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The United States Geological Society (USGS) today released a report stating there is an estimated 46.3 billion barrels of theoretical, technically recoverable, as yet undiscovered light tight oil reserves in the Wolfcamp, Bone Springs and Avalon shaley carbonate formations in the Delaware Basin of West Texas. Shale oil, it seems, keeps growing on trees.

There are lot of “qualifications” to this estimate but it will nevertheless cause people’s panties to get plum bunched up, including the President of the United States who believes we are sitting on the Atlantic Ocean of light tight oil in America, so much so we no longer even have to worry about conserving the stuff anymore.

What price of oil will it take for all this imaginary oil to actually be recovered in the Delaware Basin? Well, the USGS does not bother itself with that kind of small stuff. Taxpayers pay for it to make wild ass guesses and that’s that.

Art Berman reviewed the study in detail to determine the USGS itself estimates it will take 318,000 wells to recover this oil, costing over $3.0 trillion. Some of the USGS EUR estimates for various benches in their assessment will only be economical at oil prices above $150 per BO.

Where that money is going to come from beats the hell out of me. The US shale oil industry has drilled almost 70,000 shale wells the past decade all across America and is hammering its sweet spots in the major shale oil basins. It has recovered a little less than 10 billion barrels of oil so far (EIA, DI, IHS, shaleprofile.com). The shale oil industry is somewhere around $300 billion in long term debt, so it essentially has not even paid for what its already produced.

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

US Crude plus Condensate and Tight Oil, Jan 2018 Update

January 26, 2018

US Crude plus Condensate and Tight Oil, Jan 2018 Update

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From Dec 2016 to Dec 2017 US Tight oil output has increased by 975 kb/d based on US tight oil output data from the EIA.

For the entire US we only have EIA monthly output estimates through Oct 2017. Over the Dec 2016 to Oct 2017 period US output has increased by 866 kb/d and the OLS trend has a slope of 821 kb/d.

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Note that the 866 kb/d increase in US output over 10 months would be a 1040 kb/d increase over a 12 month period.

Most of the increase in US output has been from increased LTO output. The forecasts by several agencies (EIA, IEA, and OPEC) of more than a 1000 kb/d increase in US output in 2018 may assume that the recently increased oil price level will lead to increased investment in the oil sector.

Much of the increase in LTO output has been in the Permian basin and several factors may slow down the recent rapid growth. Among these are limited fracking crews, inadequate pipeline capacity for natural gas, which will limit output as flaring limits are reached, and potential water shortages.

Longer term the various LTO plays will run out of space to drill more wells in the tier one areas (the so-called sweet-spots) and this will limit the rate of increase within 2 or 3 years. It is likely that the Eagle Ford is close to this point, the Bakken might reach that point by 2019, and the Permian basin perhaps by 2021.

For US C+C output, I expect about a 600+/-100 kb/d increase in 2018.

Oil Price Scenario for 2018

December 29, 2017

Oil Price Scenario for 2018

It is that time of year again where we try to forecast what the oil price will do over the coming 12 months. Last year I forecast $60 / bbl for Brent year ending 2017 and with Brent trading on $66.50 as I write I can conclude that I got lucky this year. My friend wagered on $78 and our bet this year was too close to call. My forecasting effort is based on trying to understand the supply, demand, storage, price dynamic and since this seemed to work pretty well this year I will repeat the exercise with some slight modifications.

I have some reservations about the methodology stemming from 1) US LTO production has unpredictable impact on supply elasticity and 2) OPEC + Russia et al are withholding ~ 1.8 M bpd from the market. In effect this group will determine the oil price in 2018. If the price goes too high they may open the taps a little to maintain the price they want, whatever that may be.

[The inset image shows “shale” fracking pads in the USA.]

Disclaimer

No one has ever been able to confidently forecast the oil price that is subject to a vast array of socio-economic, geo-political and technology variables. The best we can do is to assemble some of the key data and to try and use our experience to draw some inferences about what may happen. Readers act upon the information presented here at their own risk.

Oil Price Narrative for 2018

The oil market is now subject to production constraint amounting to ~1.7 Mbpd. This has led to rebalancing of supply and demand by the end of 2017. The Brent oil price has recovered strongly since the summer to close the year at around $66.50. Last year I forecast $60 / bbl for December 2017 and therefore came close.

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

Oil Price Outlook December 2017

December 21, 2017

Oil Price Outlook December 2017

This assessment is based on the data in the 2017 BP Statistical Review of World Energy available here. As such it uses that review’s definition of oil which is crude and condensate and natural gas liquids, uncompensated for their different energy contents or values of refined product components.

