The Real Reason Why US Oil Production Has Peaked

[James Regan + 1,776]

"One of the basic assumptions or “Paradigms” that is keeping a lid on the price of oil is the belief that U.S. oil production will continue going up year­-after-year. This paradigm is second only to the fear that the tariff war between the U.S. and China will go on for years, causing a global recession. FEAR has caused oil prices to fall back into the mid-$50s, not supply / demand fundamentals. It is important that energy sector investors know what’s going on in the real world because $55 oil is not a sustainable price for the world’s most important commodity."

So based on this statement the US oil growth phenomenon is being fueld by an unsustainable trade war, when the trade war is resolved the fear factor should disappear and oil prices should return to mid/high sixties (Brent)?

"Raymond James recently estimated that over the last three years the U.S. decline rate for oil has doubled from 1.6 to 3.2 million barrels per day. The drilled but uncompleted well inventory (“DUC”) is back to normal, so the number of wells being drilled and the number of wells being completed is now about the same. We need over 12,000 new horizontal oil wells completed each year to hold production flat and the number of completed wells will need to go up each year."

Most of the DUCs that rocketed the the US into the stratosphere of were drilled out during the slump when rigs were dirt cheap and available to lease, as the price of oil rose the costs to lease rigs increased, and also remembering these wells still required to be completed, the expensive section.

12000 new horizontal wells each year required to keep production levels flat and will need to rise incrementally, that's a lot of drilling and completion.

What does an average Horizontal well cost? 7 million USD to complete, and with recent production levels per well show the average well produces 33,333Bbls a year a meagre 92Bbls per day. (This has recently been published on this forum but was not debated, maybe Im wrong). How can this be sustainable, the USA will be cave if they continue trying to maintain this level of wells to be drilled and maintain current or higher production levels.

"My conclusion is that upstream companies in the U.S. are not completing enough new wells to offset the increasing decline rate. My "guess" is that U.S. oil production peaked sometime in April or May. If this is confirmed by a few more months of actual production data provided by state agencies on a 90-day lag, I think there may be a big “Paradigm Shift” that causes a lot of investors to add more energy to their portfolios".

Who is going to invest in this obviously flawed and unsustainable business model based on greed, the facts are finally being published that the US Shale oil play, is a phenomenon created to fuel a political agenda and to line the pockets of the smartest folks in war street, but the cat is slowly being let out of the bag, we cannot design geopolitical future events based on this highly fractured sector of the industry, where the flaws are finally being taken seriously.

Edited September 12, 2019 by James Regan

[Jan van Eck + 7,558]

Well, it sure does not cost $7 million to develop an oilsands extraction setup that will yield 93 bbl/d.  

There is lots and lots of oil in the Western oilsands, and as that technology develops, the USA and Canada will be able to flood the world with oil.  My guess is that it will likely be cheap oil, also.  Lots and lots of oil out there. 

[wrs + 893]

Drilling and completion together are about $7m and the average well produces about 500bbl/day initially, the 92 barrels per day might be the average of all wells in the Permian including the older stripper wells that are still producing a barrel or two a day.  The oldest shale well I have is 5 years old and is still producing about 80 barrels per day.

All three of the wells drilled by my independent this summer were under $3m to drill and completion should be $3-4m on top of that.  The wells are being completed and not inventoried.  My independent signed up for the Cactus 2 and is providing committed volumes to it.

I think the article is correct and there won't be enough new wells drilled to replace lost production, much less grow production.  The market is kidding itself and that should be evident by the end of the year.  I mean just look at the reaction to the news that Bolton was the reason for the Iran sanctions.  That's just a short wet dream.  They are piling on all they can but so far, rig count decline continues, US production is sticky and won't rise which inevitably will result in falling production.

Edited September 12, 2019 by wrs

[BigJets + 87]

14 minutes ago, wrs said:

Drilling and completion together are about $7m and the average well produces about 500bbl/day initially, the 92 barrels per day might be the average of all wells in the Permian including the older stripper wells that are still producing a barrel or two a day.  The oldest shale well I have is 5 years old and is still producing about 80 barrels per day.

