The Lemon Fool

Interesting analysis paper of US shale oil productivity here
https://www.oxfordenergy.org/wpcms/wp-c ... WPM-69.pdf
regards,
dspp

Interesting, and undoubtedly there are real technical advances here - in terms of better understanding of optimising placement of wells and fracs. But there must also be a factor here that as the PoO has dropped and drilling rates have declined that operators have been more selective about where to put their smaller number of wells. Plus also that it's probably the better operators who have been able to continue drilling.

How much of each it's probably impossible to say at the moment. The test will be how do these sorts of improved recovery rates hold up if and when drilling rates get back to the levels we saw 2-3 years ago?

Peter

PG,
Reading the report it is apparent that although they claim that half is upgrading and lower costs, and the other half technology advances, the report writers struggle to put the tail on the technical advances donkey. My view reading it is that it is probably more 1/3 upgrading; 1/3 costs; and 1/3 technology. Even then I am unsure how well - if at all - the technical advances will scale if the POO swings up and activity increases. Mind you I have been wrong before. I will be interested to see the next round of offerings from Art Berman who will probably forensically disect this and other claims.
regards, dspp

Latest Art Berman report here from 6 Nov 17:

http://www.artberman.com/blog/

Comparative inventory (C.I.) has been dramatically reduced in 2017. Levels have fallen 159 mmb since February and are now approaching the 5-year average for the first time in nearly 3 years......
Accordingly, if C.I. continues to fall at the 9-month average of 4 mmb/week, oil prices may be approximately $67 per barrel by the end of December. If C.I. falls at the 8 mmb/week average since late September, WTI could approach levels not seen since before the price collapse in late 2014.......

Increased exports of crude oil have reduced U.S. inventories more quickly than I expected a month ago ....... Higher consumption levels were well established at that time but evidence for a trend of elevated export levels consisted of two anomalous data points..

Comparative inventory is not a predictive methodology. It is, however, a powerful tool because it identifies trends that correlate inventory change and oil price. As such, it can provide price solutions to inventory reduction scenarios. Those scenarios suggest that WTI prices in the $60 to $70 range are almost certain in early 2018, and that prices higher than $70 are also possible.

The U.S. over-supply of oil is ending. It is likely that comparative inventory will be near or even below the 5-year average by the end of 2017 or early in 2018. Higher oil prices may be good for oil companies but bad for consumers.

For the first time since the 2008 financial crisis, the U.S. and global economy appear to have some reasonable potential for growth. Economists are generally too preoccupied with monetary policy, interest rates and abstract mathematical models to see the obvious connection between the price of oil, our master resource, and economic growth.

Will higher oil prices smother the weak flicker of economic growth that now seems possible?

etc

regards,
dspp

Art Berman update 28 Feb 18:

"Bottom line, from my seat, the market believes it can get what it needs by way of production at a mid-cycle price $40 lower than during the earlier crisis. That is how I see it. $60 per barrel, maybe $65 is the emerging fulcrum price of the latest dynamic YC."

http://www.artberman.com/blog/

- dspp

Given that shale oil seems to hold the potential that the USA might become mostly self sufficient in oil why is Donald Trump so aggrieved by the rise in the oil price?

Another Art Berman piece 19 Dec 2018
http://www.artberman.com/alternative-fa ... t-journal/

Alternative Facts About OPEC & U.S. Shale From The Wall Street Journal
...... how is it possible that the business-focused Wall Street Journal failed to mention that American tight oil—the object of its praise—is broke? U.S. tight oil lost money in the 3rd quarter of 2018 (Figure 1). Capital expenses have exceeded cash from operations in almost every quarter for the last decade. That includes the Permian basin darling companies Diamondback, Concho and Pioneer.

etc ! and all true .......

colin wrote:Given that shale oil seems to hold the potential that the USA might become mostly self sufficient in oil why is Donald Trump so aggrieved by the rise in the oil price?

That problem seems to have solved itself. WTI closed around $46 last night.

Bought more Pioneeer (PXD), Diamondback (FANG) and Apache (APA) yesterday. And opened a position in Chevron.

Schlumberger has gotten very cheap as well.

BAKER HUGHES U.S. rig count fell -25 to 1,050 last week. Oil rigs declined by -21 to 852, the largest one-week decline since to Feb 2016, close to the bottom of the last oil-price cycle. The number of active oil rigs is now at the lowest for eight months. Gas rigs fell -4 to 198:

courtesy John Kemp Reuters

If you look carefully through Shell's quarterly results,

https://www.shell.com/investors/financi ... nation.pdf
https://www.shell.com/investors/financi ... script.pdf

You can see that their Argentine Vaca Muerta shales are progressing "Argentina Shales – progressed 3 Vaca Muerta blocks into development, up to
70 thousand barrels of oil equivalent per day, Shell interest 80-90% ", with "We have announced that we will be maturing, moving from exploration and appraisal to development, three blocks in the Vaca Meurta in Argentina, providing growth into the mid-2020s. With our experience and capability from North America, we are de-risking our Argentina position. Drilling costs are down 50% since 2016, with forward-looking break-even prices of less than $40 per barrel. "

.....mmmmmmm breakeven at $40/bbl. If that is delivered, then they have finally gotten the VM to work. Irrespective of the 40-years of trying, if this works at $40, then that is going to be a play that is capable of scaling.

regards, dspp

(on this basis, I have taken the 'US' out of the thread title ....... just to tempt fate)

"Permian producers are facing the pressure from investors.

