[Oily Stuff]

Thank you, P. I bet you have some terrific stories yourself. Alaska is a delightful place, all of it. I was on a blowout in the Kenai (?) once, the Marathon one, not the UniCal one; that was not so delightful.

Rock, I don't know you can make scale changes on SP's and know where to pick SWC's at 02:00 if you are not sweating coffee out of all your skin pores. Its almost not...normal.

[ralfy]

$this->bbcode_second_pass_quote('Econ101', 'O')il extraction is very cheap. Around $2/brl in the Middle East right now. Very cheap in North Dakota as well. As you pump more oil the cost of each barrel goes down. After costs are recovered, current models are 3 yr to recover drilling costs and 15 yr production horizon, the stuff is almost free.

Our energy systems are in great shape now considering interest rates and the huge inventories ready for development. 10s of billions are being invested in production and infrastructure as we speak. The shale gas boom snaped back because of over supply causing low prices. They were also drilling on borrowed money to lock up leases so they would control future supplies, the only way they could hope to get back to profitibility. Some didnt make it. The supplies are still there.

Energy equivilancy is a legitimate concept because it is fungable. It didnt make the obscene quantities of natural gas that were discovered any less. Oil is experiencing the same phenomena. Ever see the straight up production charts for North Dakota? Close to a million brls/day now. Thats today and every day and its rising fast.

The companies that fell in the gas boom were not positioned correctly for the inevitable consolidation. Companies coming and going does not imply shortages, it's simply the way business works. Some of the faltering companies may have been poorly managed and/or undercapitalized.

That was a vicious drilling boom complicated by expiring leases and surplus supply coupled with full storage, inadequate infrastructure and no place to export The gas is still there in copious quantities but it will be brought to market in quanties in-line with aggregate demand. Price will be held in check to normal profit margins because of the vast, easily delivered supplies.

The folks that didint see the NG snap coming were not positioned correctly. There may be a price collapse in oil as well. Why? Obscene oil supplies are now being developed that are shaking up world markets and changing Americas import/export equation to the benefit of all. That is a one reason why the dollar is strengthing.

Right now, price and production in North Dakota are in sink. One is dependent on the other but production is no longer driven by price. Production is pushing price down. Tax impacts have as much or more influence on production as price, but of course that is not always true, just as its not always true price is the only consideration.

[ROCKMAN]

Ok guys...we need to keep the terminology clear. Not that econ needs me to defend his positions (as odd as some seem to me at times) but he's correct as far as how cheap it can be to "produce" oil. Notice I said produce...not develop. Easy to get the two concepts mixed if we’re not careful with the wording. When I'm producing an oil well there are expenses. We call it "LOE"...Lease Operating Expense. And LOE has nothing to do with what it costs to drill that well or even if the effort was profitable. I can run an LOE of a $1 or $2 per bbl and still lose my butt if it costs me $140/bbl to get that well drilled and completed. It worth noting that almost every well drilled into an unconventional reservoir will produce a positive cash flow…sometimes an exceptionally fat one even if the well never recovers the investment. And many of these wells don't make an acceptable profit but they still add to our production base.

[Matt979]

First I have to commend econ to debate on a peak oil forum, all different kind of views are needed and appreciated. That he is way to optimistic is refreshing, when I was young and less cynical I had the same kind of optimism. And sometimes I would like to be that optimistic it might have given me a better return but also large hits when that optimism turns to despair and if your still an optimist you loose your shirt.

When it comes to complaining that I got a tax credit for a volt. I just follow the tax code, like oil drillers get tax write-offs, corporations get write-offs, you get deductions and credits. I would like all those credit go away to make it simpler for all, but I would be a dumb son of a gun if I like most people don't use the tax code to my advantage, that's capitalism as well as any, let me know when all the other credits in the tax code for all different things like bio-fuel production from corn or oil exploration and free supply route protection by the US military for oil are gone, all paid for by my taxes.

