[Oily Stuff]

Mr. Pops, I apologize about my truth in energy report, I was just trying to show the human side of the oil biz on an early Friday morning.

I think Mr. Starr is absolutely correct, we have essentially already proven that shale gas declines expotentially and that for the most part actual realized, recovered reserves from tight gas sources are going to be half of those initially estimated. When I flew into DFW the other day I was amazed at how many abandoned Barnett pads there already were. http://www.theoildrum.com/node/8212; A. Berman, L. Pittinger.

I think to suggest that there are no problems with reserve reporting in the US is a bit of stretch, with due respect to my colleague. I unfortunately was directly involved in Austin Chalk production and there was nothing predictable about liquid flow thru natural or induced fracture systems and there will not be in dense shale either, IMDAO.

[Pops]

hehe, I was scolding everyone else but you. It's your thread, drift all you want.

[Matt979]

When something is to good to be true, you use it to make more money (Wall street)

When something is to good to be true, its generally is not true (Main street)

History has told us to listen to Main Street.

And whoever posted that somehow because a large majority of economist say we will have plenty of oil and only a few points out the issues with that thesis that one person is wrong, again history has told us to be very cautions when we get a large group of economist saying the same thing.

Its a fact of history that economist have no interest in being right just in making money and it pays to conform to the group view. The whole idea that field of economics are somehow based on science and only has one right answer is balony. Economics is based on making non controllable areas seem controllable and making predictions on things that you really cant predict.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'B')ut where is the evidence that tight-shale declines in an orderly hyperbolic fashion (with a nice long tail) rather than exponentially, i.e. straight down into the ground? I don't see the data to support this conclusion

[Oily Stuff]

Mr. Rockdoc, I had to rope a cow today to get an old plastic thread protector off her leg; you and I function in different oil fields and clearly live on different planets when it comes to shale resource reality and idealism. On my planet I see that every stinkin' shale well in my neighborhood is on artificial lift within 10 months and water trucks are now tearing up the highways, not oil trucks. I avoid conference calls and press releases and instead eat cheeseburgers with gaugers and vacuum truck drivers. That's the real deal to me. And, after 60 years in this business I think I know how to do arithmetic and 25% of the shale wells I review on DI and at the TRRC are going to be marginally economic, the other 75% will "hardly" even pay out.

The lousy Austin Chalk wells I participated in and operated in the 1980's make tight oil wells in the EF all look like ATM machines. I did not know you could even estimate reserves in the Chalk, really. I think I tried that once and got laughed at. I do remember qualifying every economic decision made in the Chalk with the statement, "but don't count on it," so, no need to call the SEC cops on this 'ol hand.

If you get time read the link to Berman's paper; its got good pictures in it too. I appreciate your enthusiasm, sir.

[Subjectivist]

Speaking for myself I find the long tail production profile for tight oil to be reassuring. If it is close to accurate and they manage to get up to 80000 wells drilled in the Bakken eventually then even after those masive early decline rates they will cumulatively still produce a lot of oil. Even 50,000 wells producing 15 bbl a day would be adding 750,000 bbl a day to the USA production level.

[Oily Stuff]

Mr. Sub, I think that is part of the "point" to be made by the tight oil propaganda campaign, for Americans to be "reassured." I personally don't want you to be alarmed by my DA opinions about tight oil; maybe I am wrong and people like Rockdoc are right. But also please try and remember that the E in EUR that big companies and big company engineers tout stands for estimated, not actual. They want you to believe that they have it all nailed down but they themselves will admit, hopefully, unless there are stock options involved, that they have never drilled shale as dense as the parking lot at your office before and it's all kind of a guess. Nano darcies? Man, we are in big time trouble.

Most Americans simply want cheap gasoline and they don't really care where it comes from, or how costly it is; just get it to the corner FS... and keep it all out of the news. When its in the news, ie, the BP mess in the GOM, it makes Americans feel kind of guilty and when they are stuck on the 405 in their 13 MPG SUV's they get angry feeling guilty. I don't want Americans angry at my industry. I want them to trust us.

