbon dioxide dissolved in saline. It is bountiful in reasonable proximity to some shale fields due to enormous production from coal mines--such as the ones in the Powder River in the Northern Niobrara of Wyoming and even the northeastern edge of the Bakken. In fact, a kid in the research lab up there has shown an increase from 15-20% shale oil recovery up to 40% recovery using carbon dioxide in solution injections. But again in the lab. The problem in scaling this up to commercial use in the field is that non-corrosive tubing has to be used. That's expensive as all get-out, especially since the best shale oil isn't all that close to carbon dioxide sources. Why not? Because lower pressures and temperatures produce "oil shale"--kerogen, which is basically kerosene--whereas higher pressures and temperatures produce "shale oil"--the light, sweet crude oil that we refine. So, kerogen is actually immature oil, and it lies in great abundance in coal mining areas, and that's where the carbon dioxide comes from. The point is, though, that there is almost certainly a solution to this dramatic one-year decline rate. Or maybe not. Maybe refracking every couple of years is what's best . . . but an extensive refrack job costs over 50% of drilling a well from spud. All I'm saying is that drill, baby, drill may not be the preferred route; perhaps frack, refrack and refrack another time is the correct answer. My understanding is that in high porosity areas such as the Delaware, refracking wells isn't highly regarded, whereas the experts in North Dakota say that somewhere between 60-80% of their wells are benefitted greatly by refracking. The SCOOP/STACK of Oklahoma is somewhere in between. There's a water problem too, as I'm sure you know. In the Williston, the salt water to oil ratio is about 1:1 while in the lower Permian it's 2:1 and in some parts of the Delaware it's as high as 3:1. The Power River upper Niobrara has a low ratio. Of course, smart guys are working on getting more and more of that polluted water back down the hole, but first the fairly large component of oil contaminant has to be skimmed off, then the wastewater can be used. This is a much more laborious system than merely using the natural gas liquids. In fact, what on earth to do with all this waste water is a hefty problem within its own right: billions of gallons are taken out of the life cycle of water every day and are forever sequestered away in a lined hole so that it can't spread into aquifers. Alas, it can no longer evaporate either. In mid-central Oklahoma, in the SCOOP/STACK, where much more water comes out than in other shale fields, they've had earthquakes that are clearly related to this sequestration problem down disposal wells; when the Oklahoma Corporation Commission limited disposal, the number and intensity of earthquakes diminished significantly. As far as I know, this particular problem hasn't happened anywhere else. I owned disposal wells in Texas, but due to this problem never participated in one in Oklahoma. But back to the high depletion rate, that is the singular issue that has soured Wall Street on investing in the shale oil industry during the last couple of years. Even low-cost shale wells cost over five million. If the IP of that well is great, say 1,000 blls/d, you can pretty well expect the daily production to be down to 200 blls (or lower) by the end of the first year. In the Permian, as both Encana and Concho so sadly discovered, if you place those wells too close together they talk to each other. In other words, at depth, the porosity is so great that one wellbore siphons off oil from the other well. Put in a dozen infills (child wells) and they all siphon oil from the wildcat (parent well) in that drilling tract. When you frack, even if you (appropriately) close in the parent well, it is still damaged. In lower porosity basins--the Bakken comes to mind, and again, the Upper Niobrara--fracking of a child well oftentimes improves the parent well. Of course, many of these parent wells up there are old, poorly completed wells using only maybe ten stage fracks as opposed to the fifty frack stage completions today, and were also fracked using a tiny percentage of the water and sand used today. This is a longwinded response to your suggestion, and is truly about all I know about the matter. I am an optimist, so I believe we will see a dramatic improvement in completion techniques, perhaps using something that no one has even thought of as of this writing. It has become clear just in the last couple of years that the completion job has to be tailored to the strata, the depth of the source rock, as well as the presence of a liquid sump beneath all the layers of shale. Things like porosity, the presence of dolomite and marl between shale layers, sandstone and limestone partitions and proximity to rigid, nonpermeable barriers (pinchouts) have to be taken into consideration. I am not remotely qualified to address these issues. But in the end, I think we're going to be looking back in five years and laughing at the rather elementary hurdle easily jumped on our way to addressing this decline curve that has dogged the shale oil industry from the time of its inception. 

