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Page added on February 2, 2016
The Science Of Forecasting Long-term Oil Prices: What Not To Do
In 1992, an M.I.T. working paper that I wrote noted that forecasts of the oil prices two and three decades into the future were usually strongly in error after a couple of years. No few readers told me that they interpreted the work to mean that it was not possible to predict long-term oil prices, but that was a misinterpretation. Forecasts has gone astray because of three primary errors: a belief in the so-called Hotelling principle, mistaking transient, political problems for physical factors and a tendency towards Malthusian pessimism. (More than Malthus himself, in fact.)
The Hotelling priniciple, as some described it, proved mathematically that mineral prices had to rise exponentially over the long-term, and oil prices should rise at the rate of interest. Despite the fact that this was contradicted by history, many academics continue to defend the idea, ignoring its theoretical shortcomings as well.
Judgements that higher prices in the 1970s were due to resource scarcity rather than the oil supply shocks in 1973 and 1979 appear to be little more than reflective of a tendency for investors to think “this boom will have no bust” an attitude that goes back to the xxth century Tulip Bubble and continued recently with the U.S. real estate boom. Some argued that the oil industry merely took advantage of the Iranian Revolution to employ its monopoly power to raise prices, but too many acted as if the loss of 6 mb/d of supply, plus fears of widespread upheaval in the Muslim world as the Ayatollah Khomeini called for a struggle against other governments in the region. (Echoes of that persist to this day.)
Finally, there is the fact that nonrenewable resources are different; you can’t produce oil where is none. No one questions that automobile production will be constrained by lack of discovery of new autos; you can build a plant wherever you want. But geologists downplay the economists’ view that higher oil prices lead to more supply, as ignoring the need for discovery. In fact, economists are just aggregating the impact of discovery, just as they argue higher prices will reduce demand, without pointing to the specific investments that cause such to happen.
The peak oil crowd bristles as suggestions that they believe we are “running out of oil,” and few make that argument, but President Carter did say, “The oil and natural gas we rely on for 75 percent of our energy are running out.” Not only did the expectations of his government prove dramatically incorrect, but the perceived need to emphasize coal to preserve natural gas remains one of the major flawed policies afflicted on the country.
Which highlights the role of analysis, good and bad. It is obvious now that our natural gas resources are abundant, and optimists like myself can be accused of relying on hindsight in our criticism, but the truth is that price controls on natural gas were clearly responsible for the shortages that occurred in the 1970s. That’s what price controls do, to paraphrase the current commercial campaign, and most economists had no doubt of this, but a desire to please consumers with cheap energy and a fear of appearing to appease “big oil” meant that it took years for the policy to be reversed.
Another error that became apparent at that time, and continues to bedevil the industry, is the influence of short-term markets on long-term forecasts. When prices dropped sharply in 1986, most predicted that they would continue to rise, but none predicted a ‘recovery’ to pre-1986 prices, even though nearly all had argued that 1985 price levels were unsustainably low. In 1998, when the price collapsed from the low level of $30 to $20 (in 2014$), a number in the industry thought that those levels were persist, rather than believing in mean-reversion.
Certainly, we’ve seen that played out with recent forecasts, where few have predicted that the never-before seen $100/barrel levels were temporary and unsustainable and most predicted prices would remain near or above $100 for the next two decades, as the figure below, from the 2014 DOE Annual Energy Outlook shows.
What most have forgotten is that a decade before, the same forecasters were predicting long-term prices below $30/barrel (roughly $35/barrel in 2014$) as the figure below shows. (My own forecast, labelled SEER, was similarly in error.) Indeed, when Goldman Sachs suggested oil prices could experience a super-spike to $105/barrel (if supply was disrupted), they were widely censured. Except for a few peak oil advocates, who were not right but lucky, no one was expecting the price levels reached in the past decade, which should have suggested that those prices were unlikely to persist.
