Shale Oil Fiasco

[AcK + 50]

54 minutes ago, Jabbar said:

Backif you go to Conoco website , then to their investor day conference November presentation.  Fast forward to the " lower 48" section.  Conoco has large number of prime acreage in the EF.  Conoco like many of the Majors was late to the shale production.  They took their time to "do it correctly".  While many early EF shale producers just recklessly drilled the hell out of EF.  Conoco did not. 

Conoco has 10.4 Million acres on lower 48.  Most of it in shale. 

Permian is king .   .   .   but lot of life left in EF and Bakken.  Also, I think Powder River Basin also has potential. Ko

 

Actually that should mean (even more) that Conoco assets (in EF) should be really starting to ramp up now, not late growth??

[Old-Ruffneck + 1,177]

8 minutes ago, J.R. Ewing said:

We've been busy...

cured polio

did not have a Great Leap Forward

invented the Internet

Game of Thrones

killed a lot of commies

The Sopranos

convenience stores

Amongst other innovations

Great Colleges for higher learning,

The Killer looks of the 57 Chevy 2 door,

Most modern medicines, vaccines

High polluting cars we still love,

A great prison system 2nd to none with the highest population,

Some of the largest/modern warfare ships, planes (SR-71) still record holder.

 

[Jabbar + 465]

2 hours ago, AcK said:

Actually that should mean (even more) that Conoco assets (in EF) should be really starting to ramp up now, not late growth??

Conoco said they are fine tuning the processes, technologies and operations with 3 pads in EF and 1 pad in Delaware. Full implementation  company wide in 2021.

Best quote when referring to 20% was , " we can do even better" 

Much of Conoco's shale average is previous land from conventional production, same as Occidental and Chevron/Texaco.

Using new methods Conoco said refracing  all vintage 1 , 2 , 3 wells producing oil at $30 barrel or less.

Edited December 28, 2019 by Jabbar

[AcK + 50]

10 hours ago, Jabbar said:

Conoco said they are fine tuning the processes, technologies and operations with 3 pads in EF and 1 pad in Delaware. Full implementation  company wide in 2021.

Best quote when referring to 20% was , " we can do even better" 

Much of Conoco's shale average is previous land from conventional production, same as Occidental and Chevron/Texaco.

Using new methods Conoco said refracing  all vintage 1 , 2 , 3 wells producing oil at $30 barrel or less.

Cool - lets reconnect in 2021 and take up this debate again - has been a great one.

Although I have serious doubts - they also said tech deployment has become much much quicker than in the past. And they said this in May 2019 as you pointed out - plenty of time inbetween May 2019 and 2021.

Something does not add up - if oil prices shoot up (and that is not my base case), and the tech (5 you mentioned) you have been testing works, why not deploy it to take advantage of US$65-70 pricing.

In the meantime I will start tracking Conoco myself - tx for the heads up!

[AcK + 50]

16 hours ago, Rob Kramer said:

We forget we (north america / canada + usa) live in abundance so here competion is what sets price ( 17%? Of global production )

Globally countries need to co-operate because they dont have the level of abundance we do in all resources. 

So put different : if a strip mall has 5 stores and 1 has a half off sale the store will just sell out , make little profit and the other 4 stores continue business as usual. I dont agree with the greed of opec or trying to damage others economies in the past but I do agree with withholding your own labour or goods at a loss. But you get greed here too and guys who will overproduce to hope to catch the next boom but make the next bust through debt and competition instead of patients.  Think if shale was 50% slower oil would have stayed high(er) the entire time debt serviced, layoffs avoided , investors rewarded, reserves left for future, ect. The only thing I can see as a con would be higher fuel prices so higher inflation and less jobs added in bulk as things would be more efficient.  

I agree with all you have said.

OPEC needs higher pricing since they dont have anything else (since they have not expanded their economy like everyone) - surprise to me (being from India) is that they had the same labor advantage than US enjoyed (India/China in this case) - but chose to use it in very different way (slaves/manual labor) - except the Eimrates. Resources aside, US economic model roxxx...

If only you could do something about the income inequality problem, but I digress...

