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Despite oil prices at their lowest levels in five years, Iraq is producing at record levels.

For the month of December, Iraq produced nearly 4 million barrels per day, according to Oil Minister Adel Abdul Mahdi, an all-time high for the war-torn country. That is critical for a government that depends on oil for more than 90 percent of its revenues. Rather than paring back production levels to stop a price slide, Iraq is doing what all rational actors are aiming to do (if they can): produce more oil to make up for lost revenues from rock bottom prices.

“Because of the new challenges, especially the price of oil, Iraq has to try its best to raise it oil production and exports,” Deputy Prime Minister Rowsch Nuri Shaways said in Davos, Switzerland on January 21.

OPEC has continuously vowed to let the market sort itself out rather than try to fix falling prices, which has the oil cartel staring down high-cost production in North America. In its latest monthly report, OPEC reported an uptick in production – the 12-member group produced an average of 30.2 million barrels per day (bpd) in December, about 142,000 bpd more than the previous month. The increase came almost entirely from Iraq, which does not operate under the OPEC quota. Iraq managed to boost monthly output by 285,000 bpd, more than offsetting a decline of 184,000 bpd in Libya.

…click on the above link to read the rest of the article…

12 Signs That The Economy Is Really Starting To Bleed Oil Patch Jobs

January 21, 2015

12 Signs That The Economy Is Really Starting To Bleed Oil Patch Jobs

The gravy train is over for oil workers. All over North America, people that felt very secure about their jobs just a few weeks ago are now getting pink slips. There are even some people that I know personally that this has happened to. The economy is really starting to bleed oil patch jobs, and as long as the price of oil stays down at this level the job losses are going to continue. But this is what happens when a “boom” turns into a “bust”. Since 2003, drilling and extraction jobs in the United States have doubled. And these jobs typically pay very well. It is not uncommon for oil patch workers to make well over $100,000 a year, and these are precisely the types of jobs that we cannot afford to be losing. The middle class is struggling mightily as it is. And just like we witnessed in 2008, oil industry layoffs usually come before a downturn in employment for the overall economy. So if you think that it is tough to find a good job in America right now, you definitely will not like what comes next.

At one time, I encouraged those that were desperate for employment to check out states like North Dakota and Texas that were experiencing an oil boom. Unfortunately, the tremendous expansion that we witnessed is now reversing…

In states like North Dakota, Oklahoma and Texas, which have reaped the benefits of a domestic oil boom, the retrenchment is beginning.

“Drilling budgets are being slashed across the board,” said Ron Ness, president of the North Dakota Petroleum Council, which represents more than 500 companies working in the state’s Bakken oil patch.

Smaller budgets and less extraction activity means less jobs.

…click on the above link to read the rest of the article…

One of These Things Is Not Like The Others: IEA’s January Report

January 21, 2015

One of These Things Is Not Like The Others: IEA’s January Report

Remember the Sesame Street song?

One of these things is not like the others,

One of these things just doesn’t belong,

Can you tell which thing is not like the others

By the time I finish my song?

OK. Which curve on this chart is not like the others?

(click image to enlarge)

It’s the U.S. and Canada’s oil production curve over the past several years.

That’s why oil prices have fallen: too much oil for the demand in the world. The tight oil from North America is the prime suspect in the production surplus that’s pushing down oil prices.

Now that you know the answer, let’s talk about IEA’s January report that was released today. Here are my main takes from the report:

…click on the above link to read the rest of the article…

The Scariest Chart For America’s Shale Industry

January 12, 2015

The Scariest Chart For America’s Shale Industry

Back in early November, when we posted “If WTI Drops To $60, It Will “Trigger A Broader HY Market Default Cycle“, it was greeted with the usual allegations of conspiracy theorism, tin-foil hattery and pretty much everything else, except rebutting facts.

Two months later, it was none other than Goldman which threw in the towel on its call from July 28 of 2014 when it said that “the long-awaited global recovery appears to be getting on track, lifting commodity demand” and scrambled to explain overnight that nothing short of a mass default wave within the shale space will end the ongoing collapse in prices, which are driven not by supply/demand fundamentals but by ZIRP, and a generation of junk bond BTFDers, who can’t wait to invest in the latest 10%, 15%, 20% or higher “yielding” opportunity (ignoring that the issuer may default before even one coupon is paid). In other words, those bond holders who wish to blame someone for the collapsing prices of junk bonds, feel free to address them to Ben Bernanke and his successor, who have enabled insolvent companies to live long beyond their viable lifecycle thanks to a zero cost of capital and a generation of traders who no longer know risk.