 

[David Jones + 84]

3 hours ago, Old-Ruffneck said:

1,580,000 divided by 7 equals 225,714. Really chump change! WSJ know that some of that debt is from wells not completed? They can write a poor picture but in reality some ARE losing money, while some are making money. Before you said 100$ oil and now backing to 75$ WTI. Sounds to me your prudent price isn't to all investors likings. Price goes up, demand drop like a rock. Price at 100$ and you see more 'lectric vehicles mass produced. Since you've never worked in the oilfield I give you the benefit of ignorance on how from Searching for oil to cutting in the roads to spudding in and completion. A lot goes into the field and if the markets deem 55$, so be it. They're not losing money, just not making what some investors would like. The Greed factor.

This is from the same article discussed above:

"It also said that one of its projects where it tried to densely pack wells together, which it called “Dominator,” the results were not as good as they had hoped. The project had 23 wells, but production disappointed. The “30 and 60 day production rates were consistent with our other projects in that area, but the performance has declined,” Leach said. So, the company will abandon the densely packed well strategy and move forward with wider spacing."

That's the main issue with shale, it's not so much about "who can make money today and at what price", it's more about the indication that shale is a fundamentally substandard resource. Especially if such crazy projects with many, many tightly packed wells were necessary in the first place and even worse that this course of action was not effective at all.

We can argue about the comparative capabilities of alternatives but the fact is that alternatives such as renewables and the various forms of synthetic energy storage rely on one resource most of all and that is brain power, it's unlikely that this resource will run out so those companies can work to improve the technology though production.

Using the same growth principles as the general tech industry (companies such as Amazon or Tesla come to mind) for a technology designed to extract a finite fossil fuel while most of the global economy still heavily relies on fossil fuels has a high probability of leading to disaster in my opinion where the entire industry could run off a cliff before the transition is completed. I'm not sure precisely what the economic result of such an eventuality would be but it's unlikely to be good.

[Old-Ruffneck + 1,177]

5 hours ago, Gerry Maddoux said:

And contrary to your allegation, I have absolutely no idea what the price should be, only an observation that most companies don't seem to be making a profit at $55. If they were making a profit, Wall Street would reward them with better share prices. Whiting, for example, is a pretty good company. Their share price sat at $90+ in 2014.

My point all along, at 55$ they are still making money, and when in 14 it hit 100$ or thereabouts, the country as a whole crashed. The fundamentals are still there, inflation has risen some, but factor in 100$ crude and see the whole picture. Can I afford 4.00 diesel, yes, but most cannot, or gas...….. It's not just about me, there are millions in this country that can't afford food and gas at 4.25$ a gallon. So some would like crude to be 100+bbl and get rich whereas I am just a small businessman and see the struggles here in Central Illinois, Caterpillar ss2 pays 12.00 and hour and have no hard time filling positions. Sux…..  So to me, not to argue, if you pay 4+ a gallon at 12.00 an hour and driving 30 miles each way in a car that get 18mpg, do the math. That is the real America I know.

[Old-Ruffneck + 1,177]

5 hours ago, David Jones said:

This is from the same article discussed above:

"It also said that one of its projects where it tried to densely pack wells together, which it called “Dominator,” the results were not as good as they had hoped. The project had 23 wells, but production disappointed. The “30 and 60 day production rates were consistent with our other projects in that area, but the performance has declined,” Leach said. So, the company will abandon the densely packed well strategy and move forward with wider spacing."

That's the main issue with shale, it's not so much about "who can make money today and at what price", it's more about the indication that shale is a fundamentally substandard resource. Especially if such crazy projects with many, many tightly packed wells were necessary in the first place and even worse that this course of action was not effective at all.

We can argue about the comparative capabilities of alternatives but the fact is that alternatives such as renewables and the various forms of synthetic energy storage rely on one resource most of all and that is brain power, it's unlikely that this resource will run out so those companies can work to improve the technology though production.

Using the same growth principles as the general tech industry (companies such as Amazon or Tesla come to mind) for a technology designed to extract a finite fossil fuel while most of the global economy still heavily relies on fossil fuels has a high probability of leading to disaster in my opinion where the entire industry could run off a cliff before the transition is completed. I'm not sure precisely what the economic result of such an eventuality would be but it's unlikely to be good.