Nonetheless, my point is we live in the real world. OPEC+ is as much a reality of the (oil) world as anything else (Shale included). People (including in this forum, Never Peakers haha) tend to dismiss it lightly (US is energy independent - we dont care about OPEC+ anymore) - that is the reality of today but IMHO only part reality. With 50+% global oil market share, OPEC+/decisions impact US also in many ways (second derivative now, if not first derivative - in future maybe again first derivative). So imp to keep your eyes and ears open to OPEC+...

A few very smart people in this forum (cant remember who now) were dismissive of OPEC efforts to stabilize the oil market early in 2019. The chart below from Art shows how did that pan (within US$10 range). Sure OPEC would rather have it US$60-65 WTI and US$70-75 Brent, but however powerful they may be, they are not Gods of the oil market (Amen to that)...

Btw, some people have misconceptions about Russia - we dealt with that issue in one of our notes...

https://determinedinvest.wordpress.com/2019/10/02/the-black-gold-sep19-update/

Edited December 29, 2019 by AcK
For some reason always forget to attach exhibit

[0R0 + 6,251]

On 12/20/2019 at 1:10 PM, D Coyne said:

Gerry,

I am much less certain that there will be plenty of oil in 5 years time.  The problem is that demand will grow faster than supply for C+C.  See chart below and find my book at your local university

http://ursus.maine.edu/search~S1/?searchtype=t&searcharg=Mathematical+Geoenergy+%3A+Discovery%2C+Depletion%2C+and+Renewal+%2F+Paul+Pukite%2C+Dennis+Coyle%2C+Daniel+Challou&searchscope=1

or buy it

https://www.amazon.com/Mathematical-Geoenergy-Discovery-Depletion-Geophysical/dp/1119434297

Also see (free)

https://royalsocietypublishing.org/doi/full/10.1098/rsta.2013.0179

Chart assumes high oil prices eventually lead demand to decrease as people switch to alternatives to oil and oil prices to fall after 2045.  Note that from 1980 to 2019 World demand for C+C increased at at average annual rate of 800 kb/d, we will have great difficulty continuing to meet that level of C+C demand after 2023 as the rate of increase in output approaches the 2025 peak.  I expect by that time Brent oil prices will be well north of $100/b in 2019$, perhaps as high as $140/bo.

As far as expensive wind and solar see

https://www.lazard.com/perspective/lcoe2019

not really as expensive as you seem to believe.  I agree we should conserve resources and build more efficient buildings that utilize passive solar design, it will help to conserve depleting resources.  We will need to reduce fossil fuel demand at some point, perhaps not 5 years (though this is my best guess) maybe in 10 (10% probability that will be correct in my view) or 15 years (less than a 1% probability C+C output will not have peaked by 2035).

 

I have been reading this thread avidly, as I am very interested in the economic and geopolitical impact of shale, as the Chamber of Commerce report indicates. It is singlhandedly lifting US economic activity and its prospects. However, there are some things that have not been discussed, and may be controversial to some.

First of all, the increasing demand for oil is in question. 

1. This is the first year in recorded demographic history of fewer births than the year before. The newest demographic projections undercut the UN population projections from 11 billion peak to 9 billion, That being largely due to increased longevity, meaning that the population increase is not going to include an increase in energy consumption in proportion as it will be at the over 60 age group. Urbanization has cut fertility rates globally to 1.6-1.7, and virtual urbanization via cell phones and social media is doing the rest. . 

2. Encroachment of nat gas as a fuel for marine transport starting with LNG vessels - why not everyone else? Then also nat gas for trucks as per Boone Picken's concept and company. The penetration isn't as high as I would have expected.  Considering only one EV truck model is on the drawing board and long recharge times are a no-no for efficient truck utilization. .Global NGVs are at 30 million, Nearly none of them in the US. 

3. EV penetration, China in particular is trying to undo its reliance on imports, particularly of oil. It is pushing EVs, even inviting Tesla to build locally with local capital and 100% ownership, First production coming now. Its 12 MBbl/day imports may well shrink fairly soon. Besides which, its working age population is already shrinking.

4. The expansion of telewoking and the perpetual shrinkage of in-office white collar work.Including telemigration. As geographical constraints make commutes and optimal empoyee/job matching more difficult in congested fully built out metro areas on the coasts..

