Sunday, January 02, 2011

Something Else to Watch in 2011: ND Oil Boom; Running Out of Superlatives As Estimates Double

BISMARCK, N.D. (AP) -- "Government and industry officials believe North Dakota's oil patch contains more than twice the amount of oil previously estimated and that the state's already record crude production will double within the decade.  If the forecast is correct, North Dakota could leapfrog in a few years from the fourth-biggest oil producing state to No. 2, trailing only Texas.

"It's a pretty rosy picture," said Lynn Helms, director of the North Dakota Department of Mineral Resources. "We have a huge amount of drilling still in front of us."

Record rig activity pushed by strong crude prices and refinements in drilling technology could result in North Dakota seeing a twofold increase in production. The drilling technology alone has cut the amount of time needed to complete a well from 65 days in 2008 to about 25 days. "We are now looking at the possibility of 700,000 barrels a day and we see that coming in the next four to seven years," Helms said.

At that rate, North Dakota would surpass California and Alaska based on those states' current production, said Steven Grape, the domestic reserves project manager for the U.S. Department of Energy's information administration.  "That would be pretty amazing in my book," Grape said.

Federal and state estimates had pegged North Dakota's portion of the Bakken shale and underlying Three Forks-Sanish oil formations in western North Dakota at about 5 billion barrels of oil, using current horizontal drilling technology. Helms said that estimate has more than doubled based on drilling success and current production rates." 

"We're starting to see indications that we could reasonably get 11 billion barrels," Helms said.  Helms said nothing surprises him anymore about the state's prolific oil patch. "I'm running out of superlatives," Helms said. "We're going to have to invent some new ones."

HT: Buddy Pacifico

80 Comments:

At 1/02/2011 5:51 PM, Blogger VangelV said...

How the hell can this be considered good news? What you have are multi-million dollar wells that are producing less than 150 bpd after the first year or two and depletion rates that make investment at current prices very speculative. 700,000 barrels within four years does not sound very promising when you account for the drilling activity that such a production rate would require. With wells losing 75% of their production rate within a year or so you will need more and more wells just to keep production flat. I would think that if such a rate were to be maintained one would make a lot more money selling pipe, pumps, and services to the producers than from producing the oil.

 
At 1/02/2011 6:13 PM, Blogger juandos said...


APNewsBreak: ND Oil Patch May Double Production


BISMARCK, N.D. January 2, 2011, 03:30 pm ET

Government and industry officials believe North Dakota's oil patch contains more than twice the amount of oil previously estimated and that the state's already record crude production will double within the decade...
==================================
Brigham Exploration Announces Five High Rate Bakken Completions and Provides an Operational Update

AUSTIN, TX, Dec 15, 2010

Brigham Exploration Company (NASDAQ: BEXP) announced the completion of five high rate Bakken wells at an average early 24-hour peak flow back rate of 3,085 barrels of oil equivalent. To date, Brigham has completed 45 consecutive high frac stage, long lateral Bakken and Three Forks wells in North Dakota at an average early 24-hour peak flow back rate of 2,810 barrels of oil equivalent. Brigham also provided an update on its drilling and completion activities in the Williston Basin...

 
At 1/02/2011 6:53 PM, Blogger VangelV said...

Brigham Exploration Company (NASDAQ: BEXP) announced the completion of five high rate Bakken wells at an average early 24-hour peak flow back rate of 3,085 barrels of oil equivalent. To date, Brigham has completed 45 consecutive high frac stage, long lateral Bakken and Three Forks wells in North Dakota at an average early 24-hour peak flow back rate of 2,810 barrels of oil equivalent. Brigham also provided an update on its drilling and completion activities in the Williston Basin...

The decline rates are huge. There isn't a single well drilled by Brigham that will average more than 500 bpd within a year or 200 bpd within 18 months. That is the problem for companies like Brigham. They need to finance huge capital investments and hope that they can get enough cash flow to pay back their loans before the wells run dry. If you look at the company's cash flow statements (and profit margins) you will see where the risks are.

 
At 1/02/2011 7:01 PM, Blogger Benjamin said...

Like shale gas, the Bakken field shows what happens when there is a spike in oil prices, and people start innovately looking for oil.

The world would have a glut of oil presently, were it a free market.

There is probably 30 mbd (million barrels a day) left on the shelf in just Iran, Iraq, Venezuela and Mexico.

How much is 30 mbd? Weill, the world uses about 85 mbd.

The oil is not developed due to thug-state politics. I won't even mention Nigeria, Uganda, Russia and constant underproductipn of OPEC. Although Kuwait is sked to double production in next several years. Qatar just brought online the world's largest GTL plant.

It may well be that oil prices do go higher in the future; Vange is certainly plumping for that. Thug states seem to have staying power. When will Venezuela be free and well-run country? How about Mexico? Libya? Iran? Iraq? The beat goes on. A sad story, saddest of course for those miserable people living in thug states.

One thing is for sure: If the world turns to market solutions, the oil market gluts badly in the years ahead.

Who knows what Putin is doing on the NYMEX?

Peak Oil is, of course, a sophomore's fantasy.

And natural gas is lush for generations ahead.

 
At 1/02/2011 8:07 PM, Blogger aorod said...

The EPA will put a stop to this..

 
At 1/02/2011 8:19 PM, Blogger Rufus II said...

$91.00 Oil ain't no fantasy. That $4.00 we're apt to be paying for a gallon of gasoline by year-end ain't no fantasy.

The fact that Alaska's North Slope is down to 550,000 barrels/day ain't no fantasy, nor is the fact that the pipeline has to "shut down" when the supply of oil to it gets down into the 400,000 bpd range.

The fact that The North Sea, Mexico, and Venezuela are in "strong decline" ain't a fantasy.

The fact that Demand out of China, and India is increasing by A Million Barrels of Oil/Yr ain't a fantasy.

Russia saying that its oil production will start declining This Year ain't a fantasy.

The fact that we're producing, globally, less oil than we were in 2005 ain't a fantasy.

You want a "Fantasy?" Try BAU (bizness as usual.) THERE is your "Fantasy."

 
At 1/02/2011 8:27 PM, Blogger Rich B said...

There's nothing like good oil news to bring the cranks out.

 
At 1/02/2011 9:57 PM, Blogger Rufus II said...

The Doctor that diagnoses your pneumonia isn't a "Crank." He's the man that will "Save your life."

 
At 1/02/2011 10:31 PM, Blogger VangelV said...

The world would have a glut of oil presently, were it a free market.

The opposite is true. With a free market the glut would have come much sooner and we would already have run out of cheap oil and made a transition to another fuel. Prices would be much higher because the private owners of reserves would have incentive to maximize their returns by conserving their dwindling reserves and letting the high price squeeze marginal users out of the markets.

There is probably 30 mbd (million barrels a day) left on the shelf in just Iran, Iraq, Venezuela and Mexico.

On what planet? Mexican production is collapsing and PEMEX has no way to get it anywhere near the past peak. Iran peaked decades ago and is running short of oil. Iraq has a bit of oil that could be developed but that would take years and would require stability in the region. Venezuela peaked decades ago.

What you are missing is the fact that most OPEC nations changed their reporting when quotas were linked to official reserve estimates. So what we saw was Saddam increasing his reserves from 32 to 100 billion barrels even though he was fighting a war with Iran and there was no drilling taking place. Not to be outdone Iran increased its own reported reserves from 59 to 93 billion barrels during the same war. Venezuela went from 28 to 54, while our friends the Saudis went from 170 to 255 billion barrels. What has been fascinating was the subsequent reporting. Even though there was little exploratory drilling most countries found just enough oil to offset their production while some reported a further unsubstantiated inflation of reserves.

The oil is not developed due to thug-state politics. I won't even mention Nigeria, Uganda, Russia and constant underproductipn of OPEC. Although Kuwait is sked to double production in next several years. Qatar just brought online the world's largest GTL plant.

You keep repeating the same crap over and over again in the hope that you will be right. Kuwait just announced that Burgan is past its peak level. It can't double production. GTL is not oil. And Russia peaked decades ago, partially because it overproduced by pushing fields with fragile geology to get more oil out of them than it should have.

 
At 1/02/2011 10:41 PM, Blogger VangelV said...