Long-term oil prices are much more amenable to quantitative analysis than short-term prices. The lesson that keeps eluding many in the business is an old one: Mark Twain once remarked that a cat which jumps on a hot stove will never jump on a hot stove again, but it won’t jump on a cold one, either. Forecasting and computer models are not the problem, rather bad theories and analysis, poorly constructed models, and sweeping generalizations are the source of error. Avoiding those will get us much closer to better performance, and a future post will describe how to implement such.
54 Comments on "The Science Of Forecasting Long-term Oil Prices: What Not To Do"
paulo1 on Tue, 2nd Feb 2016 9:13 am
regarding: “and sweeping generalizations are the source of error.”
US is still a net importer of NG, today. Plus, there are supply problms, starting now. Perhaps no one can really understand market forces seeing as how so many of our conclusions are based on emotions and personal convictions? I include myself in this.
The pendulum swings, that’s all I have figured out. It’s nice to be able to duck and dodge when it does.
MaxData21000 on Tue, 2nd Feb 2016 9:31 am
Wow, pure criticism with No Insight.
So, tell us HOW you predict your prices.
Author makes the same mistake he’s complaining about.
Today’s prices should have been obvious.
However, he’s already forgotten.
1) Population growth – long term
2) China and India growth – long term.
3) Saudi current oil flood into the market, for market share. – Short Term?
4) Chinese economic slowdown. – SHORT Term.
5) EU Austerity Failure/Growth Killer/German Robbery of Greek Assets/Austerity. – Hopefully Short Term.
6) Solar and Wind priced now BELOW Carbon. – Short term to Long term.
7) EV’s Killing off the High end Lux Gas Guzzler Market. – Now and Long Term.
8) EV’s moving into the mid and low tier auto market. – Mid term.
MaxData21000 on Tue, 2nd Feb 2016 9:34 am
Hey, Web Master.
You forgot to attribute this article to the author.
Who is this “Genius”???
shortonoil on Tue, 2nd Feb 2016 10:01 am
Most analysts regard petroleum’s effect on the economy as a time invariant function. That is a myth that is easily dismissed by applying the most basic Laws of Physics. As long as they continue to view a variable as a constant; they will continue to get it wrong most of the time.
http://www.thehillsgroup.org/
dave thompson on Tue, 2nd Feb 2016 10:06 am
Forbes article.
MaxData21000 on Tue, 2nd Feb 2016 10:26 am
Too bad, I’m not turning off my adblocker for Forbes.
MaxData21000 on Tue, 2nd Feb 2016 10:28 am
http://finance.yahoo.com/news/exxons-fourth-quarter-profit-tumbles-131148757.html
Exxon suspends CAPEX spending for one quarter.
How you get boom and bust cycles.
rockman on Tue, 2nd Feb 2016 10:52 am
“The Science Of Forecasting Long-term Oil Prices”. Science??? LMFAO
shortonoil on Tue, 2nd Feb 2016 10:57 am
“Exxon suspends CAPEX spending for one quarter.
How you get boom and bust cycles.”
It appears that the price of oil is hovering somewhere near the lifting cost for the average producer. It is the point where producers can generate enough cash flow by maximizing production to continue producing, but also where they are losing money on every barrel produced. Producers must now take greater, and greater loses just to stay in business. Petroleum can no longer command a high enough price to make its production profitable for the average producer. Very little of the world’s remaining reserves can!
http://www.thehillsgroup.org/
geopressure on Tue, 2nd Feb 2016 11:04 am
For those interested in Forecasting Long-term Oil Prices, My advice would be to first ignore any & all data that originates from the EIA or the IEA…
Second, I would keep track of very successful oil traders who have made a name for themselves… Should they all start retiring at the same time, in their late 30’s & early 40’s like what took place in 2014 & 2015, Then you should abandon the idea of Forecasting Long-term Oil Prices all together…
shortonoil on Tue, 2nd Feb 2016 11:13 am
“Then you should abandon the idea of Forecasting Long-term Oil Prices all together… “
Falling oil prices is not the cause of the problems now facing the integrated global production system; it is the result. Petroleum’s ability to power the global economy has declined to a level where growth is no longer possible. Exploding debt formation has resulted as the inescapable consequence. Without an alternative energy source to buttress petroleum’s declining ability to power the economy the world has now entered a deflationary spiral from which it can not escape. Ignoring the root cause of the problem will only exacerbate what is now a dire, and increasingly deteriorating situation.