The nat gas contribution to frac shale oil wells may increase as petrochemical production from nat gas vs. petroleum is far cheaper at nat gas below $3/MMBtu not to speak of for proximate prices of $1.50. This is also a substantial cost savings for primary steel and aluminum, and I believe is a major motivation for Trump's  tariffs on them, as Lightheizer and Navarro believe it is a major benefit to have the lowest cost steel and aluminum being made in the US, so once new production is established under the tariff protection (to protect it from currency devaluation - Lighthizer negotiated the Plaza Accord to lower the "superdollar") there would be a long term attraction of downstream production.

So considering these demand items, how would that change your projected pricing and peak production values?.  

Then there are a few issues that some of the Shale cheerleaders have pointed out,

1. That shale fracing is gaining efficiencies in operations and equipment as well as targeting drill paths and frac efficiency. The combined child well frac and completion costs are claimed to have dropped to about $5 million from what was $8 mil just a few years back.

2. The Oil 360 article detailing the findings of an 80k well study that is indicating that tier 2 and tier 3 wells do not produce that much less than the tier 1 wells. That one drew a "say what?" reaction from me. Since it is a statistical finding I am not in a position to dispute that. 

3. Recoveries of 20% rather than 10% are in the pilot and testing phase. Assuming that a transition to closer to 20% is coming starting next year, the economies of production are going to look much different. 

4. Re-fracing of spent wells is apparently a viable proposition, and with 80k and growing and a $30 cost claimed by Conoco, that makes for another wave of rework wells when prices don't support fresh drilling, and perhaps even if they do, as there is such a large and growing inventory of spent wells. 

How would these things modify your projections for supply side pricing and when and at what price level production would peak?

[AcK + 50]

6 minutes ago, 0R0 said:

3. EV penetration, China in particular is trying to undo its reliance on imports, particularly of oil. It is pushing EVs, even inviting Tesla to build locally with local capital and 100% ownership, First production coming now. Its 12 MBbl/day imports may well shrink fairly soon. Besides which, its working age population is already shrinking.

3. Recoveries of 20% rather than 10% are in the pilot and testing phase. Assuming that a transition to closer to 20% is coming starting next year, the economies of production are going to look much different. 

 

Lovely, barring the two points...

1. Have you seen the China EV sales last three months. See below... China is US$10K/cap and most global analysts are (wrongly) expecting bumper EV sales (way more expensive than ICE, today). Look to US/EU - China EV story is dead (2020E, I cant say beyond). China EV market was led by large subsidies, which are going going gone, and China govt has bigger fish to fry right now...

https://ev-sales.blogspot.com/2019/

2. Recovery of 20% is not given, only expected. That has been the most debatable point here - and the debate is not yet settled. @James Gautreau Exxon data says something, @Jabbar Conoco experimental drilling says something else.

[0R0 + 6,251]

7 minutes ago, AcK said:

Lovely, barring the two points...

1. Have you seen the China EV sales last three months. See below... China is US$10K/cap and most global analysts are (wrongly) expecting bumper EV sales (way more expensive than ICE, today). Look to US/EU - China EV story is dead (2020E, I cant say beyond). China EV market was led by large subsidies, which are going going gone, and China govt has bigger fish to fry right now...

https://ev-sales.blogspot.com/2019/

2. Recovery of 20% is not given, only expected. That has been the most debatable point here - and the debate is not yet settled. @James Gautreau Exxon data says something, @Jabbar Conoco experimental drilling says something else.

I am aware of that issue with China subsidies. I believe the weak sales and less than inspiring performance stand behind the decision to get Tesla on board, and to dump the subsidies as Tesla production in China would lower costs by $20k  - well beyond any subsidy the government is providing. They are really desperate to lower their oil bill since their forex accounts are in the hole despite the huge trade surplus. They already reverted to using local bad coal and low grade iron ore to produce blast steel instead of using Aussie and Brazil ore and arc furnaces. All to cut the forex bill. 

Well, the recoveries in different fields would provide different outcomes.and test wells don't necessarily provide such great guidance for large scale estimates. But assuming it isn't incredibly complex and not possible to implement without years of training field crews, it would be very useful to get a great mathematical modeler to get credible estimates if it were actually achieved progressively say over the next 5 years.