It may well be that oil prices do go higher in the future; Vange is certainly plumping for that.

That is not what I intended to say. Oil could very well go down hard if we have another severe economic contraction. The low prices would certainly bankrupt any shale players who have not sold forward enough production to pay off their debts.

What I am saying is that even though prices exploded and companies and countries invested billions we could not get production to grow materially after the 2005 peak. That is a huge problem for the naive optimists because their argument is that high prices will bring more oil.

Thug states seem to have staying power. When will Venezuela be free and well-run country? How about Mexico? Libya? Iran? Iraq? The beat goes on. A sad story, saddest of course for those miserable people living in thug states.

How ironic; a statist pretending that it is sad to see individual liberty diminished.

One thing is for sure: If the world turns to market solutions, the oil market gluts badly in the years ahead.

Nonsense. The market would create substitutes. You would see conversion plants for coal and natural gas and the phaseout of coal power generation as most electricity is generated by nuclear power plants.

Who knows what Putin is doing on the NYMEX?

Who cares?

Peak Oil is, of course, a sophomore's fantasy.

So says a naive optimist who cannot point to a supply increase even though prices exploded and ignores the production data evidence.

And natural gas is lush for generations ahead.

This may be a good argument. But what we need are liquid fuels to run the economy that we live in today. That takes huge amounts of capital and a supply chain response that I do not see coming for quite some time. It takes many skilled engineers, planners, welders, pipe fitters, machinists, to build a NGL conversion plant and many more to build the pipelines and ports that will be needed to allow supply to hit the market. Those people are not in place now and are unlikely to be in place for another decade. And there certainly is not enough in the way of resources to be able to supply the specialty materials needed to build the plant and equipment. We will need trillions of dollars and decades to make the transition. The sooner we get governments out of the way the easier it will be.

 
At 1/02/2011 10:43 PM, Blogger VangelV said...

$91.00 Oil ain't no fantasy. That $4.00 we're apt to be paying for a gallon of gasoline by year-end ain't no fantasy.

Sadly, in a few years it may be. Imagine what happens when the oil producing nations decide to price their product in something other than USDs. I hope that you are ready for $15 a gallon gasoline.

 
At 1/02/2011 10:45 PM, Blogger VangelV said...

There's nothing like GOOD oil news to bring the cranks out.

If this is GOOD news you have a problem understanding what is going on. Try learning.

 
At 1/02/2011 11:55 PM, Blogger Buddy R Pacifico said...

From the article:

"We're starting to see indications that we could reasonably get 11 billion barrels".

This is just North Dakota. What about the adjacent areas of South Dakota and Montana? Then there are the Canadian provinces across the border. Look for a push to add the guy who invented horizontal drilling to be added to Mt Rushmore.

 
At 1/03/2011 12:27 AM, Blogger Rufus II said...

Look, if you're a farmer in ND, and you wake up one day and start getting royalty checks for a couple of hundred barrels of oil/day, life just got a lot sweeter. But, keep in mind, this will, basically, replace the Prudhoe Bay oil that will be shut in when production slips below the MOL for keeping the pipeline operating.

But, if you're a world looking at a global decline from existing wells somewhere in the 3.5 to 4.0 Million Barrels/Day range, every year, it's pretty small taters.

 
At 1/03/2011 10:17 AM, Blogger VangelV said...

This is just North Dakota. What about the adjacent areas of South Dakota and Montana? Then there are the Canadian provinces across the border. Look for a push to add the guy who invented horizontal drilling to be added to Mt Rushmore.

There is no way to produce the amount of oil that is being predicted using the current technology because there are all kinds of issues about water access, chemical use, and the energy return on the energy invested. Most zones cannot yield enough oil to pay back the huge cost of drilling the wells because the depletion rates are far too high.

If prices stay at today's levels I expect many of the shale players to run out of cash this year and see many bankruptcies and sales in the sector. If investors want to look at some riskier plays why not just look to some of the heavy oil plays that have been out of favour over the past few years instead?

 
At 1/03/2011 10:51 AM, Blogger juandos said...

"The decline rates are huge. There isn't a single well drilled by Brigham that will average more than 500 bpd within a year or 200 bpd within 18 months"...

Well vageIV that's a heck of a guesstimate by you considering we really don't have many details on the technology at work here...

"They need to finance huge capital investments and hope that they can get enough cash flow to pay back their loans before the wells run dry"...

So what's new with that?

Well I don't know what your sources are but a couple of ancillary support services that are in my IRA portfolio are now expressing an optimistic (could be a sales pitch) attitude with regards to future business...

 
At 1/03/2011 11:12 AM, Blogger juandos said...

"$91.00 Oil ain't no fantasy. That $4.00 we're apt to be paying for a gallon of gasoline by year-end ain't no fantasy"...

Yeah, nothing like trying to buy a commodity that's in world wide demand with less than credible dollars....

 
At 1/03/2011 11:37 AM, Blogger juandos said...

"There is no way to produce the amount of oil that is being predicted using the current technology because there are all kinds of issues about water access, chemical use, and the energy return on the energy invested"...

Ahhh, so the 'peak oil myth' is driven in part by politics of fraud, eh?

Arctic Oil and Natural Gas Potential

 
At 1/03/2011 11:46 AM, Blogger Buddy R Pacifico said...

VangelIV wrote:

" Most zones cannot yield enough oil to pay back the huge cost of drilling the wells because the depletion rates are far too high."

According to Brigham Exploration the average payback for their wells is 1.6 years based on 20 year production. At $85 a barrel oil their average well projects a 350% return on investment.

 
At 1/03/2011 11:52 AM, Blogger juandos said...

Politics domestically is driving oil production and energy prices...

Obama’s Offshore Ban Already Cutting Domestic Energy Supply

 
At 1/03/2011 12:40 PM, Blogger skh.pcola said...

The usual Sturm und Drang. Gas will never be $15 in 2010 dollars until it is a boutique fuel and a viable alternative is developed. VangeIV ignores the reality that oil is the second most available liquid on earth (third, if you want to count fresh and salt water separately). The vast majority of global oil exploration/development/extraction is done by governmental entities, not private companies, and these governments generally neglect to invest in the infrastructure maintenance/improvements that are necessary to maintain and/or increase production levels. See Mexico and Venezuela for prime examples.

And any keening about US production levels is invalid until you address the regulatory influence of ecotards and the idiots who relish the concept od shutting down drilling and production in broad swaths of federally- and state-owned lands. US energy policy, while talking up the idea of being energy-independent for the last 35 years, has actually made us MORE dependent upon oil and gas imports. Thank the leftists and envirofascists for that.

Further, you can't just hand-wave away the possibility of abiotic oil. Eye-roll all that you wish, but the organic theory of "fossil fuel" isn't conclusive. Reservoir regeneration has been observed in many places, and really, how do you account for oil deposits 5 miles underground and under miles of non-organic layers of rock? Makes no geologic sense.

 
At 1/03/2011 12:59 PM, Blogger VangelV said...

The usual Sturm und Drang. Gas will never be $15 in 2010 dollars until it is a boutique fuel and a viable alternative is developed.

How much would a gallon of Starbucks coffee cost you? Why can't gasoline sell for the same price?

VangeIV ignores the reality that oil is the second most available liquid on earth (third, if you want to count fresh and salt water separately). The vast majority of global oil exploration/development/extraction is done by governmental entities, not private companies, and these governments generally neglect to invest in the infrastructure maintenance/improvements that are necessary to maintain and/or increase production levels. See Mexico and Venezuela for prime examples.

This is not true. PEMEX spent billions trying to improve production from Cantarell and managed to get production to increase substantially. But all that did was get the available oil out faster. The reason that we are seeing such a steep decline is the spending that you claim never to have taken place. Why is it that all of you naive optimists never check what you are writing and prefer narrative to objective evidence?

And any keening about US production levels is invalid until you address the regulatory influence of ecotards and the idiots who relish the concept od shutting down drilling and production in broad swaths of federally- and state-owned lands. US energy policy, while talking up the idea of being energy-independent for the last 35 years, has actually made us MORE dependent upon oil and gas imports. Thank the leftists and envirofascists for that.

It does not matter. US production peaked in 1970 and no matter what you invest, it will never go back to that level.