Yes, trial by error, while the science getting the goo out of the ground is much better than 6 years ago, we still have large strides to make. And they aren't resting on their laurels, the innovating and making improvements almost on a monthly basis. Just how much oil is in the ground world-wide is still a guessing game. I've a feeling I will be dead and buried before we run out. Converting NG is the next big step. 

[Gerry Maddoux + 3,627]

6 hours ago, Old-Ruffneck said:

My point all along, at 55$ they are still making money, and when in 14 it hit 100$ or thereabouts, the country as a whole crashed. The fundamentals are still there, inflation has risen some, but factor in 100$ crude and see the whole picture. Can I afford 4.00 diesel, yes, but most cannot, or gas...….. It's not just about me, there are millions in this country that can't afford food and gas at 4.25$ a gallon. So some would like crude to be 100+bbl and get rich whereas I am just a small businessman and see the struggles here in Central Illinois, Caterpillar ss2 pays 12.00 and hour and have no hard time filling positions. Sux…..  So to me, not to argue, if you pay 4+ a gallon at 12.00 an hour and driving 30 miles each way in a car that get 18mpg, do the math. That is the real America I know.

Below are the pay schedules of some of the dozens of executives at Cat. There are literally hundreds more making over a million a year. It seems so weird to me that in a liberal Democratic machine like Illinois, a group of fairly sophisticated workers would settle for $12/hour while their superiors are being paid millions (see the nearly $22M being paid to Mr. Charter). My argument would be that, a) they should have some sort of carpool program (which I strongly suspect they have in place), b) the executive compensation should be cut drastically and the blue-collar workers should receive what they deserve, which is around $20-$25/hour. I clearly have a greater affiliation with those blue-collar workers than with the overpaid executives, though I imagine the latter work hard too. Look, I'm too old to get into a pissing contest, but my sole argument on this site has been that for decades all the politicians have yammered on about making America energy-independent, and now that we've done it, the very industry--helped along by presidential tweets that oil is too high--is literally imploding. If we keep this up, then oil will go to about $30, especially if China starts buying Iranian oil (which is on fire-sale). Then a whole bunch of drillers and operators will go broke, OPEC+ will overshoot, and the price will richochet to perhaps that fabled $100 mark. At that level, the price of gasoline will truly become astronomical. My thrust--not driven by greed as you seem so intent on proving--is that it is better to show restraint, nudge the price up to where most prudent drillers are making a profit. I think that price is about $75. Additionally, for the first time in history, write up an energy policy that works somewhat the same as the Federal Reserve: to buffer the low lows and the high highs. I'm not talking about price fixing, but some sort of GPS for drillers. Perhaps we're both too obdurate to ever reach a common ground. Anyway, I will once again abdicate to you as the victor and move on to something less stressful. For the record, I consider myself a patriot; I have been poor and not so poor; I have a strong belief that in America, if you have a good attitude and work hard, you will rise; I strongly believe that if it were not for shale oil we would be hostage--at this very moment--to the country that sent 15 of the 19 terrorists over to destroy the World Trade Center; it pains me greatly to see the very companies that revolutionized the shale movement become victims because they don't own petrochemical companies and refineries; if we allow Saudi Arabia to once again gain control of the hydrocarbon industry, $100 oil is just something you'll see in your rearview mirror as it rockets on to $200 and up. Farewell, my worthy foe, as I have just bade you a good trip in this life.  

For its 2019 fiscal year, CATERPILLAR INC, listed the following executives on its annual proxy statement to the SEC

NAME AND TITLE

TOTAL COMPENSATION

Bradley M. Halverson

Group President & CFO

$3,566,404

D. James Umpleby III

Chairman & CEO

$21,398,048

Robert B. Charter

Group President

$8,975,495

Bob De Lange

Group President

$7,302,619

Thomas A. Pellette

Group President

$7,076,027

Joseph E. Creed

Interim CFO

$3,742,204

Denise C. Johnson

Group President

$7,196,581

Andrew R. J. Bonfield

CFO

$7,181,187

[Edward Schell + 1]

Yes and soon if OPEC+ doesn’t cheat. The apparent US production (EIA production plus adjustment) has been averaging 0.83MM below demand during June/July. US storage dropped 46.7 mmBbls. And the stage is set for US production to fall further with lower rig count and capital constraints in 1H & 2H 2019. At current trends, US storage will be at 2013 levels by the end of 2019, below 320 MMBbls - unless OPEC+ cheats. The price market will respond.  

