According to Reuters and CNN…and others, “OPEC” has declared war on shale-oil drillers in America.

That’s a serious accusation. In the not too distant past whole countries were bombed back into the Stone Ages for lesser transgressions!! Saudi Arabia was the only OPEC member to forcefully advocate not cutting back, so for “OPEC” read “The Saudis”. Bomb-Bomb-Bomb aside, it’s hard not to wonder whether or not a collective schizophrenia has descended on the talking-heads….”Saudis pumping more so America pays less…that’s terrible news, because shale oil will suffer**!!”….”Saudis pumping less…that’s terrible news, because hard-working -taxpayers will pay more for gasoline, and we will have to borrow more money from foreigners**!!” Can’t win.

What a lot of people don’t know…apparently, is the shale oil business model is completely different from traditional oil-fields where development takes three-to-five years; and payback on CAPEX is six-years after you start pumping, if you are lucky…but the well can deliver for thirty-years. By contrast here is how shale-oil wells deplete:

(click to enlarge)

Source: The Shale Oil Boom: A U.S. Phenomena, Leonardo Maugeri,

Harvard Kennedy School, BELFER CENTER, June 2013

With shale-oil, production is all about drilling intensity. Payback on CAPEX for a productive well at $90 Oil Price is typically one-to-two years and the selling price for the first two years is normally hedged before you drill.

The big difference is that decisions on GO/No-GO on a new well have a two year horizon. It’s a relatively low-risk play apart from the fact blowouts are much more common than conventional drilling. The more you drill in an area, and you drill a lot, the more you know about the geology; and the up-front costs of each decision are miniscule compared to BIG OIL. Leonardo Maugeri puts it this way (I paraphrase), BIG OIL is like deploying an army – shale oil is guerilla war.

So what is likely to happen to the U.S. shale-oil industry if oil prices hover around $70 for some time?

Well first of all, what’s NOT going to happen is they will turn off the taps and sulk. “Payback” on a shale oil play is hedged. Right now the owners of wells that have not paid-back don’t care what the price of oil is. And with an OPEX of about $10 per barrel, sure they would prefer $110 but they will settle for $70, or even $40 for the oil that comes out of holes that did pay-back.

What matters is how many new wells get drilled?

Break-even for drilling a new (or catch-up) shale oil well has fallen to an average of about $57 WTI according to IHS, a research company. Continental Resources says it can make a profit at $50 and IEA says Bakken remains profitable at $42. What does that mean? In BIG OIL “break-even” is the price at which you get pay-back in six to ten years, for shale oil it’s the price you get payback in one-to-two, max three, years. Allowing for a margin on top, that says perhaps 50% of what could profitably be drilled at a $100 oil price will be drilled at a $65 oil price.

Running Leonardo Maugeri’s numbers on the depletion against EIA numbers for monthly shale-oil output, it looks like in 2014 the total amount of new production brought on line was about 1.7 million barrels per day per year. Do multivariate analysis of the past ten years with {Oil-Price} and {Total Production Last Year} as explanatory variables (last-years production is a measure of how much land was grabbed and the amount of investment in infrastructure that was done), and you get a pretty decent model (units are new production in thousand barrels per day in the year in question):

Prediction #1: In 2015 total new shale oil wells in U.S. will deliver average 2.3 million barrels per day, and total U.S. shale oil output will be 6.0 million barrels per day….regardless of what is the price of oil…unless it goes down below the OPEX which is about $10.

So once all the wells currently being drilled (and hedged); have been drilled; new production is likely to come on-stream at a rate of about half of what made sense in 2015 (after hedging), if oil prices stay in the range $60 to $70. In other words about 1.15 million barrels per day.

So the next big imponderable is how long will that be?

Prediction #2: Oil prices will average about $70-to-$80 (Brent) until November 2018, at which point they will climb up to $95-to-$100 (Brent) depending mainly on the growth of world GDP (nominal). The logic for that is explained in an article put out in December 2010 which correctly predicted that if oil prices went to $110 (Brent) that would be followed by a slump to $67 (Brent)…that’s what happened…and it also predicted that the time-scale of the slump would be about the same time as prices stayed above $90, which is what this prediction says.

