Shale Oil Fiasco

[Old-Ruffneck + 1,223]

On 12/6/2019 at 10:09 AM, James Gautreau said:

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. 

Are you talking about USA oil or world-wide? Venezuela has the largest amount of oil. Frac'd wells is not a new technic, but they are getting better. Watch Argentina.

[James Regan + 1,776]

2 hours ago, Old-Ruffneck said:

Are you talking about USA oil or world-wide? Venezuela has the largest amount of oil. Frac'd wells is not a new technic, but they are getting better. Watch Argentina.

Vaca Muerta will stay exactly that dead. Argentina has all the power to really take a leap forward but unfortunately the leftists won't allow progression, seems to be a common thread in South America.

[James Regan + 1,776]

3 hours ago, Old-Ruffneck said:

Sure they're will be other shale plays. But once conventional oil starts declining, the end of the oil age is nigh

Just out of Interest what will be put in its place, will this be an overnight thing as its "nigh"?

We will just stop selling oil and the combustion engine will disappear from the Globe( dont use Amerika as your model, think Afrika) and we will replace the feedstocks with what?

I love these posts where people state predictions like a bran'd see'r and don't follow through with whats next, Greta Thunberg is good at this while talking in her speeches she never gets down to the facts, just quotes the science (only using the word science) and that world leaders should be observant to the fact. But thats not a surprise as she is a 15 year old child, how could she possible argue the facts? I was too busty fixing my bike at that age not really worrying about Nelson Mandela or the cold war at that time in my life.

Edited December 8, 2019 by James Regan
Sizing up to a DD

[Jabbar + 465]

On 12/8/2019 at 3:13 AM, James Regan said:

Vaca Muerta will stay exactly that dead. Argentina has all the power to really take a leap forward but unfortunately the leftists won't allow progression, seems to be a common thread in South America.

You're probably right.  Let's all hope you're wrong.

It's funny how $$$ can sometimes even persuade a socialist government into action.  Hope for the best. 

Edited December 9, 2019 by Jabbar

[Mike Shellman + 548]

 

wrs, I see your manners have not improved much over the past 4-5 months.

 

 

Edited January 1, 2020 by Mike Shellman

[Jabbar + 465]

1 hour ago, Mike Shellman said:

Thanks, Dennis.

wrs, I see your manners have not improved much over the past 4-5 months. There are classes to go to, and books to read for that; I urge you to get some help. For the record

Thank you Miss Manners.  We are hear to discuss shale industry and you want to critique someone's manners ? I have to laugh . . You sound like that Stanford law professor that made a fool of herself that tried (and failed) to make a joke about Trump's 12 year old son. 

Makes one wonder . . . Stanford is a respected university.  Professor Karlan is the best they can do ?

Quote

 

I have drilled far more lousy Sprayberry wells in the Permian than you have and I too have RI in the Permian. I simply don't feel the need to brag about it.  

Sounds like you're bragging about lousy well drilling.  How's business today ?  Need to to get a qualified driller like wrs.  You need to use the latest reservoir modeling techniques, core samples , pressure monitoring, etc

Garbage in  =. Garbage out

I believe wrs has XTO (ie Exxon) whom uses the latest processes, core sampling and technology . 

Let's have an honest discussion/debate and leave the snarky comments and sick jokes to the Democrats.

 

Edited December 8, 2019 by Jabbar

[Tom Kirkman + 8,860]

32 minutes ago, Mike Shellman said:

James, Justin, Daniel, Douglas and this new fella, Mr. Gautreau, an engineer with Baker Hughes, I recall, all know something about the oil business and oil economics that folks should listen to. They counter the lies being told about shale oil sustainability and are trying to help. Why be insulting to them simply because you have a different opinion?  That sucks about America right now. If you are going to be insulting the honorable way to do is to you use your own name, publically. If you believe in something, put your name behind it. 

Yep.

5 minutes ago, Jabbar said:

Let's have an honest discussion/debate and leave the snarky comments and sick jokes to the Democrats.

Yes and no.  Very good discussions going on in this thread. 

