[ROCKMAN]

Pops - "Am I wrong thinking this is the beginning of a sea change in how the world looks at shale". I'm not trying to flaunt the "I'm the old experienced geologist" mantra but it will sound like it. This isn't the answer to your question about the world view of shale resources...it's my personal view. Am I shocked and alarmed that the recovery has been so drastically reduced? Not in the least because I put no value on the original estimate. And I put no more value on the new number. It may one day proved to be that large...or even smaller. Don't know which it will be and really don't care.

It's not that the future recovery of X bbls isn't important (and obviously not nearly as important as the rate we'll produce the reserves) because it is critical. What isn't important in my very biased opinion is what anyone estimates those metrics to be. You know I've been hunting for oil/NG for almost 4 decades. But the vast majority of the projects I evaluated were generated by a coworker or a third party. And in probably 95%+ of the SUCCESSFUL wells drilled fewer reserves were developed than originally estimated. And those estimates were made with great more details and data base than those MS estimates...past and present. And then there's the reality that many of those prospects were dry holes with the reserve estimate reduced 100%.

If you've noticed I seldom argue about anyone's numbers because there' nothing to say except that there's rarely sufficient evidence to make even a foolish WAG let alone present any estimate as credible. There maybe be 600 million bbls of oil to recover from the MS with current tech and prices. But so what if that number is correct? It has no bearing on the future production rate from the MS and what impact that might or might no have on the US economy. But remember where my sh*ty attitude was first inspired: 39 years ago my first project at Mobil Oil was drilling the development wells in a new offshore GOM field. Those reserve estimates were based on thousands of miles of state of the art seismic that was analyzed by a very experienced team for three years and the information confirmed by two exploration wells drilled in the field. The estimate: 25 million bbls of oil and 120 bcf of NG.

And my results? Drilling as per the exploration geologists' maps my first 5 wells were drill holes that reduced the estimate from 25 million to 1 million bbls and from 125 bcf to 25 bcf. This is probably the worst fail in my four decades but far from being the only one. Just last weekend I perforated a thin NG reservoir in one of my La wells that had depleted the original completion. I told my boss why I thought it was a waste of money. But the partners in the well (most of whom have had little oil patch experience) kept aggregating him about it so he gave in. So last Saturday I shot the well and started flowing the NG into the sales line. And by Thursday the well stopped flowing because it was now depleted. Only cost $40,000 to shoot it so it didn't break the bank. But I could have put on one heck of a crawfish boil for that money. And no...I didn't get a pat on the back for making that correct call. In situations like that you just keep your mouth shut. "I told you so's" don't make the boss any happier when he's already pissed off. LOL. Sorta like p*ssy farts...some things are just not meant to be discussed.

[Graeme]

Write-down of two-thirds of US shale oil explodes fracking myth

$this->bbcode_second_pass_quote('', 'N')ext month, the US Energy Information Administration (EIA) will publish a new estimate of US shale deposits set to deal a death-blow to industry hype about a new golden era of US energy independence by fracking unconventional oil and gas.

EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.

The Monterey formation, previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times larger than the Eagle Ford shale in South Texas, was slated to add up to 2.8 million jobs by 2020 and boost government tax revenues by $24.6 billion a year.

[Mesuge]

$this->bbcode_second_pass_quote('Pops', 'J')ust noticed this, an example of unfortunate press timing

$this->bbcode_second_pass_quote('', '[')url=http://www.bloomberg.com/news/2014-05-19/europe-has-28-year-shale-gas-rebuff-to-russia-chart-of-the-day.html]Europe Has 28-Year Shale Gas Rebuff to Russia: Chart of the Day[/url]
By Ladka Bauerova and Radoslav Tomek May 19, 2014 5:00 PM CT
.

[ROCKMAN]

M - But poorly designed propaganda in the eyes of anyone with a basic understanding. Unfortunately that leaves a very large portion of the population vulnerable. From this garbage can:

"The European Union has enough gas trapped in shale to free the bloc from reliance on Russian energy supplies for about 28 years if only the constituent countries are prepared to extract it." First, they refer to the volumes as "reserve" which they aren't even by the most liberal definition. They even have difficulty passing the numbers off as "resources" given how little testing has been done. And then there's the silly 28 year metric. Regardless how much NG reserves may be producible from European shales there's no reason to expect they would be able to be delivered at the rate of EU consumption for a 28 year continuous period. Even with the "great US shale gas" we don't deliver nearly enough from the shales to meet our domestic demand. In fact our domestic and unconventional NG production combined can satisfy our demand for X years. In reality it can't fully meet our demand for 24 hours: the US is still a net NG and LNG importer.

[Newfie]

Probably a stupid question but......how do you guys think this will play out in the markets? I think we hit 1900 today. Still gonna rise on the hopium bubble or is this gonna interject some reality?

