N.D. Tops 350,000 Bbls/Day, Could Double by 2015
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Tuesday, January 11, 2011
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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24 Comments:
What could hamper oil production in western North Dakota? Battered roads resulting from average of 2000 truck trips to each of the projected 20,000 new wells over the next 20 years.
Buddy-
North Dakota has battered roads?
Why, get the federal government to build you some new ones!
R U stupid up there?
Benji, the state of North Dakota has a $1 billion dollar surplus. It is a good idea to always have an inventory of shovel-ready projects ready for fed largess though.
BTW, check out the line-up of journalists at the top of the page I linked to -- the weather may be cold but...
There you go again Mark. You keep reporting the projected estimates without going back to see how the previous ones worked out. Remember when shale gas was going to be the saviour of the energy economy? Well, that game is ending as the shale players are running hard from money losing shale gas production and pretending that they can make money from oil instead.
But the real numbers don't add up. The average ND well is producing less than 100 bpd even though the vast majority of wells are not very old. Of course, you will stick to the ultimate recovery estimates and pretend that the production will be profitable but that can only work for so long. We have already seen the Baker Hughes rig count numbers tell us that natural gas drilling is in rapid decline as the companies can't make any money off of it. (You can hear this on the conference calls if you know what to listen for but most people don't so they get confused by much of the hype.)
What is important to understand is that shale as about the same energy density as a potato. That means that no matter what drilling method you use, you will have trouble paying back the energy input unless you get lucky and are sitting in an area where the density is significantly higher. While that is possible and some such areas exist, there is no way to justify the optimism on the basis of their limited reserves.
What we are seeing is a game played by many in the energy sector as they transfer wealth from investors and creditors to themselves. Yes, a solution to our problem will come. But it is likely to come from a source or technology that we are not paying attention to. Someone may find a way to get a great return out of methane hydrates. Or to use biological processes to break down heavy tars into more valuable short chain hydrocarbons. Or figure out how to use existing technology to create liquid ammonia to solve our liquid fuels problem. But those technologies are not yet ready and shale gas and oil are no solution. Beware of snake oil salesmen playing you for suckers.
Buddy-
So, to be a "newscaster" in ND, you first have to win a model contest?
And what kind of job could I get in ND?
From Vange-
"What is important to understand is that shale as about the same energy density as a potato. That means that no matter what drilling method you use, you will have trouble paying back the energy input unless you get lucky and are sitting in an area where the density is significantly higher."
Wow! That means those dufuses in ND are just hitting one lucky strike after another! What luck! Amazing!
Those ND guys are wasting their time--with luck like that, they should hit Vegas, baby. The town would be wiped out in a week!.
BP to Cut Alaskan Oil Production - The company that operates the Trans Alaska Pipeline told operators on the North Slope to cut crude production by 95%, after discovering an oil leak. Alyeska Pipeline Service Co.'s order was a big blow for BP PLC, the largest oil producer in Alaska. The centerpiece of BP's operations in the state is at Prudhoe Bay, the largest producing oil field in the U.S. The North Slope of Alaska produces about 630,000 barrels of oil a day—about 9% of total U.S. output.
http://online.wsj.com/article/SB10001424052748704030704576070430711905052.html?mod=googlenews_wsj
"And what kind of job could I get in ND?"
Lots of work involving snow removal these days.
No matter how bad the job outlook is, the unemployment rate among hot young women is always 0%.
Well, I can shovel snow, and I like hot women.
... the shale players are running hard from money losing shale gas production ...
What color is the sky in your world?
Last year, the “Potential Gas Committee,” a group of specialists linked to the Colorado School of Mines, reported the biggest increase in U.S. natural-gas reserves in its 44-year history, from 1,532 trillion cubic feet (TCF) in 2006 to 2,074 TCF in 2008.
The Marcellus shale field alone, in New York and Pennsylvania, has been estimated to be worth as much as US$2-trillion. The American Petroleum Institute has calculated that it could support 280,000 jobs. In Quebec, a report this week suggested that the industry could create almost 5,000 jobs a year for the next 10 years.
As for the geopolitical implications, shale gas, which is also present in large volumes in Europe, promises to reduce the significance of both Russian and Iranian gas, along with those suppliers’ potential for causing trouble. It also augurs a huge boost to gas-fired electricity, and further undermines the economics of nuclear, wind and solar power. According to Amy Myers Jaffe of Rice University, “It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.”
Last month, energy consultant and Pulitzer Prize-winning author Daniel Yergin declared that shale gas was the most important development in the energy industry so far this century.
The Financial Post
A study by Penn State University predicted that the natural gas industry in Pennsylvania alone will be responsible for the creation of 111,000 jobs and for bringing in an additional $987 million in tax revenue to the state by 2011. Natural gas extraction has been one of few industries growing (without government subsidies) during this recession.
Big Government
Wow! That means those dufuses in ND are just hitting one lucky strike after another! What luck! Amazing!
Those ND guys are wasting their time--with luck like that, they should hit Vegas, baby. The town would be wiped out in a week!.
The shale plays are just another in a series of bubbles. We just saw the shale gas story fizzle as the companies that were hyping it have reduced their drilling activities and written off many wells. Now they are hyping up oil and the suckers are still buying it. A few people will make some money from the mid-Bakken formation. But for them the gains will be modest. The return for the rest will be negative.
What color is the sky in your world?
Last year, the “Potential Gas Committee,” a group of specialists linked to the Colorado School of Mines, reported the biggest increase in U.S. natural-gas reserves in its 44-year history, from 1,532 trillion cubic feet (TCF) in 2006 to 2,074 TCF in 2008....