Run the numbers and this is what you get, disaggregated by “vintage”, so when the chart says “2012” that’s the production of wells drilled in 2012:

That says U.S. shale oil producers will pump 2.0 million barrels more in 2015 than they did in 2014; which is about how much oil Venezuela wanted OPEC to take off the table!!

Looking at that another way, this is a plot of Year-on-Year change in U.S. shale oil output (source EIA), the model is simply Brent-lagged-one year, the R-Squared on that is 75% (P<0.0001).

(click to enlarge)

The correlation underscores how important the price of oil is to U.S. shale oil drilling…and because of the rapid depletion – production. If the drillers can hedge, they drill, if they can’t they traipse down to the saloon and play country-music to each other.

The projection says after a year or so – growth with drop to about 13% of Brent averages $70, that’s a slightly higher output number than the previous analysis.

So U.S.A., the world’s shale-oil expert, is now the world’s “swing” producer.

If prices go down, production goes down…automatically; if prices go up; production goes up. So U.S.A can be “oil-independent” so long as the price stays more than $90 and the shale-oil drillers can hedge at that price for two years. And so what, if the price is $65, who cares, U.S. will spend $100 billion less a year importing oil.

The Saudi “conspiracy”?

Leaving aside the popular press’s antipathy to Saudi Arabia, it is eminently possible the reason oil prices finally crashed from their unreasonably high level, was not a Machiavellian scheme instigated by Saudi Arabia, and more likely had something to do with the increasing demand from U.S. shale-oil producers to hedge the part of their production that was necessary for their payback on CAPEX.

No one can blame the Saudis for that. And, by way of a reality-check, although everyone likes to say they are the “swing-producer”, they haven’t played that game, at least with any real sense of enthusiasm, since they got completely burnt in 1988. That’s ancient history, a fairy story. Here is a chart of Saudi annual oil production compared with the oil price since 2000:

(click to enlarge)

You can squint at that graph whichever way you like. But even if you hold it upside-down it’s hardly a smoking gun for the theory that the Saudis have been manipulating the price. Here’s a plot of a multivariate regression with {World-oil production} and {Saudi percentage share} as explanatory variables for “Predicted Saudi Oil Production in Thousand Barrels per day”:

That says over the past fifteen years, you could predict what the Saudis would produce with an accuracy of +/- 10% at the 95% confidence limit (P<0.0001*) from just two variables. And significantly “Price” is not a statistically significant explanatory variable either the year before, the year in question, or the year ahead (t= 0.4). In other words – for the past fifteen years, the Saudis have just pumped 13% of the world’s oil production – come rain or shine.

Saudi Arabia got its reputation as a “Swinger” in the 1980’s – the history of that is illustrated below:

(click to enlarge)

In brief – in the mid-eighties the rest of OPEC persuaded the Saudis to “swing” – then they (OPEC) cheated. By 1986 Saudi was producing less than half what it could. Then the North Sea started coming on line, the Iran-Iraq War ended, and the world was swimming in oil. In 1992 the Saudis said – “this “swinging” thing is a real bad idea”, and they told OPEC to take a running jump, and started pumping to get 13% of the World market share. Yes – once-upon-a-time, Saudi Arabia was a “swinger”; then they grew up. But still, the talking-heads keep repeating like a mantra, that the Saudis are “swingers” and they are manipulating the market. Their theory is presumably that if they keep saying that, over and over again…it will become the truth.

If the talking-heads are suggesting “someone” should push up oil prices by limiting production, GREAT!! All they need to do is persuade ALL of the oil producers in the world to cut production by…5%…or 10%….or 15%. If they or “someone” manages to do that, then based on the hard historical evidence of the past fifteen years, the Saudis will gladly follow suit.

What the Saudis are not doing, which is why everyone is accusing them of “conspiracy”, is making any effort to persuade ALL the other oil producers in the world to cut production. That’s not going to happen; because the only producer that will be cutting back production will be U.S.A. and that’s only a cut in what they “could” have been producing, in 2016, if oil prices stayed at $100.

