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Skeptic Geologist Warns: Permian’s Best Years Are Behind Us

May 14, 2018

Skeptic Geologist Warns: Permian’s Best Years Are Behind Us

Permian

Geologist Arthur Berman, who has been skeptical about the shale boom, warned on Thursday that the Permian’s best years are gone and that the most productive U.S. shale play has just seven years of proven oil reserves left.

“The best years are behind us,” Bloomberg quoted Berman as saying at the Texas Energy Council’s annual gathering in Dallas.

The Eagle Ford is not looking good, either, according to Berman, who is now working as an industry consultant, and whose pessimistic outlook is based on analyses of data about reserves and production from more than a dozen prominent U.S. shale companies.

“The growth is done,” he said at the gathering.

Those who think that the U.S. shale production could add significant crude oil supply to the global market are in for a disappointment, according to Berman.

“The reserves are respectable but they ain’t great and ain’t going to save the world,” Bloomberg quoted Berman as saying.

Yet, Berman has not sold the EOG Resources stock that he has inherited from his father “because they’re a pretty good company.”

The short-term drilling productivity outlook by the EIA estimates that the Permian’s oil production hit 3.110 million bpd in April, and will rise by 73,000 bpd to 3.183 million bpd in May.

Earlier this week, the EIA raised its forecast for total U.S. production this year and next. In the latest Short-Term Energy Outlook (STEO), the EIA said that it expects U.S. crude oil production to average 10.7 million bpd in 2018, up from 9.4 million bpd in 2017, and to average 11.9 million bpd in 2019, which is 400,000 bpd higher than forecast in the April STEO. In the current outlook, the EIA forecasts U.S. crude oil production will end 2019 at more than 12 million bpd.

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Will Central Banks Derail The Shale Boom?

June 30, 2017

Will Central Banks Derail The Shale Boom?

Permian

The U.S. Federal Reserve has already increased interest rates several times, most recently in June, with promises to do much more. Rate hikes pose a problem for the oil industry, which has used debt to underpin a drilling boom across the U.S. shale patch. Higher rates could raise the cost of drilling.

But low oil prices, and few prospects for a strong rebound in the near-term – and possibly even the medium- and long-term – undercut the rationale for higher rates. After all, inflation is soft, and low commodity prices have a lot to do with that.

In fact, the decline of oil prices this year has led to even lower inflation than expected, not just in the U.S., but also in Europe. The Fed has insisted that weak inflation is “transitory,” but more people are starting to wonder if that is true. “There is now a much bigger chance that there will be an important disinflationary impact from lower oil prices,” Thierry Wizman, global interest rates and currencies strategist for Macquarie, told MarketWatch. With oil prices and broader inflation low, why raise rates?

Still, the Fed seems intent on moving forward. And the Bank for International Settlements (BIS), a group of central banks from around the world, urged central banks a few days ago to continue the “great unwinding.” That is, the extraordinary monetary stimulus stemming from the 2008-2009 financial crisis needs to be reined in. Fed chair Janet Yellen has warned about overpriced asset classes, a side effect of loose monetary policy. The hawkish Fed thinks that monetary policy needs to tighten in order to prevent overheating. Related: The Downturn Is Over, But U.S. Oil Companies Face A Huge Problem

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Revisiting the Shale Oil Hype: Technology versus Geology

March 31, 2015

Revisiting the Shale Oil Hype: Technology versus Geology

The press has been all abuzz the past few weeks speculating on what the drop in oil prices will mean for U.S. shale oil (tight oil) production. Pundits have been falling over themselves quoting various estimates of the breakeven cost of production in this play or that, and rushing to be the first to declare a peak in the Bakken, Eagle Ford, Niobrara or wherever.  The Baker-Hughes rig count, which comes out every Friday, has become a must-read for people who probably had never heard of it a few months ago. Even the U.S. Energy Information Administration (EIA), based on estimates, suggests production is declining in three big shale oil plays.

The industry, on the other hand, has been more circumspect. They point to productivity gains being made in drilling and completion technology that lower costs, and suggest they are developing a backlog (aka “fracklog”) of wells that have been drilled but not completed, hanging in abeyance for the inevitable oil price rise (half or more of the cost of completing a well is the fracking). Keeping a stiff upper lip in the face of harsh pricing realities, many companies are telling investors that despite slashing capital expenditures on drilling and exploration (in some cases by more than 40%), production will be maintained and even rise. Others, such as Whiting, are putting themselves up for sale or, in the case of Quicksilver, declaring bankruptcy.

In my Drilling Deeper report published last October I stuck my neck out and made projections of future production by play based on drilling rates and well quality, not price, although price and drilling rates are closely linked. This was based on an analysis of all well production data by play which showed:

 

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Three Reasons Why US Shale Isn’t Going Anywhere

March 5, 2015

Three Reasons Why US Shale Isn’t Going Anywhere

Have you ever noticed that during extreme economic cycles, when trends are roaring on the upside, or conversely crashing back down to earth, there often appears an air of extremism in news headlines? Take America’s most recent shale oil boom, and bust, for example. On the way up, you may have seen – Why OPEC Could Be Dead in 10 Years. Conversely, now you may have read, Why It Might Be ‘Game Over For The Fracking Boom’.

In the end, the answer lies somewhere in-between. OPEC, although often plagued with internal discord, will still remain the global defacto 900-pound gorilla of crude, and US producers will continue to find ways to crack shale rock cheaper and more efficiently, immunizing themselves to nail-biting commodity roller coaster dips like what was just experienced. And in 2008 (-55%). And in 2001 (-32%). And in 1998 (-38%)….

BP, in its recently-released “Energy Outlook 2035”, predicts OPEC’s market share will return to approximately 40 percent of global demand within 15 years, up from 33 percent today, which is what all this fuss is about anyway.

Related: No Real Oil Price Relief Until Q3

Here are 3 reasons why America’s shale will continue to produce going forward:

1. Oil companies, both large and small, have seen what is possible.

In 2004, Texas oilman George Mitchell made hydraulic fracture stimulation commercially viable by unlocking the right combination of water pressure and lubricants to allow oil and gas to predictably flow from dense shale to the wellbore. A decade ago, producers believed shale held vast oil and gas resources, but to what extent they could be developed had not been determined. Until now.

 

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Will US Shale Boom Continue Or Have A Hiatus?

February 25, 2015

Will US Shale Boom Continue Or Have A Hiatus?

The conventional wisdom recently has been that North America will keep producing shale oil for some time despite the higher costs associated with hydraulic fracturing and the 50 percent drop in oil prices over the past eight months.

The thing about conventional wisdom is that it tends to be challenged, sometimes successfully. And shale’s biggest producer in the United States, EOG Resources Inc., is saying the recent rapid growth in its own shale production will end this year. And this idea is supported by people with experience in oil.

Certainly, though, the logic behind the theory of continued shale production is solid: Oil prices will bottom out, then begin to rise to the point where crude from shale becomes profitable again despite the cost of fracking. The only question is whether OPEC would then accept US shale as a competitor and cut its own production to shore up prices.

Related: Is Oil Returning To $100 Or Dropping To $10?

A forecast issued Feb. 17 by BP was more specific. The BP Energy Outlook 2035expects US production will grow rapidly for the immediate future, then “flatten out.” Or, as BP’s chief economist, Spencer Dale, told The Wall Street Journal, “U.S. [shale] oil can’t continue to grow rapidly forever.” And OPEC will be ready to fill that vacuum.

 

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