Shale Oil Fiasco

[Douglas Buckland + 6,308]

Anybody else seeing the shale oil ‘house of cards’ collapsing as we speak?

Many of us saw this coming, but were continually shouted down by the shale oil cheerleaders.

With rig count plummeting and lack of financing, the DUC’s being completed (finally) is the only reason production is still up. Once the DUC backlog is completed it is going to be a whole new ballgame!

[El Nikko + 2,145]

More DUCs are being completed than wells being drilled apparently, I would hope the tightening of financing should get rid of non serious players (there were loads a few years ago) leaving smart experienced and streamlined companies who know how to operate. I think production will grow much slower than some people have claimed and that is overall a good thing for the industry. If OPEC also plays ball we could see oil prices gradually increase next year without the risk of another crazy boom in shale the latter could be controlled by borrowing costs and the fact that companies might have to start drilling much more tier 2 and 3 wells (if I understand the meaning correctly). I'm hoping that they have to start targeting formations that are deeper and take longer to drill, drilling 10,000ft laterals in 3 days is pretty gruesome, less pay for the same amount of work. I did notice this year that we started drilling some much deeper wells for some clients which were over 12,000ft vertical depth far deeper than the usual ~7000ft deep wells we drilled the previous year.

I'm cautiously optimistic for next year...fingers crossed!

Edited December 5, 2019 by El Nikko

[Jabbar + 465]

On 12/5/2019 at 6:13 AM, Douglas Buckland said:

Anybody else seeing the shale oil ‘house of cards’ collapsing 

Not all fractures created equal

Technical Engineering Reservoir Modeling Article.

https://pubs.spe.org/en/jpt/jpt-main-page/

https://pubs.spe.org/en/jpt/jpt-article-detail/?art=6240

Shale going bust laughable.  Shale and actually whole energy industry going thru transition. That is not to say over half of today's shale producers will not be gone in a year or two.  They will.  

DOUBLE YIELD 10% TO 20%

During Investor Day Conoco discussed how they used 5 technologies to double yield.  It is primarily based on (1) CORE SAMPLING, (2) ADVANCED SIESMIC TECHNIQUES /ANALYTICS, and (3) PRESSURE CONTROL.  

(4) They have also stated that they solved the  well stack/spacing (parent/child) deleima and are able to drill 12 to 16 wells per section. 

Conoco champions 5 TECHNOLOGIES to achieve greater productivity.  Conoco recent Investor Day Presentation stated they are doubling yield from 10% to  20% at their pilot test wells and .  .  .  .  . .  .  .    they said they can do even better (> 20%) !

ADDITIONALLY THEY ARE REFRACING ALL VINTAGE 1 AND Vintage 2 WELLS (2009 thru 2014) and doing so at COST BELOW $30 BARREL.

TRANSITION / CONSOLIDATION

All those producers that survive the Consolidation and Transition will be using these new 5 technologies 

This in effect is doubling reserves and cutting costs per barrel by as much as 30% to 40%. 

Look forward not backward.  When DUCs drawn down the weak go out of business.  The strong continue to drill now. 

At least half of the shale industry will merge consolidate or file bankruptcy.

Shale industry hiring .  . Mathematicians and Computer Science grads.  Don't need more field engineers.  

Don't fight it.

EMBRACE THE NEW SHALE INDUSTRY.

Yesterday Conoco CEO said U.S. will probably increase production about a million barrels a day by end of 2020.

U.S. Production up to 12.9 million barrels day week ending Nov 29th

Edited December 13, 2019 by Jabbar

[Douglas Buckland + 6,308]

8 minutes ago, Jabbar said:

LOL

Typical response from Jabbar when a rational debate escapes him...

[Jabbar + 465]

6 hours ago, Douglas Buckland said:

Typical response from Jabbar when a rational debate escapes him...

LOL

YOU'RE THE BEST

Don't change

Edited December 5, 2019 by Jabbar

[Tom Kirkman + 8,860]

2 hours ago, Douglas Buckland said:

Anybody else seeing the shale oil ‘house of cards’ collapsing as we speak?