Here’s a “helpful suggestion”… perhaps U.S.A. should consider joining OPEC so they can sit on the same side of the table as Venezuela and the Iranians and lambaste Saudi Arabia for not being a “team-player”? That way they can re-start the exponential growth of the shale-oil industry which was set, if the trend-line is correct, to be producing easily 15 Million barrels per day by 2020.

Meanwhile in Saudi Arabia

The Saudis have been remarkably open and consistent about their position. For ten-years, they have been telling anyone and everyone who would listen what they think is the correct price of oil; that (NYSE:A)) their customers can afford and (B) provides a reasonable incentive for bringing-on new oil to replace what got pumped.

· When it shot to $145 in 2008…..They said the correct price was $75

· When it plunged to $35 in 2009…..They said the correct price was $80

· When it jumped to $85 in 2010…..They said that’s about right

· When it rocketed to $110…..They said the correct price was $90

· Now….. They are saying the correct price is $95

It is (perhaps) reasonable to ask, “If the Saudis think the correct price of oil today is $95 then why is it $65?” The reason is that four-years of prices being higher that what Warren Buffet calls the intrinsic value, accountants call Fair Value, and others call the Fundamental, leads like day follows night to what the Austrian Economists call malinvestment.

That’s another word for making an investment without doing proper research or doing your sums properly….which is another word for incompetent, bonkers, or both. That’s what the Saudis are worried about.

The Saudis are not worried about shale-oil drillers, because by definition a shale-oil driller is neither incompetent, nor is he bonkers. He needs a one-to two year payback to make money – so he can’t dress up his business-model with fancy dreams of what might happen in fifteen years. If he can hedge, he can get the finance; if he can’t then he’s sitting on the bench.

Not so with traditional oil-fields, in that business model, regardless of what were your planning assumptions for the price of oil over the fifteen-years you will get payback on your CAPEX from when you start to spend big money, once you spent the money, there is no turning-back, you have to pump, regardless of what the price is, until you paid off the loans. And you can’t hedge the oil price fifteen years down the road. When silly decisions are made, that can cause pain all round for years.

That’s what happened with North Sea oil which was planned and initially developed when oil prices were made artificially high because of the Iraq-Iran War. Then as soon as they were up and running; and the big part of the CAPEX had been spent, the war stopped. And for the next twenty years they pumped oil pretty-much at break-even when prices dropped through the floor due to a huge over capacity, as is explained here.

(click to enlarge)

That was, in retrospect a “Mal-investment” on a huge scale, and that is what the Saudis are worried about. The only news worth reporting at the OPEC Meeting on Thursday was the Saudis did not change their minds for ten years, and forget about ancient history, since at least 2000, they never changed their oil production to “swing” the prices. So why should they start now?

So what’s their game?

What they are acutely worried about is incompetent and often completely corrupt state-owned oil companies, making stupid investments based on the notion that “Oil Prices Never Go Down”, and that the only way from $110 Brent is up.

There are four good reasons why the correct price for oil (Brent) today, is $95:

1. That’s what the Saudis say it is – they should know, after all they have a reputation as “swingers”

2. That is the marginal break-even cost plus profit of the latest technology for replacing oil (shale-oil)

3. That represents a total oil bill for the world of 3.3% of GDP which is what it has averaged over fifty years. The logic of that is explained here.

4. That is exactly equal to the square-root of the previous peak multiplied by the bottom of the trough that followed – adjusted for now. That’s called BUBBLEOMIX

So how come oil is $65 when the “correct price” is $95? The proof for why that is, is that was predicted, in glorious Technicolor four years ago, the only thing that was wrong with that prediction was the timing (although that was “hedged”), but like Milton Keynes said “the market can stay irrational longer than you can stay solvent”, which is another way of saying – no one can predict when a bubble will pop. What is predictable is what happens after the pop. Here’s that up-to date, four years “up” means there will be four years “down”, because according to The General Theory of the Pebble in the Pond… bubble and pop is zero sum.

(click to enlarge)

22 Comments on "Output Forecast To 2020 Will Make Saudi Arabia Very Happy"

Plantagenet on Mon, 1st Dec 2014 6:31 pm 



It isn’t the “media” that says OPEC and KSA dominate world oil production and play an outsize role in the world oil markets—OPEC itself says that. The decision by OPEC to not cut production in the face of falling oil prices clearly shows OPEC (i.e. KSA) wants lower oil prices. The Saudis themselves have been quite clear about that both before, during and after the latest OPEC meeting.