[AcK + 50]

15 minutes ago, 0R0 said:

>> They are really desperate to lower their oil bill since their forex accounts are in the hole despite the huge trade surplus.

 

Economically this is inherently contradictory - btw, China has really stepped up its purchases/inventories of Crude in late-2018 (in anticipation of Iran, I grant you) but in 2019 as well - why, if they dont have any plans to need it.

https://orbitalinsight.com/global-oil-inventories-continue-to-climb-amid-middle-east-tension-and-opec-output-cuts/

>> Tesla production in China would lower costs by $20k

Source??

Edited December 29, 2019 by AcK
added link

[0R0 + 6,251]

1 minute ago, AcK said:

Economically this is inherently contradictory - btw, China has really stepped up its purchases/inventories of Crude in late-2018 (in anticipation of Iran, I grant you) but in 2019 as well - why, if they dont have any plans to need it.

>> Tesla production in China would lower costs by $20k

Source??

China is consuming more oil than it is expecting to afford, and Russia is not quite the reliable partner it would hope for. Even if the EV adoption is spectacularly successful, they will still be needing 12 mil Bbl/d next year and not much less the next. Their car sales are dropping across the board as their first car demographic is not growing anymore. The next wave is 40% smaller. 

I don't have a source for the figure. I came across it in a CNBC or Bloomberg newsfeed buzzing in the background.but it was a Tesla analyst from one of the brokers.

 

[Gerry Maddoux + 3,627]

4 hours ago, 0R0 said:

4. Re-fracing of spent wells is apparently a viable proposition, and with 80k and growing and a $30 cost claimed by Conoco, that makes for another wave of rework wells when prices don't support fresh drilling, and perhaps even if they do, as there is such a large and growing inventory of spent wells. 

The number of wells that become refracturing candidates is highly arguable . . . between petroleum engineers, geologists, etc. 

They are all learning which wells lend themselves to great refracing economics and which ones don't. The Eagle Ford is much like the Bakken in terms of better refrack lithography and lower porosity--it was said as recently as last year that 70% of the vintage Bakken wells are refrac candidates. We'll see. 

That $30 oil price for breakeven on refractures by Conoco has to be handled very cautiously too. They simply haven't performed enough to make such a blanket statement. Besides, do they want to just break even? If they're right, then at $60 oil they're going to make a lot of money . . . until they run out of vintage wells to refrac. 

My point? While refracing may become a very profitable enterprise (I hope it does; I have a lot of spent old wells that could use a spark), it is not likely going to be enough to move the needle on overall production figures. It may make Conoco a lot more profitable as a company, and more attractive as a stock, but in the global crude oil supply chain it will be miniscule. 

[James Gautreau + 86]

Another bullish prediction, especially regarding inventories:

OPEC production cuts and a global reduction in the sulfur content of marine fuels will upset the supply/demand balance and drive the price of Brent crude oil to $100 per barrel in 2020, Raymond James analysts said.

The analysts, led by J. Marshall Adkins, said in an April 29 note that Raymond James maintains a bullish outlook for 2020 crude oil prices at $92.50/bbl for West Texas Intermediate and $100/bbl for Brent crude while boosting near-term outlooks from $62/bbl to $66/bbl for WTI and from $72/bbl to $74.50/bbl for Brent.

OPEC crude oil supplies collapsed in the first quarter, sinking almost 1.6 million barrels per day, or 4.9%, from the fourth-quarter 2018 average, the analysts said. Saudi Arabia and the United Arab Emirates cut supplies well beyond anticipated levels, while sanctions reduced Iranian crude oil exports and Venezuela drastically lowered output amid political strife. With Iranian exports expected to decline even further after its sanctions waivers expire May 2, the analysts anticipate another 200,000-bbl/d cut in OPEC crude oil production in the second quarter.

As supply decreases, an International Maritime Organization mandate lowering the marine fuel sulfur cap from 3.5% to 0.5% will take effect Jan. 1, 2020, driving an increase of more than 1.4 million bbl/d in distillate demand for refiners to meet the new standards.

The increased demand will counter any gains in OPEC supply anticipated at the close of 2019, the analysts said.

