[rockdoc123]

$this->bbcode_second_pass_quote('', 'B')erman extracts his data from shale company's own SEC 10-K filings.

[Oily Stuff]

This Peak Oil stuff is all so cool; there are so many smart and thoughtful people that participate on this site I learn something from every post, a little bit from everybody, all the time. Thanks y'all.

For the last time, I promise, at the risk of being obnoxiously repetitive, I want my industry to tell the truth about tight oil and tight gas resources. I don't see any way around 80,000 stinkin' liquid shale wells either; Lord knows we're going to need everyone of them even if all 80,000 of the little darlings only make a half million barrels of oil per day. But the cost of developing that resource is going to be staggering. Mind boggling. From a financial standpoint but also from the standpoint of how many other resources it is going to drain from our way of life. I thought they use to grow corn and wheat in N. Dakota, now it seems all they want to grow is shale wells.

All this horse pucky about 50 billion barrels of recoverable reserves from the Bakken, of the giant Monterrey, the prolific Cline (BTW, what happen to all the beef in the Utica?), of surpassing Saudi production, of the US being able to tell the world to stick its oil, that is all BS. If you are the CEO of Shale R US and tell the American people that shale is a game changer, that peak oil production rate fears are ridiculous, I am embarrassed for you. How can we ever get the American public to trust the oil and gas industry unless they know the truth about the future, the best we can estimate anyway? We owe them the truth.

If I may, a perfect example of tight oil BS (thank you Rockdoc); gas to oil equivalents, one of my pet peevies:

Gary Swindell's SPE paper is very much worth reading and I urge everyone to do so. Thru October of 2012 Mr. Swindell studied many wells in the EFS and determined the average EUR of those wells studied based on decline curve methodology to be 206,800 BOE using, as Mr. Rockdoc says, a 20:1 gas to oil ratio formula. I think it probably takes 165-185,000 BO to pay a typical EFS well out, but that's a different story. Mr. Swindell is absolutely correct to use product value for gas to oil equivalents, IMO; the entire tight oil industry hangs by a thread on well economics and the ability to raise more capital to stay on the drilling treadmill. When it publishes EUR's in BOE it should do so in an honorable way, in a way that American's will understand. Dollar for dollar, apples to apples. In 2013, with LLS postings for shale oil above 100 dollars a barrel, the gas to oil ratio should actually now be about 30:1. If you produce a million a day of associated gas with your liquids that should equate to 33 BOEPD.

The shale industry however likes to use BTU equivalents for gas to oil conversions. That's historically 6:1. That's fudging the numbers to me, especially in N. Dakota where 75% of that gas gets burned off to the air and all them perrdy "BTU's" go up in smoke anyway. So, at 6:1 gas to oil equivalent rates a million a day of associated gas equates to 166 BOEPD. The Pinky Toe No. 14H, that makes 350 BOPD, now gets reported as 516 BOEPD in the press release. If you look hard that press release might say 74% of that is liquids, in real fine print, but whatzup with that? Why not just say the stinkin' well makes 350 BOPD and go to the house? Because bigger numbers means bigger EUR's, more booked reserves, the big cheese in the front office looks better...Wall Street likey and grandma likey so much she calls Merrill Lynch and buys more shares of Shale R Us.

$this->bbcode_second_pass_quote('rockdoc123', 'O')f course there is still the issue regarding sweet spots within the shales. The Swindell study addresses this for the Eagle Ford by looking at EUR on a county by county basis. Interestingly enough if you correct his BOE conversion calculation (he uses 20:1 as he believes it reflects price but the industry uses 6:1 as its standard unrelated to price) the EURs across the play are not all that much different, averaging out close to 400 MBOE/well.