 
At 1/03/2011 1:02 PM, Blogger VangelV said...

Further, you can't just hand-wave away the possibility of abiotic oil.

I am not doing the hand waving. You are. There is no evidence to show that the abiotic oil theory is valid. All of the drilling so far has yielded no data to support it.

Eye-roll all that you wish, but the organic theory of "fossil fuel" isn't conclusive.

Yet the biomarkers show that oil from producing wells has a biological origin.

Reservoir regeneration has been observed in many places, and really, how do you account for oil deposits 5 miles underground and under miles of non-organic layers of rock? Makes no geologic sense.

The fact that oil can migrate through fractures is not a surprise. And the biomarkers have shown those deposits have been shown to have a biological origin.

 
At 1/03/2011 1:09 PM, Blogger juandos said...

"There is no evidence to show that the abiotic oil theory is valid. All of the drilling so far has yielded no data to support it"...

ROFLMAO!

Yeah, sure!

 
At 1/03/2011 2:02 PM, Blogger VangelV said...

ROFLMAO!

Yeah, sure!


Where is the evidence? Which producing reservoir does not show biomarkers?

 
At 1/03/2011 3:52 PM, Blogger juandos said...

"Where is the evidence? Which producing reservoir does not show biomarkers?"...

We had this discussion before and you didn't like the 'evidence/theory' then but had none of your own to offer to show that abiotic oil was an invalid concept...

 
At 1/03/2011 3:59 PM, Blogger Che is dead said...

The world would have a glut of oil presently, were it a free market. ... The opposite is true. With a free market the glut would have come much sooner and we would already have run out of cheap oil and made a transition to another fuel.

Yes, the free market would produce viable alternatives to oil - just as petroleum became the alternative to whale oil and plastic the alternative to wood - thus producing a glut of oil.

Perhaps you should read your own responses.


Mexican production is collapsing and PEMEX has no way to get it anywhere near the past peak. Iran peaked decades ago and is running short of oil. Iraq has a bit of oil that could be developed but that would take years and would require stability in the region. Venezuela peaked decades ago ... Russia peaked decades ago

The only thing that has "peaked" in Mexico, Iran and Venezuela is private investment. Venezuela and Canada each have known oil sands reserves approximately equal to the world's total reserves of crude oil and many other countries have oil sands as well. Further, the technology used in the extraction of these reserves has improved dramatically allowing them to be exploited in place with little site disruption and water usage. Russia is a vast country whose true reserves have yet to be determined.

The other factor that has not been mentioned is "intensity". The US uses between 2-3 percent less oil equivalent per unit of GDP per year. And China has also reduced is consumption per unit of GDP dramatically. Energy consumption growth, in China, fell to 5.2 percent in 2009 from 16.1 percent in 2004. Per unit of gross domestic product energy consumption has fallen 15.6 percent in the four years starting in 2006.


What you are missing is the fact that most OPEC nations changed their reporting when quotas were linked to official reserve estimates ... the Saudis went from 170 to 255 billion barrels

Many OPEC countries, including Saudi Arabia, do not publish or allow audits of their reserves, so there are no "official reserve estimates". Shouldn't you know that? By most geological estimates, global oil reserves are about 8 trillion barrels. The doomsday crowd - who have raised the oil shortage scare over and over again for more than 150 years - argue that only a small fraction of that is recoverable. Technology has made fools of them in the past and will again in the future. Bet on it.

 
At 1/03/2011 4:02 PM, Blogger Che is dead said...

The world would have a glut of oil presently, were it a free market. ... The opposite is true. With a free market the glut would have come much sooner and we would already have run out of cheap oil and made a transition to another fuel.

Yes, the free market would produce viable alternatives to oil - just as petroleum became the alternative to whale oil and plastic the alternative to wood - thus producing a glut of oil.

Perhaps you should read your own responses.


Mexican production is collapsing and PEMEX has no way to get it anywhere near the past peak. Iran peaked decades ago and is running short of oil. Iraq has a bit of oil that could be developed but that would take years and would require stability in the region. Venezuela peaked decades ago ... Russia peaked decades ago

The only thing that has "peaked" in Mexico, Iran and Venezuela is private investment. Venezuela and Canada each have known oil sands reserves approximately equal to the world's total reserves of crude oil and many other countries have oil sands as well. Further, the technology used in the extraction of these reserves has improved dramatically allowing them to be exploited in place with little site disruption and water usage. Russia is a vast country whose true reserves have yet to be determined.

The other factor that has not been mentioned is "intensity". The US uses between 2-3 percent less oil equivalent per unit of GDP per year. And China has also reduced is consumption per unit of GDP dramatically. Energy consumption growth, in China, fell to 5.2 percent in 2009 from 16.1 percent in 2004. Per unit of gross domestic product energy consumption has fallen 15.6 percent in the four years starting in 2006.


What you are missing is the fact that most OPEC nations changed their reporting when quotas were linked to official reserve estimates ... the Saudis went from 170 to 255 billion barrels

Many OPEC countries, including Saudi Arabia, do not publish or allow audits of their reserves, so there are no "official reserve estimates". Shouldn't you know that? By most geological estimates, global oil reserves are about 8 trillion barrels. The doomsday crowd - who have raised the oil shortage scare over and over again for more than 150 years - argue that only a small fraction of that is recoverable. Technology has made fools of them in the past and will again in the future. Bet on it.

 
At 1/03/2011 4:02 PM, Blogger Che is dead said...

The world would have a glut of oil presently, were it a free market. ... The opposite is true. With a free market the glut would have come much sooner and we would already have run out of cheap oil and made a transition to another fuel.

Yes, the free market would produce viable alternatives to oil - just as petroleum became the alternative to whale oil and plastic the alternative to wood - thus producing a glut of oil.

Perhaps you should read your own responses.


Mexican production is collapsing and PEMEX has no way to get it anywhere near the past peak. Iran peaked decades ago and is running short of oil. Iraq has a bit of oil that could be developed but that would take years and would require stability in the region. Venezuela peaked decades ago ... Russia peaked decades ago

The only thing that has "peaked" in Mexico, Iran and Venezuela is private investment. Venezuela and Canada each have known oil sands reserves approximately equal to the world's total reserves of crude oil and many other countries have oil sands as well. Further, the technology used in the extraction of these reserves has improved dramatically allowing them to be exploited in place with little site disruption and water usage. Russia is a vast country whose true reserves have yet to be determined.

The other factor that has not been mentioned is "intensity". The US uses between 2-3 percent less oil equivalent per unit of GDP per year. And China has also reduced is consumption per unit of GDP dramatically. Energy consumption growth, in China, fell to 5.2 percent in 2009 from 16.1 percent in 2004. Per unit of gross domestic product energy consumption has fallen 15.6 percent in the four years starting in 2006.


What you are missing is the fact that most OPEC nations changed their reporting when quotas were linked to official reserve estimates ... the Saudis went from 170 to 255 billion barrels

Many OPEC countries, including Saudi Arabia, do not publish or allow audits of their reserves, so there are no "official reserve estimates". Shouldn't you know that? By most geological estimates, global oil reserves are about 8 trillion barrels. The doomsday crowd - who have raised the oil shortage scare over and over again for more than 150 years - argue that only a small fraction of that is recoverable. Technology has made fools of them in the past and will again in the future. Bet on it.

 
At 1/03/2011 4:10 PM, Blogger VangelV said...

Well vageIV that's a heck of a guesstimate by you considering we really don't have many details on the technology at work here...

Of course we do. There are many shale formations that have been drilled in the US. Mark has been writing on this subject before and we have a lot of data from the EIA to work with. Depletion rates are extremely rapid with a 50-75% decline after the first year and a levelling after three or four years. The average production rate is somewhere around 80 bpd, which is not enough for wells that cost $4-$6 million a pop, require massive amounts of water for the frac process and a decontamination method to make that water usable afterwards.

So what's new with that?

What is new is the accounting assumptions. The assumed ultimate recovery is much higher than what the production data suggests is appropriate.

Well I don't know what your sources are but a couple of ancillary support services that are in my IRA portfolio are now expressing an optimistic (could be a sales pitch) attitude with regards to future business...

I talk to small energy companies and ask a lot of questions. I look at the research and the data and remember all the hype from the past. I look at the action (rather than the rhetoric) and see many of the early players selling off their properties to larger players looking for a way to make their reserves look better than they are.

