U.S. Shale To Break Records Despite Bearish Rhetoric

[TomTom + 183]

Quote

Crude oil production in the U.S. shale patch is seen rising by 49,000 bpd next month to a record-high daily average of 9.133 million barrels. That’s according to the latest edition of the Energy Information Administration’s Drilling Productivity Report.

A month earlier, the EIA estimated that total shale oil production will rise by 58,000 bpd in November from October, to 8.971 million bpd. The latest report, however, pegged the November average at more than that: 9.048 million barrels daily.

As usual, the production increase is the highest in the Permian, at 57,000 bpd between November and December. This rise will make up for the 12,000-bpd production decline in the Anadarko basin and the 14,000-bpd decline in the Eagle Ford. In the Bakken, Niobrara, and Appalachia, oil production will increase, although more modestly, by 9,000 bpd, 6,000 bpd, and 3,000 bpd, respectively.

Now I know that EIA predictions should be taken with a pinch of salt, but it does seem like the US shale patch is defying the pessimism in the markets. Initial well production must've gone up even further in the last couple of months...

[Gerry Maddoux + 3,627]

28 minutes ago, TomTom said:

Now I know that EIA predictions should be taken with a pinch of salt, but it does seem like the US shale patch is defying the pessimism in the markets. Initial well production must've gone up even further in the last couple of months...

The At-Bit NeoSteer system that Schlumberger introduced has been very impressive in cutting drilling times, taking the most productive horizontal tangent, and overall improving efficiency. There are probably others on the market that do the same thing. I was impressed that SRC drilled a 15,000 foot well shoe to shoe, vertical, curve, lateral in 29 bottom hours up in the Niobrara/Codel shale of Weld County. That is fairly similar to some of the limestone/sandstone/dolomite ice-cream sandwich shale in the Delaware sub-basin (think Carlsbad Caverns, nearby--porous rocky framework). There has been lots of debate on this forum of the "Peter Principal" of hitting the wall, getting no further oil out of rock (20% is where we are at in the Bakken), and that may be true, but these new steerable systems using the same old MWD readings incorporate elaborate new optical measurements with machine learning, thereby avoiding "hard rock" and always moving toward gamma ray emissions. I have been taken down a notch on another thread because I got a bit over my skis discussing this, and truth be known, I am naive about it. But I have rechecked my notes and the drilling efficiency reported by Schlumberger using this new technique was just phenomenal. The future may be fewer rigs producing more oil at lesser cost per barrel. I'll climb out on a limb here and say that I think there are going to be plenty of LTO traps that yield 30%, can be drilled out very quickly, completed according to the composition of the rock, and that our current rig count--despite dropping 300 during the last year--may well continue to grow production from the shale basins. I follow IHS Markit, smarter and more comprehensive than EIA, and they are more conservative about growth. Both Goldman Sachs and Sam Zell are on the hunt for distressed shale oil properties, which portends a decent future as I see it. But I have a vested interest. I am also seeing a lot of interest--all at once--in the Hogshooter formation, where vast pools of mature oil lie within oil traps provided by partially upheaved granite slabs acting as giant anticlines . . . which tells me that these new pushable/steerable systems with second to second machine learning are going to be used in places where folks couldn't reach before. 

[Boat + 1,323]

It was and continues to be one of the outstanding achievements of mankind to take the Permian basin from around 100 bpd to around 800 with technology. In the US around 2007-2008 rigs counts for nat gas and oil topped 1700. Today that number is around 850. 
In spite of the huge rig count loss production continues to set records.

There continues to be much talk about all the headwinds fracking contends with. From flaring limits, lack of take away capacity, and quality of drilling locations to name just a few. The ingenuity of the American worker and its engineers so far continue to blow away expectations. 

[TomTom + 183]

6 hours ago, Gerry Maddoux said:

The At-Bit NeoSteer system that Schlumberger introduced has been very impressive in cutting drilling times, taking the most productive horizontal tangent, and overall improving efficiency. There are probably others on the market that do the same thing. I was impressed that SRC drilled a 15,000 foot well shoe to shoe, vertical, curve, lateral in 29 bottom hours up in the Niobrara/Codel shale of Weld County. That is fairly similar to some of the limestone/sandstone/dolomite ice-cream sandwich shale in the Delaware sub-basin (think Carlsbad Caverns, nearby--porous rocky framework). There has been lots of debate on this forum of the "Peter Principal" of hitting the wall, getting no further oil out of rock (20% is where we are at in the Bakken), and that may be true, but these new steerable systems using the same old MWD readings incorporate elaborate new optical measurements with machine learning, thereby avoiding "hard rock" and always moving toward gamma ray emissions. I have been taken down a notch on another thread because I got a bit over my skis discussing this, and truth be known, I am naive about it. But I have rechecked my notes and the drilling efficiency reported by Schlumberger using this new technique was just phenomenal. The future may be fewer rigs producing more oil at lesser cost per barrel. I'll climb out on a limb here and say that I think there are going to be plenty of LTO traps that yield 30%, can be drilled out very quickly, completed according to the composition of the rock, and that our current rig count--despite dropping 300 during the last year--may well continue to grow production from the shale basins. I follow IHS Markit, smarter and more comprehensive than EIA, and they are more conservative about growth. Both Goldman Sachs and Sam Zell are on the hunt for distressed shale oil properties, which portends a decent future as I see it. But I have a vested interest. I am also seeing a lot of interest--all at once--in the Hogshooter formation, where vast pools of mature oil lie within oil traps provided by partially upheaved granite slabs acting as giant anticlines . . . which tells me that these new pushable/steerable systems with second to second machine learning are going to be used in places where folks couldn't reach before. 