Davy on Mon, 1st Dec 2014 6:43 pm 



Planter do you think we will ever really know what is going on in that patch of desert. Do you believe everything you hear out of those folks? If so then a word of advice there is no Santa Claus, no tooth fairy, and groundhogs don’t see their shadow. Get the drift?

Perk Earl on Mon, 1st Dec 2014 6:54 pm 



“U.S. shale oil production in 2015 will be 6 Million barrels/day up from 4 Million in 2014 -regardless of oil price slump.”

That is quite a bold statement in this article.

kenberthiaume on Mon, 1st Dec 2014 7:10 pm 



I don’t think they want lower prices. They are inevitable so they’re not fighting them.

Plantagenet on Mon, 1st Dec 2014 7:15 pm 



Daver

Your attempt to link the Saudis with Santa Claus, the tooth Fairy and magic Groudhogs was very funny. Do you really think the Saudis are imaginary?

Your post exemplifies why I’ve found traveling the world to be so educational. The Saudis are quite real, let me assure you. Saudi Arabia is a very wealthy and very powerful petrostate and they have a long history of setting oil prices and cutting their oil production and boosting their oil production to manipulate oil prices in the past, just as they are doing now.

Davy on Mon, 1st Dec 2014 7:22 pm 



Planter, I was trying to get the point across that they are insular and secretive. What they say on TV is probably not quite what is going on in the palace.

Instead of the groundhog shadow example I almost said Obama has a 8 handicap but I thought that would put you in orbit.

cheers

Plantagenet on Mon, 1st Dec 2014 7:28 pm 



Daver

You are right—-Saudi Arabia is not the most transparent kingdom in history. I doubt you’ll get much useful information on them by watching TV. I suggest you check out their oil production numbers—and those are still running at high levels.

cheers!

PS: Feel free to say anything you want about obama—its entirely up to you. But watch out—NWR may go into orbit when you mention obama.

Makati1 on Mon, 1st Dec 2014 7:32 pm 



NO-ONE knows what next year will bring.

Last Christmas: did you think oil would be pushing $70?

Did you have a clue about the Ukraine and events happening there?

How about: Ferguson? Ebola? Typhoon Yolanda?

Any prognostications for the new year are just educated guesses at best. So, pull up a chair, pop some corn, get your favorite beverage, and enjoy the 2015 show. I promise it will NOT be boring.

Makati1 on Mon, 1st Dec 2014 7:33 pm 



P.S. Anyone telling you what 2020 is going to be like is definitely smokin’ something good. Share.

rockman on Mon, 1st Dec 2014 9:20 pm 



M – But that’s the wonderful thing about making predictions 6 years out: it will be many years before one is proved a fool. But maybe they are really that smart: so what do they think WTI will average for Jan 2015? April 2015? Oct 2015?

Most of us will still be here to offer great tribute…if it be so earned.

About that last phraseology: I just watched the last episode of “Spartacus”. They talked so purty. LOL.

keith on Mon, 1st Dec 2014 10:19 pm 



I think the evidence shows that Man is still in control, for the moment, but Mother nature is in the wings, waiting to alleviate us from the mirage of modern civilization. The question is not “if”, but “when” we lose control. The slide in oil prices, the decision of OPEC, is evidence that we are still in control. There is no sense of emergency in the air. The day we lose control, we will know it. Our political actors will respond with unfettered immediacy. Historically, the response is immediate population reduction, usually through contrived wars. I’ve wondered, as of late, how far into the future peak oil would be pushed, if 5/6ths of the global population were eliminated? We have so many other ways to do it today. When the mouth pieces for the elite look and sound desperate, then we’ve lost control.

Apneaman on Tue, 2nd Dec 2014 12:27 am 



Some are not happy already.

The US shale oil revolution is bleeding as well. Shares across the board are getting hit, many of them outright eviscerated. If the word “plunge” occurs a lot, it’s because that’s what these stocks did on Friday.