I personally think every stinkin' shale oil well drilled in 7 years will be a stripper well making less than 10 BOPD. 80,000 shale wells might not matter to you but living in the hood, it matters to me. There would not be a blade of grass for cattle to eat, only limestone rock on well pads, pad to pad as far as you could see. Water is gone, there is not enough steel left in the world to make a toaster oven...all so we can stay mobile in America ?

Truth in advertising. That is what my industry is responsible for to the American public. Nothing less.

[Plantagenet]

$this->bbcode_second_pass_quote('Oily Stuff', '
')I personally think every stinkin' shale oil well drilled in 7 years will be a stripper well making less than 10 BOPD. 80,000 shale wells might not matter to you but living in the hood, it matters to me. There would not be a blade of grass for cattle to eat, only limestone rock on well pads, pad to pad as far as you could see. Water is gone, there is not enough steel left in the world to make a toaster oven...all so we can stay mobile in America ?

[AirlinePilot]

Oily, I have to say I appreciate the refreshing candor with which you post. It is very important for us to get actual industry opinion and its not been something we have a lot of here. Please hang around, you are valuable, appreciated, and I enjoy your posting style.

Having someone DIRECTLY involved at the ground level posting here on these forums is a goldmine of information.

[Pops]

True words OS!

Plant said it though, there is no alternative, that's the problem, no alternative.

[ROCKMAN]

80,000 shale wells…pretty ambitious. To keep the numbers in perspective: number of boom time wells drilled : Eagle Ford – 4,360, Bakken – 4,200. So a combined count of 8,600 wells. Or about 10% of that 80,000 well projection. Since these two plays represent 85% of the oily shale production we’ll focus on just them. The average current daily production in both plays (including older wells that have decline significantly and the newest ones that haven’t yet) is 150 bopd/well in the Bakken and 110 bopd/well in the EFS.

Total production is climbing in both plays as more new high rate wells are drilled with the declined wells providing a very small but relatively steady base production. But here’s the tricky part of the model: given the high decline rate of these reservoirs it requires at a constant increase in the number of wells being drilled to produce the rate of increase in production we've experienced. If the same number of B/EFS wells were drilled in 2014 as 2013 it would add production but at the same time that high depletion rate would subtract production rather quickly. Still there could be an increase but it would be small UNLESS the GROWTH in drilling activity continued at the rate seen in the last few years. If the number of wells drilled stayed constant where it is today we ‘ll see an increase in total production rate but not the rather phenomenal rate increases we’ve had the last 4 years or so.

Which isn’t bad. There’s no denying how these plays have helped us. And if we don’t run out of viable undrilled locations and oil prices stay high they’ll continue to do so. If there are another 71,000 locations left to drill it will take about 20 to 25 years to drill up those reserves.

But that’s where the hype tends to fall apart with respect to “energy independence” IMHO. The rapid increase in production rates from these trends is directly proportional to the rapid increase in the number of rigs running. And in that regards we seem to have reached a static level: lots of drilling still going on but not the surge in more rigs running that we’ve seen the last 4 years. And this seems to be the source of most debates between the very optimistic and the not so: projecting the rate of change to continue vs. having reached a static position. A good position but a static one no less.

Consider the details of the EFS: Production in February 2013 climbed 74 percent compared with a year earlier. The nine geographic fields that make up the majority of Eagle Ford yielded 471,258 barrels of crude a day in February, according to preliminary data released by the TRRC. In February 2012, the fields produced 271,521 barrels daily. As recently as 2010, oil production in the Eagle Ford Shale field was so inconsequential at only 15,000 barrels per day that it represented only about 1% of Texas’s oil output. Even in 2011 it was still less than 9% of Texas annual oil output. But last year it was 18% of the state’s total output.

Production in the Eagle Ford has continued its upward trajectory so it is now producing more than 20% of Texas’s oil. For the Eagle Ford Shale to go from almost no oil production in 2010 to producing more than 20% of the state’s oil output of more than 2 million barrels per day this year (as a separate country, Texas would rank No. 13 in the world for oil output) has to be one of the most remarkable success stories in the history of the US oil industry.