Raymond James' latest global oil model suggests inventories will fall to an "unprecedented" 24.5 days of consumption by the end of 2020, down from a little more than 28 days of consumption in the first quarter and well below the previous low of about 27.5 days in 2013.

"Higher oil prices will be the essential flex variable that ends up resolving the imbalance," the analysts said.

Adkins said Raymond James' 2020 price deck sits at the high end of Wall Street expectations and is still 50% above the current futures strip.

While citing the same supporting fundamentals, S&P Global Ratings raised its WTI average crude oil price assumption from $50/bbl to $55/bbl through 2020 and expects it to remain level for 2021 and after, according to an April 22 report.

The rating agency's Brent crude oil price assumption remains largely unchanged at $60/bbl for 2019 and 2020 and $55/bbl for 2021 and after.

[Gerry Maddoux + 3,627]

12 minutes ago, James Gautreau said:

OPEC production cuts and a global reduction in the sulfur content of marine fuels will upset the supply/demand balance and drive the price of Brent crude oil to $100 per barrel in 2020, Raymond James analysts said.

The OPEC production cut was a mirage. The IMO2020 MARPOL mandate isn't; it's as real as can be. If there are currently 60,000-90,000 oceangoing freighters (no one, even IMO, can seem to put an exact # on this), and say 20,000 either use sulfur scrubbers or are junked, and another 10,000 are able to cheat, that still leaves 30,000 to 60,000 freighters that change fuel sources. This has to be one of the most massive and spectacular disruptions to the crude oil supply chain in history. And LTO is the preferential input feedstock for low-sulfur diesel. 

I am absolutely amazed by the fact that most analytical bodies and the mainstream media aren't even talking about this. Some wizard should be able to calculate the environmental impact of going from 3.5% to 0.5% sulfur content fuel in that many vessels. Even realizing that they come in all sizes, a good guess should be manageable. The positive impact may actually be enormous--enough to change the weather. 

[AcK + 50]

27 minutes ago, Gerry Maddoux said:

>> The OPEC production cut was a mirage.

See here you go taking OPEC lightly again.

I am not saying whether the cut they have undertaken holds or not - it is a binary situation that can swing either way. But very clear to us that Saudi cannot let Iraq/Nigeria dictate terms forever. If they dont play ball this time, then Saudi will have to take action (and to that extent the Aramco IPO is ill timed). So either everyone complies or Saudi doesnt (which implies OPEC breakdown).

But if Iraq/Nigeria do take Saudi/OPEC seriously - I am not sure how you wont take 0.5-0.6mbd cut seriously.

[Gerry Maddoux + 3,627]

5 minutes ago, AcK said:

But if Iraq/Nigeria do take Saudi/OPEC seriously - I am not sure how you wont take 0.5-0.6mbd cut seriously.

Because of this:

Under the new deal, the size of the OPEC+ daily production cuts target will be increased from 1.2 million barrels to 1.7 million barrels, compared to a baseline of October 2018, according to ministers, including Russia’s Alexander Novak and Iran’s Bijan Namdar Zanganeh. That doesn’t require the group as a whole to pump less oil, since it was already implementing an additional cut of that size in October 2019. The new 500,000-barrel-a-day quota reduction will only apply in the first quarter of 2020, said Novak. The group will hold an extraordinary meeting in March to discuss what to do next, said a delegate.

With all respect, the cut was really nothing: A) it was already being done when they "implemented" it at the December meeting, and b) it goes away after one quarter, on a whim, and there will likely be a whim; there is always a whim with OPEC+.

OPEC+ is in chaos. They have a lot of members that cheat on a regular basis, because they are desperate for the money. In the past, KSA let them get by with it. What, exactly, is OPEC+ going to do to Nigeria and Iraq? Not much. 

Everyone has his or her view. I'd say "implementing" a 500,000 barrel cut that was already in place for two months is the equivalent of a mirage.

[James Gautreau + 86]

Oil company debt starts coming due in 2020 and then only gets worse in 2021 and 2022. $100-150 oil for 1 full year clears out all the debt, as this is $300 billion, maybe half of which can go to service debt and the rest is company operations. And that's 8 million barrels a day or what's coming out of the shale patch. 

https://www.youtube.com/watch?v=pyhZ6w5ZC_4

[footeab@yahoo.com + 2,136]

On 12/27/2019 at 3:16 PM, Gerry Maddoux said:

I, for one, would really like to see the US use Canadian heavy on a preferential basis. 