[Peak_Yeast]

$this->bbcode_second_pass_quote('Oily Stuff', 'H')ow can we ever get the American public to trust the oil and gas industry unless they know the truth about the future, the best we can estimate anyway? We owe them the truth.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'G')ary Swindell's SPE paper is very much worth reading and I urge everyone to do so. Thru October of 2012 Mr. Swindell studied many wells in the EFS and determined the average EUR of those wells studied based on decline curve methodology to be 206,800 BOE using, as Mr. Rockdoc says, a 20:1 gas to oil ratio formula. I think it probably takes 165-185,000 BO to pay a typical EFS well out, but that's a different story. Mr. Swindell is absolutely correct to use product value for gas to oil equivalents, IMO; the entire tight oil industry hangs by a thread on well economics and the ability to raise more capital to stay on the drilling treadmill. When it publishes EUR's in BOE it should do so in an honorable way, in a way that American's will understand. Dollar for dollar, apples to apples. In 2013, with LLS postings for shale oil above 100 dollars a barrel, the gas to oil ratio should actually now be about 30:1. If you produce a million a day of associated gas with your liquids that should equate to 33 BOEPD.

The shale industry however likes to use BTU equivalents for gas to oil conversions. That's historically 6:1. That's fudging the numbers to me, especially in N. Dakota where 75% of that gas gets burned off to the air and all them perrdy "BTU's" go up in smoke anyway. So, at 6:1 gas to oil equivalent rates a million a day of associated gas equates to 166 BOEPD. The Pinky Toe No. 14H, that makes 350 BOPD, now gets reported as 516 BOEPD in the press release. If you look hard that press release might say 74% of that is liquids, in real fine print, but whatzup with that? Why not just say the stinkin' well makes 350 BOPD and go to the house? Because bigger numbers means bigger EUR's, more booked reserves, the big cheese in the front office looks better...Wall Street likey and grandma likey so much she calls Merrill Lynch and buys more shares of Shale R Us.

[Oily Stuff]

$this->bbcode_second_pass_quote('rockdoc123', 'A')s a consequence someone who doesn’t understand what BOE really means and isn’t aware that Swindell is using a different conversion factor would wrongfully argue that….Oh look Cheseapeake is lying about their reserves because they say they have average EUR of around 500 MBoe and Swindell says it is only 200 MBoe

[ROCKMAN]

Oily - Just a small sidebar: did y'all touch on "equivalent how?" Obviously it depends: dollar equivalent (@ what ratio) - Btu equivalent - volume equivalent which only reservoir engineers would care about. And then it gets even sketchier if you think of the equivalent effect on a pubco's value: oil reserves could mean a different market valuation than an equivalent dollar value in NG reserves: a greater anticipation in the up/down movement in the price of oil/NG. I know folks who pay a higher price for a NG rich pubco now than one with mostly oil reserves.

[Oily Stuff]

No sir, Rockman; honestly I did not know that was done, gas to NG equivalents. What's the expression, cooking the books? My crude oil guys say the LLS thing in S. Texas is fixin' to go adios too. Geez.

[Oily Stuff]

NGL, sorry.

[ROCKMAN]

Oily – Others have touched upon it. Some use a ratio of 6 mcf = 1 bbl of oil. Rather common in some quarters. What use is that: so 6 mcf at $4/mcf ($24) = 1 bbl at $90/bbl ($90). So $24 = $90? Anyone here want to swap my $24 for their $90? I didn’t think so. LOL.

So let’s make them equivalent on a monetary basis. So at $4/mcf one $90 bbl = 22.5 mcf. Great: so my 1,000,000 mcf of NG is equivalent to about 45k bo. OK but a couple of years ago when I was selling my NG for $2/mcf my I bcf was equal to only about 22k bo. But if NG goes to $6/mcf in a couple of years my 1 bcf is equal to 67k bo.

And what, pray tell, does all that crap mean? LOL. Now let’s look at the real world. Two pubco: one with all oil reserves and one with all NG reserves. Both have a current values of $500 million. All other metrics equal. So which one might you invest in? The one whose assets have had a constant value and which has seen the greatest increase in production rate in US history? Or the one who asset price has doubled in a couple of years and which looks to be on an upward trend? Both have the same “equivalent” value today, after all.