Many of us saw this coming, but were continually shouted down by the shale oil cheerleaders.

With rig count plummeting and lack of financing, the DUC’s being completed (finally) is the only reason production is still up. Once the DUC backlog is completed it is going to be a whole new ballgame!

Good observation.

Niggling point, DUCs will likely only get reduced in number, but will not go away completely within the forseeable future.

[Tom Kirkman + 8,860]

17 minutes ago, Douglas Buckland said:

Typical response from Jabbar when a rational debate escapes him...

 

2 minutes ago, Jabbar said:

LOL

YOU'RE THE BEST

This could become an amusing game of ping pong to watch, like seeing @DayTrader and Douglas go at it with jokes.

Both of you guys generally bring valid points to discussions.  Have fun with the jovial jousting.

[wrs + 893]

I see shale oil just hitting it's stride but that's just my personal experience with 19 wells in the Wolfcamp.

I don't believe it's DUCs being completed that is the reason for production increasing while rig count is dropping.  As I stated on another thread, my two operators have drilled and completed 7 new wells this year.  XTO has drilled 12 and completed all of them since spring of 2018.  They built infrastructure to support both storage and water disposal.  They have about 45,000 bbl of tank storage for oil and the same for water.  They have SWD disposal pipelines that have the capacity of 12,000 bbl/day which amounts to about 4000 bbl/day of oil production.   So the limitation for them isn't wells, it's infrastructure to support their drilled and producing capacity.  

On the old leases that XTO has inherited from XOM, they have many wells under one lease so you can't see from public data how any single well is doing.  Here is a clip of XTO's production in October for their Phantom Wolfcamp field.

Oil/Condensate (Whole Barrels)													Gas/Casinghead Gas - MCF
Lease Type	District	RRC Identifier	Field Name	Lease Name	Gas Well ID	Lease Total	Commingle Permit No.	On Hand Beginning of Month	Production	Disposition		On Hand End of Month	Formation Production	Disposition
										Volume	Code			Volume	Code

Oil	08	48218	PHANTOM (WOLFCAMP)	HURLEY 56-18				1,521	128,229	128,738	00	984	674,472	629,639	03
										28	08			44,833	04
								Gas 04 FLARE
Oil	08	48520	PHANTOM (WOLFCAMP)	HALEY-GARLAND ALLOCATION 8				479	2,860	2,214	00	1,125	4,948	1,938	03
														3,010	04
								Gas 04 FLARE
Oil	08	48657	PHANTOM (WOLFCAMP)	ST. LUCIA 76 2833			7648	1,738	145,306	144,287	00	2,066	292,404	271,120	03
										691	01			21,284	04
								Gas 04 Vented/Flared
Oil	08	50025	PHANTOM (WOLFCAMP)	ST KITTS 76 2833			7648	156	15,446	15,309	00	220	33,722	31,267	03
										73	01			2,455	04
								Gas 04 Vented/Flared
Oil	08	50068	PHANTOM (WOLFCAMP)	ST JOHN 76 2734			7648	5,017	307,960	307,128	00	4,378	540,496	509,871	03
										1,471	01			30,625	04
								Gas 04 Vented/Flared
Oil	08	51942	PHANTOM (WOLFCAMP)	KATE 33-40				1,305	9,993	10,209	00	1,089	36,480	35,663	03
														817	04

Three of the leases produce over 100,000 barrels per month.  Mine is Hurley and we are on track for 1mmbbl of production this year on those 12 wells.  The latest wells are all 1000bbl/day producers, I see that from the royalty checks and also I pulled the IP reports for them.  These wells are all on the west half of the section.  I suspect that the other two large producers are on one or two sections and managed the same way.  It's likely that the smaller producers are only a single well and they plan to expand them the same way they did on mine.  We had a single well from 2016 to 2018 and then they went into the big development build out.  

XTO is in it for the long run and their disposal contracts run 10 years they told us.  I believe they intend to maintain this level of production for that 10 year span which is good for me.  Keep in mind, they have mostly been drlling the Wolfcamp, some of the wells are in the Bone Springs but they don't break the production out that way for whatever technical reason.  The Bone Springs wells produce more gas and less oil.  