Interesting facts you state here @Gerry Maddoux - but don't you think that the likes of Goldman, Jones and Sam Zell are not just here to quickly scoop up and flip the assets once sentiment turns around again?  

For what I know about shale economics, many of these assets won't be churning a profit until WTI goes above $65 per barrel... isn't that why many of these distressed shale companies are keen to let them go in the first place?

[footeab@yahoo.com + 2,187]

17 hours ago, Gerry Maddoux said:

The At-Bit NeoSteer system that Schlumberger introducSNIP 

SRC drilled a 15,000 foot well shoe to shoe, vertical, curve, lateral in 29 bottom hours up

500ft/hr.....   Sure soft rock but .....  

Last site I visited they were lucky to hit 100 and I thought that was blazing fast at the time...

How many HP were churning that puppy? 

[zbest1966 + 10]

17 hours ago, TomTom said:

For what I know about shale economics, many of these assets won't be churning a profit until WTI goes above $65 per barrel... isn't that why many of these distressed shale companies are keen to let them go in the first place?

65 per barrel that we take about a 1 or 2 years to see that 

[Old-Ruffneck + 1,223]

On 11/19/2019 at 4:49 PM, TomTom said:

For what I know about shale economics, many of these assets won't be churning a profit until WTI goes above $65 per barrel... isn't that why many of these distressed shale companies are keen to let them go in the first place?

Personally my take on shale profits are much lower than $65bbl. The greed of some of the ceo's sucking the investors money right out the back door is what's causing most the failures. There are some paying in West Texas too much for leases and are struggling but still profitable. Smarter people than me know you don't drill 15-20$'s a bbl under market and cost just to sell it for a loss. New Mexico is the hot spot now because the cost's to plop a rig down and spud in, compared to 50 miles south in Texas is enormous savings. I am guessing here but I am thinking 40$ is closer average to break-even in the Western Permian. Like I said, you don't drill a 65$ hole to sell for 55$ !! and pray prices are going to rise. Ask @cbrasher1as he's still on the rig.

[Jon#2 + 22]

The number of DUCS is falling dramatically though. The reduced number of rig operating doesnt give an impact on production right away, there is a lag effect.

[canadas canadas + 136]

Does that mean that prices will go down for sweet crude?

[Gerry Maddoux + 3,627]

11 hours ago, Old-Ruffneck said:

New Mexico is the hot spot now because the cost's to plop a rig down and spud in, compared to 50 miles south in Texas is enormous savings.

Savings on what? 

 

[PE Scott + 563]

27 minutes ago, Gerry Maddoux said:

Savings on what? 

 

I'm curious too.....

I think NM is little looser on their flaring regulations than TX.

Some operators I worked with told me NM is approving permits at record speed right now. In fact, a couple of them are starting on a couple new wells this year they had originally thought wouldn't be permitted until 2020.

[Boat + 1,323]

7 hours ago, Jon#2 said:

The number of DUCS is falling dramatically though. The reduced number of rig operating doesnt give an impact on production right away, there is a lag effect.

Dramatically is actually 50 more wells fracked than drilled. An inventory of thousands in the Permian.

Edited November 21, 2019 by Boat

[Old-Ruffneck + 1,223]

1 hour ago, Gerry Maddoux said:

Savings on what? 

 

Leases, mineral rights, looser regulations.....just to name a few. 

 

[Jon#2 + 22]

5 hours ago, Boat said:

Dramatically is actually 50 more wells fracked than drilled. An inventory of thousands in the Permian.

Not sure why you are singling out the Permian. Total number of ducs have fallen from about 8500 to about 7500 since spring. I would say that is pretty dramatic. And it is escalating, 200 just last month. There has also been alot of criticism over the way EIA counts the number of ducs. Serious actors claim it's way overinflated.

 

Im not saying that production is going to fall of a cliff, but we probably arent going to see alot of growth going forward in the near term(if any).

[Gerry Maddoux + 3,627]

4 hours ago, Old-Ruffneck said:

Leases, mineral rights, looser regulations.....just to name a few. 

Wow, are you sure? There was a senate bill in New Mexico to ban fracking and the governor is very "progressive" about renewables and phasing out fossil fuels. I know several oil investors and service guys who say that working in New Mexico is hellish. 