Here’s the big “BUT”: but notice how the rate of increase has declined so that this year’s increase is projected to be only 2%. IMHO we have tapped out on the rate of new rigs coming into the plays. Efficiency has improved and wells are taking less time to drill. But as a result most operators are cutting back the number of rigs they are using and not taking the improvements to increase the number of wells they have planned.

And, again, I think it’s critical to remember the prime reason we have had the boom: higher oil prices. To even accept the static conditions I’ve offered requires oil prices to stay high. Despite what a very few believe the oil patch does take pricing into consideration when decisions are made about drilling. But even the optimistic expectations of a static conditional also depends on future wells tapping into equally good reservoir conditions as have been produced in the past. In the entire history of the oil patch this has never happened. It may take a while for the industry to find the sweet spots and more efficient technology. But once done the better locations are drilled with the remaining falling in quality. IMHO we are at or close to that point today.

We don't "burn out" in the oil patch. We'll grind everything (equipment and men) into the ground if there's a profit to be made. You can tell from Oily's words how he has been ground down. But just like that Energizer Rabbit it won't stop him or the rest of us. At least not until the economics stop us.And it the past that has always happened despite opitimistic projections. Maybe the cyclic days of the oil patch are gone. And maybe not.

[dissident]

For a dose of reality read the recent piece by Rune Likvern at the The Oil Drum.

http://www.theoildrum.com/node/9954

These alleged long fat tails are a con job:

$this->bbcode_second_pass_quote('', '
')If the “Typical Bakken Well” is what NDIC recently has presented, total production from Bakken (the portion that lies in North Dakota) should have been around 1.1 Mb/d in February 2013, refer also to Figure 03. Reported production from Bakken by NDIC as of February 2013 was 0.7 Mb/d.

Actual production data shows that the first year’s production for the average well in Bakken (North Dakota) presently is around 55% of the “Typical Bakken Well” presented by NDIC.

[Tanada]

I have seen numbers from 30,000 potential wells to 80,000 potential wells bandied about on the internet for the last couple of years. What is a realistic number given oil of $150.00/bbl or less?

[Pops]

From Hughes' Drill Baby:

$this->bbcode_second_pass_quote('', 'U')ltimate recovery of tight oil plays is governed by the number of available drilling locations. The EIAestimates a total of 11,725 locations in the Bakken (including the Three Forks Formation). This isabout three times the current number of operating wells. A similar estimate by the EIA puts availablelocations in the Eagle Ford at more than three times the current number of operating wells.


Given the EIA estimate of available well locations, the Bakken, which has produced about half abillion barrels to date, will ultimately produce about 2.8 billion barrels by 2025 (close to the low endof the USGS estimate of 3 billion barrels). Similarly, the Eagle Ford will ultimately produce about 2.23 billion barrels, which is close to the EIA estimate of 2.46 billion barrels. Together these playsmay yield a little over 5 billion barrels, which is less than 10 months of U.S. consumption.


The production trajectory of tight oil plays depends on the rate of drilling. If current drilling rates aremaintained, tight oil production will grow to a peak in 2016 at about 2.3 mbd assuming the EIAestimates of available locations in the Bakken and Eagle Ford are correct. Production in the Bakkenand Eagle Ford will then collapse at overall field decline rates. Assuming production in the other tight oil plays continues to grow at linear rates, tight oil production will be at 0.7 mbd in 2025. Thisrepresents a U.S. tight oil production bubble of a little over ten years duration

[ROCKMAN]

Tanada – OK: one fixed variable $150/bbl. Now the rest of the assumptions needed to calc your total wells drilled. First, based upon current spacing what is the total number of wells that could be drilled in the B or EFS? Doable but not full proof: last year a well was drilled in the Williston Basin to evaluate the Bakken and surprise: not only was the B not productive but it was even present in this area. Next assumption: will the future undrilled areas be as commercial as those currently being drilled. As a rule a very poor assumption: we tend to drill the better areas first. Lastly the size of the producing units are tending to be reduced. This would allow some future wells to be drilled in areas previously thought drained by earlier wells. But that tends to be countered balanced by the realization that the earlier wells are not recovering from as large an area as initially assumed.

