Shale Oil Fiasco

[Jabbar + 465]

18 hours ago, Rob Kramer said:

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....

It's all about the numbers.  

As I have saidthe smartest producers, Bankers, investors, governments, oil companies ALL THOUGHT  OIL PRICES WOULD ALWAYS BE ABOVE $100 BARREL AND DEMAND WOULD ALWAYS INCREASE.  

They were ALL WRONG 

They all made tons of money early years.  The problem is they all invested buying rights to drill, agreeing to exhorbanant royalties and piling up debt/loans from very willing investors and banks.  Remember money was cheap , oil was really only game in town.

Things changed.  New shale discoveries , lower operating costs and new technology. Prices came down. They were still reasonable in 2014/2015 enabling shale producers to make decent money.  However, Saudis needed $90 to $100 barrel.  They once again (4th time) decided to show the U.S. who's the Boss.  It doesn't work anymore.  Saudis lost half their sovereign wealth fund. They were responsible for price crash And production drop.

The Shale industry will continue to grow. It will do well.  Wide range of growth estimates. I go with Conoco CEO whom says approx 1 million more barrels a day by end of 2020. U.S. produced 12.9 million day last week. About 9 million day is shale.  Industry not collapsing.

There are two types of shale producers now.  Those that can deploy tech and capital and produce oil at sub $30. The those that produce at approx $50 break even.  

The latter must adopt, merge, be bought or go under.  There will be no premium paid.  The consolidators or hedge funds are buying the reserves.  They will pay the estimated reserves based on quality of rock, estimated recoverable oil and an acceptable return on investment. 

I believe the U.S. shale industry  will avg sub $30 in 3 years. 

I believe the U.S. shale industry will avg at least 20% re over in three years. Thus doubling reserved of a substantial portion of U.S. shale.

I believe a large number of vintage 1, vintage 2 and vintage 3 wells will be refrac in the Bakken and Eagleford producing at sub $30 break even. 

Then there is Argentina shale. Vaca Meurta will be bigger than Permian.

South America is Brazil, Guyana. Columbia will grow.

All of West Africa. Too many to name.

What happens when Iran, Been,iela and Libya get their act together.

All of OPEC want to increase output substantially.  They all know OPEC days are numbered.  

TOO MUCH OIL.  It will only get worse .  Supply outgrowing demand.

Green Legislation is coming.  Electric cars coming . .  230 new models coming in next 3 to 4 years.  

So supply growth with shale and deep water getting under $30 costs. Average OPEC costs between $12 to 15 dollars barrel.  

Oil will trade in current range for a while at $55 to $65.  When supply /demand gap widens and demand plateaus (when EVs take off) it will be very man for himself.  

Pressure on margins and back to the oligolopy oil industry ( this stage way out there).

Are you old enough to remember the dot.com bubble.  Didn't collapse. Just cleared out the fakes.  There are a few internet companies that are doing OK. 

SHALE industry will have a good 2020.  

Some shale companies will have a devastating 2020.

  My opinion 

Edited December 6, 2019 by Jabbar

[Douglas Buckland + 6,308]

8 hours ago, markslawson said:

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?

Well, Halliburton just laid off 800 people...It will be difficult to bring back this experience if the shale oil conditions improve. The repeated lay-offs drive the experienced personnel into other jobs/industries. It is not simply equipment you need to drill and complete wells. The same applies to rig crews.

Yes, you can put a body in the slot, but the overall experience level suffers greatly and safe, efficient operations become an issue.

[ceo_energemsier + 1,818]

N. American Shale Primed for Growth Despite Possible Oil Price Declines

 

 

If OPEC and Russia don’t decide on deeper cuts in oil production for 2020, it could cause oil prices to drop. But the production outlook for North American shale will remain robust in coming years, according to Norwegian energy research firm Rystad Energy.