http://www.zerohedge.com/news/2016-02-02/retail-apocalypse-2016-brings-empty-shelves-and-store-closings-all-across-america
http://www.thehillsgroup.org/depletion2_022.htm
Davy on Tue, 2nd Feb 2016 11:16 am
“My advice would be to first ignore any & all data that originates from the EIA or the IEA…”
ALL?
geopressure on Tue, 2nd Feb 2016 11:18 am
Short: “It appears that the price of oil is hovering somewhere near the lifting cost for the average producer. It is the point where producers can generate enough cash flow by maximizing production to continue producing, but also where they are losing money on every barrel produced. Producers must now take greater, and greater loses just to stay in business. Petroleum can no longer command a high enough price to make its production profitable for the average producer. Very little of the world’s remaining reserves can!”
Dude, that post is like way, way, way out there, even by your standards…
When Operators are loosing money on every BBL, they don’t maximize production rates, as that would also maximizes losses… When you are loosing money a given well, you shut it in…
& this statement: “Producers must now take greater, and greater loses just to stay in business”… If one wishes to stay in business, taking greater & greater losses is not how one is going to fulfill said wish…
—
As long as the price of oil can manage to hold above $17.50, I’m going to keep producing my wells as though nothing has changed… Well, those break-even calculations are only on one field.. Never calculated by overall break-even cost, but I suspect that it is under $10/BBL…
geopressure on Tue, 2nd Feb 2016 11:31 am
Yes, If it’s sourced from the EIA or IEA, the data cannot be trusted… Those organizations were created at the same time that the SPR was approved by congress… The purpose of these organizations is not to publish accurate Energy Data for the public & private sector’s use… The Purpose of these organizations was originally to win the Cold War via smothering the oil prices… Controlling the means of information distribution is the US Government’s primary tool..
The purpose of the SPR was not to store crude oil in case of an emergency… It was have excess capacity… Crude oil volumes that when coordinated with misinformation via the IEA & EIA, could be used to dominate the oil market… Creating fake oil gluts like what we saw in 1986 & 2014/15…
I’m doubtful is just about any number that comes out of these organizations, though it is not always misinformation…from 2005 through March 2014, they appeared to provide honest, factual information, but that is a thing of the past with regards to production rates, demand estimates, & commercial storage/SPR volumes
geopressure on Tue, 2nd Feb 2016 11:33 am
I’m sure the above comment will be deleted…
Want to know why??? Because it’s true, of course…
Davy on Tue, 2nd Feb 2016 11:48 am
Come on Geo most people know EIA and IEA are influenced but their data is still important as a starting point for analysis. Their conclusions are suspect but the data is useful.
geopressure on Tue, 2nd Feb 2016 12:00 pm
their data regarding US Production, Storage Volumes deviated from reality in March of 2014 & it is like WAY off now – like as far from being accurate as absolutely possible with regards to crude oil inventories… The Flat production can’t be correct either… North Dakota is another agency that in telling the truth…
According to Raymond James Financial Services, the IEA’s Global Crude Oil Demand Forecast have been underestimated by an average of 700,000 BOPD over the last 15 years… This is based upon the IEA’s own revisions to the previous year’s demand after the fact…
You would think that they would have learned after 15 years… It’s almost like they do it on purpose…
rockman on Tue, 2nd Feb 2016 12:34 pm
geo – Glad someone else is here to put real numbers out with respect to production cost (as oppossed to drilling/completion costs. I don’t know of a single operator running a negative cash flow on their oil production. But I suspect there are some right at that choke point or slightly negative. As you know given the choice of spending big $’s to plug/abandone wells in addition to losing the lease most companies will take some cash flow loss for a number of months.