Goodrich Petroleum plunged 34% on Friday; down 80% from June.
Sanchez Energy plunged 29.5% on Friday, down 71% from June.
Clayton Williams Energy plunged 25.6% on Friday, down 61% from May.
Callon Petroleum plunged 18.6% on Friday, down 60% from June.
Laredo Petroleum plunged 33.5% on Friday, down 66.5% from June.
Oasis Petroleum plunged 27.2% on Friday, down 68% from July.
Stone Energy plunged 24.1% on Friday, down 68% from April.
Triangle Petroleum plunged 25.6% on Friday, down 62% from June.
EP Energy plunged 25.3% on Friday, down 54% from June.

The list goes on. Even large oil companies got clobbered:

Exxon Mobil down 4.2% for the day and 13% from July.
ConocoPhillips down 6.7% for the day and 24% from July.
Marathon Oil down 11% for the day and 31% from early September.
Occidental Petroleum down 7.4% for the day and 24% from June.
Anadarko Petroleum down 10.5% for the day and 30% since late August.

http://wolfstreet.com/2014/12/01/saudi-arabia-declares-oil-war-on-us-fracking-hits-railroads-tank-car-makers-canada-russia-sinks-venezuela/?utm_content=buffer4e700&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Davy on Tue, 2nd Dec 2014 6:24 am 



I think the evidence shows that Man is still in control, for the moment, but Mother nature is in the wings, waiting to alleviate us from the mirage of modern civilization. The question is not “if”, but “when” we lose control. The slide in oil prices, the decision of OPEC, is evidence that we are still in control. There is no sense of emergency in the air. The day we lose control, we will know it. Our political actors will respond with unfettered immediacy. Historically, the response is immediate population reduction, usually through contrived wars. I’ve wondered, as of late, how far into the future peak oil would be pushed, if 5/6ths of the global population were eliminated? We have so many other ways to do it today. When the mouth pieces for the elite look and sound desperate, then we’ve lost control.

Kieth, yea, I keep getting back to time. We know it will happen. I think most corns acknowledge this especially with AGW waiting in the wings. Many corns realize that AltE is not a savior. Many do not subscribe to outpost on Mars. The primary difference between realistic corns and dooms alike is time. Is the timing of this descent and the degree and duration near and an issue? Corns tend to acknowledge we will have a recession eventually with a return to growth. Dooms say this time is different and we are on the cusp of a paradigm shift to a postindustrial man.

No doom can adequately forecast the degree and duration of this descent. I personally see in our immediate future a bumpy descent. The bumpy plateau is over and we tipped into descent territory. This is when the fun begins. The randomness of descent is not conducive to hyper complexity. Abandonment, dysfunction, irrational reactions, destructive processes and finally loss of confidence combine to shake our foundations. Instead of proactive growth the best we can manage is reactive responses.

We are likely at limits of growth and diminishing returns to complexity and carrying capacity. The huge issue for humans is when. If descent is 20yrs out our concern is very different than 3-5yrs. I feel educated and realistic dooms and corns are wrestling with these issues. Then there are the doom loons and the corn porns. These folks are either morally criminal or in denial. The TPTB, MSM, and 1%ers preaching corn to support their agenda are morally criminal. Joe 6 is just dumb and in denial. The lone wolf doom folks digging trenches and stocking up on ammo are deranged. It is the center revolving around doom and corn that is essential for us to navigate this period.

We can make good choices or bad at macro and micro levels. Both doom and corn are essential in this decision making process. Unfortunately corn porn is in control and will likely lead us into a bottleneck event. This is possibly the best scenario for our species. End this madness quickly so whoever survives might have something to survive on. I don’t know what is best or when this will happen that is why I am here.

FloridaGirl on Tue, 2nd Dec 2014 6:37 am 



Some of the numbers in this article seem bogus. For example “Continental Resources says it can make a profit at $50 and IEA says Bakken remains profitable at $42”. If you look at Continental’s last quarterly SEC filing, their expenses exceeded their income at prices nearly twice that. They were getting by with increasing debt. They show a “profit” by depreciating their drilling expenses at conventional oil drilling rates.