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Figure 1: World Oil Production 1990 – 2017
This analysis was prompted by a chart by Ovi showing that Non-OPEC production less Russia, Canada and the United States has been in decline since 2004. That decline rate is 0.25 million barrels/day/annum. It had previously risen strongly from 1990.

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Figure 2: Production Rate Change 2007 – 2016
The United States LTO patch is widely credited with having caused the oil price collapse of 2014. American production had risen by six million barrels per day since 2007. The United States was not alone with four other countries totalling six million barrels per day of production increase. Iraq and Saudi Arabia contributed two million barrels per day each with Russia and Canada contributing one million barrels per day each.

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Figure 3: World Oil Consumption 1990 – 2016
OECD consumption has been flat even as OECD countries have had an increase in GDP.

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Figure 4: Where the Oil Went
The fall of non-OECD consumption from 1990 to 1996 was due to the dissolution of the Soviet Union. Since then consumption growth has been steady at about 835,000 barrels/day/annum. Chinese consumption growth was 240,000 barrels/day/annum up to 2002 and then steepened to 512,000 barrels/day/annum since. OECD consumption growth was strong up to 2007 and then demand contracted due to higher oil prices. From here it looks like OECD consumption has plateaued. China may have also plateaued. Non-OECD consumption is likely to continue rising with a large part of that being due to India.

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Figure 5: World Oil Production from 1990 with a Projection to 2025

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

Shale Set To Decline Substantially This Year

February 23, 2016

Shale Set To Decline Substantially This Year

The International Energy Agency released its Medium Term Oil Market Report on February 22 at the IHS CERA Week conference in Houston, an annual confab for the elite of the oil industry. In its report, the IEA sees U.S. shale finally capitulating this year, falling by 600,000 barrels per day, plus another contraction of 200,000 barrels per day in 2017. By then, oil prices should rebound as supply and demand converge.

But, it won’t be the end of U.S. shale, the IEA says. “Anybody who believes that we have seen the last of rising LTO production in the United States should think again; by the end of our forecast in 2021,
total U.S. liquids production will have increased by a net 1.3 mb/d compared to 2015,” the IEA wrote decisively. LTO refers to “light, tight, oil,” or light oil from shale.

The near-term prospects don’t look so good, however. The Paris-based energy agency believes that crude oil markets will remain oversupplied throughout 2016, with the glut expected to be around 1.1 million barrels per day (mb/d). The supply overhang will disappear in 2017, but the extraordinary levels of oil currently siting in storage will delay a rise in oil prices.

The pain will be felt far and wide. Shale companies are slashing spending, laying off workers, and forgoing drilling plans in an effort to avoid bankruptcy. Collectively, OPEC has seen oil export revenues fall from a peak of USD$1.2 trillion in 2012 down to USD$500 billion in 2015. Revenues will further decline to just USD$320 billion this year.

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

Bakken(ND) Light Tight Oil – Update with Sep – 15 NDIC Data

December 2, 2015

Bakken(ND) Light Tight Oil – Update with Sep – 15 NDIC Data

After years of following developments in extraction of light tight oil (LTO) in the Bakken, the oil price, studying actual well production data from the North Dakota Industrial Commission (NDIC) and the SEC 10-Q/Ks filings for several companies heavily exposed to the Bakken, a quote from Shakespeare’s Macbeth comes to the fore of my mind:

All causes shall give way: I am in blood

Stepp’d in so far that, should I wade no more,

Returning were as tedious as go o’er:

(Macbeth: Act III, Scene IV)

For me the Macbeth quote very much sums up the predicament many Bakken LTO operators now find themselves in.

What this study/update present:

With the decline in the oil price the average well as from the 2012 vintage will struggle to reach payout and become profitable.
(The oil price decline reduces the portion of the more recent wells that are on trajectories to reach payout and become profitable.)
The 2015 vintage follows the 2014 vintage closely, suggesting that around 20% of the wells of 2015 vintage are on a trajectory to reach payout and become profitable.
The underlying decline from the legacy wells is strong. The extraction from all the wells started between Jan 2008 and Dec 2014 declined by close to 440 kb (or about 41%) from Dec 2014 to Sep 2015.
Some of the early wells (2008 vintage) have been restimulated (refracked) and the effects are short lived and the economics of this looks questionable, at best.

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

Oil Shipments by Rail Declining

July 18, 2015

Oil Shipments by Rail Declining

Weekly oil shipments by rail can be found on the web at Weekly Carload Reports. And a summation of that data with charts can be found at Association of American Railroads Freight Rail Traffic Data.