[Dennis Del 0]

On 7/9/2019 at 4:06 PM, Keith boyd said:

The United states has 10 years of oil reserves left, less and less as they ramp up production. 

 

Enjoy energy independence while it lasts. Peak oil was supposed to happen a decade ago but new technology created new reserves of recoverable oil and pushed the peak back for a while. Oil is still finite, and the middle east is chewing through their reserves too. Alternative energy sources will stretch out how long reserves can last but  I assure you in 100 years oil will be worth more then gold. We will never completely replace oil, at least not with something as good. 

HOUSTON (Reuters) - The largest oil field in the United States holds as much as 49 years worth of oil at current production rates, according to data from a report released on Thursday by the U.S. Geological Survey (USGS).   (Dec 2018)  

Oil companies are not spending billions to handle shale crude oil for just a 10 year payout...  The oil is there and so is the gas.  It will take a major supply threat for us to see $100 anytime soon and probably not in my lifetime which is another 25 years.    

[James + 30]

35 minutes ago, Dennis Del said:

HOUSTON (Reuters) - The largest oil field in the United States holds as much as 49 years worth of oil at current production rates, according to data from a report released on Thursday by the U.S. Geological Survey (USGS).   (Dec 2018)  

Oil companies are not spending billions to handle shale crude oil for just a 10 year payout...  The oil is there and so is the gas.  It will take a major supply threat for us to see $100 anytime soon and probably not in my lifetime which is another 25 years.    

Everything you’ve posted is wrong, for starters we do not have 49 years of oil left to drill, there is a difference between “estimated” and “proven” reserves, Our oil reserves have been vastly over exaggerated, it’s part of the bigger shale Ponzi scheme. Secondly, we’ll see $100 oil much sooner than 25 years, you must not realize what’s happening right now, I won’t list the reasons either. The next oil bull market is coming soon. 

[Guest]

On 8/5/2019 at 7:21 AM, Gerry Maddoux said:

I actually did work in the oilfield. In 1960. I was sixteen. But I'm sure your comment had to do with working in the Shale Field, so you're technically correct. I also worked on a seismograph crew at one point. And 3D seismography was performed on my land in the nineties. I have watched a great number of wells being spudded, even paid for some of them. Sweated out the drilling, then the completion. I'm sure you're much more knowledgeable than I in these matters and I don't pretend to be an expert. The one field where I was an expert had absolutely nothing to do with oil. And contrary to your allegation, I have absolutely no idea what the price should be, only an observation that most companies don't seem to be making a profit at $55. If they were making a profit, Wall Street would reward them with better share prices. Whiting, for example, is a pretty good company. Their share price sat at $90+ in 2014. They exercised some faulty judgement in a purchase transaction but have wonderful core properties which they handle with arguably the best completion techniques in the world. Their share price is now $11. Look, I don't want to argue with you, and if it does you some good to put me down, then good on you, but I've watched this movie before: up and down, boom and bust. Surely there's a better way. Surely a constant $75 is better than $25 to $100, and then back, up and down. But hey, I'm just like you: I live with whatever the market tells me is the right price. I just happen to think we're drilling ourselves into the ground, that's all.