“In spite of the decline in spending and activity levels, the North American shale supply is not following the downward trend,” said Sonia Mladá Passos, a product manager of Rystad Energy’s Shale Upstream Analysis team.

Using a base case price scenario which assumes a WTI price of $55/barrel in 2019; $54/barrel in2020; $54/barrel in 2021 and $57/barrel in 2022, Rystad expects North American light tight oil (NA LTO) supply to reach 11.6 million barrels per day by 2022. This indicates an annual growth rate of 10 percent from 2019-2022.

In a price scenario with WTI remaining flat at $45 per barrel, NA LTO supply would level at 10.1 million barrels per day toward 2022.

“The flat development of U.S. LTO production is also possible in lower price scenarios, but we would likely see an initial period of multi-quarter production decline, with output stabilizing at a lower level,” Mladá Passos said.

This year, LTO supply from North America is set to reach 8.6 million barrels per day, with 93 percent driven by the U.S., according to Rystad.

Additionally, the industry is primed to spud 17,000 horizontal wells targeting shale formations in the U.S. and Canada this year. Rystad anticipates drilling activity to remain flat, according to the base case price scenario.

However, a low-price scenario with WTI staying flat at $45 per barrel, North American shale activity may experience a sharp decrease, falling by 26 percent in 2020, year-on-year.

 

[Jabbar + 465]

8 hours ago, Douglas Buckland said:

That’s it in a nutshell.

Over to you Jabbar...

Typical response 

LOL

Doug, if you want to learn something, sit down with Conoco Reservoir Engineer Kevin Raterman for a day.

Your head will be spinning after a half hour.

 

Younger individuals (and many older) absorb more learning because they have open minds and are independent thinkers .  

Can't learn much with a closed mind.

This isn't your grandfather's oil industry anymore.  

I rest my case.

LOL

Don't change , we love ya. (My gratuitous typical response)

 

 

Edited December 6, 2019 by Jabbar

[canadas canadas + 136]

At one time, shale oil meant mining oil shale and heating it in order to extract oil from it.

Now, it means fracturing the shale formation with horizontal drilling to release oil from it.

[D Coyne + 305]

23 minutes ago, canadas canadas said:

At one time, shale oil meant mining oil shale and heating it in order to extract oil from it.

Now, it means fracturing the shale formation with horizontal drilling to release oil from it.

The first is kerogen, being converted to crude using heat.

The second is crude in low permeabilty rock, which is better named light tight oil (LTO) or just tight oil.

Apple to oranges.  There has been very little kerogen converted to crude from mining and then heating, the process is not economically viable at oil prices under $150/b.  Also the biggest resource in Green River has severe water constraints and the process would be limited by these constraints.

[D Coyne + 305]

8 hours ago, Jabbar said:

It's all about the numbers.  

As I have saidthe smartest producers, Bankers, investors, governments, oil companies ALL THOUGHT  OIL PRICES WOULD ALWAYS BE ABOVE $100 BARREL AND DEMAND WOULD ALWAYS INCREASE.  

They were ALL WRONG 

They all made tons of money early years.  The problem is they all invested buying rights to drill, agreeing to exhorbanant royalties and piling up debt/loans from very willing investors and banks.  Remember money was cheap , oil was really only game in town.

Things changed.  New shale discoveries , lower operating costs and new technology. Prices came down. They were still reasonable in 2014/2015 enabling shale producers to make decent money.  However, Saudis needed $90 to $100 barrel.  They once again (4th time) decided to show the U.S. who's the Boss.  It doesn't work anymore.  Saudis lost half their sovereign wealth fund. They were responsible for price crash And production drop.

The Shale industry will continue to grow. It will do well.  Wide range of growth estimates. I go with Conoco CEO whom says approx 1 million more barrels a day by end of 2020. U.S. produced 12.9 million day last week. About 9 million day is shale.  Industry not collapsing.

There are two types of shale producers now.  Those that can deploy tech and capital and produce oil at sub $30. The those that produce at approx $50 break even.  