All three of the wells drilled by my independent this summer were under $3m to drill and completion should be $3-4m on top of that.  The wells are being completed and not inventoried.  My independent signed up for the Cactus 2 and is providing committed volumes to it.

I think the article is correct and there won't be enough new wells drilled to replace lost production, much less grow production.  The market is kidding itself and that should be evident by the end of the year.  I mean just look at the reaction to the news that Bolton was the reason for the Iran sanctions.  That's just a short wet dream.  They are piling on all they can but so far, rig count decline continues, US production is sticky and won't rise which inevitably will result in falling production.

Someone has to replace all of that oil.  Would be a shame if the Strait of Hormuz closed.  

[ceo_energemsier + 1,818]

U.S. shale to lift oil output ahead of government forecasts

 

https://www.reuters.com/article/us-usa-shale-rystad/u-s-shale-to-lift-oil-output-ahead-of-government-forecasts-rystad-idUSKCN1VW2B3

 

[ceo_energemsier + 1,818]

The U.S. Exports More Oil Than Saudi Arabia

 

https://www.bloomberg.com/news/articles/2019-09-12/u-s-beats-saudi-arabia-to-become-top-oil-exporter-on-shale-boom

 

[ronwagn + 6,290]

12 hours ago, James Regan said:

"One of the basic assumptions or “Paradigms” that is keeping a lid on the price of oil is the belief that U.S. oil production will continue going up year­-after-year. This paradigm is second only to the fear that the tariff war between the U.S. and China will go on for years, causing a global recession. FEAR has caused oil prices to fall back into the mid-$50s, not supply / demand fundamentals. It is important that energy sector investors know what’s going on in the real world because $55 oil is not a sustainable price for the world’s most important commodity."

So based on this statement the US oil growth phenomenon is being fueld by an unsustainable trade war, when the trade war is resolved the fear factor should disappear and oil prices should return to mid/high sixties (Brent)?

"Raymond James recently estimated that over the last three years the U.S. decline rate for oil has doubled from 1.6 to 3.2 million barrels per day. The drilled but uncompleted well inventory (“DUC”) is back to normal, so the number of wells being drilled and the number of wells being completed is now about the same. We need over 12,000 new horizontal oil wells completed each year to hold production flat and the number of completed wells will need to go up each year."

Most of the DUCs that rocketed the the US into the stratosphere of were drilled out during the slump when rigs were dirt cheap and available to lease, as the price of oil rose the costs to lease rigs increased, and also remembering these wells still required to be completed, the expensive section.

12000 new horizontal wells each year required to keep production levels flat and will need to rise incrementally, that's a lot of drilling and completion.

What does an average Horizontal well cost? 7 million USD to complete, and with recent production levels per well show the average well produces 33,333Bbls a year a meagre 92Bbls per day. (This has recently been published on this forum but was not debated, maybe Im wrong). How can this be sustainable, the USA will be cave if they continue trying to maintain this level of wells to be drilled and maintain current or higher production levels.

"My conclusion is that upstream companies in the U.S. are not completing enough new wells to offset the increasing decline rate. My "guess" is that U.S. oil production peaked sometime in April or May. If this is confirmed by a few more months of actual production data provided by state agencies on a 90-day lag, I think there may be a big “Paradigm Shift” that causes a lot of investors to add more energy to their portfolios".

Who is going to invest in this obviously flawed and unsustainable business model based on greed, the facts are finally being published that the US Shale oil play, is a phenomenon created to fuel a political agenda and to line the pockets of the smartest folks in war street, but the cat is slowly being let out of the bag, we cannot design geopolitical future events based on this highly fractured sector of the industry, where the flaws are finally being taken seriously.

We can design a new paradigm based on gradually shifting trucks and then all vehicles to natural gas. It is more abundant, cleaner, and cheaper. Meanwhile we are wasting much of this valuable natural resource by flaring it. 

