Shale Oil Fiasco

[James Gautreau + 86]

That's where I'm going to invest if this pans out. Shale oil is mostly about the tax write off, not about a nice long cash stream that last decades not 2 or 3 years and falling. It's just not worth it. 

[Douglas Buckland + 6,308]

10 hours ago, Jan van Eck said:

Well now.  That was certainly pithy enough. 

Yeah, when they start utilizing the ‘f**k’ term and associated ‘verbiage’ it is a sure that a rational debate is not going to happen. We’ve seen this time and time again on this forum.

[James Gautreau + 86]

32 minutes ago, Douglas Buckland said:

Yeah, when they start utilizing the ‘f**k’ term and associated ‘verbiage’ it is a sure that a rational debate is not going to happen. We’ve seen this time and time again on this forum.

Oh please. Can you be any more obtuse?

[Douglas Buckland + 6,308]

2 minutes ago, James Gautreau said:

Oh please. Can you be any more obtuse?

I could, but I chose to be clear and direct.

[John Foote + 1,135]

11 hours ago, Jan van Eck said:

What Trump is really doing is saying to the limousine-riding elitists:  No More.   I am shutting down your obsession with China, and you want something, you buy American. 

If he really was, great, and I hope the follow is there. But I fear that's not really the case. It's bluster, presenting as a populist, but for donations to the right PAC you get the exemption/relief and victory will be declared too soon, and we'll leave too much on the table. The business of government is business, and the for sale shingle is up.

Happy for now Huawei isn't getting all they want. Sub 28 micron manufacturing technology still not allowed in, which is a big deal in leading edge chip manufacturing and design. They will get it of course, but in state of the art semiconductor manufacturing, they are still far behind, even if that is only five years. Taiwan has this leading technology, lots of it, but they are quite determined not be mainland China (although they tell themselves they are mainland China). In any event, no fear of them being Hong Kong. I am seeing suggestions of made in China getting in labelled as made somewhere else. Harder and harder to track in assemblies with extensive supply chains. I recently imported something to beat the new increases, and then exported it to, you guessed it, China. It was less money than moving from a trade free zone in China to a non-trade free zone in China. How messed up is that. That's really Chinese government silliness.

The USA is now growing trade free zones, exempt from the tariffs. Where I am today is in the process of getting one. I'd be shocked if Apple wasn't getting one. Trump and Cook in the same room a couple of weeks ago sure was an uncomfortable pairing to see, but it made big picture sense for both of them. The exemption applications are going through stratosphere. 

Getting Chinese to buy our agriculture, which will happen again, isn't a win since they were already doing it before. And don't think that is for the small farmer in reality, the Cargills of the world own agriculture and are PAC happy creatures. The low end stuff moving out of China won't come back to the USA, it's off to Vietnam, Malaysia, or where ever, but to the USA. Where the overall cost is cheaper is where it is headed. IMHO the USA doesn't want to be competing in low margin, repetitive work anyway. 

I will say on an industrial scale the risk management perspective of a  supply chain, we now insists on a Plan B, no China only supply when at all possible. That's not a good thing, it's a great one, the one absolute good I've seen over the past 12 months. Good to see the architects on the highest levels of big business are now embracing a bit of sense and a longer term view. And Trump is a major factor in that concerning China. 

Edited December 16, 2019 by John Foote
grammer

[Chris Kanaan + 22]

Many of the DUCs will remain as DUCs because the operators who drilled them are never going to bring them online because of:

i)  poor economics
ii) bringing it online would hurt their image
iii) geological issues that weren't known at the time

It is a recognized misconception that these DUCs represent a landslide of production.

 

[Boat + 1,315]

1 hour ago, Chris Kanaan said:

Many of the DUCs will remain as DUCs because the operators who drilled them are never going to bring them online because of:

i)  poor economics
ii) bringing it online would hurt their image
iii) geological issues that weren't known at the time

It is a recognized misconception that these DUCs represent a landslide of production.

 

I would love to see a report of DUCs that raise concern instead of saying bringing it online would hurt their image. So far bringing in DUCTs hasn’t hurt production as completions have remained steady and production has gone up.

