PeakOil is You
Shale Oil: Running to Stay In Place
Re: Shale Oil: Running to Stay In Place
by rockdoc123 » Mon 01 Oct 2012, 23:35:55
$this->bbcode_second_pass_quote('', 'e')ad the article mentioned. Read all the posts here...rocdoc, I think you are missing the gist of what Rune was driving at. As we have a few years of data now on actual production, things just dont seem quite as rosy as the oilco's/investment pumpers seem to have touted a few years back. Sounds kind of familiar. I think his main point is..sure you guys can make money..provide a few jobs..but how long does this go on? At what point do we start realizing that each time we do one of these booms..Bakken, Eagle Ford, ANWR, offshore..etc......that we move further and further into the pardigm he is showing us. That paradigm is an acknowledgement that no matter how many resources we throw at oil production..manpower, capital, equipment, rigs, etc.....we seem to be running into the wall quicker each time.
The issue is that he seems to be portraying this as being something that will fail because of the steep declines, the inference being the resources aren't there. What I am saying is no it will not fail. There is no argument amongst anyone who works in the industry that the resources are there, some are more expensive to get out, others have lower pressure and hence lower rates, others have a mixture of liquids, not all of which are sold at the same price. To get those resources you simply need to drill wells and frac. The industry understands the decline rates...that is how the EUR predictions are made (type curves) and most of what I have seen published by oil companies who are at risk of heavy fines from the SEC for "gilding the lilly" show the type curves are not a bad match for the "average" well. The actual peak rate from these shales will be determined by speed of drilling and total activity. At some point there will be a sawoff and you will see relatively stable production for a number of years after which it will decline. Remember that once you have thousands of wells producing at tens of barrels a day with limited decline (the nature of late life hyperbolic decline) this can still be a very substantial total production. No one has argued this isn't a non-renewable resource but the resource level is very high and if you can manage costs and oil prices stay high it can be extracted profitably. As with conventional peak economics comes into play and although it doesn't control the total supply over time it does control the rate of extraction. It isn't a panacea but as I have said on numerous occasions it can give some breathing room for partial conversion to other sources of energy.
As to investment pumping from what I've seen this is not the oil companies, certainly not the publicly traded ones doing this. Most of the over inflated numbers I have seen come from government bodies, think tanks or the free press who misinterpret what they have read. The SEC rules are quite strict around this sort of thing and the reserve reporting rules govern precisely what can and cannot be said. When a company says they tested X number of wells at initial rates of say 1500 barrels a day, that is exactly what it means. It says nothing as to what the production is in say 5 months time but if you are in the industry and understand the decline curves for that particular shale you can make a pretty good guesstimate of what the EUR for that well will be. There seems to be a very incorrect perception amongst many here that oil companies can behave like mining companies and lie about their reserves/production rates etc. In my experience this is almost impossible given the controls that have come into place since Sorbane Oxley regs and the new reserves reporting requirements of the SEC.
-
rockdoc123 - Expert
- Posts: 7685
- Joined: Mon 16 May 2005, 03:00:00
Re: Shale Oil: Running to Stay In Place
by ian807 » Tue 02 Oct 2012, 11:56:43
$this->bbcode_second_pass_quote('rockdoc123', '
')The issue is that he seems to be portraying this as being something that will fail because of the steep declines, the inference being the resources aren't there. What I am saying is no it will not fail. There is no argument amongst anyone who works in the industry that the resources are there, some are more expensive to get out, others have lower pressure and hence lower rates, others have a mixture of liquids, not all of which are sold at the same price.
')The issue is that he seems to be portraying this as being something that will fail because of the steep declines, the inference being the resources aren't there. What I am saying is no it will not fail. There is no argument amongst anyone who works in the industry that the resources are there, some are more expensive to get out, others have lower pressure and hence lower rates, others have a mixture of liquids, not all of which are sold at the same price.
I agree with you about the resource picture. My frustration in trying to get a rational analysis of where we are is the lack of credible net energy numbers. I think that we can build up a fairly accurate picture of hydrocarbon energy depletion with a year on year analysis of production quantity times net energy return on the world's oil supply (Ditto for coal, NG and nuclear energy). Finding those numbers is not easy. The closest I have come is here: http://resourceinsights.blogspot.com/20 ... cliff.html, but I have no way of either verifying the numbers or attaching them to a time axis in a meaningful way. Are you aware of any reliable sources for either?
-
ian807 - Tar Sands
- Posts: 899
- Joined: Mon 03 Nov 2008, 04:00:00
Re: Shale Oil: Running to Stay In Place
by Pops » Tue 02 Oct 2012, 14:22:24
Come on doc, as I pointed out in another thread, the energy cos not only "guild the lilly" but do it regularly and the SEC knows it.