 
At 1/03/2011 4:34 PM, Blogger juandos said...

"...we have a lot of data from the EIA to work with"...

Now the federal government is a source of 'good' data?!?!

"What is new is the accounting assumptions. The assumed ultimate recovery is much higher than what the production data suggests is appropriate"...

Sorry vangeIV but that's the way small oil companies/wild cat outfits have been doing since at least the sixties if not longer than that in S. Texas...

"I talk to small energy companies and ask a lot of questions"...

You're not alone in doing that...

"I look at the action (rather than the rhetoric) and see many of the early players selling off their properties to larger players looking for a way to make their reserves look better than they are"...

Wow! So you're actually visiting the individual wells in the differnt fields, eh?

Amazing!

 
At 1/03/2011 4:55 PM, Blogger VangelV said...

Ahhh, so the 'peak oil myth' is driven in part by politics of fraud, eh?

No, it is the denial that is driven by fraud. Take a look at the revisions made by the IEA over the past few years and see how much closer they have come to the predictions made by Simmons, Deffeyes and Campbell and you should be wondering why it took so long to recognize that the OPEC reserve estimate revisions were an outright case of fraud.

What is fraud are the assumptions of ultimate recovery made by charlatans looking to fool investors into funding money losing production in the hope that a profit is made by selling the company to some greater fool. Instead of looking at the initial flow rates you might try waiting a month or two and see what happens to production from those expensive wells.

http://tinyurl.com/2e4444f

Or look at the projected costs of manufacturers before you count on getting rich from shale plays.

http://tinyurl.com/22orjbq

Don't you remember how many people on this blog were hyping natural gas shale production? Well, many of the players have now thrown in the towel and are moving on to the next area to be hyped up, liquids.

http://tinyurl.com/3xortry

After years of hyping natural gas, Chesapeake CEO Aubrey McClendon, the company has disclosed that it intended to move on to liquids.

http://tinyurl.com/3xortry

Yet, Aubrey McClendon was hyping shale natural gas just a month before the disclosure.

http://tinyurl.com/278btyf

Someone is being played for a sucker. I wonder who that is.

 
At 1/03/2011 4:57 PM, Blogger VangelV said...

According to Brigham Exploration the average payback for their wells is 1.6 years based on 20 year production. At $85 a barrel oil their average well projects a 350% return on investment.

What depletion rate are they projecting? How does it fit with the known depletion curves from the area? A company can make any claim it wishes as long as it discloses the assumptions. It is up to you to figure out if those assumptions are valid.

 
At 1/03/2011 5:03 PM, Blogger VangelV said...

We had this discussion before and you didn't like the 'evidence/theory' then but had none of your own to offer to show that abiotic oil was an invalid concept...

There is no evidence. There were many claims but all of the attempts to prove the theory failed. You have yet to show us a single field that has oil from abiotic rather than biological sources. As I said before, all of the fields that give us our oil have been shown to have biomarkers showing a biological origin. Logic has falsified the strong abiotic theory and the weak abiotic theory becomes immaterial because reservoir additions would be too small to make a difference to the eventual economic outcome.

 
At 1/03/2011 5:18 PM, Blogger juandos said...

"No, it is the denial that is driven by fraud"...

What denial are you speaking of specifically vangeIV?

"Instead of looking at the initial flow rates you might try waiting a month or two and see what happens to production from those expensive wells"...

Funny! That's exactly what I've telling you, the point I've been trying to get across to you...

'http://tinyurl.com/2e4444f'

When are you going to learn how to link?

I'm to lazy to copy and paste into a new window...:-)

"Or look at the projected costs of manufacturers before you count on getting rich from shale plays"...

Doesn't everyone do that?

"Don't you remember how many people on this blog were hyping natural gas shale production?"...

Guess what? Some folks still think there is something to it, something worth the investment...

"After years of hyping natural gas, Chesapeake CEO Aubrey McClendon, the company has disclosed that it intended to move on to liquids"...

So what? His company either didn't have the engineering smarts or maybe the money...

Sometimes major shareholders don't want to wait on their investment...

T. Boone Pickens was pushing wind power at one time too...

Don't hear so much about that anymore either, right?

 
At 1/03/2011 5:20 PM, Blogger VangelV said...

Yes, the free market would produce viable alternatives to oil - just as petroleum became the alternative to whale oil and plastic the alternative to wood - thus producing a glut of oil.

Perhaps you should read your own responses.


Perhaps you should read more carefully. I expect the market to come up with a solution eventually but for that to happen governments will have to get out of the way. That is something that you will not see happen until it is too late.

What is missed by the naive optimists is the price volatility that is caused by mismatches in supply and demand. A small shortfall in supply can cause a very large spike so that marginal users can be squeezed out of the system. Until that happens the feedback mechanisms work to enhance the price movement. The same is true to the downside when there is surplus capacity.

Our entire economy now depends on cheap liquid fuel. To get from petroleum based fuel to some other alternative will take decades. The transition will be painful and will change the relative position of many nations as some countries with less infrastructure devoted to the older system will not have to write down capital invested into that old system. They will be able to leapfrog into the future and will find to be in a better positon than their competitors. Other countries will use regulations to keep the old system going as long as possible. Instead of allowing the energy companies to invest as they see fit in promising new technology they will try to tax away profits so that they can be directed to very non-market rent seekers. This is what got us ethanol and solar and wind farms.

During the transition the big winners will be those companies that have large reserves in safe areas of the world that protect property rights. By the time the assets are confiscated, prudent shareholders will make more in dividends than they would have in their initial investments. Those of us who bought the income trusts many years ago are already in that position. I doubt that the shale players will pay much in dividends.

 
At 1/03/2011 5:25 PM, Blogger VangelV said...

The only thing that has "peaked" in Mexico, Iran and Venezuela is private investment. Venezuela and Canada each have known oil sands reserves approximately equal to the world's total reserves of crude oil and many other countries have oil sands as well. Further, the technology used in the extraction of these reserves has improved dramatically allowing them to be exploited in place with little site disruption and water usage. Russia is a vast country whose true reserves have yet to be determined.

Have you ever seen the tar sand 'factories' that extract oil from the sands? Or looked at the amount of water that is needed to make the process work? It is one thing to drill wells but another to build massive facilities to process sand or handle heavy tar extraction. And if you look at the energy input required to produce a single barrel of unconventional oil you will figure out why the math does not work very well. In the post peak world the production facilities will be the biggest users of the energy that they produce so the net production rate will be entirely different than the numbers that the reporting agencies are likely to publish.

The other factor that has not been mentioned is "intensity". The US uses between 2-3 percent less oil equivalent per unit of GDP per year. And China has also reduced is consumption per unit of GDP dramatically. Energy consumption growth, in China, fell to 5.2 percent in 2009 from 16.1 percent in 2004. Per unit of gross domestic product energy consumption has fallen 15.6 percent in the four years starting in 2006.

The US accomplishment has come as it has moved many of the energy intensive activities abroad.

 
At 1/03/2011 5:27 PM, Blogger VangelV said...

Many OPEC countries, including Saudi Arabia, do not publish or allow audits of their reserves, so there are no "official reserve estimates". Shouldn't you know that? By most geological estimates, global oil reserves are about 8 trillion barrels. The doomsday crowd - who have raised the oil shortage scare over and over again for more than 150 years - argue that only a small fraction of that is recoverable. Technology has made fools of them in the past and will again in the future. Bet on it.

Try doing some reading. The OPEC nations report reserves to the IEA. Notice something funny about those reports? If you don't there may be a bridge for sale that you might be interested in purchasing.

http://www.theoildrum.com/uploads/12/opec_reserve_growth.gif

 
At 1/03/2011 6:01 PM, Blogger Jason said...

Van, two quick points:

1. It will take decades to change from petroleum to another fuel source if we proceed on a path where special interests maintain control of the narrative. Change can happen considerably faster given more extraordinary circumstances, such as a war or some other major factor, like say a major catastrophe. My point is that it will take decades if we choose it to.

2. You seem to be very well researched on this subject, but technology has always seemed to eclipse resource shortages throughout human history. Not to say it will continue to happen, but shouldn't we always bet on the trend?