As to why there's such rapid depletion the first year, it's pretty simple--but complicated too. The oil contained within dense layers of black shale is released from bondage using a technique to fracture the rock. The slick-water fracture method used to be performed using guar gum. Now it's mostly just tons and tons of a fine-cut of sand flushed in at high pressure, using millions of gallons of water. Hundreds of millions of small pores are opened up in the shale. When the oil within a fracture point has escaped, usually with a concomitant pressure drop, the flow of oil slows. There are ways to mitigate the rapid decline. One of them is the injection of natural gas liquids--containing methane, ethane and propane gases primarily--back down the wellbore. One of the reasons that Whiting has become so adept at completion is that the natural gas in the Williston Basin is about 70% methane, 20% ethane, 10% propane, in contrast to many other shale basins where even 10% ethane is pretty rich. Ethane seems to be a good stimulant. Probably the very best injectate that has been found, however, is carbon dioxide dissolved in saline. It is bountiful in reasonable proximity to some shale fields due to enormous production from coal mines--such as the ones in the Powder River in the Northern Niobrara of Wyoming and even the northeastern edge of the Bakken. In fact, a kid in the research lab up there has shown an increase from 15-20% shale oil recovery up to 40% recovery using carbon dioxide in solution injections. But again in the lab. The problem in scaling this up to commercial use in the field is that non-corrosive tubing has to be used. That's expensive as all get-out, especially since the best shale oil isn't all that close to carbon dioxide sources. Why not? Because lower pressures and temperatures produce "oil shale"--kerogen, which is basically kerosene--whereas higher pressures and temperatures produce "shale oil"--the light, sweet crude oil that we refine. So, kerogen is actually immature oil, and it lies in great abundance in coal mining areas, and that's where the carbon dioxide comes from. The point is, though, that there is almost certainly a solution to this dramatic one-year decline rate. Or maybe not. Maybe refracking every couple of years is what's best . . . but an extensive refrack job costs over 50% of drilling a well from spud. All I'm saying is that drill, baby, drill may not be the preferred route; perhaps frack, refrack and refrack another time is the correct answer. My understanding is that in high porosity areas such as the Delaware, refracking wells isn't highly regarded, whereas the experts in North Dakota say that somewhere between 60-80% of their wells are benefitted greatly by refracking. The SCOOP/STACK of Oklahoma is somewhere in between. There's a water problem too, as I'm sure you know. In the Williston, the salt water to oil ratio is about 1:1 while in the lower Permian it's 2:1 and in some parts of the Delaware it's as high as 3:1. The Power River upper Niobrara has a low ratio. Of course, smart guys are working on getting more and more of that polluted water back down the hole, but first the fairly large component of oil contaminant has to be skimmed off, then the wastewater can be used. This is a much more laborious system than merely using the natural gas liquids. In fact, what on earth to do with all this waste water is a hefty problem within its own right: billions of gallons are taken out of the life cycle of water every day and are forever sequestered away in a lined hole so that it can't spread into aquifers. Alas, it can no longer evaporate either. In mid-central Oklahoma, in the SCOOP/STACK, where much more water comes out than in other shale fields, they've had earthquakes that are clearly related to this sequestration problem down disposal wells; when the Oklahoma Corporation Commission limited disposal, the number and intensity of earthquakes diminished significantly. As far as I know, this particular problem hasn't happened anywhere else. I owned disposal wells in Texas, but due to this problem never participated in one in Oklahoma. But back to the high depletion rate, that is the singular issue that has soured Wall Street on investing in the shale oil industry during the last couple of years. Even low-cost shale wells cost over five million. If the IP of that well is great, say 1,000 blls/d, you can pretty well expect the daily production to be down to 200 blls (or lower) by the end of the first year. In the Permian, as both Encana and Concho so sadly discovered, if you place those wells too close together they talk to each other. In other words, at depth, the porosity is so great that one wellbore siphons off oil from the other well. Put in a dozen infills (child wells) and they all siphon oil from the wildcat (parent well) in that drilling tract. When you frack, even if you (appropriately) close in the parent well, it is still damaged. In lower porosity basins--the Bakken comes to mind, and again, the Upper Niobrara--fracking of a child well oftentimes improves the parent well. Of course, many of these parent wells up there are old, poorly completed wells using only maybe ten stage fracks as opposed to the fifty frack stage completions today, and were also fracked using a tiny percentage of the water and sand used today. This is a longwinded response to your suggestion, and is truly about all I know about the matter. I am an optimist, so I believe we will see a dramatic improvement in completion techniques, perhaps using something that no one has even thought of as of this writing. It has become clear just in the last couple of years that the completion job has to be tailored to the strata, the depth of the source rock, as well as the presence of a liquid sump beneath all the layers of shale. Things like porosity, the presence of dolomite and marl between shale layers, sandstone and limestone partitions and proximity to rigid, nonpermeable barriers (pinchouts) have to be taken into consideration. I am not remotely qualified to address these issues. But in the end, I think we're going to be looking back in five years and laughing at the rather elementary hurdle easily jumped on our way to addressing this decline curve that has dogged the shale oil industry from the time of its inception. 

Gerry some detail for once would be nice