Trying to explain the current issue with our current system of cheap credit is fairly simple. We have very low interest rates right now so its pays a lot to borrow to invest in all different kind of things, and oil in Texas and North Dakota is very profitable with these OIL prices so lots and lots of capital is going that way. I believe as any other time the FED has lowered rates that its to tempting to keep your loans in short duration due to the savings, but once we get higher rates either due to FEDs controlled tightening or forced tightening due to inflation, the rates will start to rise and all the loans would have to be re-financed with higher cost and these are both direct loans and loans taken by other to investors in oil shale related adventures, at the same time OIL prices might fall, so the companies using this scheme will be forced to slow capital expenditure and with a situation that we have in Bakken with high decline rates the result will be slowing growth and reserves for these companies which will in turn affect stock prices which will then slow capital expenditures and new fresh investment capital.

My theory is based on 5 things happening at the same time..

1. Short term borrowing that with rising rates will slow capital expenditures
2. High Decline rate forcing increasing high capital expenditures
3. Stock prices and investment willingness slows down which will slow capital expenditures
4. Much slower rise of oil prices or falling prices as the world just cant pay for the oil, so demand will simply slow.
5. Stronger dollar, rising cost for the oil production in the US compared to others sources.

If you look at bubble in the past, it generally has the same characteristics

1. Need a resource/technology that can be hyped and needs allot of capital (Investment) (Rail, Farmland, Houses, Internet Stocks....)
2. The resource/technology requires a lot of investment and rising prices to keep expanding.
3. Lots of short term lending based on the fact that you have lots of willing investments into the area.
4. Overhyped by everybody and very few voices of reason.
5. The fact that the capital needs to always grow is less understood by most and the main line is that there is no limits.

How far can this bubble go, that's the question. I think it depends on two things, inflation and the amount the world economy can pay for oil.

And again this has nothing to do with production of oil or how much oil there is, this is simple economic cycles.

The economy find one thing to use as the positive, naturally wall street runs with it all the way to the bank, the country embraces this new positive development and uses this to push an optimistic view which in turn pulls the whole economy up, nothing wrong with that. But once the positive development turns negative or stagnate it brings down the whole thing and we get a recession until we find a new thing to be optimistic about.

My current hypothesis is that Shale OIL is this optimistic catalyst and will bring us up and then down.

[ROCKMAN]

Matt - "My current hypothesis is that Shale OIL is this optimistic catalyst and will bring us up and then down." Very well put IMHO. And one day may bring us back up again...and then down again. And very consistent with history: oil has always acted this way since the earliest days. As you say lots of variables but in the end it is a cyclic animal.

[copious.abundance]

The main reason I don't post on the Oil Drum more than I do is because I *can't stand* their forum format where all posts appear on the same page. So you get these articles, and after a day or two you get, like, 150 or 250 replies, and it ALL appears on the same page and takes forever to load and scroll through just to read what people have said.

[ROCKMAN]

I agree OF2. I particularly like being able to start a focused thread. OTOH I miss the abunadant feedback...even the negative stuff. And I particulat miss the participation of the newbies.

[h2]

rockman, you'll miss the newbie participation, this format, forums, tends to scare off newbies, and it's harder also than to just dip into a drumbeat thread and catch up with the general gist of events as they develop week to week, since here each thread is its own rough topic.

But those drumbeat threads were getting seriously out of hand, it literally takes an hour or two to just skim the comments.

I have to take issue with any criticism of Leanan's consistently good news scraping, aka, the drumbeat, doing that as well as she has, for no money, just to contribute something, takes a lot of time and energy, and she's done that very well for years, that's where I generally check the day's news first because I generally find that she really tries to catch the flow of news and events. As someone who has also donated/contributed a lot of my time to free projects, for free, i tend to really dislike the types of criticisms I read here in this thread, mainly because almost never do those who criticize actually do or contribute anything of substance or relevance in any larger sense, beyond criticism and complaints. Lots of people talk, few actually put out their ongoing, year after year, energy, to try to contribute in positive ways.

econ101, while it's always fun reading people who appear to make a living selling bubbles, aka, stock brokers/pushers/pimpers etc, so far I'm finding myself leaning towards making use of the forum 'ignore' feature when it comes to you, anyone who can't recognize a bubble as a bubble and who projects short term growth rates to extend to the long term by conveniently skipping all the actual data, shows very little, if any, analytical capacity worth tracking, or reading. But it's also entertaining, it's like a little snapshot of a wallstreet firm's boiler room operation, dumping garbage on suckers while cashing in on every inside lead you can, so go at it, just don't think you're fooling people, you need to be more subtle than that. Hmm, chesapeake, anyone? No? I thought not. But keep at it, it's good for a laugh if nothing else.