This is how Goldman’s Currie tongue-in-cheekly explained this dilemma:

[U]nlike physical stress, how low prices need to go is dependent upon the producer’s view of the future and the persistence of the current low price environment. The lower and more persistent the producer views the future pricing outlook, the quicker the restructuring. Given the optimistic nature of the oil drilling business, producer views are unlikely to change until the environment becomes extremely hostile with prices low enough such that survival becomes questionable.

…click on the above link to read the rest of the article…

An Endless Sea of Energy

January 10, 2015

An Endless Sea of Energy

With crude oil prices in a strong corrective mode, energy depletion is understandably not on people’s minds these days. However, this is a scenario that many of us might have to deal with at some point in our lifetimes.

Yes, the world currently has more than abundant supplies of crude oil. US tight oil production has been rising exponentially, accounting for the biggest share of global growth since 2009. This is by any measure an amazing technological and logistical achievement. OPEC has simply been incapable to accommodate the resurgence of the US as a major producer; and falling prices may actually prompt some of its members to sustain outputs, otherwise lost revenues will be even larger.

We might be swimming in oil for now, but this should be no reason to become complacent.

As an example, an important fact that is often overlooked is that tight oil exploration is a different animal, and relatively recent in terms of its significance. Each tight oil well has very steep decline rates – in many cases 90% within 5 to 7 years, much steeper than conventional wells. This means that to sustain (let alone increase) production many new wells need to be drilled each year. And at US$5-10 million cost per well, this is not cheap either.

…click on the above link to read the rest of the article…

Bakken, Let’s Do The Math

January 8, 2015

Bakken, Let’s Do The Math

There has been considerable dispute over how many new wells required to keep production flat in the Bakken and Eagle Ford. One college professor posted, over on Seeking Alpha, figures that it would take 114 rigs in the Bakken and 175 in Eagle Ford to keep production flat. He bases his analysis on David Hughes’ estimate that the legacy decline rate fir Bakken wells is 45% and 35% for Eagle Ford wells. And he says a rig can drill 18 wells a year, or about one well every 20.3 days.

The EIA has comes up with different numbers. The data for the chart below was taken from the EIA’sDrilling Productivity Report.

The EIA has current legacy decline at about 6.3% per month for Bakken wells and about 7.7% per month for Eagle Ford wells. That works out to be about 54% per year for the Bakken and 62% per year for Eagle Ford. I believe the EIA’s estimate of legacy decline, in this case, is fairly accurate. For instance last month Mountrail County had over 30 new wells completed yet still declined by 6.4%. And in December 2013 North Dakota declined by 5.22% yet had 119 new well completions.

…click on the above link to read the rest of the article…

Resource Insights: The high cost of low-priced oil

December 15, 2014

Resource Insights: The high cost of low-priced oil.

As a consumer of oil, you may regard recent sharp declines in the world oil price as a blessing. But…

If you work in the oil industry, you will not.

If you work in the renewable energy industry, you will not.

If you work in the energy efficiency business, you will not.

If you work to address climate change, you will not.

If you have investments in the oil industry (and nearly everyone does through pensions or 401k plans), you will not.

If you live in a country that exports a lot of oil (not just Saudi Arabia, but Mexico, Canada and Norway, too), you will not.

The declining price of oil is supposed to have a balanced ledger of winners and losers. But we may be on our way to finding out that in the long run we will have a much larger list of losers than winners.

And, the list will lengthen if the price continues to fall, and especially if it stays down for a long time. (Low prices are not necessarily an indication of future abundance. Remember that oil reached $35 a barrel at the end of 2008 before returning to record average daily prices in 2011, 2012 and 2013.)

…click on the above link to read the rest of the article…

Oil at $75 Means Patches of Texas Shale Turn Unprofitable – Bloomberg

November 20, 2014

Oil at $75 Means Patches of Texas Shale Turn Unprofitable – Bloomberg.

With crude at $75 a barrel, the price Goldman Sachs Group Inc. says will be the average in the first three months of next year, 19 U.S. shale regions are no longer profitable, according to data compiled by Bloomberg New Energy Finance.

Those areas, which include parts of the Eaglebine and Eagle Ford in East and South Texas, pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo Inc. and company presentations. That compares with the 1.03 million-barrel gain in daily national output over the past year, government figures show.