The latter must adopt, merge, be bought or go under.  There will be no premium paid.  The consolidators or hedge funds are buying the reserves.  They will pay the estimated reserves based on quality of rock, estimated recoverable oil and an acceptable return on investment. 

I believe the U.S. shale industry  will avg sub $30 in 3 years. 

I believe the U.S. shale industry will avg at least 20% re over in three years. Thus doubling reserved of a substantial portion of U.S. shale.

I believe a large number of vintage 1, vintage 2 and vintage 3 wells will be refrac in the Bakken and Eagleford producing at sub $30 break even. 

Then there is Argentina shale. Vaca Meurta will be bigger than Permian.

South America is Brazil, Guyana. Columbia will grow.

All of West Africa. Too many to name.

What happens when Iran, Been,iela and Libya get their act together.

All of OPEC want to increase output substantially.  They all know OPEC days are numbered.  

TOO MUCH OIL.  It will only get worse .  Supply outgrowing demand.

Green Legislation is coming.  Electric cars coming . .  230 new models coming in next 3 to 4 years.  

So supply growth with shale and deep water getting under $30 costs. Average OPEC costs between $12 to 15 dollars barrel.  

Oil will trade in current range for a while at $55 to $65.  When supply /demand gap widens and demand plateaus (when EVs take off) it will be very man for himself.  

Pressure on margins and back to the ologopy oil industry ( this stage way out there)

Are you old enough to remember the dot.com bubble.  Didn't collapse. Just cleared out the fakes.  There are a few internet companies that are doing OK. 

SHALE industry will have a good 2020.  

Some shale companies will have a devastating 2020.

  My opinion 

Jabbar,

Current breakevens for the average well are about $57/bo, your assumption that breakeven falls to less than 30 in 3 years will be wrong.

I define breakeven as discounted net cash flow at 10% annual nominal discount rate over the life of the well equal to the capital cost of the well, land, and all facilities suporting the well along will cost of abandonment.  For the average Permian well in 2018 I assume about $10 million well cost as defined above in 2018$.

 

If your price predictions are correct, tight oil will peak at no more than 9 Mb/d and is likely to reach that peak in 2022.

My scenario is based on an oil price scenario where Brent oil prices rise to about $90/bo in 2018 $ by 2027 with a gradual rise in oil prices between now and 2027.  A low oil price scenario would result in much of the tight oil and oil sands and deepwater resources being left in the ground because they will not be profitable to produce.

[James Gautreau + 86]

Good nutshell. Over time and at those depths and pressures the opening closes and you're done. Production is almost entirely front loaded. When this thing peaks and starts declining watch out. People will be astounded by how fast the oil just goes away. Just like when $25 was cheap and $50 was expensive back when I was younger, and now when 50 is cheap and $100 is expensive, the new normal will be $100 is cheap and $200 is expensive. This after the 4 X post embargo when oil went from $3 to $12. That took us into the modern oil age i.e. dirt, dirt, dirt cheap to moderately expensive. Now we are headed into expensive. We're not very expensive yet. 

[Jabbar + 465]

12 minutes ago, D Coyne said:

Jabbar,

Current breakevens for the average well are about $57/bo, your assumption that breakeven falls to less than 30 in 3 years will be wrong.

I define breakeven as discounted net cash flow at 10% annual nominal discount rate over the life of the well equal to the capital cost of the well, land, and all facilities suporting the well along will cost of abandonment.  For the average Permian well in 2018 I assume about $10 million well cost as defined above in 2018$.

 

If your price predictions are correct, tight oil will peak at no more than 9 Mb/d and is likely to reach that peak in 2022.

My scenario is based on an oil price scenario where Brent oil prices rise to about $90/bo in 2018 $ by 2027 with a gradual rise in oil prices between now and 2027.  A low oil price scenario would result in much of the tight oil and oil sands and deepwater resources being left in the ground because they will not be profitable to produce.