Unfortunately, we have a president who seems enthralled with the murderous Saudi prince, for God knows what reason. 

The US desperately needs a contiguous, reliable source of heavy oil. Yours is just right. 

If OPEC(Essentially Saudi Arabia is the only vote that counts) stops using USD and switches to Yuan or the Ruble or Euro, that $22T debt interest rate EXPLODES.  Since CONGRESS won't get off their pampered self important asses and fix the debt problem(Boomers passing their theft onto the back of their children and grand children while pretending they paid for SS, death care, etc), then the US economy collapses for a few years which automatically means the president/congress get voted out of office and the gravy train stops for the self appointed "important" people.  Then add that Trump does not have a single fiduciary conservative bone in his body and he certainly will not veto any spending bill from congress so....  Kick the can down the road. 

[Gerry Maddoux + 3,627]

1 hour ago, James Gautreau said:

Oil company debt starts coming due in 2020 and then only gets worse in 2021 and 2022. $100-150 oil for 1 full year clears out all the debt, as this is $300 billion, maybe half of which can go to service debt and the rest is company operations. And that's 8 million barrels a day or what's coming out of the shale patch. 

https://www.youtube.com/watch?v=pyhZ6w5ZC_4

You seem to be assuming that all those wells, and all that property, owned by companies that will go bankrupt will simply come off production. That's not the case. There are always plenty of people standing by, waiting to pick up elite wells and property on the cheap. Those wells will just go on producing, only the revenue stream will go to someone else, and the new owners will drill a gaggle of infill wells on the property that is HBP. There is no shortage of savvy buyers out there. Many have lined up capital. They are ready to go. 

[AcK + 50]

2 hours ago, Gerry Maddoux said:

>> What, exactly, is OPEC+ going to do to Nigeria and Iraq? Not much. 

Everyone has his or her view. I'd say "implementing" a 500,000 barrel cut that was already in place for two months is the equivalent of a mirage.

I admitted it was a binary outcome. And you're right - no idea what OPEC+ is going to do with Iraq and Nigeria. The only thing they can do is go wild and pump more oil (hurting Iraq/Nigeria on prices).

Oh wait they cant do that (cause there precious Aramco US$2tn dream will get killed).

But you are also wrong on one technicality. Saudi has agreed to cut 0.15mbd over and above their already 0.4mbd voluntary. Assume for a min that Iraq/Nigeria do comply, we do get to 0.5mbd incremental cut in 1Q.

Quoted "In addition, Saudi Arabia would reduce its production by 400,000 b/d below the new quota, which the energy minister calculated to be 9.744 mmbd. However, KSA's production in October was reported to be 9.890, and so, that is a reduction of about 150,000 not 400,000 b/d."

[Old-Ruffneck + 1,177]

1 hour ago, AcK said:

However, KSA's production in October was reported to be 9.890, and so, that is a reduction of about 150,000 not 400,000 b/d."

Within a month or two KSA/Kuw. field out for couple years will be back online 500kbpd. Do not think for a minute KSA is willing to lose market share. 2015 flooding the market to hurt USA frac'ing backfired and crashed the market in 2016. MBA not so good at adjusting levels to try and run the market up. Guyana field will soon start pumping 150kbpd and by end of year 500kpbd. KSA best not try and get all of OPEC to cut or they will cheat like the last time and only hurt themselves. 

[Gerry Maddoux + 3,627]

I saw the article on "Big Banks Turning Bearish on Oil." 

Someone is going to have to turn bullish. Here's an excerpt from The Sunday Times.

BP’s retiring chief executive has accused campaigners and politicians of oversimplifying the climate change crisis, arguing that natural gas should be a bridge between fossil fuels and renewables.

Bob Dudley, due to step down in February after almost 10 years in charge, said it was “hard to find people who understand the complexity of the energy system” and warned the world would “not even come close” to replacing fossil fuels with renewables in the next two decades.

The main problem is almost a total lack of infrastructure to support renewables: batteries devoid of conflict metals, road tax, charging stations.  