It took me all of two minutes to find support for my argument.
http://tinyurl.com/2dnbufy
http://tinyurl.com/23e3rgu
Hype about potential does matter. Only real world data does.
The fact is that the shale gas players can't generate a positive return because their production costs are higher than their sale price. The energy that goes into producing the gas is higher than the energy that is being produced.
A study by Penn State University predicted that the natural gas industry in Pennsylvania alone will be responsible for the creation of 111,000 jobs and for bringing in an additional $987 million in tax revenue to the state by 2011. Natural gas extraction has been one of few industries growing (without government subsidies) during this recession.
Actions matter more than words do. In the real world the shale gas players are drilling less (see the Baker Hughes data) and moving on to oil. The jobs won't materialize unless prices rise faster than costs.
"The jobs won't materialize unless prices rise faster than costs"...
Well no worries then vangeIV since an idiot promised US energy consumers higher prices...
Well no worries then vangeIV since an idiot promised US energy consumers higher prices...
Sadly, that is only half the equation. As energy prices rise so will the cost of the inputs required to develop the shale plays and we will be still short of economic. Unless the technology improves substantially, shale is still a sucker's game.
"Sadly, that is only half the equation"...
That half that doesn't need to rise more than it would under nominal circumstances...
"shale is still a sucker's game"...
Sucker's game, eh?...:-)
Liquid crude fall into this 'sucker's game' if the idiot gets his way...
That half that doesn't need to rise more than it would under nominal circumstances...
The input cost ultimately includes energy, which makes up a big part. All that steel, the pumps, valves, etc., have their own energy component. In a situation where the supply chain is tight and disruptions create problems for the JIT based system that serves the supply chain you can be certain that the risks on the input cost side are much larger than you are pretending.
Sucker's game...
Yes it is. How much oil is in the shale is not as important as the energy density and the cost of getting that oil out. The high cost of development and production is why the big shale gas players are reducing their drilling and production activities and hyping up their liquid assets. But if they used the proper accounting and stuck to a realistic ultimate recovery estimate the phantom profits would disappear for most shale producers, even at $100 oil.
Let me be clear here. I love the energy sector and am an investor even at these prices in oil, natural gas, coal, and uranium. (I have ever bought some very risky lithium plays.) All I am saying is that there are are safer plays that should yield far more profit over the long run than hyped up shale players who require a bigger fool for a decent return.
Liquid crude fall into this 'sucker's game' if the idiot gets his way...
As I wrote above, I love the energy sector. I just don't love companies that have to spend more than one barrel of oil to get a barrel out of the ground.
"The high cost of development and production is why the big shale gas players are reducing their drilling and production activities and hyping up their liquid assets"...
Well apparently vangeIV you only want to see what you want to see which of course isn't wrong or dumb or anything even remotely like that...
Still other folks are willing to bet their money on something they think they can get at a reasonable cost...
We don't know what other folks might possibly have up their collective sleeve to recover shale oil or shale gas...
Odds are you might be correct but they're only the known odds...
Well apparently vangeIV you only want to see what you want to see which of course isn't wrong or dumb or anything even remotely like that...
I see what is being reported on the conference calls. So do others. I do not know about you but my observations indicate that Tinkerbell investment styles don't do very well over the long run where reality tends to work better than wishes.
Still other folks are willing to bet their money on something they think they can get at a reasonable cost...
Their money. Is that why they keep financing projects that don't provide a positive returns? Why would you dilute shareholders if you can get positive cash flow that will finance operations again? And why would you move away from what you know (gas) to drill for oil if you can make a profit?
You sound like those eyeball metric guys who was hyping internet stocks not all that long ago. Don't wind up like they did.
"So do others. I do not know about you but my observations indicate that Tinkerbell investment styles don't do very well over the long run where reality tends to work better than wishes"...
Where's your sense of history?
Electrical lights was at one time considered a 'tinkerbell investment'...
So were telephones and televisions...
So were integrated circuits...
So was off-shore drilling...
"Why would you dilute shareholders if you can get positive cash flow that will finance operations again?"...
Shareholders can always pull their money out and many of them do...
"And why would you move away from what you know (gas) to drill for oil if you can make a profit?"...
Probably the very type question asked by wagon makers of car makers...
"You sound like those eyeball metric guys who was hyping internet stocks not all that long ago. Don't wind up like they did"...
Where's your sense of history?
Electrical lights was at one time considered a 'tinkerbell investment'...
So were telephones and televisions...
So were integrated circuits...
So was off-shore drilling...
I have no problem with taking risks. My problem is when those risks are mispriced as is the case in the shale gas and shale oil players. What you have is a zero profit production situation that is being hyped by the sector and you are buying into it. This is not some experimental or research opportunity that could pay off by providing thousands of percent in returns as the examples cited. This is a well known situation where the producers are valued quite highly. And while it is possible to get a good return, it is far easier and safer to do so by buying other assets at better prices.
Shareholders can always pull their money out and many of them do...
True. But if you stay behind you better be asking about the dilution. Why is management issuing shares and borrowing if the operations can generate positive cash flows?
Probably the very type question asked by wagon makers of car makers...
Wrong analogy. I am not talking about majors going to a new sector. I am talking about shale gas producers choosing to stop drilling for gas and looking elsewhere. As I wrote before, we given the reported financials and the terrible assumptions about ultimate recovery rates could see some major bankruptcies this year.
"As I wrote before, we given the reported financials and the terrible assumptions about ultimate recovery rates could see some major bankruptcies this year"...
How do you know just how accurate those reports are?
How do you know just how accurate those reports are?
The financials are audited and are showing red ink all over the place. If they are not accurate the picture is likely to be even more bleak.
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