Monday, July 09, 2012

North Dakota Bakken Oil Facts

What Does Every New Bakken Oil Well Mean to North Dakota? 

A typical 2011 Bakken well will cost $7,925,000 to drill and complete, and will produce oil for 29 years (27 years longer than the average stimulus-funded "green" company, as Che comments).  

In those 29 years the average 2011 Bakken well will: 
 
1. Produce approximately 540,000 barrels of oil 

2. Pay approximately $4,585,000 in taxes 
a) $2,200,000 gross production taxes at 5%
b) $2,000,000 extraction tax at 6.5%
c) $385,000 sales tax 

3. Pay royalties of $7,500,000 to mineral owners 

4. Pay salaries and wages of $2,100,000 

5. Pay operating expenses of $2,300,000 

6. Generate over $20 million in net profit

Source: North Dakota Department of Mineral Resources 

MP: There are currently almost 7,000 wells producing oil in North Dakota.  

78 Comments:

At 7/09/2012 9:32 AM, Blogger Jon Murphy said...

And that's a ceteris parabus analysis. If there comes along a new technology, those numbers could rise even further.

 
At 7/09/2012 10:01 AM, Blogger Che is dead said...

This information is likely to cause "Vange" to suffer an aneurism.

Everyone knows that these oil wells, during the few weeks in which they are pumping, operate at a huge loss to those companies stupid enough to drill them. Why, it's right here on page seven of "Vanges" newsletter.

 
At 7/09/2012 10:15 AM, Blogger Buddy R Pacifico said...

Drill on Paper and pad drilling are lowering well production costs in the Bakken.

The best Bakken drilling areas are probably Lewis and Clark as well as Pronghorn. These two areas are providing richer payoffs over time for oil.

 
At 7/09/2012 10:16 AM, Blogger Jon Murphy said...

Of course, as the slide show states, there are some headwinds going forward:

Infrastructure, manpower (amazing! With 8.something unemployment and they cannot find workers!), housing, regulations, and environmentalists.

 
At 7/09/2012 10:22 AM, Blogger Che is dead said...

"A typical 2011 Bakken well will cost $7,925,000 to drill and complete, and will produce oil for 29 years."

This is 27 years longer than the average stimulus funded "green" company.

 
At 7/09/2012 10:34 AM, Blogger The High Priest said...

If my math is right, this is claiming that each well will pay an average of $72,000 in salaries for the 29 years it is operating? So each well is paying for one person's salary essentially? Or are those numbers already per year?

 
At 7/09/2012 10:57 AM, Blogger Jon Murphy said...

High Preist-

Can you walk me through where your $72k number comes from?

 
At 7/09/2012 11:02 AM, Blogger bart said...

Vangel is correct, the depletion rates are huge.
From the ND PDF:

Typical Bakken Well Production

 
At 7/09/2012 11:04 AM, Blogger Jon Murphy said...

Bart-

Your link is broken :(

 
At 7/09/2012 11:19 AM, Blogger The High Priest said...

Jon,

2.1 million in salaries over 29 years comes out to about 72,413 per year.

 
At 7/09/2012 11:29 AM, Blogger PeterK said...

so I wonder what the comparative payout is of a single wind turbine?

 
At 7/09/2012 11:37 AM, Blogger Ken said...

This comment has been removed by the author.

 
At 7/09/2012 11:37 AM, Blogger bart said...

Bart-

Your link is broken :(



You were just too fast on the uptake. I had a large FTP problem (thank you Comcast) and it took me a while to get it uploaded.

It's fine now.

 
At 7/09/2012 11:37 AM, Blogger Ken said...

This comment has been removed by the author.

 
At 7/09/2012 12:10 PM, Blogger Jon Murphy said...

You were just too fast on the uptake. I had a large FTP problem (thank you Comcast) and it took me a while to get it uploaded.

Ah ok. Thanks!

By the way, isn't that the same chart from the link?

 
At 7/09/2012 12:10 PM, Blogger Jon Murphy said...

2.1 million in salaries over 29 years comes out to about 72,413 per year.

*facepalm* Ugh! How did I miss that! Thanks, man.

 
At 7/09/2012 12:26 PM, Blogger Che is dead said...

"Vangel is correct, the depletion rates are huge." -- bart

So, what? The fact remains that a typical well generates more than $20 million in net profit.

 
At 7/09/2012 12:32 PM, Blogger VangelV said...

North Dakota Department of Mineral Resources

Wow. A government agency being positive? What are the odds of that? Or of their optimism being supported by reality?

I think that Mark needs to do the math. Even with the idled old wells ND is producing less than 100 bpd. Given the high depletion and the production curves that means that the companies will not be self financing from operations. And that means that the trend is not sustainable. For those of you who can't visualize the math, you may be interested in this illustration.

Or <this bit of analysis.