My independent operator has built his own water disposal facility and so makes money on that by taking water from other producers.  He gets to keep the skim oil and he makes several hundred barrels per day off skim oil.  XTO gets paid for skim oil in it's agreement with it's disposal facility whch they then pay to us.  There is a lot of money being made out there on services and infrastructure so this is not a fiasco, it's a real business that produces real jobs and if you ask me, it's just as viable as Amazon or Google which like them or not, are here to stay in our lifetimes.

Here is the plat map for my section with all 12 wells shown.  This is the plat for the 31h so it's the unlabeled line. I believe 30 and 31h are child wells of 1h and 2h and they are both better producers than the parent wells are.  XTO seems to be following a pattern of producing only one of the parent/child wells at a time.  I don't know how advisable it is to not produce one well while the other is producing but that is what they are doing.  I think going forward this year I will be able to get a better insight into what the rotation is but for 2019 it's hard to tell because they have been drilling and completing new wells and bringing too many wells on line to fully discern their production patterns.  I just know that they don't produce all the wells every month because they can't support the volumes.

 

Edited December 5, 2019 by wrs

[El Nikko + 2,145]

58 minutes ago, Tom Kirkman said:

Good observation.

Niggling point, DUCs will likely only get reduced in number, but will not go away completely within the forseeable future.

Heading down at least

[ceo_energemsier + 1,818]

6 hours ago, El Nikko said:

More DUCs are being completed than wells being drilled apparently, I would hope the tightening of financing should get rid of non serious players (there were loads a few years ago) leaving smart experienced and streamlined companies who know how to operate. I think production will grow much slower than some people have claimed and that is overall a good thing for the industry. If OPEC also plays ball we could see oil prices gradually increase next year without the risk of another crazy boom in shale the latter could be controlled by borrowing costs and the fact that companies might have to start drilling much more tier 2 and 3 wells (if I understand the meaning correctly). I'm hoping that they have to start targeting formations that are deeper and take longer to drill, drilling 10,000ft laterals in 3 days is pretty gruesome, less pay for the same amount of work. I did notice this year that we started drilling some much deeper wells for some clients which were over 12,000ft vertical depth far deeper than the usual ~7000ft deep wells we drilled the previous year.

I'm cautiously optimistic for next year...fingers crossed!

The second, OPEC cuts more, and prices go up, you will see rigs flowing back into the shale patches.

 

_____________________

 

OPEC and allies agree to deepen oil output cuts

 

 

VIENNA (Reuters) - OPEC and allies led by Russia on Thursday agreed one of the deepest output cuts this decade to support crude prices and prevent a glut but were still debating how long the curbs would last next year.

The Organization of the Petroleum Exporting Countries (OPEC) is meeting to discuss supply policy in Vienna. OPEC will then meet on Friday with Russia and other producers, a grouping known as OPEC+.

Russian Energy Minister Alexander Novak said a panel of key energy ministers including Saudi Arabia and Russia had recommended the OPEC+ group deepens existing supply curbs of 1.2 million barrels per day by another 500,000 bpd. The cut of 1.7 million bpd would amount to 1.7% of global supply.

He said cuts would last through the first quarter of 2020, a much shorter timeframe than suggested by some OPEC ministers, who have called for extending cuts until June or December 2020. OPEC could in theory decide to approve a longer timeframe than OPEC+.

"We concluded that in order to safely go through the seasonal demand period in the first quarter of 2020 it could be recommended that countries additionally cut up to 500,000 barrels per day," Novak said.

OPEC+ has agreed voluntary supply cuts since 2017 to counter booming output from the shale fields of the United States, which has become the world's biggest producer. Washington has forced an even steeper reduction in supply through sanctions on OPEC members Iran and Venezuela aimed at choking both countries' oil export revenue.

As producers meet on Thursday and Friday they will consider how to balance their supply with another year of rising output from the United States in 2020. Other non-OPEC countries such as Brazil and Norway are also expected to pump more oil.