BTW I think I have you beat with my 400 bopd well: LOE running about $2/bbl. Would be less than half that if it were flowing and I didn’t have to rent a jet pump to lift it. LOL.
twocats on Tue, 2nd Feb 2016 1:27 pm
Yeah, I don’t have all the numbers in front of me, but I’m assuming most oil majors posted a net 2015 profit and I know for instance Chevron increased production in 2015 by 4%. On the other hand there were at least 42 energy companies that went bankrupt in 2015. I’d be shocked if they didn’t operate at a loss for months and months. And the trend is accelerating upwards. Someone SOMEWHERE is running some negative cash flow or else people wouldn’t have 17.2 billion in debt! And that’s just the 2015 default number!!
marmico on Tue, 2nd Feb 2016 2:01 pm
OK geopressure. Your job is to take down the career data and statisticans at the EIA when it comes to PADD 2, which at Cushing, OK, spot settles New York future contracts.
http://www.eia.gov/todayinenergy/detail.cfm?id=21552
What a maroon.
Apneaman on Tue, 2nd Feb 2016 3:10 pm
The science of torturing numbers to get them to say what you want to hear – AKA Economics.
marmico on Tue, 2nd Feb 2016 3:30 pm
Arithmetic is for primary schoolers. Did you sleep through those lessons?
shortonoil on Tue, 2nd Feb 2016 3:39 pm
“When Operators are loosing money on every BBL, they don’t maximize production rates, as that would also maximizes losses… When you are loosing money a given well, you shut it in…”
The average well that is producing in the US has a depth of over 4,000 ft. If you look at the waste water production figures put out by the EPA, and production figures put out by the EIA you will find that the average well in the US has a water cut of greater than 90%. That means the the average barrel of oi is produced by lifting over 3,380 lbs at least 4000 ft straight up in the air. That is 13.5 million ft*lbs per barrel. When you figure out how to do that for $10 call NASA; they need some help getting to Mars on the cheap.
marmico on Tue, 2nd Feb 2016 4:08 pm
Rockman says he can lift for $2. Maybe you and him should get together to see who is the biggest fuctard.
Apneaman on Tue, 2nd Feb 2016 4:35 pm
Sorry marmi, I forgot how sensitive you get when your religion is criticized.
shortonoil on Tue, 2nd Feb 2016 6:11 pm
“Rockman says he can lift for $2.”
Maybe he has got a shallow well with no water cut. That’s called being a multi millionaire coming out of the gate. For almost everyone else the energy cost (alone) to pump a well would be about $14/ barrel. That is assuming a 65% pump efficiency (very high for a 4000 foot head) and a 35% power plant efficiency. If the power is generated on site you are looking at almost double. GenSets are not very efficient.
geopressure on Tue, 2nd Feb 2016 6:38 pm
Short: “The average well that is producing in the US has a depth of over 4,000 ft. If you look at the waste water production figures put out by the EPA, and production figures put out by the EIA you will find that the average well in the US has a water cut of greater than 90%. That means the the average barrel of oi is produced by lifting over 3,380 lbs at least 4000 ft straight up in the air. That is 13.5 million ft*lbs per barrel. When you figure out how to do that for $10 call NASA; they need some help getting to Mars on the cheap.”