 

[Gerry Maddoux + 3,627]

8 hours ago, Chris Kanaan said:

Many of the DUCs will remain as DUCs because the operators who drilled them are never going to bring them online because of:

i)  poor economics
ii) bringing it online would hurt their image
iii) geological issues that weren't known at the time

It is a recognized misconception that these DUCs represent a landslide of production.

 

Your post is interesting. Some of the DUCs in the Permian are, indeed, not going to be completed, mainly due to the fact they were drilled as child wells in an area where there is a pressure sink with each new well in a tract. I don't know how large a percentage these make up, of the total DUCs in the area. Right now, as DUCs, only about 1/3 of the total anticipated cost has been sunk--so to speak. Do you have inside knowledge regarding this? So far, thank goodness, the Bakken doesn't suffer from these parent-child interactions; usually, when a child well is drilled and completed in a tract HBP using a vintage well, the production of the parent (some of which are 6 years old) actually increases much as it would with a refrac job. When I first read your post I thought you were full of it, but upon reflection I think you are onto something. I just have no way of knowing the percentage of DUCs that were drilled hastily, using the now-trashed notion that the child wells would be similar to the parent. Thanks for bring this to my attention.

[footeab@yahoo.com + 2,135]

9 hours ago, Chris Kanaan said:

Many of the DUCs will ...
ii) bringing it online would hurt their image
 

Making $$$ hurts your image....

Yup, I have heard it all now and can die in peace.  Utopia has been achieved

🤣🙄🏆

PS: 1) and 3) are 100% valid, but your #2, is a knee slapper for the ages...

Edited December 16, 2019 by footeab@yahoo.com

[Gerry Maddoux + 3,627]

1 hour ago, Gerry Maddoux said:

ii) bringing it online would hurt their image

Well, maybe not, liberally interpreted. Some companies have up to a dozen DUCs drilled--24 million sunk--in areas contiguous to zones subsequently shown to have terrible lithology and pressure sinks. Completing a dozen of those would take almost $50 million with no chance of breaking even. I suppose persisting in something like that would give a guy a black eye.

[James Gautreau + 86]

1 hour ago, Gerry Maddoux said:

Well, maybe not, liberally interpreted. Some companies have up to a dozen DUCs drilled--24 million sunk--in areas contiguous to zones subsequently shown to have terrible lithology and pressure sinks. Completing a dozen of those would take almost $50 million with no chance of breaking even. I suppose persisting in something like that would give a guy a black eye.

Exactly. % success in oil business even with extensive mapping and geophysics out the yin yang is 20%. 2 out of 10 wells are gushers. So there is really 7500 * .2=1500 high EUR wells. Bringing all those online would bring on 1,000,000 bpd and that won't be enough to stem the tide. Stick a fork in it. This thing is done. 

[Rob Kramer + 696]

What time does the eia drilling report realse today? 

[Gerry Maddoux + 3,627]

So, if we remove, say 50% of the DUCs from the LTO equation, we're left with a rapidly slowing eastern Permian, the Delaware Basin venting and flaring increasingly under surveillance by a wary, left-leaning state (NM) oil & gas board, and the Anadarko Basin--at least the SCOOP/STACK portion of it--basically shut down. The Bakken is actually coming on strong, setting new production records, primarily because child wells tend to enhance the old legacy parent wells that have hbp'd the acreage for the last six years or so. 

10 minutes ago, James Gautreau said:

Stick a fork in it. This thing is done. 