Of course, you can just go and take a look at the SEC 10-K filings or listen in on the conference calls and ask about funding gaps, negative cash flows, or the explosion of debt on the balance sheet. But why spoil a good illusion by looking at actual facts.

 
At 7/09/2012 12:56 PM, Blogger Jet Beagle said...

High Priest: "2.1 million in salaries over 29 years comes out to about 72,413 per year."

I doubt the salary and wage benefit are spread evenly over the 29 years. Creating the infrastructure and drilling the well will probably consume most of the labor expense in the first year or two.

 
At 7/09/2012 1:30 PM, Blogger bart said...

By the way, isn't that the same chart from the link?

Yes, just wanted to point out that the deniers were incorrect and Vangel is correct.

 
At 7/09/2012 1:32 PM, Blogger bart said...

So, what? The fact remains that a typical well generates more than $20 million in net profit.

I not only remain skeptical (ND has a vested interest in good numbers, like the banks did in good but fake since 2000 and before), but your "so what" matters not - Vangel is and was still correct about extremely fast depletion rates.

 
At 7/09/2012 1:38 PM, Blogger Jon Murphy said...

I not only remain skeptical (ND has a vested interest in good numbers, like the banks did in good but fake since 2000 and before), but your "so what" matters not - Vangel is and was still correct about extremely fast depletion rates.

But the assumptions take into account these depletion rates.

 
At 7/09/2012 1:38 PM, Blogger rjs said...

bart's graph conclusively shows that what vangel has been saying all along is correct; unlike conventional wells where you drill one & produce for 40 years, to continue to produce oil from the bakken you have to drill more & more wells...it's a black hole for capital investment..

the same is true for fracking in the marcellus...

 
At 7/09/2012 1:46 PM, Blogger bart said...

But the assumptions take into account these depletion rates.

I'm glad you called them assumptions.

I remain very skeptical, given that the huge majority of government forecasts have very dismal outcomes.

 
At 7/09/2012 1:59 PM, Blogger Jon Murphy said...

I'm glad you called them assumptions.

Of course they are assumptions. I don't know what anyone else would call them.

...[T]he huge majority of government forecasts have very dismal outcomes.

Unless you count the CBO. Of course, it's easy to be right all the time when your starting assumption if you are right (seriously, read a CBO Stimulus Report some day. It begins with a sentence that essentially means "Assuming the Stimulus created jobs, how many jobs did it create?").

 
At 7/09/2012 2:23 PM, Blogger bart said...

Yes, the CBO is far better than most similar gov't outfits, but still evidences some spin by virtue of their vested interest. As I recall too, they did blow it on unemployment forecasts.

 
At 7/09/2012 3:07 PM, Blogger morganovich said...

bart/vangel-

there does seem to be a really pivotal issue here though:

i don't think anyone sensible argues that production rates on these wells drop like a rock.

what does seem to matter though is the absolute level of production in the first few years.

if this chart from ND is to be believed, then these wells throw off big profits even in the first year, more than covering all the startup/drilling/etc costs.

if that is so, then why are these a bad investment?

putting up $8 million to pull down $20 in 2-3 years seems like a good and sustainable investment process.

a steeply dropping production curve alone does not make it unprofitable.

so, my question is, why don't these make economic sense?

are the assumptions from that ND piece too high?

where is the disconnect?

this would certainly not be the first industry to claim profit by running revs through in real time and amortizing initial costs to hide that it is a loser over lifetime, but the ND piece seems to make it look profitable overall.

if this is not so, what are they assuming that is wrong?

 
At 7/09/2012 3:19 PM, Blogger Che is dead said...

"Yes, just wanted to point out that the deniers were incorrect and Vangel is correct ... your "so what" matters not - Vangel is and was still correct about extremely fast depletion rates." -- bart

First, no one is arguing about depletion rates because they do not matter. Second, the "so what" is all that matters. The typical well generates more than $20 million in net profit. Period.

I'm quite sure that the companies in question are not paying the royalties and taxes involved, on profits that they did not earn, just to keep the "scam" going. If you prefer the "facts" presented at "Vanges" "peak oil" websites to the government agencies of ND, fine.

 
At 7/09/2012 3:57 PM, Blogger bart said...

The typical well generates more than $20 million in net profit. Period.


I'm fascinated that you believe 100% of everything you read on the internet. especially items that your governments and corporations etc. tell you.

I remain skeptical, especially given that no one seems to have actually looked up the 10Ks and other facts that Vangel has mentioned.

People attacked and disbelieved him about the extraordinarily fast depletion rates, and are now eating crow.
Same with precious metals prices or miner stocks many years ago.
Same with the housing bubble many years ago.
etc etc etc


I've known Vangel for years and have *very* seldom seen anyone do as good a job of research on things like this as he does. You're of course welcome to avoid his facts or disbelieve him and anything
he notes - at your own financial or 'eating crow' risk.