I say avg b/e around $50.  But let's not split hairs.  Two types of shale producers those that produce oil below $30 and those that avg approx $50.  

The low cost shale will not compete with the $50 producers.  They want $70 oil as much as they do. 

The pricing pressure will come from oil those other conventional producers and demand plateauing .  

Shale adapts or be gone.

Also, one needs to consider what type of "cashflow" you're using. Operating cashflow ? Financial cashflow? 

Just my opinion.

[wrs + 893]

37 minutes ago, D Coyne said:

Jabbar,

Current breakevens for the average well are about $57/bo, your assumption that breakeven falls to less than 30 in 3 years will be wrong.

I define breakeven as discounted net cash flow at 10% annual nominal discount rate over the life of the well equal to the capital cost of the well, land, and all facilities suporting the well along will cost of abandonment.  For the average Permian well in 2018 I assume about $10 million well cost as defined above in 2018$.

 

If your price predictions are correct, tight oil will peak at no more than 9 Mb/d and is likely to reach that peak in 2022.

My scenario is based on an oil price scenario where Brent oil prices rise to about $90/bo in 2018 $ by 2027 with a gradual rise in oil prices between now and 2027.  A low oil price scenario would result in much of the tight oil and oil sands and deepwater resources being left in the ground because they will not be profitable to produce.

Your well cost is too high.  Drilling costs are about $2m and completion costs are $3-5m, those are up to date numbers based on three new wells drilled this summer.  So a fair number would be $5-7m not $10m.

[James Gautreau + 86]

The problem is Tier 1 acerage is gone. Typically you drill 4 or 5 wells to find that 600,000 EUR well. It makes you $30,000,000 and all the others combined maybe $10,000,000. The wells cost $8,000,000 apiece. So you're treading water. Tier 2 and 3 acerage is 200,000 to 300,000 barrels EUR. Let's assume the same 4 or 5 wells to find that well. So you're spending the same $40,000,000 but you're only getting $15,000,000 for the gusher and all the rest maybe $5,000,000 so $20,000,000 total. You need at least $100 barrel oil  for Tier 2 acerage and $150 barrel oil for Tier 3 acerage. That's why they had parent/child issues with well spacing. Everybody wanted to drill next to the gushers. In doing that people estimate they left a billion barrels in the ground. A $50 billion dollar mistake. Yeah shale is booming all right. 

[James Gautreau + 86]

[James Regan + 1,776]

With all the production numbers etc, one question, just one

 

HOW LONG WILL THIS LAST?

[James Regan + 1,776]

On 12/5/2019 at 8:13 AM, 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!

FIASCO- SOUNDS LIKE THE NAME OF A TYPICAL LTO COMPANY......

[James Regan + 1,776]

12 hours ago, Douglas Buckland said:

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

DOUGLAS - How long have we been stating this, IMO we are the authorities on the demise of the shale or LTO sector, no spin or hearsay will convince me of the demise of this very fickle sector which masks itself like any charlatan as part of the healthy industry we grew up in, well its not. Unconventional is the buzz word and by default it will remain unconventional ie not fitting as part of the norm. They can crater the geology as much as they see fit to temporarily please the lenders on production rates and blind them with DUCS, but the reality is the geology will NOT allow any technology to make this a viable long term solution as in the end Swiss cheese affect will prevail and polluted water tables, not healthy in any aspect either fiscally or environmentally.