It sounds like it, on the surface. However, paint me a fool or an optimist but e-fracking is really making a cost difference, machine learning from down-hole sensors firing information to a cloud and getting back a markedly better drilling path is out of this world, and so is tailored completion based on lithology, pressure gradients, rheology of hydrocarbons from the fractures, and the use of in-field natural gas to drive the frack fleets. While I believe you are correct, Mr. Gautreau, in saying that the price of a barrel of oil is headed upward--and perhaps dramatically--I think you may be putting LTO in the grave a bit prematurely. Even so, I'm with you, I love conventional drilling, but where? Well, the Panhandle of Texas looks good, as does that crescent of strange geology curving up and east from the Eagle Ford toward the Woodbine--the so-called Eaglebine. It is Austin Chalk shallow, Buda Shale deep, with oil-soaked marl sandwiched crazily in between. If someone can tell me how to manage that sort of complex geology, I'll be out of here on this shale stuff. In fact, my shale holdings are for sale, not because I don't think it's going to be around quite a while longer but because my heart is really in the conventional drilling that I grew up around. Alas, I don't think onshore conventional drilling is going to be the Mother Lode; rather, I believe that's going to be offshore--sticking a straw in a very, very large pool of liquid hydrocarbons shoehorned into large traps by deepwater anticlines on the ocean floor. That pretty well cuts me out of the loop. 

[James Gautreau + 86]

The one thing you notice about the price of oil over the years is that its moves are huge, or in Trump speak, YUGE. And lots of times there is no real catalyst in either direction, it's a perception as Mark Gordon explains in his youtube podcasts recently. It is whether we are in the Age of Abundance or the Age of Scarcity. Everybody is predicting a glut in 2020. The one thing I've learned over the years is that the "fake news" puts out a picture they want you to see, not neccesarily one that's the truth. Imagine them predicting a massive oil shortage? Yeah right. 

[Gerry Maddoux + 3,627]

No question about it: the inventory of feedstock for refineries is much smaller than the agencies would have you believe. In fact, as a nation the United States is poorly positioned for a perfect storm. All it would take is one big military gig lasting a month and we'd be scratching the bottom of the tanks in Cushing. The Strategic Reserves have been whittled down. Laying down 300 rigs, slowing Permian, reduced quotas by OPEC+, Libya mostly offline have all made for a dubious "glut" in the coming new year. I too believe we're going to see something close enough to a supply scare to drive up the price of oil. But that's one reason I think LTO will survive for awhile too. Think about it: While Guyana is going to be huge, and the North Slope find in Alaska looks promising, it's the shale that's currently making the US "energy-independent." The oil market has always operated within a very narrow spectrum of supply and demand, but never quite this narrow. When you get the largest desulfurization plant in Saudi Arabia hit by Iranian missiles and it only raises the price of crude for one day you have a great deal of complacency in the system. Additionally, a lot of professional oil traders washed out; they're doing something a bit more subservient to the usual algorithms. Most of these articles on oilprice.com look to have been written by kids who've never been to an oilfield, lived through a supply shortage, and they've all mostly bought into the manmade climate change malarky. Much of it indeed fake news.  

[Ward Smith + 6,615]

On 12/14/2019 at 3:48 PM, James Gautreau said:

 

Man when Trump kicks ass, he really hits you in your calves or maybe the back of your thighs.

"sources: Chinese customs administration, national bureau of statistics of China"

Why would they lie? 

[Rob Kramer + 696]

Well I'm blown away. The DUC report is out -131 ... to be honest my best math was -270-350 .... still 10 months on Anadarko. I haven't checked the math on the other link that shows drills vs completions to see if they drilled faster or completed less. 

[James Gautreau + 86]

I hear you. It's a question of how much resource is left. We've been drilling with out hair on fire for 10 years. We have reversed a 35 year decline with what looks like a hockey stick. We have exceeded the peak of conventional oil by nearly 30%. All of these things seemed near impossible 10 years ago, and shale oil has always surprised to the upside. But the revolution can only go on for so long and I think the flat line of production early this year was evidence shale had hit a wall. I started searching and found that decline rates were accelerating, which means there's less EUR. I say sometime early next year it will become obvious that decline has begun, and by this time next year, anything is possible including Trump declaring martial law and refusing to leave office. That's not even counting Middle East shenanigans. Think about it. If Saudi Arabia had 6 mbpd knocked out for 6 months to a year prices would likely triple or quadruple. They could make more money selling a lot less oil when the stuff is getting more valuable by the minute. They've been waiting to do it for the time of maximum pain. As soon as shale oil peaks that time is here.   