Capex for Permian producers may be lower y-o-y and that bodes badly for growth.

As the treadmill of production decline grows stronger, the pressure on producers keeping production flat increases."

etc

https://seekingalpha.com/article/424513 ... ster?ifp=0

And, by-the-way the shale producer they use as a barometer example (Centennial Resources) seems to be loss-making at the actual ('realised') price of $40/bbl they are really getting. Clearly this is less than the quoted WTI price ($57 today) due to a series of factors. A significance of the $40 is that it is the breakeven screening rate used for the Argentine Vaca Muerta shale news item in my 1 Feb post.

Oh, and down in the comments section there's a link to SPE https://www.spe.org/en/jpt/jpt-article-detail/?art=5164 with some 'more bad news is coming' stuff.

- dspp

Rustad Energy apparently have another idea:

“They are going to be very profitable, they are going to be able to return surprisingly good cash amounts to investors and still grow one Saudi Arabia,” said Per Magnus Nysveen, senior partner at the Oslo-based consultant.

https://www.bloomberg.com/news/articles ... ystad-says

I haven't been able to find a research note backing this up so far.

"Chevron Corp and Exxon Mobil Corp released dueling Permian Basin projections that, if realized, would cement the rivals as the dominant players in the West Texas and New Mexico field, with one-third of Permian production potentially under their control within five years. Chevron expects shale production from the basin to reach 600,000 barrels per day (bpd) by the end of next year, 59 percent above current production, and 900,000 bpd by the end of 2023, it said at its annual meeting with equity analysts in New York. The stakes are such that Exxon on Tuesday forecast shale production of 1 million barrels per day in the Permian as early as 2024, grabbing the spotlight on the day Chevron was making a case in its oil growth. “Our investors don’t need to wait several years for the story to come together,” Chevron Chief Executive Mike Wirth said in an apparent dig at Exxon, which has been investing heavily in the Permian to reverse production declines. “We’re delivering now.”"

etc https://www.reuters.com/article/us-chev ... SKCN1QM1GD
- dspp

(ps. can't immediately see either presentation, haven't looked had mind you, grateful if anyone else sees them and posts a link as hopeful to read their projected b/e numbers)

"U.S. shale producers last year again spent more money than they collected, extending a years-long streak of putting oil output above cash flow and investor returns, according to a Reuters analysis of top independent producers.

All but seven of 29 of these producers last year spent more on drilling and shareholder payouts than they generated through operations, according to securities filings. Total overspending by the group was $6.69 billion in 2018"

etc https://www.reuters.com/article/usa-sha ... SL1N211001

better keep those Fed rates down to finance this.

- dspp

....meanwhile, in the non-shale conventional oil and gas arena, you can pick up some serious production on the cheap, if prepared to tolerate a bit of political risk.

https://www.reuters.com/article/us-total-libya-waha/oil-major-total-expands-in-libya-buys-marathons-waha-stake-for-450-million-idUSKCN1GE0Y6

A month or so ago, Total picked up potential 50,000 BOE/d of conventional production in Libya for a mere $450 million, by buying Marathon's 16.33% stake in WAHA. Sounds a lot to pay, but that's 18.25 MMBOE/year. If the oil price stays up and Libya does not collapse into chaos, they will get their money back in a couple of years.

Just to keep on topic, there are those that talk about Libya's potential shale OG resources, but with all that conventional production, I wonder why they bother. One of the problems for shale production in countries like Libya and Algeria is the high water requirement. The requirement for sand may not be a problem however.

S.

spasmodicus wrote:....meanwhile, in the non-shale conventional oil and gas arena, you can pick up some serious production on the cheap, if prepared to tolerate a bit of political risk.

https://www.reuters.com/article/us-total-libya-waha/oil-major-total-expands-in-libya-buys-marathons-waha-stake-for-450-million-idUSKCN1GE0Y6

A month or so ago, Total picked up potential 50,000 BOE/d of conventional production in Libya for a mere $450 million, by buying Marathon's 16.33% stake in WAHA. Sounds a lot to pay, but that's 18.25 MMBOE/year. If the oil price stays up and Libya does not collapse into chaos, they will get their money back in a couple of years.