I happen to enjoy snarky comments and sick jokes, but I use my real name and make my views pretty the opposite of inscrutable.

 

And great to see you weighing in again, Mike.

[Guest]

My name is Kristian Smith. I am English.

Most Americans are a bit dense.

Cheers. 

[Jabbar + 465]

1 hour ago, DayTrader said:

My name is Kristian Smith. I am English.

Most Americans are a bit dense.

Cheers. 

Never trust a man that never shows his eyes.  Need that window to look into his soul 

LOL

 

[wrs + 893]

4 hours ago, Mike Shellman said:

Thanks, Dennis.

wrs, I see your manners have not improved much over the past 4-5 months. There are classes to go to, and books to read for that; I urge you to get some help. For the record I have drilled far more lousy Sprayberry wells in the Permian than you have and I too have RI in the Permian. I simply don't feel the need to brag about it.  

4,500 foot laterals are not the norm anymore in either Permian sub basins and Dennis's full cost well costs of $10MM each is a good number based on AFE's I seen and based on my understanding of fresh water and HPP costs. Not long ago I got some Chevron AFE's that were for $11.5MM each. Others use $10MM in Permian analyses regularly. There is an incredible amount of post frac'ing costs, like sand wash outs, that get shoved over into OPEX; the LTO industry is a clever bunch. https://www.sightline.org/2019/02/11/fracking-financial-depreciation-dodge/. Leasehold costs are very real in well economics and my belief is that nothing is "sunk" when you are up to your ass in debt, as almost all shale oil operators are. 

America's oil future is indeed now down to the recovery of 400K BO shale oil units costing $10MM each. At <$60 those units have such poor return on initial investment the shale oil industry will struggle to appease angry investors with dividends, pay down debt, and replace reserves; it will always be heavily dependent on outside capital, on credit, to be sustainable. People that only see the oil, and the jobs, and listen to the crap about energy independence, conveniently  forget about the massive amount of debt the shale oil industry has racked up and they do not understand that shale, or shaley carbonates, anything unconventional, is all going to crap out much sooner that they have been told it will. It already is. That is the nature of the oil business and something one does not learn on the internet. In many ways it's good that people are so enamored with the shale oil miracle and how much good it has done (and it has!); we are all going to end up paying for it one way or another.

James, Justin, Daniel, Douglas and this new fella, Mr. Gautreau, an engineer with Baker Hughes, I recall, all know something about the oil business and oil economics that folks should listen to. They counter the lies being told about shale oil sustainability and are trying to help. Why be insulting to them simply because you have a different opinion?  That sucks about America right now. If you are going to be insulting the honorable way to do is to you use your own name, publically. If you believe in something, put your name behind it. 

Here are two quotes for you this fine Sunday, the first from Mr. Sinclair: "It is difficult to get a man to understand something when his salary depends upon his not understanding it."  In your case it's not salary, its free royalty, which appears to be many, many hundreds of thousands of dollars per year. 

The second quote is from Billy Beane in the movie, Money Ball, and pertains to shale oil debt, shareholder equity destruction, (un) profitability and poor earnings year after year after year:

"If he is such a big hitter, why doesn't he hit big?" 

 

 

Mike,  my leases are single sections, no pooling with other sections.  We did own a section where BHP drilled 7500 foot laterals across two sections and the result wasn't better production or longer well life.  Those were the least productive wells we had and they were in the sweet spot in Reeves county.  We sold them a couple of years ago because they were minerals classified which is the worst kind of land to own out there.  

The XTO lease I pointed to is currently producing only one half of one section.  It's producing 4kbbl oil per day from 4500 foot lateral wells and the child wells are as productive or more productive than the parent wells.  I know that my independent doesn't believe 7500 foot or 10000 foot laterals are a good idea (based on his own experience) because they cost more to frac and at the furthest extent it takes a lot more power to maintain the velocity of the propant/water mix. 