So with a map and some big assumptions one could cook a number. But to what end? What everyone really wants to know is how many B/EFS wells will be drilled every year for the next two decades and what production rates those additional wells will add less the decline of existing wells. And let’s be brutally honest: except for us technogeeks here almost no one in this country cares what any of those stats are. They just want to know how much gasoline will cost them and if they’ll have a job to pay for it. And IMHO how many B/EFS wells are drilled and how much oil they'll produce may have only a small impact on those future prices thanks to the POD. IOW how much different would life be in the US if only 30k wells are drilled and not 80k? Maybe not much.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'R')ockdoc, whose data? The first chart comes from 6 or 7 wells. Do these 6 or 7 wells represent a larger trend? If so, why? How is the data better than that referenced by Berman and Likvern?

[rockdoc123]

$this->bbcode_second_pass_quote('', 'I') have seen numbers from 30,000 potential wells to 80,000 potential wells bandied about on the internet for the last couple of years. What is a realistic number given oil of $150.00/bbl or less?

[ROCKMAN]

pstarr - Just a couple of minor points. Long production tales don’t tend to create much “steady profitable production” given how most companies calculate profit: i.e. rate of return. I believe you understand “net present value” and how it’s used to calculate ROR: production much beyond 7 or 8 years has very low NPV and thus adds very little to “profit”. OTOH those long tails can create very nice net income streams. And can do so for half a century: I’m dealing with fields in Texas that began producing over 60 years ago that are kicking out great net incomes still today thanks to current high oil prices despite the fact that some of the companies that developed those fields made very little profit and in a very few cases lost money and went bankrupt. Those companies disappeared…the fields didn’t.

And in case some folks don’t know what a “promoter’s position” may be: I’ve dealt with many promoters over the years. One small public company I worked for did nothing but sell promoted wells. Rockman now works with company that mostly buys promoted deals. Company C hires a geologist like the Rockman who buys seismic to generate drillable prospects. And the Company C leases the mineral rights on those leases. And the Company C sells 100% of the “WI” (working interest) in those prospects. The investors (who might be other oil companies as well as individuals) pay all the money spent on the Rockman, the seismic, the leases and typically a little “frontend sugar” (cash). They then pay 100% of the cost to drill the well to the point of determining if the prospect found oil/NG. If commercial reserves are found the investor pays for 75% of those completion costs and Company C pays 25%. Company C has a 25% “carried interest”…the investors carried 25% of the total prospect costs of the project. Called a “third for a quarter promote” in the oil patch. So an example: all front end costs = $1 million + (drilling costs = $4 million) + (completion cost = $1.5 million). So total cost = $6.5 million. And Company C owns 25% of the production but didn’t pay 25% of the cost of the well…just $375k (25% of the $1.5 million completion costs). Or just about 6% of their 25% income interest. IOW they earn 4X as much as they pay.

Needless to say Company C looks very profitable in their public filings even if their wells aren’t very profitable for the all the WI owners. And how much do dry holes hurt their books: they even make a little money even on the dry holes. Remember the “frontend sugar”. And on commercial successes that aren’t very profitable? They still look very good. How profitable can drilling dry holes be? I’ve mentioned it before: during the boom time hype of the late 70’s I worked for a company that was promoted on 18 dry holes. Not one well in the JV was completed. And the promoted company had a staff of geologists and engineers. And the promoter? His senior guys retired millionaires. That *sshole couldn't find oil/NG but knew how to cut a deal with my incompetent management. LOL.

And what’s going on the shale booms today? A whole lotta promotin’, momma. And you’ll seldom hear any of those details in the press releases. Neither the promoters nor the promotees care to have the public know the details. And the promotes take various form besides the TFQ trades. Some tougher...some
not. All depends on the level of the hype