Just to keep on topic, there are those that talk about Libya's potential shale OG resources, but with all that conventional production, I wonder why they bother. One of the problems for shale production in countries like Libya and Algeria is the high water requirement. The requirement for sand may not be a problem however.

S.

Oil taxation under Ghadaffi was extortionate, and I presume that has not changed, as the new Libyan administration needs generous financing (possibly even two competing administrations!). Hence, I suspect Total will need a lot more than a couple of years to get their money back.

Oil taxation under Ghadaffi was extortionate, and I presume that has not changed, as the new Libyan administration needs generous financing (possibly even two competing administrations!). Hence, I suspect Total will need a lot more than a couple of years to get their money back.]

yes, good point. theres a country-by-country summary of this at
http://siteresources.worldbank.org/INTTPA/Resources/SunleyPaper.pdf

I don't think that the tax regime changed very much post-Ghadaffi - Libya obviously hasn't had any bid rounds recently. But in the 2004-2007 period when the EPSA-IV rounds were in progress, oilcos were falling over each other to pick up acreage there. This was in the era when oil prices were running $80 to $100/barrel. EPSA rounds were exploration acreage with significant geological risk (of not finding anything). There were several walking wounded, e.g. Oxy who quit onshore SIrte Area 124 in 2010 having drilled several dusters. In Total's case, there is little geological risk and according to
https://www.statista.com/statistics/597669/cost-breakdown-of-producing-one-barrel-of-oil-in-the-worlds-leading-oil-producing-countries/

opex in Libya is only about $7.5/barrel, compared with UK's $30.5 and a lot of capex has been done already on the producing fields, so I suppose that Total reckon that they know what they are getting.
(but as I digress from the shaley topic , I'm not aware of any shale-type production under PSC type agreements as in Libya )
S

This article
https://oilprice.com/Energy/Energy-General/Shale-Drillers-Keep-On-Falling-Into-The-Same-Trap.html

suggests that shale drilling is largely unprofitable in the USA and that small to medium size producers are mostly on a hiding to nothing

followed by this article

https://oilprice.com/Energy/Crude-Oil/Why-Oil-Majors-Are-Going-All-In-On-US-Shale.html

which suggests that oil majors believe that shale production in the US will be more profitable than conventional production in, say, the North Sea

Can the majors really bring economies of scale and/or introduce newer technologies in a way that is impossible for smaller operators? In other industries it is sometimes suggested that smaller companies can be more agile and efficient than their bigger competitors. I suppose that the majors may be able to pick up bombed out assets on the cheap, but maybe this is another case of “huge globalized winner takes all”, at the expense of smaller companies?

S

S,

My take on it is that you (and others) are correct on the current economics, and I don't see any technical breakthroughs which will improve that. Commercially there is enough spare capacity that day rates are pretty low. Financially interest rates are pretty much rock bottom still, so if these shale plays can't make money now at these prices (WTI $55, Brent $65) then that pretty much defines the lower economic limit for them. As the money runs out, so the smaller players get taken over by the bigger plays. Why, because they can, and because it is what they know how to do.

This to my mind, combined with ROPEC needing these prices to keep the ROPEC politicians/rulers (and economies) alive and in situ, pretty much sets a lower bound on the oil price. Absent supply side surprises (such Libya, Iran, Vz returning to the market) I don't see any good reason why the oil price should go dramatically lower. Industrial weakening could cause gentle price weakening, but not hugely. So most of the short variability in price is likely towards the upside, at which point of course anybody who can turn the taps on makes good money.

And I think it is that analysis that causes the mge team incumbents in the larger oilcos to buy distressed shale acreage with the spare cash. If they don't use the cash they turn into a company takeover target. Which is also a personal job loss target. So by buying the shale plays they get to keep a personal job, and get to position the companies they run for any price upside. And of course the majors are big enough that they are not having to bet the farm on 'just' the shale the way the small guys have to.

I don't think it is any more complex than that, but I am used to being wrong. Longer term I personally am avoiding any major with excessive shale exposure as I think it is a dud play over the longer term on fundamental EROEI grounds.

regards, dspp

Argentina's Vaca Muerta finally produces oil - Bloomberg

The giant Vaca Muerta formation has produced its first two cargoes - one of light oil, one of liquefied natural gas - foreshadowing what industry officials say will be a steady flow of shipments by the end of the year, Bloomberg reports.

A number of logistical and economic hurdles remain, but the export cargoes are the first sign that the $13B invested in the project over the last eight years might actually pay off.

"The system is going to change from one of importing oil and products to one of exporting," says Sean Rooney, Royal Dutch Shell's (NYSE:RDS.A) chief in Argentina. "And that's going to grow over time. It's going to be some hundreds of thousands of barrels a day."

https://seekingalpha.com/news/3473654-a ... email_link

Eight years eh ? There are some short memories around, as Shell (and many others) was working on this long before 2000. Anyway it is a sizeable play : https://en.wikipedia.org/wiki/Vaca_Muerta

- dspp