RE:”“Payback” on a shale oil play is hedged. Right now the owners of wells that have not paid-back don’t care what the price of oil is.”

Continental already cashed out on almost all of their derivative hedges prior to their September filing which leaves them very exposed to the current price drop.

rockman on Tue, 2nd Dec 2014 7:01 am 



“The decision by OPEC to not cut production in the face of falling oil prices clearly shows OPEC (i.e. KSA) wants lower oil prices.” What the KSA wants is the max cash flow it can garner. Cutting their production right now would reduce their income since there would not be an immediate increase in the price of oil. But later? That depends on the demand from the refiners. If the refiners don’t project an increase in the consumption by consumers at a higher price than current expectations they aren’t going to pay more for oil. As much as some folks don’t want to accept the facts it’s still true: the refiners decide how much they are willing to pay for oil…not the KSA. And the KSA can control is how much oil they sell. Today, tomorrow and next month the only method the KSA has to create their max revenue is producing as much oil as possible.

This isn’t a new dynamic. Go back to the early 80’s when the KSA consistently reduced the amount of oil they sold. Did that bring about higher oil price in a global economy that continued to degrade: 1982 – $77.21/bbl; 1983 – $68.32/bbl; 1984 – $64.75/bbl; 1985 – $58.54/bbl; 1986 – $30.54. The KSA income not only decreased significantly as they reduced sales but also fell due to a continuing price slide. So then in 1986 they opened the taps to recover market share they had lost to other OPEC members who refused to cut production. From 1986 to 1997 oil stayed in the $25 -$35 per bbl range. But starting in 1986 the KSA revenue boomed because even with the lower price they were selling much more oil. I recall analysis pointing out in 1986 that if the KSA had continued cutting production at the rate they had been they would have shut in 100% of the production in another 18 months. IOW $0.00 oil export revenue.

IOW there is no absolute certainty that if the KSA had cut their production by about 20% or about 2 million bopd we could still be seeing lower oil prices today. And perhaps even lower oil prices in the future. Which is exactly what happened during the first half of the 80’s. I doubt the KSA govt has forgotten.

No one can predict how the global economy will react to lower prices but be clear on a simple fact: the price that refiners were willing to pay for oil was based on their expectations of what consumers would be willing to pay for their products. As I said: before if they could pay $75/bbl for oil and sell gasoline to consumers for $5/gallon they would. Conversely if they expected they couldn’t sell enough gasoline at current prices while paying $90/bbl for oil to make a profit they would buy the oil. The KSA can’t force refiners to buy their oil at any price. All they can control is the price they’ll sell to refiners that would induce them to buy enough oil to generate the max cash flow to the KSA. And today that price, as determined by the oil exporters, is about $75/bbl.

As much as some folks what to ignore it revenue is a function of the sales volume X the price. The same dynamic for the IPad as for oil. They could increase the price of the latest IPad by 50% and still sell a lot of them. They could also reduce the price by 30% and sell a lot more. But at what price will IPad sales generate the max revenue? If the marketing folks are doing their job properly it would be the current price. And if the KSA oil marketers are doing their job properly the KSA is selling their oil at a price that generates max revenue for them. And that would be the price the refiners are willing to pay. Just as the price of IPads is determined by what consumers are willing to pay.

Again for folks who think the KSA is trying to hurt the shale players by not reducing its production rate: at a $30/bbl lower price the KSA will lose $100 BILLION of revenue in the next 12 months. And to gain what: have fewer US shale wells drilled? Wells that will be drilled when prices increase. What advantage are they gaining that’s worth that much lost revenue? No one has yet offered any form of concise answer.

Makati1 on Tue, 2nd Dec 2014 7:49 am 



Rockman, I suspect it is part surplus/demand and part political. But KSA can go for ~7 years on their foreign reserves. In less than that, the fraking bubble will be gone, forever. The tar sands will be bleeding billions or also gone. Off-shore drilling and any Arctic expansion will be crippled or also off the table. I guess we will have to wait and see the end results. Maybe the reason will be more obvious. Maybe the end result will even surprise the KSA.