It sounds like you are trying to be an expert on a subject that you really don’t know that much about… Once could argue that you understand just enough to be dangerous…
—
When you dig a hole in the ground the hole starts to fill up with water as soon as you get below the vadose zone… An Oil Well is little more that a very slender hole that happens to have steel casing to prevent cave-ins… Once the casing is perforated (holes are blown though it at the desired depth of fluid entry), formation fluids are free to flow into the well-bore… Those fluids to not fill the casing / tubing up to the top of the perforations, no, they continue flowing up the well-bore… If we assume that the fluids are liquid & they reach the surface with sufficient pressure left to facilitate continuous flow at an economic rate, then BAM! you have a flowing well…
However, if there is NOT enough pressure to push the fluids to the surface, then you will have to incorporate the use of artificial lift techniques… These lifting mechanisms DO NOT lift the crude/water from the depth of the perforations (4,000 ft in your example). All that is required is to lift the produced fluids from the fluid level to the surface (Again, using your example, probably no more than a few hundred feet in a 4,000 foot well)…
So, all of your calculations have been over estimating lifting cost by at least an Order of Magnitude, which kinda helps explain some of your wild claims regarding extravagant energy requirements to produce wells…
—
Usually, you do not have to lift the produced fluids more than a few thousand feet in a 10,000 foot well… There are many different artificial lifting techniques such as: a Rod Pump (most common), Gas-Lift (Lowest maintenance, but require a pipeline nearby to get process started & gassy production in order to be economically viable), Hydraulic Jet Pumps (My favorite, more efficient than a rod pump at the depths that I work with & no downhole moving parts)…
Using a Hydraulic Jet Pump as an example, all you need is a tiny stream of natural gas to accompany your oil production & you can power everything required for a Hydraulic Jet Pump to do your lifting for you… This method requires no extra energy input to lift the produced fluids because the small stream of natural gas would have more than likely been vented or flared & lost to the Operator anyway… In cases like this, which are very common, subsequent to an initial investment, Lifting cost are practically nothing…
—
One thing that confused me when I was first learning this stuff was this: Let’s say you have a 15,000 ft well that is producing tom 13,500 ft & the fluid level comes to 800 ft… The operator chooses a pump (either rod pump or Hydraulic, it makes no difference for this example)… The Pump will probably be set pretty close to 13,500 feet… This makes one think that the pump is working to lift the fluids 13.500 feet, but it is not, as it has the formation pressure working behind it to push the fluids up to 800 feet, all your pump is doing is adding just enough energy to make it the last 800 ft…
The pump is set so deep because if the well produces oil & water, then the oil has a tendency to separate out & float on top of the water inside the casing. Then your pump will be pumping off all the oil, but leaving a tall column of heavy Saltwater in a great length the well. This results in increased down-hole pressures & it can kill the well (until you get a larger pump or reconfigure the well)… So your pump has to be situated so that it will be able to move both oil & water & the best way to do that is to limit the distance between the perforations & the pump…
geopressure on Tue, 2nd Feb 2016 6:40 pm
Rockman does not lift oil for $2/BBL, he is referring to a flowing well…
geopressure on Tue, 2nd Feb 2016 6:43 pm
Nevermind… I should have read further… It is not a flowing well…
See, the Jet Pump that results in $2.00/BBL operating expense is the same thing as the hydraulic pump that I discussed two post up…
Joe D on Tue, 2nd Feb 2016 7:04 pm
“Rockman says he can lift for $2”.
Is Rockman saying he represents the world in regards to production?
shortonoil on Tue, 2nd Feb 2016 7:24 pm
“It sounds like you are trying to be an expert on a subject that you really don’t know that much about… Once could argue that you understand just enough to be dangerous…”
One could argue that you don’t know shit about me, my education, or extractive resource background. If one did they would be correct. But let’s put it this way, I was running a D6 in a hard rock quarry when you were still trying to fiqure out how to pick your nose. If I know just enough to be dangerous, you know enough to be a big mouth idiot.
BW Hill ME, MS, PPM
Northwest Resident on Tue, 2nd Feb 2016 7:27 pm
geopressure — “Order of Magnitude” — sounds like a marmico too-often used phrase.