Ministers from Saudi Arabia, Russia, Kuwait, the UAE, Algeria, Oman and Algeria had their pre-OPEC meeting on Thursday with the OPEC meeting still not started as of 1520 GMT.

 

COMPLIANCE

Saudi Arabia needs higher oil prices to support its budget revenue and the pending initial public offering (IPO) of state-owned oil giant Saudi Aramco with pricing of the IPO expected on Thursday.

OPEC's actions in the past have angered U.S. President Donald Trump, but Trump has said little about OPEC in recent months. That might change if oil and gasoline prices rise ahead of the U.S. presidential election set for November 2020.

OPEC's actions have supported oil prices at around $50-$75 per barrel over the past year. Brent crude futures on Thursday extended this week's gains to trade above $63 per barrel. [O/R]

OPEC sources have said Riyadh was pressing fellow members Iraq and Nigeria to improve their compliance with quotas, which could provide an additional reduction of up to 400,000 bpd.

[El Nikko + 2,145]

5 minutes ago, ceo_energemsier said:

The second, OPEC cuts more, and prices go up, you will see rigs flowing back into the shale patches.

 

_____________________

 

OPEC and allies agree to deepen oil output cuts

 

 

VIENNA (Reuters) - OPEC and allies led by Russia on Thursday agreed one of the deepest output cuts this decade to support crude prices and prevent a glut but were still debating how long the curbs would last next year.

The Organization of the Petroleum Exporting Countries (OPEC) is meeting to discuss supply policy in Vienna. OPEC will then meet on Friday with Russia and other producers, a grouping known as OPEC+.

Russian Energy Minister Alexander Novak said a panel of key energy ministers including Saudi Arabia and Russia had recommended the OPEC+ group deepens existing supply curbs of 1.2 million barrels per day by another 500,000 bpd. The cut of 1.7 million bpd would amount to 1.7% of global supply.

He said cuts would last through the first quarter of 2020, a much shorter timeframe than suggested by some OPEC ministers, who have called for extending cuts until June or December 2020. OPEC could in theory decide to approve a longer timeframe than OPEC+.

"We concluded that in order to safely go through the seasonal demand period in the first quarter of 2020 it could be recommended that countries additionally cut up to 500,000 barrels per day," Novak said.

OPEC+ has agreed voluntary supply cuts since 2017 to counter booming output from the shale fields of the United States, which has become the world's biggest producer. Washington has forced an even steeper reduction in supply through sanctions on OPEC members Iran and Venezuela aimed at choking both countries' oil export revenue.

As producers meet on Thursday and Friday they will consider how to balance their supply with another year of rising output from the United States in 2020. Other non-OPEC countries such as Brazil and Norway are also expected to pump more oil.

Ministers from Saudi Arabia, Russia, Kuwait, the UAE, Algeria, Oman and Algeria had their pre-OPEC meeting on Thursday with the OPEC meeting still not started as of 1520 GMT.

 

COMPLIANCE

Saudi Arabia needs higher oil prices to support its budget revenue and the pending initial public offering (IPO) of state-owned oil giant Saudi Aramco with pricing of the IPO expected on Thursday.

OPEC's actions in the past have angered U.S. President Donald Trump, but Trump has said little about OPEC in recent months. That might change if oil and gasoline prices rise ahead of the U.S. presidential election set for November 2020.

OPEC's actions have supported oil prices at around $50-$75 per barrel over the past year. Brent crude futures on Thursday extended this week's gains to trade above $63 per barrel. [O/R]

OPEC sources have said Riyadh was pressing fellow members Iraq and Nigeria to improve their compliance with quotas, which could provide an additional reduction of up to 400,000 bpd.

Yes I agree drilling will resume again but I feel the increase in financing costs and less investment available may/should help keep a healthier cap on things.

[Rob Kramer + 696]

If someone could post pics of each areas drilling productivity report it would prove handy . I would but I cant seem to get it to load. Interesting how most wells only cover decline. 