Edited December 6, 2019 by James Regan

[James Regan + 1,776]

20 hours ago, Rob Kramer said:

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. 

https://www.offshoreenergytoday.com/worldwide-offshore-rig-count-in-november-up-41-rigs-year-over-year/

[James Gautreau + 86]

I'm telling you in 6 months. By next summer we will have left the age of abundance and returned to the age of scarcity. All of it is lining up. The production cuts just announced by OPEC and Russia. The demise of the shale oil revolution, more like the retirement party for oil. The Aramco IPO. President Trump and his impeachment. 2020 will be like 1968. Tumultuous. OPEC is down like 4 or 5 mbpd from their peak. People think they can just turn it on. Well like 2008 they'll be proven wrong. Sure they're will be other shale plays. But once conventional oil starts declining, the end of the oil age is nigh. You can replace conventional oil with unconventional because it's so front loaded, but once you peak, production goes from straight up to straight down. President Trump will be the peak oil president. The US China trade war has been preparation for this moment. When the shale oil starts evaporating, America will then want the oil that had been going to China. Then you will have the battle of the petrodollar and the petroyuan. Then the Battle of Armageddon. Over what's left of the cheap oil. 

[canadas canadas + 136]

1 hour ago, James Regan said:

With all the production numbers etc, one question, just one

 

HOW LONG WILL THIS LAST?

What is the production lifetime of a fracked well?  Does it produce much first and then declines fast?

[Rob Kramer + 696]

Awesome conversation.  Looks like I'm pretty middle of the road seeing this  (9m?) as a peak (within a year) in shale only to dip 1m (mabey more doubt more than 2m) barrels ish and prices restored and rigs come back but at a slower pace. It also looks price related . Some see 50$ as a norm (I think a spike then to 70) and others see 100- 200. Super cool . 

My argument would be 50$ shale keeps going down and 100$+ it and other projects grow . The rigs and some of the workforce would still be available for a comeback with huge prices. 

[wrs + 893]

4 hours ago, James Gautreau said:

The problem is Tier 1 acerage is gone. Typically you drill 4 or 5 wells to find that 600,000 EUR well. It makes you $30,000,000 and all the others combined maybe $10,000,000. The wells cost $8,000,000 apiece. So you're treading water. Tier 2 and 3 acerage is 200,000 to 300,000 barrels EUR. Let's assume the same 4 or 5 wells to find that well. So you're spending the same $40,000,000 but you're only getting $15,000,000 for the gusher and all the rest maybe $5,000,000 so $20,000,000 total. You need at least $100 barrel oil  for Tier 2 acerage and $150 barrel oil for Tier 3 acerage. That's why they had parent/child issues with well spacing. Everybody wanted to drill next to the gushers. In doing that people estimate they left a billion barrels in the ground. A $50 billion dollar mistake. Yeah shale is booming all right. 

What play are you referring to with Tier 1 acreage being gone?  Are you suggesting it's alreday been produced or just leased?  I think it's kind of early in the game to talk about EUR without it changing every year.  Here is a five year old well in the Permian that has produced 365,000 barrels so far.  It is a 4000 foot lateral, what length of lateral are you talking about with your $8m cost and EUR of 600,000 barrels?

Edited December 6, 2019 by wrs

[James Gautreau + 86]

That's true but they'll be drilling less productive acerage. After a certain period you can't stem the tide. Matt Simmons said "Records are peaks." 2018 brought on more oil from one country in oil history 2 mbpd. The record it beat was... you guessed it 1970. The decade of the 70's & 80 saw a quadrupling of drilling and it didn't matter. Except for Prudhoe Bay coming online in the late 70's it was pretty much straight down. A gentle decline to be sure. 

[James Gautreau + 86]

The way I read it was in WSJ. It said Eagleford promised 1,300,000 barrels per well and got 500,000 per well. The Bakken promised 900,000 and got 600,000 and the Permian promised 1,000,000 and got 700,000. But that's from memory. But they were clustered 500,000,600,000,700,000. That was Tier 1 wells. 

[James Gautreau + 86]

It's not just me saying it. Mark Papa is saying it. Sheffield and Hamm are saying it. Resource exhaustion. Papa is the most negative at 400,000 bpd growth for next year. I'm saying 1 mbpd decline 2020, from 13 down to 12 mbpd. 

[James Gautreau + 86]

[James Gautreau + 86]