Velocity of the fracking fluid is very important to getting the greatest dispersion of the propant. It seems to me that if you can get 1200 bbl/day oil IP on a 4500 foot lateral then you are beter served doing that than wasting more money to get less than double the production by doing 10k feet.  Furthermore, combining sections makes leasing more complicated.  

Leasing out in the Permian gets very complicated for land that has already been drilled shallow.  The minerals on those sections have been held for decades and were traded around and diced up like poker chips.  The smaller the minerals have been diced, the more difficult it becomes to secure a lease.  That in itself makes it much harder to do a lease that pools more than one section.  Not saying it doesn't happen but mostly I think it's only done in cases were the shallow lease secures the deep rights and there is no recourse for the mineral owners.  The other case where it might be done is where the land is owned by the state and they have multiple contiguous sections.  

It was my understanding and also my personal experience that the 10k laterals are not optimum and at most people are doing 7500 foot laterals but again, look at the production XTO is getting out of the Hurley section and tell me that 4500 foot laterals are not worthwhile.

Finally I have to question your math if you are saying that $24m isn't a good return on $10m invested then I wonder what kind of investment you are used to making?  

 

Edited December 8, 2019 by wrs

[Jabbar + 465]

5 hours ago, Tom Kirkman said:

Yep.

Yes and no.  Very good discussions going on in this thread. 

I happen to enjoy snarky comments and sick jokes, but I use my real name and make my views pretty the opposite of inscrutable.

My kind of referee.

Don't call every little penalty

Let 'em play

[James Gautreau + 86]

There's a limit to the amount of cobalt we're pulling out of the ground and I think it's 8 million EV's. That's not going to cut it in replacing ICE's. So what's going to happen is the Book of Revelation. A huge army will come out of the east, mostly China and India and do battle with the west, America and the EU. They will try and take by force the last of the cheap oil, mostly Iraq and Iran. Many believe Jesus himself returns to put a halt to the hostilities. When this happens people will figure out that this entire event was fostered and encouraged by the Catholic Church, and the people will destroy the church, and thus will begin the new Age of Aquarius. Lincoln knew the Jesuits started the Civil War. This was right after oil was discovered in 1859, and the church immediately sought to control it through John D. Rockefeller and the railroads. They saw what oil was, the strategic resource that would rule the world, and it has ever since. A barrel of oil has the equivalent energy of 25,000 hours of human labor. Even at $10/hour that's $250,000 of work. 

[Guest]

The church is bad?

Well I never ... 

[Rob Kramer + 696]

See DT it's like whack a mole lol dont worry I'm still resting 😛

[Mike Shellman + 548]

On 12/8/2019 at 12:00 PM, wrs said:

Finally I have to question your math if you are saying that $24m isn't a good return on $10m invested then I wonder what kind of investment you are used to making?  

 

 

 

Edited January 1, 2020 by Mike Shellman

[wrs + 893]

11 hours ago, Mike Shellman said:

Your personal example is NOT representative of the big picture. Shares in Exxon, by the way, have tanked ever since it decided it wanted to be in the Permian shale oil business. Also, by the by, Exxon's well productivity sucks. It's No. 46 down on the list of all operators in the Permian in terms of well productivity. Shaleprofile.com can help with that.

Regardless, the quote above is misleading and a disservice to people needing to learn something about this shale oil matter. 

The current price of oil in W. Texas is around $55, give or take. There are expenses associated with its extraction; you know that!  Deduct 7% severance and property taxes, 25% royalty deductions (YOUR part, free and clear of all costs), $7 per BO for operating costs like chemicals, electricity, downhole and surface maintenance and water disposal costs (astronomical they are, and going UP!), deduct for general administrative overhead (all shale companies have overhead that has to be paid by its production), and interest expenses per incremental BO on long term debt and the take home pay per BO is $25-26...NOT $55. $10MM well costs divided by $26 per BO to the poor bastards that have to pay ALL the costs and 400K per BO just covers payout. It is NOT sufficient return on investment to 1.) pay down existing long term debt, 2.) to drill another well from cash flow, nor 3.) to return any sort of benefit to shareholders. 