Mike LaBonte on Tue, 2nd Dec 2014 8:09 am 



Obviously the Saudis want higher prices. The way to get that is volatility. They need to end the long period of stability that has created a favorable investment climate. Prices will go up, but if we get another financial crisis out of this the price recovery will be delayed. The KSA can weather it.

rockman on Tue, 2nd Dec 2014 8:19 am 



M – All true. Just as the fact that every play you say that will be off the table at these lower prices will be back on the table when oil prices rise. So again: is it worth the KSA giving up hundreds of $BILLIONS in revenue to delay the development of all those other resources if they are still going to be developed anyway? So I’ll ask the same question again: what advantage is the KSA gaining by today’s lower oil prices? It’s a very simple question.

And again I’ll remind you and everyone else that the first ONE MILLION BBLS PER DAY of oils sands production was created when the inflation adjusted price of oil was less than $40/bbl. Sooner or later folks are going to have to give up on the bullsh*t that new oil sands projects can’t be developed at current prices. If they could do it for $40/bbl when they were just beginning to work on their learning curve I suspect some can still do it at today’s prices…and some at even lower prices.

And then there’s the DW GOM: much of the production today is coming for fields that were discovered and had tens of $BILLIONS spent putting in production infrastructure at a time when oil was selling for considerably less than it is today.

But you still ignore the fact that the KSA doesn’t set the price of oil…the refiners do. The only impact the KSA might have on prices is by reducing their production. A ploy that miserably failed in the 80’s…a fact as opposed to speculations about future oil prices.

Davy on Tue, 2nd Dec 2014 8:51 am 



“7 years on their foreign reserves” is only as good as the global economy. Any of these so called rich foreign reserve countries are nothing more than paper rich. A country should be judged by its carrying capacity not paper wealth. China is a prime example of a dirt poor country in carrying capacity criteria.

shortonoil on Tue, 2nd Dec 2014 3:04 pm 



I’ve got to agree with you FloridaGirl many of these numbers look bogus. In table 1 the author refers to the first year Bakken decline rate as being 43%. We took the same numbers that David Hughes used in Drill, Baby Drill and went through them. Of the 4598 wells drilled through 5/12 the average first year decline rate was 70%, just as Hughes stated.

You are also correct that Continental sold all of its hedges months ago, and I seriously doubt if more than 50% of Bakken production is hedged. What happens when the operators go to collect on $10 of billions of hedges to find out that the counter parties are insolvent? It happened just 6 years ago to Lehman. The avalanche of articles that have come out recently regarding how “solvent” the shale industry really is, is just another good dose of snake oil to keep the wolves at bay while the financial interest behind it run for the exit.

Northwest Resident on Tue, 2nd Dec 2014 3:13 pm 



“The avalanche of articles that have come out recently regarding how “solvent” the shale industry really is, is just another good dose of snake oil to keep the wolves at bay while the financial interests behind it run for the exit.”

Leaving individual investors, corporate 401K accounts and other assorted “fish” holding the bag.

Yes, you can still get filthy stinking rich in America, as long as you know how to play the suckers.

Apneaman on Tue, 2nd Dec 2014 4:38 pm 



If I remember correctly, in the early 1980s the Saudi’s had new competition from the North Sea and the North slope and you don’t get tar sands without the continued milking of the Canadian tax payer. One big rain fall event over the Fort McMurray area, like what happened in and around Calgary in the summer of 2013, and it’s game over for bitumen mining and much of the environment for a huge area. The hydrological cycle has and continues to change. For every 1 degree C above base line the atmosphere holds 7-8% more moisture. We are at .85 – .9 above baseline and rising. Hence the Calgary floods last year along with a cavalcade of floods elsewhere. Much more to come. In a couple months it will be announced that 2014 was the warmest year since we have been measuring. On the other end you have ordinary citizens and communities in the U.S. in competition with frackers for precious water. Apparently people need water too; clean water. Will oil people get everything they want without any resistance? Seems like the PR and legal budgets keep growing so they can hide the social costs that go with all boom towns. Sorry about your roads and your water and the pollution and we is real sorry about your daughters, but it’s capitalism and they are just another externality.

http://floodlist.com/dealing-with-floods/world-disasters-report-100-million-affected-2013