 
At 1/03/2011 6:02 PM, Blogger Che is dead said...

To get from petroleum based fuel to some other alternative will take decades. The transition will be painful and will change the relative position of many nations ...

Painful for whom? I'm sure that the transition from horses to automobiles was painful for buggy whip makers, but the rest of us did just fine. And as far as I'm concerned, any change resulting in the diminution of economic power in the muslim Middle East is to be welcomed.


Instead of allowing the energy companies to invest as they see fit in promising new technology they will try to tax away profits so that they can be directed to very non-market rent seekers. This is what got us ethanol and solar and wind farms.

I would agree, and left alone the market would make any transition profitably. Of course, "peak oil" truthers play directly into the hands of these rent seekers by creating a sense of panic which helps to cloak the non-market players fraud.


I doubt that the shale players will pay much in dividends.

Doubt all you want. It's been the doubters that have always been sidelined, with their pants around their ankles, while men like Rockefeller became wealthy.


Have you ever seen the tar sand 'factories' that extract oil from the sands? Or looked at the amount of water that is needed to make the process work?

The new extraction techniques do not require a lot of disruption of the surface and massive amounts of water. Read up.


... if you look at the energy input required to produce a single barrel of unconventional oil you will figure out why the math does not work very well.

You continually make assertions that stand juxtaposed to the profits of the companies involved in the exploitation of these resources. What? Do you think they're doing it as a hobby?

 
At 1/03/2011 6:17 PM, Blogger Che is dead said...

Try doing some reading. The OPEC nations report reserves to the IEA. Notice something funny about those reports?

Yeah, they're fiction and have never been audited. That allows both the Saudis to game their position both inside and outside the cartel and "peak oil" cranks and misfits to wander around screaming that "the end is near".

Oops, maybe you missed this story when you were researching Venezuela's oil reserves: Venezuela oil 'may double Saudi Arabia'

 
At 1/03/2011 6:27 PM, Blogger Che is dead said...

And just when your "end of the world as we know it" rant was starting to peak (excuse the pun), these guys come along and solve all the world's problems: Bacteria Engineered to Turn Carbon Dioxide Into Liquid Fuel

Not to worry, you and your friends can just move on to "peak CO2".

 
At 1/03/2011 6:39 PM, Blogger Che is dead said...

There is no evidence to show that the abiotic oil theory is valid. All of the drilling so far has yielded no data to support it ... Where is the evidence? Which producing reservoir does not show biomarkers?

How do you explain this?: Fossils From Animals And Plants Are Not Necessary For Crude Oil And Natural Gas, Swedish Researchers Find

 
At 1/03/2011 6:41 PM, Blogger QT said...

Vange,

"This is not true. PEMEX spent billions trying to improve production from Cantarell and managed to get production to increase substantially. But all that did was get the available oil out faster. The reason that we are seeing such a steep decline is the spending that you claim never to have taken place. Why is it that all of you naive optimists never check what you are writing and prefer narrative to objective evidence?"

Why not try presenting something that resembles evidence? You have failed to supply a single shred of credible source material to support any of your statements...is it any wonder it appears more like rhetorical hot air than fact to others?

Posting a URL link to your source material with HTML isn't rocket science, click here to learn how to devastate us with the facts.

 
At 1/03/2011 6:49 PM, Blogger Che is dead said...

You didn't mention Uganda, has oil "peaked" there as well?

Uganda: Oil Reserves Rival Saudi Arabia's, Says U.S. Expert

 
At 1/03/2011 6:53 PM, Blogger QT said...

Vange,

Nice chart...nice colours....what is the source of the chart? The Oil Drum...

Always pays to read the mission statement to find out the bias of the group whose info you are posting...love the words "We seek to fill this information gap"...hmnn, very interesting...not very convincing, but interesting nevertheless.

 
At 1/03/2011 7:05 PM, Blogger Che is dead said...

This comment has been removed by the author.

 
At 1/03/2011 7:06 PM, Blogger Che is dead said...

Maybe you missed this story last year. A research team has worked out a way to nearly triple the efficiency of the Fischer-Tropsch process. Why is that important? Welcome to Saudi Montana.

 
At 1/03/2011 9:13 PM, Blogger VangelV said...

Now the federal government is a source of 'good' data?!?!

I think that the production and well count data is quite good. Most of the analysts on both sides of this argument certainly do not have much of a problem with it. The data shows very low production as depletion begins to work very early in the well's life. The company reports show the same thing.

Sorry vangeIV but that's the way small oil companies/wild cat outfits have been doing since at least the sixties if not longer than that in S. Texas...

Show me a single shale well that has production of more than 500 bpd after 18 months without expensive rework. Narratives do not work well for me. I would like to see empirical data to be convinced.

Wow! So you're actually visiting the individual wells in the differnt fields, eh?

No. While I have had many invites there is little to be learned from a visit to a well. What I do is look at the action of a company and compare it to what it says. Let me give you an example.

In October 2010 we read that Chesapeake CEO Aubrey McClendon has announced that, "the most significant natural gas and oil shale fields in the U.S have been found." We go on and read, "If one decides to pass existing plays and wait, there won't be any. By the end of 2011 it will be all over. Only in recent years have shale gas plays been practical. Chesapeake is not going to Poland or Canada. Chesapeake will shift its focus from natural gas to crude oil. It sits on 10-15 billion barrels that will change its valuation."

Sound very good, doesn't it. Lets jump on the natural gas investments while we still can or the opportunity will not come again.

http://tinyurl.com/278btyf

A month later Chesapeake discloses that it will reduce its shale gas production and move on move on to liquids.

http://tinyurl.com/3xortry

A few years ago an analyst that I respect laughed when I told him that I would consider investing in Chesapeake after the worst of the economic contraction had passed because I still had hope for some of its projects. He sent me a link to an article that he felt that I should read because it quoted some of the best analysts in the business. While I lost the original link I have found the article here. I passed and kept adding boring old CNQ instead. It was and still is the smart play going forward.

 
At 1/03/2011 9:19 PM, Blogger VangelV said...

What denial are you speaking of specifically vangeIV?

The denial of Peak Oil by assuming that the world will be able to produce as much oil as is needed by the markets. The IEA was telling us that the peak would come at more than 120 mpd of production as the Saudis got their production levels to 25 mbpd while other nations did their part to add to the existing supply. It also claimed that depletion was around 3.5% and suggested that a lot more new oil would be found. But the latest reports have it claim depletion rates of more than 6%, not that much new oil being found and a peak below 100 mbpd.

The IEA was accepting the OPEC reserve claims as being unimpeachable and had never questioned how it was that reserves could be doubled at a time when there was little exploration activity in OPEC nations and two of its members were able to double reserves as they were fighting a war against each other. The leaks out of the UK claimed that the reason for the deception was American pressure but once the production data analysis could no longer hide the problem the truth was finally allowed to come out.

 
At 1/03/2011 9:24 PM, Blogger morganovich said...

whatever one believes about oil supply, this sure isn't going top help:

"More than two months after the Obama administration lifted its ban on drilling in the deep-water Gulf of Mexico, oil companies are still waiting for approval to drill the first new oil well there. Experts now expect the wait to continue until the second half of 2011, and perhaps into 2012."

The slowdown also has long-term implications for U.S. oil production. The Energy Information Administration, the research arm of the Department of Energy, last month predicted that domestic offshore oil production will fall 13% this year from 2010

 
At 1/03/2011 9:34 PM, Blogger VangelV said...

1. It will take decades to change from petroleum to another fuel source if we proceed on a path where special interests maintain control of the narrative. Change can happen considerably faster given more extraordinary circumstances, such as a war or some other major factor, like say a major catastrophe. My point is that it will take decades if we choose it to.

If you get a 'catastrophe' there will be riots in the streets as the current class warfare trends continue. There won't be all that much in the way of risk capital to invest when the environment is that uncertain. And as we look around today we see that the US legal system makes it impossible for companies to build energy production infrastructure. Coal and nuclear construction has ground to a standstill. There have been no new major refineries built for 25 years, and we have even seen solar and wind power projects stopped by the very environmental groups that were pushing alternatives in the first place.