I don't generally comment much, preferring to just track what's going on out there, but as a new, for here, member, why not do it once or twice.

[Lore]

$this->bbcode_second_pass_quote('ROCKMAN', 'I') agree OF2. I particularly like being able to start a focused thread. OTOH I miss the abunadant feedback...even the negative stuff. And I particulat miss the participation of the newbies.

[ROCKMAN]

H2 – “I have to take issue with any criticism of Leanan's consistently good news scraping,” I agree. Never quit understood folks complaining about something they are getting for free while having no obligation to contribute. “I tend to really dislike the types of criticisms I read here in this thread”… I don’t notice much myself but then I tend to not read them very much. I don’t really care to debate opinions much. Rather just lay out what facts I think are relevant. There are entire threads here I don’t tend to follow not because they aren’t important. Just not that interested. I don’t put folks on ignore…I just don’t pay attention to them. Remember what I say about trying to teach pigs to roller skate?

I do like being able to create threads. You may notice my latest obsession with international refinery JV’s and the export of refined products from the US. Not a lot of feedback but that’s OK. I see they are being read to a fair degree and that satisfies the attention seeker in me. LOL.

[evilgenius]

I've never put anybody on ignore. I think that would kind of defeat the purpose. Sometimes I don't agree with people, or more likely see things just a little differently, but I still listen to what they have to say, even the publicity hounds.

If I disagree with somebody I try to say why and argue it out, in the true sense of argument. I may even change my mind about a thing or two. Mostly, however, other people don't seem to change their minds. That's when I think consistency is important. Consistency in listening and also in engaging with people I disagree with. The problem threads will eventually go away, even that one about the "double dip" being just around the corner, but the people generally remain. You don't have to be a yes man for people who stand on soap boxes to appreciate that those on soap boxes sometimes have something important to say. Ditto making enemies of someone for what amounts to my own perceptions clouding my vision.

[h2]

"Remember what I say about trying to teach pigs to roller skate? "

Rockman, yes I remember, and have in fact noted already how you use that strategy here as well, it's quite obvious, and it's a strategy that cannot be faulted, and is reason for an occasional chuckle I have to admit when it's particularly obvious. By the way, your refinery topics, really top notch, that's something I've been seeing from various angles but not so coherently connected.

Not many remember this guy, but the prominent doomer jay hanson (the software doomer guy), founder of dieoff.org, (not to be confused with the nasa climate guy, james hansen), before he predicted himself into irrelevance by being so wrong on his timelines and outcomes, did note that in general, the nations that socialized resource allocation and production would beat the nations that didn't because capitalism thrives on resource exploitation, not allocating them rationally by locking in long term oil production and refining deals using the vast trade surpluses and dollar denominated debt holdings china has, for example.

Your refinery threads I believe are an excellent example of this hypothesis, particularly your observation that there is no need for China to generate profits off of oil investments because the key to winning this time period's great game is to have the oil and coal supplies locked in and available (not, note, to getting bogged down in unwillable military actions), to be used by the economy/industry when others start to falter.

I'd read about refinery sales/shutdowns in Europe, but hadn't found the other side of the coin, which your analysis pinpointed almost perfectly, the JV issue where producers and refiners lock in their long term interests, coupled with agreements of first refusal you outlined which suddenly make the US strategy of pi$$ing off everyone in the world while spending trillions on their military seem like maybe it's not the best long term idea out there at the moment, though I guess it does make certain special interests happy.