“when I was first learning this stuff …” I’ve read your post a number of times. You sound like a rank amateur who has “learned this stuff” on your own, and now pretend to be an expert qualified to make authoritative statements. Just an observation.
So, let’s go with your premise — lifting oil out of that slender hole is no problem for (most?) drillers. Water cut — noooo problem, you know, because they really don’t have THAT far to lift it and therefore it doesn’t take anywhere near the energy shortonoil claims to get the water/oil mix out of the hole. That being the case, why is it that so many (most) producers are losing money on every barrel produced?
If you’re going to argue that no, most producers aren’t losing money on every barrel produced, then explain why so many of them are deeply (millions if not billion$) in debt, with no chance to recover. Why are so many on the verge of bankruptcy? Why aren’t they all making a huge profit?
I don’t post here often anymore because I can’t post on sites like these using my work computer/network, but I’ve been reading your posts daily along with all others. Excuse me, but you seem to be just another Nony sockpuppet — one of many — a clear example of a total amateur posing as an expert on something you’re not an expert on at all.
I’ll take Rockman’s word for it that he is able to lift at $2 per barrel, but his operation is small peanuts compared to the major oil extraction efforts going on. What IS crystal clear is that the amount of energy made available to the economy on a broad level is insufficient to produce profits. Otherwise, they would be doing it, wouldn’t they? Let’s hear your “expert” opinion on that — you know, some more of the “stuff” you’ve learned.
shortonoil on Tue, 2nd Feb 2016 7:30 pm
“See, the Jet Pump that results in $2.00/BBL operating expense is the same thing as the hydraulic pump that I discussed two post up…”
You have a Flight Pump that will deliver fluid against a 4000 foot head for $2 per barrel? What planet did you come from. I hope you didn’t have to walk too far after your space ship crashed. You are out of your head.
Northwest Resident on Tue, 2nd Feb 2016 7:35 pm
shortonoil — You’ve got a gang of moronic trolls taking aim at you, no doubt because your message is so true and so devastating to the “all is well” fantasy that TPTB are pumping out 24/7/365. That, or there is just one sad lonely pathetic individual out there who is deeply offended by the truth you bring, and that sad pathetic individual invents multiple sock puppets to nip at your heels. Whatever. I’m glad you keep on posting despite idiots like geopressure, Nony, marmico and the rest of the sorry gang. Keep on truckin’!
geopressure on Tue, 2nd Feb 2016 7:45 pm
Short, there is NOT 4000 feet of Head… Because whatever the the fluid level is in the well – say 400 feet from the surface, then the reservoir is supplying enough energy to balance out 3600 feet of Head… The Pump only has to overcome 400 feet of head…
That’s why all your calculations are energy claims seem so outlandish, your energy requirements for lifting cost have been an order of magnitude too high…
geopressure on Tue, 2nd Feb 2016 7:49 pm
Order of Magnitude:
Orders of magnitude are written in powers of 10. For example, the order of magnitude of 1500 is 3, since 1500 may be written as 1.5 × 103.
Northwest Resident on Tue, 2nd Feb 2016 7:53 pm
sockpuppet — an online identity used for purposes of deception. The term, a reference to the manipulation of a simple hand puppet made from a sock, originally referred to a false identity assumed by a member of an Internet community who spoke to, or about, themselves while pretending to be another person. Sockpuppets are generally deployed by individuals who wish to bolster a point of view that is lacking in merit.
Nony, is that you? Or is it your alter ego, marmico?
geopressure on Tue, 2nd Feb 2016 8:34 pm
Drawing upon the following: (1) my limited knowledge of psychology coupled with your introduction of the term “Sockpuppet”, (2) your claim of not being able to post here here very often, & (3) your sentence structure, word choice, & frequent use of hyphens
I would be more than willing to bet that it is ‘Northwest Resident’ who is a sockpuppet… Though you do not seem to be bolstering a point of view that has been pressed by your other alter ego, but a sockpuppet none-the-less… Now, what could I wager??? Hmmm, how about cash = to the daily production of a 400 BOPD Hydraulic Well…
shallow sand on Tue, 2nd Feb 2016 9:41 pm
We are losing money on an operating basis at current prices, companywide, as are many other stripper well operators in the United States. We have operations in one field, almost 90% from one formation, yet have lease LOE’s ranging from $5 to $65. LOE’s vary widely from lease to lease.