So, 400,000 BO EUR's, if that can actually occur (the E in EUR stands for estimated) does not equate to 240% returns on investment. After expenses the well barely pays out and IF it ever does it will require 15 years or more. I would not spend $10MM on a well that was only going to have a 240% return on investment over 15-18 years, no. Those are risked dollars, even in the shale oil business. Would you do that with your personal money? Would you actually write a check out of your personal checking account for $10MM in hopes of making that sort of return. No, of course not. Nobody would. All this miracle is happening on OTHER peoples money and nobody is on the hook for any failure whatsoever.  

I understand completely why it is in your best interest to cheerlead for the LTO industry. In spite of previous allegations, the shale oil industry is NOT hurting me; I make money from it. I seek nothing more than the truth about my country's hydrocarbon future. 

 

 

Mike, you are making up numbers to suit yourself and then not even bothering to calculate the return.  I think my wells are indicative of successful shale operations.  I have to correct some of your misleading claims:

First.  Severance tax on oil is 4.4%, severance tax on gas is 7.5% and only represents about 15% of the revenue stream from the well.

Second.  You and other shale "truthers" only use oil to calculate revenues for a well but in fact, natural gas production grosses another 15% revenue due to the sale of the dry gas and liquids.  In winter months that can be as high as 30%.  

Third:  Your 15 year timeline on payout is only true for the older non-fracked wells whose production is so low and slow as to take a long time to get significant volumes.  With shale, a decent well produces 200,000 barrels in the first two years and many produce more than that.  Again, I have posted my oldest well which is a 4000 foot lateral and it's total production over 5 years is 365,000 barrels of oil and 2650mmcf of gas.

Fourth:  It's a minority of wells that get 25% royalty, especially for the older leases like our Orla lease.  We get 1/8th on that 1950 lease which was standard for years.  The old producer 88 leases typically allowed for a single well to hold the entire lease and there were no vertical Pugh clauses back then.  Chevron has hundreds of thousands of acres at 1/8th or 1/6th.  Getting 1/4th is something that has only been happening in the last 10 years and not all landowners are getting it.  We do have that royalty with our independent and we used vertical Pugh clauses and retained acreage clauses to get more bonus money because he couldn't exploit all the oil in the primary term of his original lease.  However, he is making a profit out there and has vertically integrated in order to save costs and retain the income stream from operations such as water disposal and supplying frac water.

So as I have repeatedly pointed out, you are painting a false picture of the industry with a very broad brush.  It's certain that plenty of operators did overpay for their leases and didn't do a good job exploiting them but that is far from the case for all of them.  Your claim about XOM is a good exercise in post-hoc logic, they have other issues unrelated to the Permian that weigh on their stock price.  I notice you haven't mentioned Chevron.  However, I posted the production XTO has gotten from 1/2 of my Orla section and it's pretty impressive, what is your response to that?  You are also free to use the RRC website to research the production on all their Wolfcamp operations if you are so inclined.

In any case, if the operators didn't think they would continue to make money out there, why would they keep drilling more wells on my land each year?

 

Edited December 9, 2019 by wrs

[Jabbar + 465]

15 hours ago, James Gautreau said:

There's a limit to the amount of cobalt we're pulling out of the ground and I think it's 8 million EV's. That's not going to cut it in replacing ICE's. So what's going to happen is the Book of Revelation. A huge army will come out of the east, mostly China and India and do battle with the west, America and the EU. They will try and take by force the last of the cheap oil, mostly Iraq and Iran. Many believe Jesus himself returns to put a halt to the hostilities. When this happens people will figure out that this entire event was fostered and encouraged by the Catholic Church, and the people will destroy the church, and thus will begin the new Age of Aquarius. Lincoln knew the Jesuits started the Civil War. This was right after oil was discovered in 1859, and the church immediately sought to control it through John D. Rockefeller and the railroads. They saw what oil was, the strategic resource that would rule the world, and it has ever since. A barrel of oil has the equivalent energy of 25,000 hours of human labor. Even at $10/hour that's $250,000 of work. 