The expansion of U.S. oil supply to more than 9 million barrels a day is contributing to a global glut, driving down prices by as much as 32 percent since June. The data compiled by BNEF, which take into account the costs of drilling, royalties and transportation, show that certain shale patches fail to make money at the current price. Companies such as SandRidge Energy Inc. (SD) and Goodrich Petroleum Corp. (GDP) said they expect to pump more oil for less money so they can withstand the rout.

…click on the above link to read the rest of the article…

You Have to See It to Believe It: What It’s Like to Have Fracking in Your Backyard | Alternet

November 19, 2014

You Have to See It to Believe It: What It’s Like to Have Fracking in Your Backyard | Alternet.

Ed Wade’s property straddles the Wetzel and Marsh county lines in rural West Virginia and it has a conventional gas well on it. “You could cover the whole [well] pad with three pickups,” said Wade. And West Virginia has lots of conventional wells — more than 50,000 at last count. West Virginians are so well acquainted with gas drilling that when companies began using high-volume horizontal hydraulic fracturing in 2006 to access areas of the Marcellus Shale that underlie the state, most residents and regulators were unprepared for the massive footprint of the operations and the impact on their communities.

When it comes to a conventional well and a Marcellus well, “There is no comparison, none whatsoever,” said Wade, who works with the Wetzel County Action Group. “You live in the country for a reason and it just takes that and turns it upside down. You know how they preach all the time that natural gas burns cleaner than coal; well, it may burn cleaner than coal, but it’s a hell of a lot dirtier to extract.”

To understand what’s at stake, you have to understand the vocabulary. Take the word “fracking” for example. When people say it’s been around since the 1950s, they are referring to vertical fracturing, but what’s causing all the contention lately is a much more destructive process known as high-volume horizontal hydraulic fracturing. Or they’re using “fracking” in a very limited way. “The industry uses [fracking] to refer just to the moment when the shale is fractured using water as the sledgehammer to shatter the shale,” scientist Sandra Steingrabertold AlterNet. “With that as the definition they can say truthfully that there are no cases of water contamination associated with fracking. But you don’t get fracking without bringing with it all these other things — mining for the frack sand, depleting water, you have to add the chemicals, you have to drill, you have to dispose of the waste, you have drill cuttings. I refer to them all as fracking, as do most activists.”

…click on the above link to read the rest of the article…

How Low Can the Price of Oil Plunge? | Wolf Street

November 13, 2014

How Low Can the Price of Oil Plunge? | Wolf Street.

It is possible that a miracle intervenes and that the price of oil bounces off and zooms skyward. We’ve seen stocks perform these sorts of miracles on a routine basis, but when it comes to oil, miracles have become rare. As I’m writing this, US light sweet crude trades at $76.90 a barrel, down 26% from June, a price last seen in the summer of 2010.

But this price isn’t what drillers get paid at the wellhead. Grades of oil vary. In the Bakken, the shale-oil paradise in North Dakota, wellhead prices are significantly lower not only because the Bakken blend isn’t as valuable to refiners as the benchmark West Texas Intermediate, but also because take-away capacity by pipeline is limited. Crude-by-rail has become the dominant – but more costly – way to get the oil from the Northern Rockies to refineries on the Gulf Coast or the East Coast.

These additional transportation costs come out of the wellhead price. So for a particular well, a driller might get less than $60/bbl – and not the $76.90/bbl that WTI traded for at the New York Mercantile Exchange.

Fracking is expensive, capital intensive, and characterized by steep decline rates. Much of the production occurs over the first two years – and much of the cash flow. If prices are low during those two years, the well might never be profitable.

…click on the above link to read the rest of the article…

Will US Shale Oil Undermine Its Own Success?

November 11, 2014

Will US Shale Oil Undermine Its Own Success?.

The US shale revolution has remarkably influenced global energy markets over the past five years. Can falling oil prices tarnish the extraordinary success of hydraulic fracturing in the US and turn it into a victim of its own success?

The continuous fall in oil prices over the past five months has created a significant stir in global oil markets. Key reasons for this sudden fall lie in a combination of factors: weak demand in Europe and Asia, higher than expected levels of production in politically unstable areas such as Libya and Iraq, increased US production and OPEC’s decision not to cut production. The downward oil price trend might continue in 2015. Analysts predict that prices could fall to $70 and $80 for the WTI and Brent benchmarks respectively in the second quarter of 2015.

It is still unclear why the OPEC, and its leading member Saudi Arabia, decided to keep relatively high levels of production, considering the fact that the oil glut might additionally slash oil prices. One potential scenario allows the possibility that the Saudis are counting on the negative effect which low prices might have on the US shale producers.