[James Regan + 1,776]

46 minutes ago, ronwagn said:

We can design a new paradigm based on gradually shifting trucks and then all vehicles to natural gas. It is more abundant, cleaner, and cheaper. Meanwhile we are wasting much of this valuable natural resource by flaring it. 

@ronwagn not to make you sad, but to highlight your point, imagine how much gas is being flared off, the heat generated from this flare made it hard to work on the platform, 2million Bbls FPSO being unloaded every ten days.

The Derrick roughly 150ft the flare much bigger, scary really the amount of gas being flared off, not much else you can do with it in the middle of the Atlantic.

 

Edited September 12, 2019 by James Regan

[ceo_energemsier + 1,818]

1 minute ago, James Regan said:

@ronwagn not to make you sad, but to highlight your point, imagine how much gas is being flared off, the heat generated from this flare made it hard to work on the platform, 2million Bbls FPSO being unloaded every ten days.

The Derrick roughly 150ft the flare is well above it, scary really the amount of gas being flared off, not much else you ca do with it in the middle of the Atlantic.

 

Technology is advanced and advancing. You can

for offshore

1) re-inject the gas

2) If it is close to shore have pipeline infrastructure to transport the gas to onshore LNG or power plants or petchem plants

3) Floating LNG in close proximity to the offshore platform or fpso

Also small scale LNG plants are coming up fast for onshore and can be modified for offshore

[James Regan + 1,776]

37 minutes ago, ceo_energemsier said:

Technology is advanced and advancing. You can- They do

for offshore

1) re-inject the gas - The Gas they can handle is re-injected to the subsea satellite drill centers for gas lift and Injection. the excess is flared for safely reasons, these wells are producing 250KBbls/day

2) If it is close to shore have pipeline infrastructure to transport the gas to onshore LNG or power plants or petchem plants - 230 Miles Offshore

3) Floating LNG in close proximity to the offshore platform or fpso - Drilling-Producing and refining/cleaning gas in close proximity high risk at these volumes.

Also small scale LNG plants are coming up fast for onshore and can be modified for offshore -Now a feasible idea this was 2005-08 and West Africa, market was rising to $100/Bbl of oil, Gas was a by product. Im sure they could have choked back but this oil was heading in one direction...

"This one facility had eight VLCC round tripping to Galveston Texas"

 

Edited September 13, 2019 by James Regan

[ceo_energemsier + 1,818]

20 minutes ago, James Regan said:

 

https://www.wartsila.com/docs/default-source/Power-Plants-documents/lng/small-and-medium-scale-lng-terminals_wartsila.pdf

[James Regan + 1,776]

8 hours ago, ceo_energemsier said:

The U.S. Exports More Oil Than Saudi Arabia

 

https://www.bloomberg.com/news/articles/2019-09-12/u-s-beats-saudi-arabia-to-become-top-oil-exporter-on-shale-boom

 

The expansion in America’s exports in June was helped by a surge in crude-oil shipments to more than 3 million barrels a day, the IEA said. At the time, Saudi Arabia was cutting its exports as part of the OPEC+ agreement, while Russian flows were constrained by the Druzhba pipeline crisis.

"You get by with a little help from your friends"

[ceo_energemsier + 1,818]

Just now, ceo_energemsier said:

https://www.wartsila.com/docs/default-source/Power-Plants-documents/lng/small-and-medium-scale-lng-terminals_wartsila.pdf

https://www.oilandgasiq.com/fpso-flng/articles/guide-to-flng

[ceo_energemsier + 1,818]

24 minutes ago, James Regan said:

 

Germany’s construction engineering company TGE Marine Gas Engineering has inked a supply contract for one of the world’s first small-scale floating storage and regasification units (FSRUs).

Under the deal signed with Chinese Jiangnan Shipyard at the end of July, TGE Marine will design and supply the cargo handling system and tank material for the unit.