The guys nuts . . . grab 'em. 

[James Gautreau + 86]

This isn't rocket science boys and girls. If it was I could tell you about it. To date the shale oil companies are about $250 billion in the hole. To date we have extracted about 10 billion barrels of shale oil. Thus oil would have had to sell for $25 dollars a barrels more than the average price it got, which I'm guessing is probably some where around $75. So $100 is needed to make shale oil break even.  

Edited December 9, 2019 by James Gautreau

[John Foote + 1,135]

On 12/8/2019 at 2:13 AM, James Regan said:

Argentina has all the power to really take a leap forward but unfortunately the leftists won't allow progression, seems to be a common thread in South America.

Argentina is a strange one. In theory should be very successful. Wonderful resources, and to blame the left is crazy because the right has also decimated the country, famously having a missing generation. Once corruption takes deep hold it matters little if it's left or right. They still do beef well.

[James Gautreau + 86]

That's not the issue. If world conventional oil begins its decline at the same time as American unconventional oil, there is nothing that can save us. And that appears to be happening. You have Johan Sverdrup, Guyanna, and Brazil starting up offshore. But those are the last of the long lead projects. After that... nada. Shale oil is struggling to grow, throwing DUC's at it like crazy. And while the peak month might get put off, it won't be long. All signs point to next summer when it starts to become obvious... Houston...we have a problem. 

[ronwagn + 6,290]

20 hours ago, James Gautreau said:

There's a limit to the amount of cobalt we're pulling out of the ground and I think it's 8 million EV's. That's not going to cut it in replacing ICE's. So what's going to happen is the Book of Revelation. A huge army will come out of the east, mostly China and India and do battle with the west, America and the EU. They will try and take by force the last of the cheap oil, mostly Iraq and Iran. Many believe Jesus himself returns to put a halt to the hostilities. When this happens people will figure out that this entire event was fostered and encouraged by the Catholic Church, and the people will destroy the church, and thus will begin the new Age of Aquarius. Lincoln knew the Jesuits started the Civil War. This was right after oil was discovered in 1859, and the church immediately sought to control it through John D. Rockefeller and the railroads. They saw what oil was, the strategic resource that would rule the world, and it has ever since. A barrel of oil has the equivalent energy of 25,000 hours of human labor. Even at $10/hour that's $250,000 of work. 

Who will buy an electric car when they can afford to buy a nice SUV or Pickup truck while burning cheap gasoline? https://www.foxbusiness.com/markets/average-price-of-us-gas-drops-1-penny-per-gallon-to-2-65

[ronwagn + 6,290]

5 hours ago, James Gautreau said:

This isn't rocket science boys and girls. If it was I could tell you about it. To date the shale oil companies are about $250 billion in the hole. To date we have extracted about 10 billion barrels of shale oil. Thus oil would have had to sell for $25 dollars a barrels more than the average price it got, which I'm guessing is probably some where around $75. So $100 is needed to make shale oil break even.  

How do you differentiate between a "shale oil company" and a major oil company with worldwide holdings and operations? 

[jjj + 26]

56 minutes ago, James Gautreau said:

This isn't rocket science boys and girls. If it was I could tell you about it. To date the shale oil companies are about $250 billion in the hole. To date we have extracted about 10 billion barrels of shale oil. Thus oil would have had to sell for $25 dollars a barrels more than the average price it got, which I'm guessing is probably some where around $75. So $100 is needed to make shale oil break even.  

Please don't confuse overall shale performance with specific performance from specific companies.. I don't think anybody can disagree that a significant amount of companies and financiers did some pretty stupid stuff betting on the price of oil. But I believe that some companies have figured it out and are making money from shale. Some people seem to think that the past overall performance is the future for all companies in shale. Just take a look at break evens for the different companies they are all over the place. I still sale 1960's designed Heater Treaters to a few companies trying to make it in the shale plays, those companies won't make it. They are dying a slow death while other companies are using larger modular equipment that greatly reduces overall equipment costs. (Not a good trend for the company I work for by the way) This is just one technological advance that is lowering the cost to produce from a shale well. Others are:

1) VRU's capturing flare gas to add to revenue.