…click on the above link to read the rest of the article…

US oil consumption did not increase as result of US tight oil boom

November 11, 2014

US oil consumption did not increase as result of US tight oil boom.

In part 1 of a series of articles on the impact of US tight (shale) oil we examine the impact on US oil consumption.

Fig 1: US crude oil production with tight oil from Texas and North Dakota

Data from: http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm

In 2013, an additional 2.3 mb/d of tight oil was produced from wells in Texas (1.5 mb/d) and North Dakota (0.8 mb/d). Note that these data are preliminary estimates.

Fig 2: Data from the Texas Rail Road Commission in barrels/day

Graph from: http://peakoilbarrel.com/texas-rrc-oil-gas-report-august-data/

The blue straight line is from the EIA http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPTX2&f=M

The other lines present the monthly updates of the Texas RRC. We see it takes almost 2 years until numbers stabilize. Around 1.1 mb/d is from conventional oil.

Let’s have a look at US consumption by fuel
…click on the above link to read the rest of the article…

The Detailed US Shale Oil Cost Curve: Where Is The Line In The Sand? | Zero Hedge

November 9, 2014

The Detailed US Shale Oil Cost Curve: Where Is The Line In The Sand? | Zero Hedge.

On an almost daily basis, investors are reassured that a falling oil price is “unequivocally good” for the US economy. The “It’s like a tax cut for the consumer”-meme dominates financial media while the impact on the Shale (or tight) oil industry is shrugged off blindly with “well breakevens are low, right?” As Barclays shows in the chart below, thebreakeven price for oil to shut-in tight-oil supply varies by region (and corporation) adding that at $80/b WTI, most producers will sweat it out. But, they warn, if prices remain at these levels through 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016 (with a 17-25% plunge in earnings which would drastically reduce capex… and thus The US Economy).

As Barclays notes,

As oil prices continue to fall, we review the likely supply response of tight oil supplies. Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices remain at these levelsthrough 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016.

…click on the above link to read the rest of the article…

Growth in Global Total Debt sustained a High Oil Price and delayed the Bakken “Red Queen” | FRACTIONAL FLOW

November 3, 2014

Growth in Global Total Debt sustained a High Oil Price and delayed the Bakken “Red Queen” | FRACTIONAL FLOW.

The saying is that hindsight (always) provides 20/20 vision.

In this post I present a retrospective look at my prediction from 2012 published on The Oil Drum (The “Red Queen” series) where I predicted that Light Tight Oil (LTO) extraction from Bakken in North Dakota would not move much above 0.7 Mb/d.

Profitable drilling in Bakken for LTO extraction has been, is and will continue to be dependent on an oil price above a certain threshold, now about $68/Bbl at the wellhead (or around $80/Bbl [WTI]) on a point forward basis.
(The profitability threshold depends on the individual well’s productivity and companies’ return requirements.)
Complete analysis of developments to LTO extraction should encompass the resilience of the oil companies’ balance sheets and their return requirements.

…click on the above link to read the rest of the article…

The Peak Oil Crisis: A Reality Check Post Carbon Institute

October 31, 2014

The Peak Oil Crisis: A Reality Check Post Carbon Institute.

For the last four or five years, we have been bombarded with a stream of stories about the “shale revolution.” Horizontal drilling and fracking, mostly in the U.S., were said to have released oceans of new oil and a virtually endless supply of natural gas. These developments have brought, or will soon bring, great benefits to the American people. Our oil imports are down as are gasoline prices. Factories utilizing the flood of natural gas will soon create many new jobs as manufacturing returns to the US. We will soon have so much oil and natural gas that we can export much energy to our friends and teach our enemies a lesson.

Now it is perfectly true that there has been a major increase in US oil and natural gas production in recent years. Oil production is up by some 4 million b/d and natural gas production is up by 5 trillion cubic feet/year since the boom began. What the stories about all this abundance fail to address, outside of vague generalizations, is just how long this upward surge is going to last and what happens then.

To fill in the gap between oil companies, their consultants, their financiers, and friendly media hype, we have only the Department of Energy’s Energy Information Administration (EIA) to guide us on the many critical decisions ahead. Now the EIA does not have a very good track record when it comes to projecting the future. Until last winter two-thirds of America’s shale oil reserves were supposed to be buried under California which would become fabulously wealthy when we brought it to the surface. Then all of a sudden, and likely under pressure from outside observers, California’s shale oil was not there. The whole notion of oceans of oil under California was nothing but oil company hype, aided by a consultant, and a stamp of approval from the EIA.

…click on the above link to read the rest of the article…

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