[James Gautreau + 86]

The Permian gained 2 million bpd last year. 2018 well decline is 1 million bpd in just 7 months. The Tier 2 & 3 acerage not only produces 1/3 to 1/2 less EUR it also declines at nearly twice the rate. So that treadmill just got steeper and you just barfed your protein bar. There is no way this goes on more than another 6 months. DUC's fill/plug a few holes but it's fingers in the dike. We're going to peak around 13 mbpd probably December and then it will start the decline and it won't be slow. So it grew roughly 8 mbpd over 10 years, it will decline 8 mbpd in 5 years or 1.6 mbpd a year. So this time next year we will be at 11.5 mbpd. I think it won't get to 13 mbpd, probably 12.6 mbpd. Right now 85% of new production goes to replacing legacy decline. In the Permian. Tier 1 acerage is gone. You can tell by 2018 decline rates which look to come in at 80 - 90%. Gone in 1 year. No more new oil wells because oil price has to double or triple or maybe more to justify the expense. The Wolfcamp #'s I see above have to be Tier 1. As far as refracking, I hear that only works in the Bakken and on only the best wells. Not much there. I'm not the only one who thinks the worm has turned. 

https://www.youtube.com/watch?v=dhc6vyxVsDs

[Jabbar + 465]

11 hours ago, Douglas Buckland said:

, the DUC’s being completed (finally) is the only reason production is still up. Once the DUC backlog is completed it is going to be a whole new ballgame!

Depending on who you talk to there are between 7K to 9K DUCS.  The total this year dropped 300 to 400.  Gonna be a while before DUC depleted. 

Always gonna be about 1500 DUCs , that's healthy hedge.

When DUCs go down they start drilling again.

The pipeline bottleneck is gone.  Now Gulf of Mexico Export Terminal bottleneck.  Crude export terminal upgrades across GOM finished in Q2 2020 will help  .  .  .  .  real growth when 3 Offshore VLCC export terminals completed 2022.

Edited December 5, 2019 by Jabbar

[James Gautreau + 86]

Duc's are like regular wells. Not all of them come in gushers. By my math you need to drill 4 or 5 wells to find that 600,000 barrel EUR well. That's why frackers can't make money. At the beginning of the year they were completing 0 Duc's. Last month they did 225 and it's going up fast. My guess is next month they'll do 300 and 500 a month by spring. 20% of 7500 is somewhere around 1850 Tier 1 wells. By the summer they're gone. 

[Rob Kramer + 696]

13 minutes ago, Jabbar said:

Depending on who you talk to there are between 7K to 9K DUCS.  The total this year dropped 300 to 400.  Gonna be a while before DUC depleted. 

Always gonna be about 1500 DUCs , that's healthy hedge.

When DUCs go down they start drilling again.

The pipeline bottleneck is gone.  Now Gulf of Mexico Export Terminal bottleneck.  Crude export terminal upgrades across GOM finished in Q2 2020 will help  .  .  .  .  real growth when 3 Offshore VLCC export terminals completed 2022.

Well you quote eia data so go off their numbers .... they do have the most info (I realize not ALL info). In different areas theres different DUC count. Think last time a thread like this was up it was Anadarko with a drop of 72 in the month and 740 DUC count of the eia 7500 ... all off memory so verify online if you like. So 10 months and I did some napkin math and found it started at 1.4 duc drop per rig over a month and accelerated to 1.6 ... but I was looking over more eia data and found it's closer to 2 ducs per rig over a month or higher . Reason my math was off was because I didnt count the change in duc builds before the rigs were gone so my difference was off. Looks to me like half the shale areas have 6 months and the other half a year or bit more before decline. But as production grows so does decline so it just gets harder and makes the fall that much worse .

My question to you Jabbar is what do you call (your definition) of shale collapse (or lack there of). You say its laughable so are you saying no decline over 5 years or some decline (how much?) With consolidation. Are you saying with consolidation the big fish will pick up the capex torch of the bankrupt company they consume? The reason I ask is because during consolidation people are gonna say see its dropping like we said and your gonna say see its consolidation like I said....