Just as an FYI, I was talking to a venezuelan engineer (civil, not oil) friend of mine recently, who follows the events in that sorry nation from here in the USA, and he noted that China is growing increasingly disturbed by the ability of VZ to just absorb the 20 billion loans/production lockin payments China gave Chavez a while back, without developing or showing anything for it, and just with extreme reluctance floated VZ another 4 billion after they essentially begged for it. So that relationship is not going to be what the Chinese hoped, nor will it probably be what the Venezuelans dreamed of, ie, endless money with no costs to them, how it will resolve is not possible to guess but it's an unstable scenario.

It hasn't helped matters that a major leak exposed a media figure in VZ (favored by Chavez frequently via phone to his show), who it is now revealed, was supplying the Cubans with information about the vz inner workings, had a tape he sent them relaying the current structure and methods of corruption in the vz gov leaked, all 1 hour of it, and all the gory details. Basically it exposes the near bottomless well of corruption in all its grimy details, something I am sure the Chinese are not amused to see, since a large chunk of this money is the money that was supposed to lock in the next 20 years of heavy oil supplies to their new heavy oil refinery. Curiouser and curiouser, no? These events all have occurred post election, which of course, is post Chavez.

That's a situation very much in flux as we speak, VZ is unstable, and nobody knows where it's going to go the coming years. Apparently they (vz) are able to fully destroy their own operations and plants, the pdvsa refinery explosion has not been fixed, and the state is proving totally incapable of doing anything on its own, while I guess Columbia is doing well with the venezuelan engineers who had competence and who were dumped by the vz gov leaving the country for good jobs around the world, setting up drilling in Columbia with great success for example. But I digress, heh.

This redirection of oil flows and refining operations you're looking at here is also something that ELM did not touch on as far as I'm aware, and serves only to further enhance the export reductions elm pointed towards, although they can be hidden since say, if Saudis refine their oil then 'export' it to China, it still appears to be an export, but it's not an export anyone else has access to. Interesting stuff, long range strategic resource allocation planning is going to trump short range market movements here I fear.

This forum format seems to suite you by the way, seems like it is good for research and data collection, and it's also more motivating not to have the comments simply vanish into the ethersphere, to be replaced by the next drumbeat and it's interminable comments threads. I can't recall you laying out such complex arguments or research in this way on tod before.

Evilgenius, I draw the line at people who use resources like this in order to promote for profit activities, spin, PR, stock pumping, etc. Also known as shills. There is nothing to engage there, they are doing a job, which is to try to influence public opinion without admitting they do it. I've grown to recognize at least a certain percentage of those types. Anyone who is honest and straight up about why they post are fine as far as I'm concerned, but that's not who I'm talking about. Of course some people also try to imitate those actions without getting paid to do the shilling, and actually just fall for the PR/spin nonsense and then regurgitate it uncritically, but, again, there's nothing there to address, there is no reason to reason with, those pigs are never going to be rollerskating, just spitting out a sort of floundering prayer that whatever they believe should be will be because change is really just too scary to actually face or think about.

[ROCKMAN]

h2 - "I can't recall you laying out such complex arguments or research in this way on tod before." Maybe because doing so would be "redundant” and might get one banned from TOD. LOL.

It took a while to get used to it but I like this format. Each of us can become obsessed with our own little corner of the POD and post to our hearts content. And with so many separate threads it becomes very easy to ignore any particular focus. Which means sometime I could just talking to myself. Not uncommon amongst geologists, actually. But that’s OK…I really enjoy my own company. LOL.

[C8]

I actually think the threaded format of PO.com engenders a little more civility than the blog format of Oil Drum. You take a little more time to be kind when you know a thread can go on and you can develop a relationship with someone. There are too many "drive by" comments on TOD drumbeat, like people are trying to get in the last word before the door slams after two days. I think I noted that once over 60% of their comments were one or two liners.

The other nice thing about a thread is that if you get buzy, or go on vacation, you can pick it back up later- I feel my schedule is more flexible wih PO.com.

But Rockman- you have over 1700 posts here? How is that possible? Are you returning here?

[ROCKMAN]

C8 - Well, here I is now. My post count probably seems odd but most don't realize that Iive in front of a monitor. If I'm not driving or sleeping I'm on line monitoring my wells or working. I probably field 60 to 70 business emails every 24 hours. Given my immobility I'm stucking sitting somewhere for 23.8 hrs a day. Right now I'm in my recliner monitoring an oil well testing in La while watching The Big Bang rerun and typing this message to you. And when there's a void I research almost anything on the net.