Rockman is referring to his company’s best well having lifting costs of $2 per barrel. I will bet the companywide average LOE for all oil wells operated by Rockman’s company is significantly higher than $2 per barrel. There are very few 400 barrel per day low decline conventional wells in USA.
Take a look at US public oil producer’s LOE per BOE, all publish them in SEC reports and earnings presentations. When doing so, keep in mind natural gas is usually cheaper to produce on a BOE basis than oil. Therefore, pay closest attention to more oil weighted companies if you want to get a feel for US oil LOE.
In particular, look at LOE for US MLP’s, as they tend to operate mostly conventional and conventional stripper oil production. Those are reported in BOE, and you will find oil weighted like BBEP are near $20 per BOE. Then remember that much CAPEX is necessary just to keep the lease running and is not included in LOE, it is in addition to.
Also, if you want to see specific lease LOE’s, look at lease interests for sale on Energy net.com, or other public auction or broker websites. Will give you a very good feel for operating costs.
Also, keep in mind most US E&P have fired many employees, and/or cut pay and benefits to try to survive. Same with service companies. So LOE per BOE is down from 2013 to 2015 and will likely be lower again in 2016.
Also, keep in mind severance taxes reduce income and are not included in LOE. For example, in ND, 10% comes off the gross income for most oil wells.
For those who say the current price ($20s) should be long term price, just reverting to the mean, compare 1990s public company LOE’s to the same companies’ LOE’s in 2015. You will find in 2015 they are 2-4 times what they were in 1990s. So US production is very challenged at current oil prices, unless LOE’s can be hammered back to 1990s. Employees will need to be paid 1990s wages, for starters, to achieve this.
Keep in mind Chevron lost around $2 billion on North American upstream in Q4. ExxonMobil lost over $500 million in Q4 2015 on North American upstream. WTI averaged about $40 in Q4. US will have even more massive losses in Q1.
Finally, keep in mind the great disparity in price paid at the wellhead in the US. FEW are paid equal, or greater than WTI. Again, public companies’ report discount to WTI in SEC reports and earnings releases. Also, look at crude bulletins published online by companies like Plains All-American, Flint Hills Resources, etc. Different prices for difference in crude quality and location.
Always best to do your homework, so you can deal in facts. Take some time to read up if you are interested.
shallow sand on Tue, 2nd Feb 2016 9:57 pm
I might add, on a lease by lease or well by well basis, LOE is very dependent on many factors. What type of artificial lift is being utilized? If rod pump, is pumpjack running on produced gas? If so, cost is very low. If on electric, is the service single phase or three phase? How much saltwater is being produced, and at what pressure is it being disposed of in the SWD well? How big of a unit do we need, how many strokes per minute are we running? Or is there no SWD and its being truck hauled? Is the lease a water flood? If so, what is the cost to produce the make up water? CO2 flood? How much is the cost of the CO2 source? What is the cost of down hole chemicals? Are we commingling incompatible waters from different zones? If so, it will be high ($ for chemicals).
I have probably listed less than 10% of matters affecting onshore oil LOE. Broad brush is tough to apply, and believe me, I have tried.