[James Gautreau + 86]

2 hours ago, Gerry Maddoux said:

You seem to be assuming that all those wells, and all that property, owned by companies that will go bankrupt will simply come off production. That's not the case. There are always plenty of people standing by, waiting to pick up elite wells and property on the cheap. Those wells will just go on producing, only the revenue stream will go to someone else, and the new owners will drill a gaggle of infill wells on the property that is HBP. There is no shortage of savvy buyers out there. Many have lined up capital. They are ready to go. 

I never meant to insinuate that oil would come off line in the case of bankruptcies. The point I am making is that this is an existential crisis for a lot of smaller operators. While there are lots of people who would like to pick up distressed assets, if these smaller operators band together, the majors will never be able to make up for the decline rates. No way, no how. So stop drilling, stop completing, work through the glut, and in the end get a better price. They have to or they're gone. 

[Gerry Maddoux + 3,627]

1 hour ago, James Gautreau said:

I never meant to insinuate that oil would come off line in the case of bankruptcies. The point I am making is that this is an existential crisis for a lot of smaller operators. While there are lots of people who would like to pick up distressed assets, if these smaller operators band together, the majors will never be able to make up for the decline rates. No way, no how. So stop drilling, stop completing, work through the glut, and in the end get a better price. They have to or they're gone. 

It is indeed an existential crisis for independents that are up to their ears in debt obligations. They actually suffer the most from rapid decline rates: their only chance is to keep drilling and completing new wells; otherwise the tail-off payout from prior wells won't pay their creditors.

Not only that but quite a few companies leased property at high rates, making decisions from a few wildcat wells. In America, the royalty owner is protected from "forever" leases whereby drilling takes place at a leisurely pace: there is a certain time frame during which you must drill and HPB or lose the lease. The more valuable the lease, the more crippling it is to lose it. 

So the small operator is on a treadmill. The majors, not so much. They can afford to slow down, let normal life forces eat into the glut; they have many other properties that don't have anything to do with shale. If a small operator slows down, he can't pay the bank.  

Edited December 29, 2019 by Gerry Maddoux

[0R0 + 6,251]

8 hours ago, Gerry Maddoux said:

The number of wells that become refracturing candidates is highly arguable . . . between petroleum engineers, geologists, etc. 

They are all learning which wells lend themselves to great refracing economics and which ones don't. The Eagle Ford is much like the Bakken in terms of better refrack lithography and lower porosity--it was said as recently as last year that 70% of the vintage Bakken wells are refrac candidates. We'll see. 

That $30 oil price for breakeven on refractures by Conoco has to be handled very cautiously too. They simply haven't performed enough to make such a blanket statement. Besides, do they want to just break even? If they're right, then at $60 oil they're going to make a lot of money . . . until they run out of vintage wells to refrac. 

My point? While refracing may become a very profitable enterprise (I hope it does; I have a lot of spent old wells that could use a spark), it is not likely going to be enough to move the needle on overall production figures. It may make Conoco a lot more profitable as a company, and more attractive as a stock, but in the global crude oil supply chain it will be miniscule. 

What it does mean is that EURs are higher, at least where refracs work. If Conoco's experience comes off as they expect, or in that vicinity, then that is a significant cumulative addition to production over time. Particularly if there is a method to pump out ruined overly densely drilled formations in the Permian (CO2 injections?) economically. An extra year or two of good production volumes even at low prices. 

[Gerry Maddoux + 3,627]

5 minutes ago, 0R0 said:

What it does mean is that EURs are higher, at least where refracs work. If Conoco's experience comes off as they expect, or in that vicinity, then that is a significant cumulative addition to production over time. Particularly if there is a method to pump out ruined overly densely drilled formations in the Permian (CO2 injections?) economically. An extra year or two of good production volumes even at low prices. 

I agree. As I said, I have a pretty large collection of vintage wells that could use a little freshening up. My reservation, I suppose, comes from hearing one investor presentation after another, always full of hot air, over the last ten years. I'm not accusing Conoco of being one of these.

In fact, I'm of the mind that, before everything is said and done with shale, we'll have refracked the best wells two or three times. Why not, if you can do it economically? But right now, all of this is sheer speculation. When we have a species count of a thousand wells, it turns into data.