[Mesuge]

In a way you have to give them credit for duct taping the system for so long. The situation is quite ripe for massive 30-60% (or even worse) shakeout, but it could be postponed yet again for few more years. The problem now is this could be the "ultimate reset" so shorting stocks/housing bubble ala 2008 won't be honored later, brokerage houses going belly up, perhaps only minor section of the industrial stocks surviving and only in certificate form in direct ownership at that.

http://www.zerohedge.com/news/2014-05-2 ... ick?page=2

Anyway, I'd look for the broader realization of the shale scam going mainstream as possible trigger but that could be dragged onto 2015-2018, perhaps earlier 2015-16 for the effect of market wolfs sniffing the blood in advance, who knows, I'd bet the people at various systemic points are indeed terrified of the future anyway since 2000s, there is no way how to land this thing without major systemic dislocation. Boy, it will be epic: pension and SWF funds, bank accounts, brokerage portfolios, int. system for letters of credit, .. all wiped out..

Now the powerfull (mainly the energy owners and stuff producers) will attempt to pick it up from the floor, and immediately patch up some basic new system of int. trade but it will be definately different much less complex world order. So I do subscribe to the Seneca Cliff thing, postponment after postponment equals pressure buildup to the maximum and beyond and "one day" a hard reset.

[Pops]

$this->bbcode_second_pass_quote('ROCKMAN', 'I') put no value on the original estimate. .. It has no bearing on the future production rate from the MS and what impact that might or might no have on the US economy.

[ROCKMAN]

Newbie - How will the stock markets react to reality? THANKS!!!! I love starting off the day with a good laugh. BTW just started watching "Republic of Doyle" and my wife has developed a hankering to visit Newfiland. Dog knows why. LOL.

Pops - Good points. I think it boils down to just one simple fact for these propagandists. Like I was just teasing our buddy Newbie. They can focus on the reality of the current situation (ignoring all the negatives) or focus on future (though unprovable) good times ahead. About the only time they refer to the current situation is by pointing out the increase in US and global oil production. But they also typically avoid mentioning the high oil prices that brought about this increase and the damage it has unlisted on the economies of the vast majority on countries.

[Newfie]

No TV so I've never seen the Republic.

But I've see plenty of oil support industry in St. John's and what tar sand remittances can do for a local economy where their only renewable resource (cod) was exploited beyond renewable.

I get that the markets work on fantasy, which is why I prefaced the question with "Maybe dumb".

So let me ask the question a different way. How will YOU be changing your investments based upon this news?

But then I need to ask yet another question.....how much faith to you out into the announcement? Since I'm a Newbie, you sage old farts should have a better idea on what is really there and not be taken in by the hype.

Or this whole discussion meaningless in the physical world because there is no science to it at all, it is all just hype, .13.8billion and 600million?

Does anyone here really have a clue? Other than the only thing we know is we are being lied to?

And if THAT is the case, well then the markets are actually doing a good job of reacting to the only thing they can, human emotion.

[ROCKMAN]

Newfie newbie - "...the markets are actually doing a good job of reacting to the only thing they can, human emotion." IMHO that's exactly the situation. Just look at the MS situation alone. How is making investments to day based upon big increases in MS oil production that would be many years away even if there billions of bbls of recoverable oil to be had? IOW who is buying stock on that hype and planning to hold it for the next 5+ years? I would guess almost no one. All the oil hype (positive and negative) only effects short term positions which often have no relationship to the long term prospects IMHO.

And hell no...I don't hold any positions in oil stocks. That boat sailed one time ago.

[Pops]

In the real world of actual markets the results will be 2-fold I'd guess
Increasing the doubt that oil from tight shale is unlimited
increasing the PR pushing tight shale as unlimited

Maybe 3, if you include partisanship, which, depending who makes the rules will affect everything.

It is a strangely partisan thing in the US, environmentalists see unlimited oil as environmentally damaging (see Keystone XL protests) and believe some concoction of renewables will save the world. Socialists see big oil (think Kocks) as unmitigated evil and want them hurt no matter what, (see Keystone XL protests) even though oil is the source of all wealth that they want redistributed.

The right like profit.


So as it turns in my mind after a few days, I think things won't really change in the least.
.

[westexas]

Re: Occidental’s plan to spinoff California operations (interesting statistic about Venoco’s results).

Occidental Plan to Split off California Seen as Early (October, 2013)
http://www.bloomberg.com/news/2013-10-28/occidental-plan-to-split-off-california-seen-as-early.html

$this->bbcode_second_pass_quote('', 'C')hief Executive Officer Stephen Chazen, who began talking to investors and analysts in April about the possibility of turning Occidental’s California operations into a stand-alone company, is facing skepticism as the promise of tapping one of the biggest U.S. oil reservoirs has yet to be realized. While Chazen hasn’t made any specific proposal public, shareholders including Cambiar Investors LLC and Frost Investment Advisors LLC are questioning whether more patience is needed to realize the best value from a spinoff or initial public offering. . . .