Northwest Resident on Tue, 2nd Feb 2016 10:08 pm
geopressure — Listen up to what shallow sand has to say. There’s a real expert talking.
tita on Wed, 3rd Feb 2016 4:18 am
The “science” of predicting oil prices… Price depends mainly on the irrational behaviour of humans. No science here, only instincts. Of course, some fundamentals (data from IEA for example, which may not be accurate, but is far better than anything else) impact the price. But it is usually discarded, and beliefs in various future events guide the traders. Because it is quite impossible to know the production and consumption numbers beyond a year. There is too many factors involved, and many irrational.
shortonoil on Wed, 3rd Feb 2016 11:40 am
“Short, there is NOT 4000 feet of Head… Because whatever the the fluid level is in the well – say 400 feet from the surface, then the reservoir is supplying enough energy to balance out 3600 feet of Head… The Pump only has to overcome 400 feet of head…
That’s why all your calculations are energy claims seem so outlandish, your energy requirements for lifting cost have been an order of magnitude too high…”
Most of the oil barring strata in the US, and around the world was found at about the 4000 foot level. They drill injector wells to pressurize those deposits so that after the gas caps decline oil can still be extracted. They are either pumping down against a 4000 foot head, or up against a 4000 foot head. Either way gravity assures that you have got a 4000 foot head to pump against. Once the gas cap is gone (which for most fields is within months, if not weeks) there is a 4000 foot differential that must be overcome to get any oil out of the ground. Of course, most modern wells begin water injection immediately, and that helps to preserve the gas cap which assists with delivery. It is a small assistance but is not a replacement for the driving force supplied by the fully pressurized gas cap. There are no little elves down there carrying oil up to the 400 foot level.
If you took a course in any engineering curriculum get your money back.
shallow sand on Wed, 3rd Feb 2016 2:14 pm
Here are recently reported LOE for five publicly traded companies that are oil weighted:
Oasis Petroleum $7.85 per BOE.
Whiting Petroleum $9.61 per BOE.
California Resources Corporation $16.91 per BOE.
Mid-Con Energy Partners $19.60 per BOE.
Breitburn Energy partners $19.83 per BOE.
These companies produce more than 400,000 barrels of oil per day combined onshore lower 48 USA.
Oasis and Whiting have a higher percentage of new well than the others. New wells typically have lower LOE.
I have reviewed numerous lease operating statements for shale oil wells. For wells five years and older, I find typical LOE per BOE range from $15-$55, but most common is in the $13-25 per BOE range.
shallow sand on Wed, 3rd Feb 2016 2:16 pm
Typo, should read $5-55.
shallow sand on Wed, 3rd Feb 2016 2:22 pm
For example, Emerald Oil is a small LTO operator with few mew wells, LOE reported at $15.68 per BOE.
When one figures in severance taxes of 6-10%, and general and administrative expenses of $2-$6 per BOE, one can see there is little net income, and therefore little ability to pay down debt or pay for new oil wells.
shallow sand on Wed, 3rd Feb 2016 2:22 pm
New
shortonoil on Wed, 3rd Feb 2016 3:32 pm
“Here are recently reported LOE for five publicly traded companies that are oil weighted:”
That is an average of $14.70. The sample size is only about 1/2 of 1 % of all US production but it probably gives at least a lower boundary level to compare to. I still strongly suspect that the low $30’s we have seen oil bouncing around recently is the minimum price that the average producer can accept and still maintain a positive cash flow. There are some theoretical considerations that support that view without being conclusive. If oil dove into the low $20’s it seems likely we would see an avalanche of bankruptcies from conventional crude producers. I don’t expect that to happen for a few more years.
shortonoil on Wed, 3rd Feb 2016 3:43 pm
“mew”
Does that mean the cat’s out of the bag?
geopressure on Wed, 3rd Feb 2016 7:37 pm
Short: “If you took a course in any engineering curriculum get your money back.”
I appreciate the advice, but I already have a degree in Chemical Engineering…
If you threw a pump down to the bottom of a 1,000 ft deep lake, with a standpipe that stretched all the way to the surface… Would that pump have to fight 1,000 ft of head pressure??? NO, it would have zero head pressure…
This is why a pump in a 4,000 ft well will never have to overcome anywhere near 4,000 ft of head pressure…