The 28,000 cbm capacity barge type FRU was ordered by Tema LNG, which is controlled by Helios Investment from London, and will be located in Ghana.

In close cooperation with the owner and the shipyard, TGE Marine has participated in the development of the new design working in parallel with a larger floating storage unit (FSU). The barge is a 2-tank version with an individual cylindrical tank size of 14,000 cbm. Five modular compact regas skids will provide a peak send-out rate of 335 t/h or approx. 2,9 million tons per year at a send-out pressure of 65 bar, as explained by TGE Marine.

The company has been working on several concepts for small-scale LNG regas units for island supply or areas which have no pipeline access.

“With more than 20 large LNG-FSRU’s in service, TGE considers this order as a breakthrough for the small-scale LNG market especially for the supply of natural gas for power plants,” TGE Marine said in a statement.

Earlier this month, Tema LNG Terminal Company signed an agreement with China Harbour Engineering Company (CHEC) for the construction of an LNG terminal in Tema. The LNG terminal, planned to be completed in 18 months, will be Sub-Saharan Africa’s first regasification terminal.

[James Regan + 1,776]

5 minutes ago, ceo_energemsier said:

https://www.wartsila.com/docs/default-source/Power-Plants-documents/lng/small-and-medium-scale-lng-terminals_wartsila.pdf

Very interesting and well presented, this is first world technology, implemented in first world countries unfortunately, West African countries don't really care too much about their own countries infrastructure, the big cats anyway, they don't live there. No doubts I can't argue with you I'm just showing the reality of what goes on around the world by first world IOCs who's interests were in completing their own agendas.

[James Regan + 1,776]

14 minutes ago, ceo_energemsier said:

https://www.oilandgasiq.com/fpso-flng/articles/guide-to-flng

Were talking about two different beasts FPSOs are for the process of Hydrocarbons and storage of crude oil, FLNG are designed specifically for gas fields, still great info though to read, the industry is changing indeed.

[ceo_energemsier + 1,818]

3 minutes ago, James Regan said:

Were talking about two different beasts FPSOs are for the process of Hydrocarbons and storage of crude oil, FLNG are designed specifically for gas fields, still great info though to read, the industry is changing indeed.

Yes I know they are two different things for the hydrocarbons but the FLNG can be utilised in conjunction with an FPSO and use the gas instead of flaring

[James Regan + 1,776]

13 minutes ago, ceo_energemsier said:

Yes I know they are two different things for the hydrocarbons but the FLNG can be utilised in conjunction with an FPSO and use the gas instead of flaring

Were on the same page weather were drilling for Oil or Gas its good for the market, and getting people back to work, I dont think I ever saw a gallon of oil while drilling, if we did we were going to be knee deep in dookie.... Drillers dont like the smell of gas either.

Edited September 13, 2019 by James Regan

[ronwagn + 6,290]

2 hours ago, ceo_energemsier said:

https://www.wartsila.com/docs/default-source/Power-Plants-documents/lng/small-and-medium-scale-lng-terminals_wartsila.pdf

That is a fantastic article. Thanks! 

[James Regan + 1,776]

It is early, but it appears that close horizontal well spacing is leading to wellbore production interference and thus lower expected recoverable reserves per acre. Think of it as the wells “cannibalizing” from each other.

Another reason could be that the massive frac jobs on the parent wells combined with all the gas and fluids extracted to date have created a low-pressure zone. When the child wells are frac’d the frac fluid and proppants migrate to the “pressure sink” and the new wells end up with less effective completions.

The longer a parent well has been on-line the more likely it is for pressure sink issue to be a problem. So, it is best for all the wells in an area to be drilled and completed at the same time to get more uniform frac placement. The problem then becomes economic. To drill and complete up to a dozen horizontal wells from one pad and the massive production facilities to handle the initial production surge is around $100 million. That is a lot of capital to tie up.