[Rob Kramer + 696]

Ok so still beats my math . They drilled 79 less and completed 155 less. So that's that. Current drilling was 1069 vs 1200 completions.

[Rob Kramer + 696]

Peak drilling was 1460 this year and peak completions were 1410. Not in the same months . (Sorry all just found the eia duc data spread sheet today)

[Gerry Maddoux + 3,627]

Rob, I think most of those new DUCs are "huh-oh" moments. As you know, every drilling rig today is equipped with instantaneous data collected by drilling sensors located just above the drill bit. That data comes to a digital specialist whose computer is connected to a cloud and machine learning (AI) takes that data and makes automated adjustments--all under the eyes of the digital specialist. That information includes more data about the lithology, rheology, geology and methodology than we ever thought possible.

It would be just my luck that you know ten times more about this than I, and if so, I apologize. However, whereas in the past we had to rely on gamma emissions and samples coming back into the hopper, now there is a plethora of data that a computer format can analyze and pretty well tell you right up front that this is a humdinger or not. The drilling is about 1/3 of the cost. So if it's not a humdinger, well, it's just another DUC that will never get finished. I think James Gautreau is correct: the Permian--especially Permian east--is full of such DUCs, and it's the untold story. Every shale field is going to have some, and probably more and more as the horizontals snake further out. The more mature fields are going to have fewer, because they've had longer laterals for some time now. Additionally, fields like Eagle Ford and the Bakken are more clayey shale, and it's more homogeneous, so less chance of sinking a couple of million into just another DUC. E-fracking may make more of these more marginal starters economic realities.

Additionally, there is quite a bit of shallow shale that is just as oil-soaked as other fields, but the shale thickness isn't as great. Now this is where that all gets very interesting: The shale doesn't have to be 500 feet thick, because hydraulic fractures only spread out for a finite tangential spiderweb anyway. In Divide County North Dakota you can drill down and out in this fairly shallow shale in about three days time. The data are great. The shale is thin, but with the new "automated" drilling techniques, coupled with e-fracking, my bet is it's going to be one of the most economic areas to drill for LTO. The recovery in the Bakken quite close to Divide County (Williams, McKenzie Counties) is very close to 20%. These are precisely the reasons why I refuse to "give up" on shale. Additionally, up there there is a lot of ethane (10%) in natural gas, so when you put it down the hole as a stimulant it's more bang for the buck. Instead of slickwater they're using cross-bonded polymers.

What if, instead of deep verticals and long laterals the best economics were short verticals and long, close-together laterals? Everyone is going for increased porosity, which get more juice out of the rock but that same porosity allows for the child wells to talk back to their parents. Divide County is one big ole homogeneous oil trap in a relatively moderate thickness shelf of shale. EUR only thought to be 300,000 but it's a solid number. What if you could drill it for $3M a well? It would pay out in no time. I'm getting sort of excited: technology (mainly well bit sensors and machine learning) is coming on so fast it's head-splitting. Then, down below that shallow shale, way down, is a whole new formation, the Red River. It extends over into Montana. I don't know, the oil E & P guys seem to be like ants, going here and there. It's one thing when Mark Papas does that--he has a nose for oil and doesn't really care much for Wall Street or what others think. It's quite another for the majors--Chevron and Exxon and Occidental--to pay maximum price and think economy of scale will overcome any problem.

The fact of the matter is that to increase single-hole recovery from shale you must have rock that is ideal for fracture lines to spread out, under high enough pressure to cause hydrocarbons to spew forth from the fracture lines, and homogeneous enough to be predictable. Those same attributes are, alas, the same ones that create a pressure sink and frac hits, even when the parent well is closed in for the child well completions. James is right again: in most areas in the Permian such high prices were paid based on parent well economics that except for sweet spots the child wells just won't pay the rent. 

Edited December 16, 2019 by Tom Kirkman
Added paragraphs to otherwise excellent wall of text

[James Gautreau + 86]

I see the 131 DUC's that got finished, down from 225 last month, as evidence the good DUC's are almost gone. Gerry that is one hell of a post. I'm going to have to read it 3 times at least. And your last statement I have been saying for a while now and that's if there are still good spot remaining, why is everybody crowding the sweet spots with child wells? So the technology you describe is to sort out whether a well is a good frac candidate, correct? To frac or not to frac. I never thought of it but it makes sense. Frac's are expensive. 