Venoco Inc., which has 46,000 net acres in the Monterey, drilled 29 wells in the formation from 2010 to 2012 and as of June hadn’t seen any production, according to a company filing. It’s now reduced spending in the region. . . .

Since 2010, Occidental hasn’t been able to increase production there beyond an average 1 percent in any three-month period — far below the expectations of analysts such as Bank of America Corp.’s Doug Leggate, who said in 2011 that the company could be worth $200 a share once it realized all the benefits of its California assets.

A slow permitting process and high costs have held Occidental back from boosting production more rapidly, CEO Chazen has said. The company’s business in the state will generate free cash flow of $1 billion this year based on a $1.5 billion capital program. Occidental’s California operations can raise output by 5 to 8 percent a year while generating a rate of return higher than 20 percent, according to a company presentation in July.

[ROCKMAN]

In case some folks missed the westexas subtle point: Venoco is an independent energy company engaged in the acquisition, exploitation and development of oil and natural gas properties primarily in California. What I find a bit amusing is the first thing you see when you open their web site: "Venoco is concerned about the environment. We operate in areas with extensive environmental regulations such as in and around the Santa Barbara Channel as well as prime agricultural areas such as the Sacramento Basin."

So: Venoco drilled 29 wells in the Monterey Shale and as of June hadn’t seen any production. So you might wonder why a company would keep drilling after 10 or so failures. Easy answer: they are perhaps making an adequate living doing so. And there's nothing illegal about. A management team drilling wells (successful or not) for investors has the right to be compensated as well as get a piece of pie from successes that the investors paid 100% to drill. These are called "oil and NG promoters" and do their best in times/areas of high hype. Back in the 70's boom I watched one such promoter drill 18 very expensive dry holes in a row on behalf of a NG pipeline company (common easy meat in those days). Did not make a smile commercial completion. And how did the promoter do: the senior hands retired millionaires when they eventually rolled the company up.

I don't know if Venoco falls into that category but you know what they say when it walks, smells and sounds like a duck. The initial hype on the MS was the perfect hunting ground for a promoter.

[ROCKMAN]

Pstarr - I'm mentioned before in the oil patch web have a short hand term we use all the time for such projects allowing us to kip the details. We call them "money disposal wells". Similar to how we view salt water disposal wells. So perhaps some of those algae pond projects might be referred to as "money sinkholes"? Or maybe MWP's...Monetary Waste Pits". Hmm...just doesn't roll off the tongue.

I still recall bank in the 70's boom investors mailing checks off to buy a piece of a drilling project they found in the classified section of the WSJ. And then wondering why they didn't start getting revenue checks back in the mail. And the wondering why the telephone number of operator was no longer in service. As been said before: the most important element in a con is greed...of the mark.

[Newfie]

Unfortunately I think that works all too well for the greenies as well. In that case the "greed" is the personal desire to do good, or accumulate brownie points, whatever.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'S')o: Venoco drilled 29 wells in the Monterey Shale and as of June hadn’t seen any production. So you might wonder why a company would keep drilling after 10 or so failures. Easy answer: they are perhaps making an adequate living doing so. And there's nothing illegal about. A management team drilling wells (successful or not) for investors has the right to be compensated as well as get a piece of pie from successes that the investors paid 100% to drill. These are called "oil and NG promoters" and do their best in times/areas of high hype. Back in the 70's boom I watched one such promoter drill 18 very expensive dry holes in a row on behalf of a NG pipeline company (common easy meat in those days). Did not make a smile commercial completion. And how did the promoter do: the senior hands retired millionaires when they eventually rolled the company up.

[ROCKMAN]

doc - my company has operated $400 million of drilling projects in the last 4 years and 95% of them were acquired from promoters. During that time I reviewed way more than 100 promoted deals. Our entire biz plan was based on doing such as opposed to generating prospects...didn't have time to wait. And every prospect had multiple partners who paid a promote.

Our biggest problem, when NG prices fell, was prospect flow from third parties. With the exception of my horizontal secondary recovery project everything we're drilling now was generated by a third we' re paying a promote to for participation rights. And we have a small partner on my project who is paying for a promoted interest.

And all of the dozens of Eagle Ford Shale wells I know something about have promoted partners. Chesapeake was one of the biggest promotors in the play. For a while lots of folks paying ridiculous promotes in order to share their "glory". LOL.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'A')nd all of the dozens of Eagle Ford Shale wells I know something about have promoted partners. Chesapeake was one of the biggest promotors in the play. For a while lots of folks paying ridiculous promotes in order to share their "glory". LO