And now the obvious: when your grilling outside tomorrow and your propane bottle runs dry are you going to syphon some gasoline out of your car and toss it on the barbie? LOL. Or when your car runs dry are you to run a very long hose from your space heater to your gas tank?

Simply from the dictionary: Equivalent –

a. Equal, as in value, force, or meaning.
b. Having similar or identical effects.

So when is a volume of NG always going to be equal in value to a volume of oil? Never since their values will never be constant.

When can the force derived from burning NG always be equal to the force derived from burning oil? I can drive a car using NG or the product of refined oil so now do I have to determine the equivalence? In mpg?

When will mcf mean barrel?

When will a gaseous hydrocarbon have the same effect as a liquid hydrocarbon? When they are both used to create the same energy. So now we have to resort to thermodynamics and mechanical efficiency to come up with BOE?

IMHO “BOE” is one of the most misunderstood and misused terms in the oil patch. And thus one of the most useless. Especially since it’s often used without defining the basis for the equivalence even when that basis makes little sense.

How do I use BOE in my economic analysis? I don’t: I use the individual volumes and price values for the oil and NG involved in the project. Just as I’ve seen every other company do during my entire career. IMHO the BOE calculation was created just for its use in press releases from the pubcos. Every pubco wants the public to relate to them as an oil producer these days even if the company doesn’t produce 1 bbl of oil.


LLS VS. WTI VS. BRENT:

Actually the entire WTI/LLS/Brent pricing dynamic as a lot of folks confused…including the Rockman. Eventually you might assume when an extra 3 million bopd are making its way from Cushing to the Gulf Coast in the next couple of years the LLS/WTI spread will decrease. But right now from:

http://www.rbnenergy.com/are-they-never ... ther-again

“Before LLS suddenly moved higher than Brent in the past two weeks, analysts generally believed that the WTI discount to LLS would narrow as and when the WTI discount to Brent did. In fact as the WTI discount to Brent narrowed this month the WTI discount to LLS hardly moved. LLS is therefore showing unexpected strength right now. As new supplies of light sweet crude from US domestic production in the Bakken, Eagle Ford and Permian basin begin to arrive at the Gulf Coast, the WTI discount to LLS was expected to narrow because these new supplies would compete with LLS and push out higher priced light sweet crude imports. The fact that LLS prices have strengthened suggests that either the volume of new domestic crude attracted to the Gulf Coast is not yet sufficient to compete with LLS or that quality issues with the new light crudes are impacting their price versus LLS.”

The spread shows LLS trading at almost $8/bbl and appears to be increasing with WTI decreasing its difference to Brent by the same amount. Some speculation that the feds may do another SPR release to nock some of the wind out of the LLS. They did that a while ago but only worked briefly.

[Oily Stuff]

And in my economic analysis neither do I, Rockman. When and if I sell a deal, I am going to be honest and upfront about every component of it, right down to how much pipe dope we might have to use in a pipe trip. Why? Its not because I can get away with SEC stuff, or that's the industry standards; its not because everyone else does it. Its because telling the truth is the right thing to do. I'd rather live under a bridge in a cardboard box than not be honest with people and have them disappointed in a deal I sold them. They likely will be anyway, that's the oil business, but it will not because I sold them a bill of goods. So from me you will hear the upside, but then we will focus on the downside.

If you BS people, you don't get to stay in the oil and gas business. You and I have been doing this a long time for one reason and one reason only.

So people will trust us. So we can sleep at night.

Goodnight.

[rockdoc123]

let me clarify with respect to BOE and how it is used in reporting by oil and gas companies:
Back in 2001 the SPE first pass at the resource/reserves definitions stated:

$this->bbcode_second_pass_quote('', 'C')onverting gas volumes to the oil equivalent is customarily done on the basis of the heating content or calorific value of the fuel. There are a number of methodologies in common use.
Before aggregating, the gas volumes first must be converted to the same temperature and pressure.
Common industry gas conversion factors usually range between 1 barrel of oil equivalent (boe) = 5.8 thousand standard cubic feet of gas (mscf) to 1 boe = 6.0 mscf.