[Gerry Maddoux + 3,627]

30 minutes ago, James Gautreau said:

So the technology you describe is to sort out whether a well is a good frac candidate, correct? To frac or not to frac. I never thought of it but it makes

Precisely. Using the Data While Drilling programs--Schlumberger likely has the best one--you can not only zip out a lateral using best-route feedback but tell whether to get excited or not. Drillers are huddled together in the Delaware because there are stacked plays (Bone Springs and Wolfcamp primarily) and those are pretty well mapped out in sophisticated isopachs. In those two counties in the far southeast corner of NM, it's not common to come up empty. That wasn't the case in the eastern Permian. One smart bunch (Ring Energy) bought a large acreage of just one level--the San Andrus--and they drill quick, shallow, inexpensive wells, then poke laterals out into that shale and since it's all alike, give it a frack-lite, with great results and a quick payout. The more I think about it, the more that cryptic post by Chris Kanaan makes sense: At least 50% of those eastern Permian DUCs are never going to be completed . . . at least until oil goes up in price a lot. One thing about it, this stuff has become less of a guessing game. 

[Coffeeguyzz + 454]

Mr. Maddoux

You raised a great many points in your post, some of which may address Mr. Buckland's queries re new technologies.

"... technology is coming on so fast it is just head splitting".

Just so.

Although it may accurately be stated as more improvements/enhancements of existing stuff, end of the day, the results are enabling more to be recovered at lower cost.

Examples include the new sand mines in North Dakota a few hours drive east of the Bakken.

Trucks were said to be carrying sand out the gate within hours of the opening.

Cost savings estimated up tp $300k per well.

Those HVFR polymers you mentioned are - in many cases - allowing up to 100% use of produced water for frac'ing. Big operational/cost advantages there. (Antero may have to write off brand new, $300 million water treatment plant as a consequence).

That e-frac stuff started in 2014 with Antero in West Virginia.

Estimated per well savings pegged at $250k with a TON of logistic headaches (think diesel deliveries) being resolved.

While frac spread iron is being scrapped, there is a buildout occurring in this still tiny gas-fueled field. These guys essentially lug around a TM 2500 turbine, plug in the pumps, and fire up.

That $3 million cost for shallower, shorter wells has been the Niobrara's status for awhile now. (Monobore drilling is a big help also, where it is possible).

Targeting of the shallow Clinton Sandstone in Ohio continues with spotty results, but optimism reigns supreme.

The Torquay field (aka Canadian Three Forks) has had modest success for a decade now.

Regarding the Red River in North Dakota, that multi decade old target has been increasingly targeted the past few years.

High water cut, but significant - relatively speaking - hydrocarbon output.

The Red River in Bowman county and the Madison in Bottineau are  being pushed by the North Dakota folks to be included in the next USGS assessment as the feeling is that more viable recovery is in the works.

We will see.

This shale stuff is barely in the second inning as areas such as the Uinta, Rogersville, Tuscaloosa Marine Shale have barely scratched the surface.

Not even mentionining the emerging Powder  River Basin.

Early goings, yet.

 

[Coffeeguyzz + 454]

Mr. Gautreau/Mr. Maddoux

One additional metric that is being implemented by those data gathering methods is the rock's relative "pressure breakdown" parameters.

That is, for illustrative purposes, fissures can be  created in rock at, say,  ~3,000 psi over a ~900 foot length, then ~2,500 psi may be needed over the next ~500 feet, and ~2,000 psi over the next ~1,000 feet.

Identifying, targeting, and then successfully providing these varying pressure amounts - delineated and segregated by stage - can more comprehensively 'rubbilize' the formation with reduced breakthrough.

This is precisely what that Chevron suit was describing upthread as one of the key components in future completions.

Extreme Limited Entry is the term  several operators use to label this approach.