2. You seem to be very well researched on this subject, but technology has always seemed to eclipse resource shortages throughout human history. Not to say it will continue to happen, but shouldn't we always bet on the trend?

I agree. But the transition takes a lot of time and will require a great deal of energy. Just how much energy do you think that it will take to mine all the iron and to manufacture, transport and weld all of the steel that will be needed in CTL plants or whatever other alternatives come up? How much will it take to build the new nuclear power plants that we will need to replace coal based electricity generation?

You cannot create all the BTUs that we use by coming up with a new discovery. And even if you could it will take many more BTUs generated by the old methods to create the technology that will provide it by new methods.

 
At 1/03/2011 9:46 PM, Blogger VangelV said...

Painful for whom? I'm sure that the transition from horses to automobiles was painful for buggy whip makers, but the rest of us did just fine. And as far as I'm concerned, any change resulting in the diminution of economic power in the muslim Middle East is to be welcomed.

Painful for anyone who has a car and has to write it off or keep using $8 gasoline. Painful for anyone who can't afford the 45% higher food prices because the cost of fertilizer, diesel, and transportation has gone up. What I can't understand is how one can be so ignorant of how much good the Middle Eastern suppliers have done by providing us with such cheap energy. Oil costs less per cup than a Starbucks coffee even though the coffee is mostly free (almost) water. Without it your standard of living would resemble that of a Medieval era peasant.

I would agree, and left alone the market would make any transition profitably. Of course, "peak oil" truthers play directly into the hands of these rent seekers by creating a sense of panic which helps to cloak the non-market players fraud.

It is the idiots who refuse to see the coming shortages that are the problem. They tolerate idiot greens who trample on the property rights of individuals and companies and allow thieves in the government to rob energy producers of much needed capital because they think that the hampered markets that we live under will somehow come true with the minimum disruptions. While I have appreciated the opportunity to buy cheap oil, uranium, coal and gas producers most people will not be as appreciative when the reality becomes a bit clearer.

I expect the economy to go through a serious rough patch as demand goes up and supply cannot respond. If the US is not careful it will see the Middle Eastern and FSU producers price oil in RMB, gold, or a basked of currencies and you will finally figure out just how good you had it.

 
At 1/03/2011 10:14 PM, Blogger VangelV said...

Doubt all you want. It's been the doubters that have always been sidelined, with their pants around their ankles, while men like Rockefeller became wealthy.

Rockefeller had very high margins and was not leveraged to the hilt going into hard times. People trusted his company because it paid them a solid dividend or was retiring debt. The shale players have done neither. They are cash flow negative, don't pay dividends, and are adding debt or issuing equity because the price of natural gas is below their $8 production cost. Now that the natural gas reality has hit home the players have all shifted to liquids and are using unrealistic estimates of ultimate recovery to make their numbers look good. But that only works for short periods and eventually a real profit will have to be returned or the financing that is keeping the scam going will end. If a contraction drives energy prices lower you will see most of the over-leveraged shale players get killed. If they get lucky and we see the collapse of the USD reduce their liabilities they will die a bit slower because the economics will not work for future well construction.

The new extraction techniques do not require a lot of disruption of the surface and massive amounts of water. Read up.

A typical well does not disturb the surface much but requires around 3.5 million gallons of water. That is not a lot but in an arid areas like Texas or North Dakota it could be a problem. Disposal certainly has been a problem because the water that is used is contaminated with chemicals and needs to be disposed properly. Given the US legal systems operators are taking large legal and regulatory risks that may not be properly accounted for.

 
At 1/03/2011 10:16 PM, Blogger VangelV said...

You continually make assertions that stand juxtaposed to the profits of the companies involved in the exploitation of these resources. What? Do you think they're doing it as a hobby?

That is the problem; the profits of the shale players have turned out to be illusions. That is why we see CHK announce that it has stopped wasting capital on uneconomic natural gas wells and is now moving on to liquids. But not long ago, its management was hyping shale gas as a 'can't lose' situation.

 
At 1/03/2011 10:25 PM, Blogger VangelV said...

Yeah, they're fiction and have never been audited. That allows both the Saudis to game their position both inside and outside the cartel and "peak oil" cranks and misfits to wander around screaming that "the end is near".

The fraud is obvious. If you can't see that OPEC has overstated its reserves that is your problem.

http://tinyurl.com/24zl88x

Oops, maybe you missed this story when you were researching Venezuela's oil reserves: Venezuela oil 'may double Saudi Arabia'

No, I didn't. And when Chavez is gone I may invest some cash in the Venezuelan reserves just as I did in Kurdish reserves after Saddam was deposed. But the idea that the energy that can be extracted economically from Venezuela is equivalent or greater than Saudi Arabia is foolish because you have to look at the net energy produced after you spend energy to get the oil out of the ground. Melting and pumping tar is not easy or cheap. If it was Chavez would have developed the reserves himself.

 
At 1/03/2011 10:29 PM, Blogger VangelV said...

And just when your "end of the world as we know it" rant was starting to peak (excuse the pun), these guys come along and solve all the world's problems: Bacteria Engineered to Turn Carbon Dioxide Into Liquid Fuel.

I have been following this type of research for a long time and have read many promising press releases put out by researchers looking for funding. Sadly, they usually include statements like, "We are continuing to improve the rate and yield of the production," Liao said. "Other obstacles include the efficiency of light distribution and reduction of bioreactor cost. We are working on solutions to these problems." As with algae based biofuels the costs are always a bit too high and the energy needed to be put into the production of the fuel tends to be more than the energy that the process can produce. If you want to make a profit that is not a good thing.

 
At 1/03/2011 10:42 PM, Blogger VangelV said...

How do you explain this?: Fossils From Animals And Plants Are Not Necessary For Crude Oil And Natural Gas, Swedish Researchers Find

I have seen this claim before. Don't you remember the Thomas Gold Siljan Ring fiasco in the 1990s. (If memory serves me right.) About ten barrels of hydrocarbons came out of a 8,000 m well most of it thought to be from drilling mud. If the theory were right Gold's wells would have produced significant amounts of hydrocarbons. They didn't.

And let us not forget that the Russians tried the same thing using the abiotic oil theory. They failed as badly as Gold and the Swedes. You need to find something other than failed theories. Producing fields are being depleted at almost 7% per year so we need to find the equivalent of two new Saudi Arabias every couple of years. Citing unproven research in its early phases that will take several years of evaluation (and funding) is not going to do the trick, particularly when we have seen the same claims fail time after time.

 
At 1/03/2011 10:57 PM, Blogger VangelV said...

Why not try presenting something that resembles evidence? You have failed to supply a single shred of credible source material to support any of your statements...is it any wonder it appears more like rhetorical hot air than fact to others?

If I say that the moon is not made out of cheese I do not usually reference my statement because it is common knowledge. Anyone who has read the industry literature would know that PEMEX has drilled many wells and used nitrogen injections to get more oil out of Cantarell. That has not worked out well because all the injections did was get what oil was in the field out faster.

Mexico probably has a huge amount of gas so it will make sense for PEMEX to spend a lot more money to develop natural gas reserves because its return from capital spending on oil have not worked out well.

"In 1995 it was producing 1 million barrels per day and the Mexican government decided to invest in that field to raise the production level. They built 26 new platforms, drilled lots of new wells and built the largest nitrogen extraction facility capable of injecting a billion cubic feet of nitrogen per day to maintain reservoir pressure. Doing this raised the oil production rate in 2001 to 2.2 million barrels per day. Today the field produces 2.1 million barrels." http://home.entouch.net/dmd/cantarell.htm

"The Cantarell Project, designed to substantially increase output capacity of heavy crude oil from Mexico's only supergiant oil producing complex, is moving ahead briskly. When work is completed, the offshore field is expected to provide state-owned oil-company Petroleos Mexicanos (Pemex) with over a million b/d of additional capacity by year-end 2000. Among recent major developments, a nitrogen-injection secondary-recovery project started up and is considered vital to pressure maintenance on the field."

Total industry drilling activity remained relatively stable over the three-year period, during which a total of 3,246 wells were drilled in the Gulf of Mexico shelf and slope area. Nearly half of the activity took place in the mature Central Plio/ Pleistocene area, followed by a quarter in the Central Miocene. One third of the new wells were classified as "exploratory," of which 432 (36%) were classified as "commercial." Of the wells classified as "development," two thirds were successful.