Crude oil by rail basically started with the shale boom. Prior to that almost all oil was shipped by pipeline. Of course a lot of oil was trucked to the pipelines. The EIA says in the first seven months of 2014 8 percent of all us crude and refined products was shipped by rail. It looks like that percentage was increased somewhat in the second half of 2014.

Oil by rail, for the entire USA, peaked in August, September and October of 2014 and has declined since.

I have converted the weekly carloads to daily then converted carloads to barrels. There are about 700 barrels per carload. That gives us the average barrels per day by rail.

I have converted the weekly “daily average” to monthly “daily average” and plotted it against the North Dakota production. The EIA says: Between 60% and 70% of the more than 1 million barrels per day of oil produced in the state has been transported to refineries by rail each month in the first half of 2014, according to the North Dakota Pipeline Authority.

As we can see from this chart the volume of oil shipped by rail changes from month to month. The chart is barrels per day per month. The peak, for North Dakota, is December 2014. Oil by rail for the USA peaked about three months earlier.

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

The Bakken ”Red Queen” is restrained with more credit

June 9, 2015

The Bakken ”Red Queen” is restrained with more credit

This post is an update on Light Tight Oil (LTO) extraction in Bakken based upon published data from the North Dakota Industrial Commission (NDIC) as per March 2015.

Extraction developments of LTO from Bakken may be followed by county, formation, vintage of wells, and one important source to understand the developments are coming from studying the developments by companies. Holding this up with companies’ financial statements (10-K and 10-Q) is an invaluable source about the companies, their financial capabilities and their strategies. This information is paramount to understand the developments in LTO extraction from Bakken and provides valuable insights into what to expect of future developments.

To get some understanding of what will drive future developments, it is helpful to look at individual companies.

Amongst all the companies operating in Bakken I selected for this post to present a closer look at 3 of the biggest companies in Bakken; Continental Resources, EOG Resources and Whiting Petroleum.

These 3 companies were found to be representative for several of the companies with regard to a range of variation in quality of wells, development strategies, use of debt, asset sales and not least what their responses to oil price changes may reveal.

For Q1 – 15 the companies involved in LTO extraction in Bakken used an estimated $4 Billion(CAPEX) for well manufacturing and an estimated $2.3 Billion was from external sources, primarily from equity and asset sales and assuming more debt.
The “average” well with around 90 kb [90,000 barrels] of flow in its first year is estimated to have an undiscounted point forward break even (that is a nominal break even with 0% return for the well)at around $60/Bbl (WTI).
The break even price increases with increases in the return requirement.
This analysis shows that the companies have deployed different strategies as responses to the decline in the oil price, which will affect future developments in LTO extraction.

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

World Oil Output Last 3 Years

June 4, 2015

World Oil Output Last 3 Years

The EIA publishes every possible energy stat for the USA and hardly anything for the rest of the world. Well, anything current for the rest of the world anyway. TheirInternational Energy Statistics is already five full months behind and working on six. December 2014 is the last international oil production data we have.

Anyway during this lull in other data I decided to look at the last three years of international data, from December 2011 to December 2014. All data is in thousand barrels per day.

World C+C production was flat for most of 2012 and 2013 but in late 2013 production took off and has increased by about 3 million barrels per day above the average for 2012 and 2013. December C+C production was 79,300,000 BPD.

While total C+C production has increased by 3,000,000 BPD over the last three years the top ten gainers have increased just over twice as much, 6,200,000 BPD.

And just who were the big C+C production increasers for the last three years. Keep in mind this is the total change, or increase, over the last three years, not total production.

The largest gainer, by a wide margin, was the USA. Iraq and Canada were runners up and the rest were also rans.

Almost everyone else had declines.

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

Are The Bakken’s Sweet Spots Past Their Prime?

January 12, 2015

Are The Bakken’s Sweet Spots Past Their Prime?

This post is an update on total Light Tight Oil (LTO) extraction from Bakken in North Dakota based upon actual data as of October 2014 from North Dakota Industrial Commission (NDIC). It further presents a statistical analysis on developments of well productivity with a detailed look at developments in Parshall, Reunion Bay and Sanish.

• There were general improvements in LTO well productivity in Bakken during 2013.

• Present trends in LTO well productivity for Mountrail’s sweet spots (Alger, Parshall, Reunion Bay, Sanish and Van Hook) suggests these are past their prime.

• Figure 29 in this post shows development in well productivity for Alger and Van Hook and figures 06, 08 and 10 for Parshall, Reunion Bay and Sanish. A common feature for Parshall, Reunion Bay, Sanish, and Van Hook is that these reached new highs in well productivity for wells started in 2013.
Alger has been in general decline since 2011.

• LTO extraction in recent years may be viewed as a source for global swing production for oil.

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of October 2014 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale.

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

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