Conclusion: My take is that the U.S. putting the brakes on oil production growth, for whatever reason, is bullish for oil prices. Contrary to the belief of most Democratic Presidential Candidates, this world will continue to run on oil. Thanks to a lack of global exploration expenditures, there has been a lack of new oil reserves found. We are going to need much higher oil prices to get the world’s exploration & development engine going again. I believe the “Right Price” for Brent oil is $80/bbl. That is also the oil price that Saudi Arabia would like to see when they take Aramco public next year.

"Interesting and good to see an impartial view"

[Tom Kirkman + 8,860]

32 minutes ago, James Regan said:

Conclusion: My take is that the U.S. putting the brakes on oil production growth, for whatever reason, is bullish for oil prices. Contrary to the belief of most Democratic Presidential Candidates, this world will continue to run on oil. Thanks to a lack of global exploration expenditures, there has been a lack of new oil reserves found. We are going to need much higher oil prices to get the world’s exploration & development engine going again. I believe the “Right Price” for Brent oil is $80/bbl. That is also the oil price that Saudi Arabia would like to see when they take Aramco public next year.

^ well said.

I prefer $70 Brent rather than $80, but I won't quibble (much).  I still tend to think that $80 Brent is not systainable in the longer term, and still view $70 Brent as the Goldilocks price.

The continued lack of significant, new exploration & production (apart from the neverending U.S. Shale Oil bubble) is likely going to result in higher flobal oil prices at some point down the road.  When exactly ... who knows.

[James Regan + 1,776]

41 minutes ago, Tom Kirkman said:

^ well said.

I prefer $70 Brent rather than $80, but I won't quibble (much).  I still tend to think that $80 Brent is not systainable in the longer term, and still view $70 Brent as the Goldilocks price.

The continued lack of significant, new exploration & production (apart from the neverending U.S. Shale Oil bubble) is likely going to result in higher flobal oil prices at some point down the road.  When exactly ... who knows.

Tom I agree, I can't take the credit for the post it was obviously from a link, but it makes sense 70-80 lets go for 75, happy medium. I think the Industry not the traders are finally getting it across that the shale oil bubble will burst and if we dont protect our assets or capital equipment, we won't have an option to run rigs at even 75/bbl, these units need to go back to work or risk being razor blades.

I was discussing this with an Asset Manager last week and a 6th Gen Deepwater Semi sub, was finishing contract and being towed to Instambull from Brasil as the fuel oil required to get the rig to Turkey to scrap it was more economical as a business model than stacking the unit indefinitely , these are crimes against the oil field IMO

Where 5-6th Gen units go for an early death- I have had the pleasure of working at Tuzla Shipyard, its the most dangerous shipyard I have seen, workers (Kurds) living in old hulls etc- Shocking.

http://www.robindesbois.org/wp-content/uploads/shipbreaking41.pdf

Edited September 13, 2019 by James Regan
spelling im an idiot

[Rasmus Jorgensen + 1,169]

52 minutes ago, James Regan said:

I was discussing this with an Asset Manager last week and a 6th Gen Deepwater Semi sub, was finishing contract and being towed to Instambull from Brasil as the fuel oil required to get the rig to Turkey to scrap it was more economical as a business model than stacking the unit indefinitely , these are crimes against the oil field IMO

I think the bigger crime is all the old units that should have been scrapped a long time ago, but a still working. Don't blame the oilprice for the all bad business decisions made by the oil service industry because it was practically free to borrow money - basically pass the risk onto bondholders and banks... 

[Tom Kirkman + 8,860]

10 minutes ago, Rasmus Jorgensen said:

I think the bigger crime is all the old units that should have been scrapped a long time ago, but a still working. Don't blame the oilprice for the all bad business decisions made by the oil service industry because it was practically free to borrow money - basically pass the risk onto bondholders and banks... 

Ouch.  But good point.

[wrs + 893]

Rig count drops by another 12 this week.  Outright collapse in progress, no way production goes up this year.  That is bullish for oil.