Study participants invested over $5 billion during the period, which resulted in the addition of over 700 million boe of proved reserves. Upward revisions to drilling discoveries accounted for 10% of this total. Drilling expenditures accounted for 75% of total spending; obviously, drilling is an area for further evaluation. Costs associated with platforms and facilities accounted for only 14% of the total, reflecting the comprehensive infrastructure available on the shelf. Costs associated with leasing and prospect evaluation accounted for the remaining 11%.


http://tinyurl.com/239t6jb

For a guy who posts a lot on the subject you are very ignorant of what is common knowledge.

 
At 1/03/2011 11:25 PM, Blogger VangelV said...

You didn't mention Uganda, has oil "peaked" there as well?

Uganda: Oil Reserves Rival Saudi Arabia's, Says U.S. Expert


No. Uganda is still a minor player with some promising reserves. I own shares in Heritage Oil, which is cited by your story, but I am more interested in its Kurdish and Mali assets.

 
At 1/03/2011 11:25 PM, Blogger VangelV said...

Nice chart...nice colours....what is the source of the chart? The Oil Drum...

Which chart? I have posted many so I need a reference to the one that you want information on.

Always pays to read the mission statement to find out the bias of the group whose info you are posting

...love the words "We seek to fill this information gap"...hmnn, very interesting...not very convincing, but interesting nevertheless.


You need to always check the original source of the data because who presents it is not as important as its accuracy.

 
At 1/03/2011 11:32 PM, Blogger VangelV said...

Maybe you missed this story last year. A research team has worked out a way to nearly triple the efficiency of the Fischer-Tropsch process.

If this works it may help a bit. In twenty years we may have something that could offset some of the depletion that we will see over the next few years. But that still does not help us much over the transition period.

Why is that important? Welcome to Saudi Montana.

You just cited a shale hype article again. Get back to me when you can get enough oil at a decent profit and we can have a discussion.

Please note that this optimism is not new. Ayn Rand had one of her characters, Ellis Wyatt, extract a great deal of oil out of Colorado shale in Atlas Shrugged. Well, we are still waiting for it.

 
At 1/04/2011 10:34 AM, Blogger juandos said...

"You just cited a shale hype article again"...

Why vangIV! It seems that if the substance of an article/opinion piece doesn't agree with your 'end of the world as we know' scenario its automatically hype and yet you offer nothing credible to back up that 'hype' assesment...

You well may be correct but considering what we're talking about is an area of where science meets 'optimistic mysticism' which is what oil exploration has always been don't you find it a bit difficult to lable everything you disagree with as 'hype?

 
At 1/04/2011 11:32 AM, Blogger Che is dead said...

You just cited a shale hype article again. Get back to me when you can get enough oil at a decent profit and we can have a discussion.

Sorry, that was the wrong story. Here's the Montana coal-to-oil story: CBS: 60 Minutes

When this story was aired, the whole mining and refining process produced fuel at approximately $1.00 a gallon and was viable with oil at about $60 a barrel. With a tripling of efficiency the margin for viability has been reduced substantially. Using this process, the coal in Montana alone could supply Americas needs for more than 40 years.

 
At 1/04/2011 3:38 PM, Blogger Bloggin' Brewskie said...

Just to add to the topic (not the long, ongoing discussion currently in motion) is a recent admission by Continental Resources, a leader in the development of the Bakken, which believes the Bakken and Spanish/Three Forks formation may contain 24 billion barrels of recoverable oil.

Okay, VangeIV, it's all yours.

 
At 1/04/2011 10:12 PM, Blogger VangelV said...

You well may be correct but considering what we're talking about is an area of where science meets 'optimistic mysticism' which is what oil exploration has always been don't you find it a bit difficult to lable everything you disagree with as 'hype?

No. If you can make a good profit from shale oil production than it isn't hype. But given the costs that we saw for shale gas and the low price the buzz turned out to be a cash flow loser and profit killer for many of the shale gas players.

That is why they are now moving into liquids. They can do what they did early with gas and use unrealistic ultimate recoveries that could make the wells look profitable for a while. The problem would come from a collapse in demand if we see another contraction in 2011 or from a rise in total costs as regulatory compliance and input costs rise along with demand for drilling services.

If you want to make money in oil why not look at the conventional players that can survive a downturn or the heavy oil players that have real reserves that do not need massive capital investments when prices are low? Companies like Arc, Canadian National Resources, Pearl, etc., are well positioned and far less risky. Why gamble heavily when you don't have to and can still get rich?

 
At 1/04/2011 10:16 PM, Blogger VangelV said...

Sorry, that was the wrong story. Here's the Montana coal-to-oil story: CBS: 60 Minutes



When this story was aired, the whole mining and refining process produced fuel at approximately $1.00 a gallon and was viable with oil at about $60 a barrel. With a tripling of efficiency the margin for viability has been reduced substantially. Using this process, the coal in Montana alone could supply Americas needs for more than 40 years.


No chance. If fuel can be produced at $1 per gallon companies would have been lined up to produce it rather than take some of the serious risk that they do when they search in ultra deep waters, the Arctic, in war zones, etc. The producers at 60 Minutes have no idea about how the oil sector works and which technology is viable and which is a loser. They have done stories that mentioned fuel cells, fusion, shale gas, etc., and have been wrong every time. If anything, they are a counter-indicator; if they like something it is probably near a peak and is best shorted.

 
At 1/04/2011 10:20 PM, Blogger VangelV said...

Just to add to the topic (not the long, ongoing discussion currently in motion) is a recent admission by Continental Resources, a leader in the development of the Bakken, which believes the Bakken and Spanish/Three Forks formation may contain 24 billion barrels of recoverable oil.

It makes a nice story but the words MAY CONTAIN are a way of hedging that I do not like. This smells too much like a sucker's play so I will ignore it until there is objective evidence to support the claims. What we need to see are producers making money from actual operations of the wells, not from selling themselves off to a bigger fool. We are a long way from there and the data still shows oil production under 100 bpd for the average ND well even though the overwhelming majority of wells are not very old.

 
At 1/05/2011 2:31 PM, Blogger juandos said...

"But given the costs that we saw for shale gas and the low price the buzz turned out to be a cash flow loser and profit killer for many of the shale gas players"...

Hmmm vangeIV its apparent others feel differently: Shale gas extraction technology has created an abundance of cheap domestic natural gas in the U.S., depressing the prices of many stocks in the sector while creating a clear opportunity to reduce our dependence on Middle East oil says Simon Lack over at Seeking Alpha...

 
At 1/05/2011 4:31 PM, Blogger VangelV said...

Hmmm vangeIV its apparent others feel differently: Shale gas extraction technology has created an abundance of cheap domestic natural gas in the U.S., depressing the prices of many stocks in the sector while creating a clear opportunity to reduce our dependence on Middle East oil says Simon Lack over at Seeking Alpha...

There is lots of shale gas. The problem is that it isn't economic. The abundance was created by companies that had to drill or lose their leases. They did drill and produced gas at a cost of $7-$10 depending on the formation being drilled and the reservoir characteristics around the well. They sold that gas for $4-$6 and were bleeding red ink that had to be offset by profits from conventional operations that can produce gas at a cost that is well below market price.

You would not be the first person to get killed being bullish on natural gas.

http://tinyurl.com/24u73nq

Range and Comstock, two of the companies mentioned in the commentary link reported a loss last quarter. Southwestern did make a profit but lost a verdict that could wipe it all out. Petrohawk Energy had to sell all of its Fayetteville assets because it overpaid for them and could not get a positive return that would have justified the price.

 
At 1/05/2011 7:49 PM, Blogger juandos said...

"The problem is that it isn't economic. The abundance was created by companies that had to drill or lose their leases. They did drill and produced gas at a cost of $7-$10 depending on the formation being drilled and the reservoir characteristics around the well"...

I don't know where this happened at but overseas sales brings more than $4 per thousand cubic feet...

I'll bet on ConocoPhillips...

 
At 1/05/2011 9:35 PM, Blogger VangelV said...

I don't know where this happened at but overseas sales brings more than $4 per thousand cubic feet...

Shale gas costs $6 or more per thousand cubic feet.