[Old-Ruffneck + 1,223]

1 hour ago, Gerry Maddoux said:

Wow, are you sure? There was a senate bill in New Mexico to ban fracking and the governor is very "progressive" about renewables and phasing out fossil fuels. I know several oil investors and service guys who say that working in New Mexico is hellish. 

Yes, I am sure. Read some major newspapers, the powers that be in charge in NM are swimming in unforeseen money. And not just a small amount, and a very poor state NO.50 of 50 last I read about a year ago. So the almighty buck wins out the day. Not sure where you get your sources but in Sept I was back for a 2 week visit in Lea County. The area was "alive" with rigs. While Pecos, Reeves, Winkler Counties in Texas were already in slow down mode. Then a funeral I attended in Ft. Stockton 3 weeks ago confirms by my own eyes. The "man-camps" are losing residents by the scores. We call this the bust cycle. While I reside in Illinois I still have friends that are retired or close too that I still am in contact with regularly. And in 6 weeks I will drive my bus back down there and spend couple months. West Texas and S.E. New Mexico is 2nd home. And yes I really did work a couple days on a rig. 

[Old-Ruffneck + 1,223]

4 hours ago, Jon#2 said:

Not sure why you are singling out the Permian. Total number of ducs have fallen from about 8500 to about 7500 since spring. I would say that is pretty dramatic. And it is escalating, 200 just last month. There has also been alot of criticism over the way EIA counts the number of ducs. Serious actors claim it's way overinflated.

 

Im not saying that production is going to fall of a cliff, but we probably arent going to see alot of growth going forward in the near term(if any).

Even at 2/3rds of 7500 DUCs, that is still about a clearinghouse of 2 years + and this is why production keeps climbing while rig count is in free-fall.

[Boat + 1,323]

EIA Drilling Productivity Report numbers. 
 

Total DUCT’s peaked at 8372 eight months ago. Today there are 7642. A drop of 730. Last month DUCT’s dropped 225 so the trend is speeding up.

The EIA does readjust it’s numbers every month to reflect hard information as they receive it. I have followed this report for 6 years. Historically the numbers are reasonably good. When the trend changes rapidly like now the numbers will be farther off. 

Completions are pretty steady and seem to have plateaued. 
 

 

[PE Scott + 563]

19 hours ago, Gerry Maddoux said:

Wow, are you sure? There was a senate bill in New Mexico to ban fracking and the governor is very "progressive" about renewables and phasing out fossil fuels. I know several oil investors and service guys who say that working in New Mexico is hellish. 

Its interesting because on one side of it there are those who want to ban fracking in NM. On the other side of it, the governor recently proposed to pay college tuition of NM students out of proceeds made from taxes on the oil industry. As much money as NM makes on taxing the oil industry, I don't think a fracking ban has an ice cubes chance in hell.

Meanwhile, the NMOCD that permits and regulates new wells is one of the least funded of any oil producing state. The budgets is something like $15 million a year for NM. The next lowest funded state that produces a reasonable amount of oil is CO....and their budget is $40 million a year. So, NM gets backlogged with permits historically. Still, people I have been talking to say their permits are getting approved very quickly right now for producing wells. The struggle is permitting new injection wells at the moment. 

As far as working in NM....I prefer the Carlsbad area to Pecos or South TX on the huge Eagleford ranches. I guess to each there own, but I never thought it was much different than working in west texas. 

My favorite place to work was in the Haynesville around Shreveport....whether I was on nights or days I could always swing through the casinos for a good meal. Also, it seemed like there was always somewhere to get pizza or fried chicken withing half an hour of any location. Finally, the pressures in the Haynesville are pretty wild and the treatments can be a lot more.....interesting.

[Rob Kramer + 696]

I've been trying to do the math on rig count to production but you have to add duc and that's the grey zone that makes it useless due to poor info.  The percentage change month to month is a big indicator tho. Instead of gaining 100 duc they are dropping 200. I'd argue that along with dropping rigs duc completion may be dropping some also (less than rigs I'd think). Its interesting to note 2015 to 2017 total shale production dropped (5m to 4.3m)  but ducs rose then fell (both starting and ending around 6000) while drilling fell hard (1500 to 500) .... looks like at 550 rigs production could increase from 4.3m bbl . So today almost double 8m (86% more) 550 x 1.86= 1023 (minus 21% longer wells) ÷.79 = 808 drilling rigs to increase production and hold ducs? ... so until we know how many ducs are useable we have no idea when production can drop. (If oil is still low and drilling doesn't come back by then) I assume half the ducs are usable . That's still 36 months of production. If rigs drop more looks like ducts will drop faster by 3ducs to 1rig . So another 75 less rigs is 225 less ducs /month . Or 1.5yr production left. This is napkin math on rough graphs that I eyeballed so take it with a grain of salt. Also with the speed they can add rigs and lack of good duc info this means very little.