I see shale growth for 6 months and then more or less a repeat of 2015 area production drop (during a year)  ... probably a price spike and some sort of return to drilling probably to resume the previous high. I dont see a USA with say 65$ wti or higher and people not wanting to frack . Anyways that's my minds eye on the situation. 

 

[James Gautreau + 86]

[markslawson + 1,042]

11 hours ago, Douglas Buckland said:

Anybody else seeing the shale oil ‘house of cards’ collapsing as we speak?

Many of us saw this coming, but were continually shouted down by the shale oil cheerleaders.

With rig count plummeting and lack of financing, the DUC’s being completed (finally) is the only reason production is still up. Once the DUC backlog is completed it is going to be a whole new ballgame!

But isn't the shale oil industry volatile by its nature - its what it does. I'm sure you're quite right in the short term but it is my distinct impression that the sale oil industry is quite different to the main-stream oil industry in that oil rig count varies wildly depending on demand and price.. They don't require the investment or lead times of the big wells.. conditions are bad, the rigs go away: conditions are good, rigs come back. So was there something else you could point to?

[James Gautreau + 86]

Notice the left hand corner. It goes to 0.

[James Gautreau + 86]

	Drilled but uncompleted wells (DUC) wells
Region	September 2019	October 2019	change
Anadarko	813	741	(72)
Appalachia	522	492	(30)
Bakken	759	739	(20)
Eagle Ford	1,450	1,418	(32)
Haynesville	215	211	(4)
Niobrara	474	452	(22)
Permian	3,634	3,589	(45)
Total	7,867	7,642	(225)

[Rob Kramer + 696]

5 minutes ago, James Gautreau said:

Notice the left hand corner. It goes to 0.

Please post the one for the basin with a -72 duc drop . I keep trying but apparently dont know how lol.

^drilling productivity report edit^

Edited December 5, 2019 by Rob Kramer

[James Gautreau + 86]

Anadarko. 

[D Coyne + 305]

US tight oil scenario, also shown is Permian and non-Permian US tight oil output.  My best guess scenario 50/50 odds output will be higher or lower than this scenario.  Peak is 10.22 Mb/d in 2025, about 88 Gb tight oil URR for scenario.

 

Edited December 6, 2019 by D Coyne

[Douglas Buckland + 6,308]

13 hours ago, Jabbar said:

LOL

YOU'RE THE BEST

Don't change

Yet another typical response...

[Douglas Buckland + 6,308]

People do not seem to realize that the root cause of the production problems associated with shale oil is the extremely low permeability or the ability for the rock to flow. There is only so much that you can do to mitigate this issue.

Let’s take a simplistic historical view. First a well is drilled vertically through a tight shale formation. This yields a certain surface area for hydrocarbons to enter the wellbore, which in turn gives a certain production rate for that surface area and permeability. The rate is uneconomical. How do we increase the permeability of the reservoir rock matrix? We can’t, so we must adjust the surface area. We now drill a lateral through the reservoir. Surface area of the wellbore increases and production goes up - for awhile. The near wellbore oil is recovered ‘easily’, but as the oil further from the wellbore is being recovered, the tortuous path between the shale grains becomes longer, friction becomes greater and it becomes more difficult for the oil to reach the wellbore. Eventually the production rate becomes uneconomical. We need even more surface area, so we hydraulically fracture the formation. Once again, more surface area yields higher production - until it doesn’t for exactly the same reasons described above. At some point the money runs out and you can neither increase the length of the laterals OR increase the number of stages in the frac program.

Okay, let’s just drill and frac a multitude of wells in the same area. This will yield a huge increase in the wellbore surface area (remember, you can’t really change the permeability of the actual reservoir rock) and production should skyrocket, and it does, right up to the point that it doesn’t and the parent/sibling well issue raises it’s ugly head.

At the end of the day, the shale oil boom will bust simply because you can not alter the deep reservoir permeability AND you’ve run out of money trying to do so.

That’s it in a nutshell.

Over to you Jabbar...