2) New rigs drill faster with A/C motor controls, move faster between wells with ability to walk, and can handle exceptions faster such as stuck casing ETC., Longer tool life because of improved Load on Bit ability. to just name a few.

3) Longer tool life from materials science. Such as Carbide slurries brazed in Vacuum furnaces.

 

Some of the technological advances are not new technology but they are being applied either differently or more widespread than the past. 

Jay Johnson

Jay

[Jabbar + 465]

6 hours ago, James Gautreau said:

This isn't rocket science boys and girls. If it was I could tell you about it. To date the shale oil companies are about $250 billion in the hole. To date we have extracted about 10 billion barrels of shale oil. Thus oil would have had to sell for $25 dollars a barrels more than the average price it got, which I'm guessing is probably some where around $75. So $100 is needed to make shale oil break even.  

I heard $80 billion debt.  Doesnt matter use $250 billion.

There are two types of shale producers. (1) Those produce sub $30  (2)  Those that produce around $50.

 .  .  .  .  and there are two other distinctions. (1). Those that foolishly  over leveraged that thought that the oil price would stay over $100 barrel forever and recklessly expanded business, paid exhorbant prices, ridiculous royalty contracts and loaded up on bank loans and issued debt.  (2) those that did not over leveraged. 

Unfortunately , their is no reasonable way for those buried in debt to get out from under it.  

If not for OPEC and Investment Banks efforts to talk up and inflate oil prices these firms with disastrous balance sheets would have been long gone before this , like they should be.

MAJOR MISCONCEPTION: It is the belief of some that as these insolvent shale players go under that production volume will go down. .  .  .

 .  .  .   temporarily it will grow at a slower rate thru the transition but not drop . .  .  .  .  after the transition it will have just transfered the reserves and production to the companies that know how to produce shale oil profitably 

Many debt holders will lose some or all of their investment.  Probably many will clean up their balance sheets and sell to consolidators, thus bond holder receiving a fraction of their investment. 

 

 

Edited December 9, 2019 by Jabbar

[James Gautreau + 86]

U.S. Oil Shale Debt Bubble Poised for Explosion

Aug. 6, 2019 (EIRNS)—The U.S. oil shale industry is experiencing, in some sectors, severe cash shortages and burgeoning company failures, that could trigger crisis in the bankrupt world financial system.

The oil shale industry, which uses hydraulic fracturing (fracking) to bust open and extract oil and natural gas entrapped in shale deposits, has long overstated its projections of what deposits it can bring to the surface. Its wells are drying up more rapidly than predicted. Still, against its glittering promises, the oil and gas shale industry was lent a mountain of money by Wall Street, investment firms, etc.

The oil and gas industry has $240 billion in debt that matures by 2023, a significant portion of which is that owed by the oil shale companies, reports OilPrice.com, a leading industry news site.

A June 30 New York Times article, “U.S. Oil Companies Find Energy Independence Isn’t So Profitable,” reports a cascade of bankruptcies: “In the last four years, roughly 175 oil and gas companies in the United States and Canada have filed for bankruptcy.” On July 1, Weatherford International, the fourth leading oil services company in America filed a $8.3 billion bankruptcy protection in Houston. There is no let-up in sight. DeSmogBlog, a Canadian blog, whose manifesto is “Slamming the Climate Skeptic Scam,” in its ongoing series on the finances of fracking, reported on the cumulative damage in April 2018, writing “Since 2007, the oil and gas industry has lost $280 billion betting on the shale boom.”

Many oil shale companies expended more, including for debt service, than they take in in revenues, creating a deficit called negative cash flow, or colloquially, “cash flow burn.” The Aug. 1 Wall Street Journal reported, “In the first quarter of this year a basket of seven unconventional oil-focused drillers collectively reported free cash flow of negative $1.58 billion ... more than four times worse than during the first quarter of 2018.”

It is this paradox that is leading so many newspapers and oil industry journals to report that this show can’t continue.