Here is the story in a nutshell:
$this->bbcode_second_pass_quote('', 'C')hesapeake's rationale is clearly spelled out in company filings with the U.S. Securities and Exchange Commission.
"We believed that the winner of these land grabs would enjoy competitive advantages for decades to come as other companies would be locked out of the best new unconventional resource plays in the U.S.," the company wrote in its 2012 filing.
Here is the story in a nutshell:
$this->bbcode_second_pass_quote('', 'C')hesapeake's rationale is clearly spelled out in company filings with the U.S. Securities and Exchange Commission.
"We believed that the winner of these land grabs would enjoy competitive advantages for decades to come as other companies would be locked out of the best new unconventional resource plays in the U.S.," the company wrote in its 2012 filing.
The reason for the glut in gas and the current "overproduction" of oil is drilling is required to prove a lease. Chesapeake is making a land grab and flipping leases to the tune of $14B this year alone.
Sounds like a bubble to me.
http://openchannel.nbcnews.com/_news/20 ... picks=true
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
-
Pops - Elite
- Posts: 19746
- Joined: Sat 03 Apr 2004, 04:00:00
- Location: QuikSac for a 6-Pac
Re: Shale Oil: Running to Stay In Place
by rockdoc123 » Tue 02 Oct 2012, 18:55:42
$this->bbcode_second_pass_quote('', 'C')ome on doc, as I pointed out in another thread, the energy cos not only "guild the lilly" but do it regularly and the SEC knows it
I think having made a statement like that you need to show some proof. And please when you show what you think is proof make sure it is post SOX (2002) where most of the strict requirements came into place. I can tell you that I have spent time not too long ago as a companies internal qualified reserve auditor. As part of that job I was responsible for signing off what was submitted to the SEC and the Board of Directors as well as what was released in press releases. This was not trivial business and I can assure you I spent many, many hours with lawyers making sure any statement made could be backed up by external audit or was qualified in some manner. The external auditors are not corruptible simply because they are now legally responsible for any audit they sign off on. Somehow you think the SEC takes a back seat with respect to oil companies. Nothing could be further from the truth, stop trade orders are issued every day, phone calls made for clarification every day. They keep a pretty decent handle on what is happening.
You use Cheseapeake as an example of someone who somehow has lied about something but they every year have around 80% of their total reserves audited which is beyond the yearly requirements of the SEC and is a huge undertaking given the actual size of their reserves and the number of projects they operate (for clarity that 20% not audited has to be audited the following year). They took a large reserve write down in the second quarter of this year because of the drop in gas prices which made a lot of the dry gas reserves uneconomic until such time as gas in storage drops and prices rise. This was done according to SEC regulations that require the use of an average price for the year on the commodity in question and would have been required by their independent reserve auditors. Of course all shale gas producers who had large amounts of dry gas took similar write downs. This is not dissimilar to what happened to heavy oil producers a few years ago when the heavy discount increased and overall oil prices dropped rendering much of their reserves temporarily uneconomic. Of course when oil prices rose again these reserves were added back into their inventory and the same will happen for the shale gas players.
With respect to their asset sales I believe your numbers are not correct. Their intention is to sell $14 billion in assets but to date they have only achieved around $5 billion. Irrespective this is not simply a land flip as you suggest. Instead CHK has added value to those lands by drilling either on the land itself and/or on adjacent licenses. It isn’t like they are picking up land, sitting around and doing nothing and then selling it to speculators at a profit. Indeed the recent $6 billion of assets they have announced they will be selling are producing assets. The buyers of those assets aren’t dopes…they will have evaluated them fully and have some idea of how they can increase production or otherwise add value. In the real estate business this would be like buying land, tilling it and building a nice home on it before you decide to sell. The buyer may think he can get more value than you did from perhaps changing crops, increasing yield, expanding the home or sub-dividing.
I also think you need to be cautious when you apply the concept of economic bubble to oil and gas. Yes too much drilling for dry gas has created a temporary glut, which results in a protracted period where intrinsic value has suddenly dropped. But the economic value was there when all of the leases were taken up (if you think companies were drilling and producing at a loss I suggest you go and read some year end filings or 10 Ks) and anyone who believes in the concept of peak oil/gas will argue that value will come back simply because there is nothing to replace it. Oil and gas of course is affected by the overall economy so it is subject to other bubbles but to me the thought of oil and gas being in its own bubble requires one to believe that the resource is not limited. Of course everyone has their own understanding of the concept
-
rockdoc123 - Expert
- Posts: 7685
- Joined: Mon 16 May 2005, 03:00:00