I'll bet on ConocoPhillips

It may be a good bet, but not because it can develop shale economically. Companies like ConocoPhillips and Exxon need to show that their reserves are growing so they are adding 'proven' gas reserves and using the 6:1 ratio to their advantage. That allows them to keep their valuations high until events provide them with more fundamental support.

When I chose to gamble on unconventional plays my analysis led away from the shale plays, which did not seem capable of providing decent operating returns without significant price increases. So I chose the very unpopular heavy oil players instead. While the plays are not being hyped in the way that shale is I would rather go with something that can be profitable with known technology without a need for much higher prices.

I just dropped $40K on BlackPearl today. If things go badly I could wind up losing all of it. But even if things work out I can make 300% even without prices moving up significantly. And if they actually go up to what I expect, 3,000% will not be out of the question.

I like the fact that a company like PXX does not need to keep borrowing money to finance expansion as many of the small shale players do. It makes enough cash from operations to stay in business and can afford to be patient if an economic contraction takes demand (and prices) lower. If prices rise by enough to make the shale players operationally sound its leverage to the price will also cause its prices to explode. And, unlike the shale players, the reserves are long lived and can be exploited with known technology at fairly decent costs for decades. If you want to gamble than gamble. But if you do, you better place your bet on mispriced assets rather than hyped up players.

 
At 1/05/2011 11:17 PM, Blogger juandos said...

"Shale gas costs $6 or more per thousand cubic feet"...

I'll stick with the pros I know when it comes to pricing of shale gas...

I'll stick with pros I know when it comes to developing the necessary technology for gas extraction...

 
At 1/06/2011 12:51 AM, Blogger VangelV said...

I'll stick with the pros I know when it comes to pricing of shale gas...

The companies are reporting $6 when you total all of the costs. That is why they are moving away from gas to oil; they can't make a buck selling at less than production cost. Your analyst is looking at the initial flow rates, not the actual ultimate recovery rate. If I don't have to count deprecation I can also come up with any low cost I want. But that does not pay the bills.

 
At 1/06/2011 9:10 AM, Blogger juandos said...

This comment has been removed by the author.

 
At 1/06/2011 9:10 AM, Blogger juandos said...

Hey vangeIV, good morning to you...

"The companies are reporting $6 when you total all of the costs"...

Yes, most of the companies are indeed reporting that...

Still the price varies somewhat due to location, transport facilities, and of course what the market will bear...

"Your analyst is looking at the initial flow rates, not the actual ultimate recovery rate"...

No, not quite... He's looking at the whole picture since he's actually involved in the whole picture for C/P and like myself he's making a bet on couple of future engineering potentials that seem to be waiting in the wings, one of them being carbon dioxide injection which to me smacks of 'greenie syndrome' but has the potential of having excessivly large government underwriting with this present administration...

That is something that makes me exceedingly uncomfortable...

Mind you vangeIV, I don't want to leave you with the least impression that I think you're misinformed (hardly!), have some sort of agenda, or just blowing smoke...

What I've been telling you is what I know from folks I've known since childhood who are working for C/P or some ancillary support service...

You on the other hand a font of damned fine information...

Berman was especially interesting and I spent a few hours last night trolling the web for some of his stuff...

I had heard the name before (mostly in a less than apprciative way from people in C/P) but knew next to nothing about him...

I think Berman's opinion is always worth considering now...

One question for you vangeIV, you put this out there: "I just dropped $40K on BlackPearl today. If things go badly I could wind up losing all of it. But even if things work out I can make 300% even without prices moving up significantly"...

So yesterday I guess it closed at 5.74, down just a bit...

How's that looking for you?

 
At 1/06/2011 9:24 AM, Blogger VangelV said...

Still the price varies somewhat due to location, transport facilities, and of course what the market will bear...

There are sweet spots where the ultimate recovery rates will be high and the depletion rates will be low. But those areas are tiny relative to the entire shale area and cannot be counted on by any company as a normal outcome. When all of the wells and all of the companies are put together we get a cost of production that is higher than the cost of natural gas. So while it may be said to be 'plentiful' the gas is not economic. The total energy costs that goes into developing it exceeds the ultimate amount of energy that will be produced.

No, not quite... He's looking at the whole picture since he's actually involved in the whole picture for C/P and like myself he's making a bet on couple of future engineering potentials that seem to be waiting in the wings, one of them being carbon dioxide injection which to me smacks of 'greenie syndrome' but has the potential of having excessivly large government underwriting with this present administration...

Betting on some future breakthrough to make money before we get there is a risky path that mainly leads to bankruptcy. As I said, the energy that goes into producing the gas is imbedded into the price. At this moment it exceeds the ultimate energy that can be provided by a typical well. That makes most shale plays losers that will not be helped over the long term by having analysts assume ultimate recovery rates that are not being observed when we look at the actual real world data. This type of analysis reminds me of the internet mania analysts who kept imagining values where none were to be found.

 
At 1/06/2011 9:40 AM, Blogger VangelV said...

Berman was especially interesting and I spent a few hours last night trolling the web for some of his stuff...

BNN, a Canadian financial network, has been interviewing Berman for a long time. He was the first analyst who began to question some of the accounting assumptions used by the shale players even as he admitted that some of them had great potential because their leases covered productive ground that would generate a positive return for investors.

I remember one show where he was on for either half an hour or an hour where he laid out the case perfectly. When a caller asked about a particular company Berman said that given the hype it was very possible to make a lot of money by betting on it. By proving its reserves as it used various assumptions the company could provide a need for majors looking to make their reserve figures look good. And given the sentiment, the stock price was likely to go up for a while.

The problem was actual production. The data was showing that depletion rates were high and those rates were not reflected in the cost assumptions. What that meant was that for that company profit would be elusive as long as natural gas prices and costs stayed where they were. That is the issue that has plagued the sector for a few years, which is why they are now going to liquids and the shale gas hype is slowing.

 
At 1/06/2011 9:54 AM, Blogger VangelV said...

One question for you vangeIV, you put this out there: "I just dropped $40K on BlackPearl today. If things go badly I could wind up losing all of it. But even if things work out I can make 300% even without prices moving up significantly"...

So yesterday I guess it closed at 5.74, down just a bit...

How's that looking for you?


I have no problem with being in early and have another 100K that is looking for an investment vehicle. If the price drops to less due to sentiment than $5 then I am likely to add to my position. If the fundamentals do not support the company then I will take my losses and look for something else.

I have a huge problem now because about a third of all of the companies that I held in my portfolio (by value) have been taken out by bigger players. I some cases the gains were huge. In others they have been quite modest. I am now looking to take some of the money and find the next worthy investments. In the past few months I have bought Silver Wheaton, Silvercorp, Eurasian, Dennison, and BlackPearl along with some very risky plays in Africa, Serbia, and in the US. Most of these plays have seen a good run so I would not be surprised to see a decline of 25-50% at some point. But they are good companies with good management and good properties. At least one will be a ten bagger but if things play out as I expect we could see a lot more from at least three of the companies on that list. Now I could try to buy at some low point but if I did that would be simply luck. Given the fact that I bought most of my Eurasian under a dollar it does not bother me much when I buy some at $3 and see it go down 4% the next day. I remember buying one company at $0.80 only to see it fall by close to 50%. When I added more at $0.64 and saw it drop 10% intraday I was a bit pissed off for not waiting just a bit longer. But when I sold shares at $19, $25, and $40 the pain of being in a bit early went away. We are now in a bull market for commodities. That market will be very volatile and will see many setbacks. But if you buy the right type of companies and diversify you should get very rich even if 80% of them show no return or are a total loss. The trick is to understand the actual fundamentals, the economic theory, and to be patient. But while many people are quite capable of getting rich because it is simple to do so, they fail because it is not easy and they cannot control their emotions. What we need is to stay away from hype, and limit our risks even as we are bold and take many chances.

Being silly and confusing Aubrey McClendon with Ellis Wyatt just because some analyst tells us something is not a good way to start.

 
At 1/10/2011 12:03 PM, Blogger VangelV said...

What I've been telling you is what I know from folks I've known since childhood who are working for C/P or some ancillary support service...

Ask them about the latest conference calls and the cost side of the shale gas 'boom.'


http://tinyurl.com/2dnbufy

 

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