[agramante]

Well, your knowledge of the field impresses the hell outta me, Rock. You, Heading Out and Fishgrease over at Daily Kos taught me more about the oil industry than anyone else during the summer of 2010, as I was quietly doing my own online research while at home or in the field, looking for oil in the water of the GOM. Nothing like a few spare hours to become a little better read in something.

Along those lines, I did a bit of research myself tonight (as I sit on a boat in the GOM). Not along the lines of the Chinese acquisition of drilling rights and refining capacity around the world, but pertaining to US family economics. I wanted to see how annual median income in the US translates to petroleum energy (as a proxy for overall wealth, perhaps, and ability to afford something like transportation). US Census statistics on household income go back only to 1967, and the oil price index I found is for Illinois crude. (I was having trouble finding anything for WTI earlier than 1986.) So the chart certainly could use some tweaking, mostly in choosing a better oil index price, but in the main, it does show an average American family's ability to use energy. And I can't say I'm entirely surprised at what I found:

[ROCKMAN]

a – Great chart. Mucho thanks. Almost deceptive in its simplicity as it shows the obvious relationship between price and consumption. You notice the dip stating around 1972. That was before the price run up of oil in the late 70’s but correlates with a big jump in NG prices. Prior to 1972 the price of NG really was almost too low to bother to meter. North of Houston there was so little value for the NG in an Exxon oil field they gave it free to the city of Tomball. Naturally when the field depleted and the free gas stopped the city sued XOM. I suppose that falls in the category of no good deed goes unpunished. LOL.

The mid 80’s is interesting. Oil/NG prices fell to very low levels but you don’t see a big jump in consumption. I suspect this is just a carryover effect of the economic decline brought on by the price spike of the late 70’s. And then there’s the obvious cheap gasoline period of the late 90’s when buying a V8 SUV that go 12 mpg seemed to make sense. By that time the economy was also flying strong. And then the obvious demand destruction with current high prices. As others pointed out there were a variety of reason for the deep recession but it’s obvious IMHO that energy costs only made a bad situation much worse.

[pwallmann]

As a newbie there are a couple of items that I'm a bit confused about that I was hoping someone could clear up. My interest is specific to the Bakken:

The most convincing (to my non-industry mind) projections I've read have been Rune's posts on the Oil Drum ("the typical Bakken well" and "the Red Queen" posts). However, a couple of points that I'm confused about:

- In trying to figure out how production will scale: I've hear that the "held by production" terms of leases (not sure if that's the right terminology) require production within 36 months of acquisition. First: Is this true? Also, I was told that the production from one well effectively locks up an area that will eventually support up to 8 wells.

- in terms of the financing side. Are companies booking reserves (again, not sure if this is the correct term) based on what that well's EUR or based on the 8 well scenario?

- Also, my limited understanding of these tight wells would lead me to wonder if infill drilling would be more productive then infill drilling in a more conventional field since to my knowledge the well basically just produces the area fracked which shouldn't impact the surrounding areas to a great degree.'

So my questions: (1) how many wells can these "areas" held by one producing well support? (I've heard 4 in the bakken and 4 in the three forks). (2) How productive do you think these infill wells will be, particularly in the "sweet spots"?

It seems logical (if my assumptions are correct, which I'm not very confident about) that companies would drill to hold the sweet spots and move on before fully exploiting them. If that is true, might the infill program (which brings me to another question: if they pad drill 8 wells, is the well price significantly cheaper?) be VERY productive when they run out of new sweet spots to "hold by production" and come back to fully exploit the land they now have?

[pwallmann]

I should also comment that if wasn't for the Oildrum I would never have found this site. I started coming here after someone mentioned that this is where Rockman migrated to. Seeing westtexas on here is great. But Ron P. always had interesting things to say amongst others, and I thought the entire website was great. The aggregation of news stories is invaluable (i think Leanan (sp?) does a great job), and tech talk articles by headingout amongst others are a great reference for newbies such as myself.