 
At 7/09/2012 3:59 PM, Blogger bart said...

so, my question is, why don't these make economic sense?

are the assumptions from that ND piece too high?

where is the disconnect?



I'll leave that up to Vangel, it's not an area of high expertise for me. In other words, I haven't spent the many hours it takes to look up the 10Ks, the balance sheets and notes, depreciation rates, etc.

 
At 7/09/2012 5:02 PM, Blogger VangelV said...

I doubt the salary and wage benefit are spread evenly over the 29 years. Creating the infrastructure and drilling the well will probably consume most of the labor expense in the first year or two.

The math does not work well. Once the number of wells being drilled begins to decline so does the total annual output.

 
At 7/09/2012 5:09 PM, Blogger VangelV said...

But the assumptions take into account these depletion rates.

That is the problem. The fact that outside of the core areas it is not possible for these companies to be self financing means that the depletion rates are higher than assumed. If most of the oil is recovered early in the game, and I do not dispute this, then the process should be self financing if it is economic. The fact that it isn't is a big problem for the optimists.

Note that this debate is not about the core areas. It is about the average well in ND. And on that front the math does not work.

 
At 7/09/2012 5:34 PM, Blogger morganovich said...

v-

"If most of the oil is recovered early in the game, and I do not dispute this, then the process should be self financing if it is economic. The fact that it isn't is a big problem for the optimists. "

what is your basis for saying that the unit economics of a well wind up being negative?

i'm just trying to get my arms around this. can you point to some specific data?

 
At 7/09/2012 5:59 PM, Blogger Che is dead said...

"I'm fascinated that you believe 100% of everything you read on the internet. especially items that your governments and corporations etc. tell you." -- bart

Yes, in this case, I accept the findings of a state agency with access to the pertinent data and no history of deliberate fraud over the dribbling of a confirmed moron whose only sources seem to be "peak oil" conspiracy websites.

"Vange", like you, provides little in the way of supporting evidence for his arguments, and when others who challenge him do, he retreats into bullshit attacks on their source, regardless of their sources veracity.

So far the only one I've witness "eat crow" in any of these give and takes is "Vange". I doubt that this time will be any different.

 
At 7/09/2012 6:06 PM, Blogger juandos said...

'
This is 27 years longer than the average stimulus funded "green" company
'...

Oh damn!

Now that's funny che!

Can President Obama Name ONE Clean Energy Success?

For those who only hear about these failing companies one by one, the following is a list of all the clean energy companies supported by President Obama’s stimulus that are now failing or have filed for bankruptcy...


Evergreen Solar
SpectraWatt
Solyndra (received $535 million)
Beacon Power (received $43 million)
AES’ subsidiary Eastern Energy
Nevada Geothermal (received $98.5 million)
SunPower (received $1.5 billion)
First Solar (received $1.46 billion)
Babcock & Brown (an Australian company which received $178 million)
Ener1 (subsidiary EnerDel received $118.5 million)
Amonix (received 5.9 million)
The National Renewable Energy Lab
Fisker Automotive
Abound Solar (received $400 million, only borrowed $70 million of that)
Chevy Volt (taxpayers basically own GM)
Solar Trust of America
A123 Systems (received $279 million)
Willard & Kelsey Solar Group (received $6 million)
Johnson Controls (received $299 million)
Schneider Electric (received $86 million)
Brightsource (received $1.6 billion)
ECOtality (received $126.2 million)
Raser Technologies (received $33 million)

 
At 7/09/2012 6:29 PM, Blogger bart said...

Once the number of wells being drilled begins to decline so does the total annual output.


Not looking promising, current through May from Baker Hughes

US onshore rig count 2008-2012

 
At 7/09/2012 6:34 PM, Blogger bart said...

Yes, in this case, I accept the findings of a state agency...

Like all the hopefuls, deniers, ostriches, Pollyannas and those who have been wrong for years, I didn't expect you to assert anything other than "It's different this time", and more assurance that you obviously haven't seen the actual facts in the 10Ks, company reports etc.

 
At 7/09/2012 7:46 PM, Blogger Che is dead said...

"Like all the hopefuls, deniers, ostriches, Pollyannas and those who have been wrong for years ... you obviously haven't seen the actual facts in the 10Ks, company reports etc." -- bart

"I'll leave that up to Vangel, it's not an area of high expertise for me. In other words, I haven't spent the many hours it takes to look up the 10Ks, the balance sheets and notes, depreciation rates, etc." -- bart

Maybe you should read your own posts before you write this shit. Burying your head up "Vanges" ass isn't research and it isn't insight, it's just pathetic.

 
At 7/09/2012 8:12 PM, Blogger bart said...

Keep it up, it's very amusing!

You can't even read and understand plain English, no wonder you're so into the likely spin etc.

Yes, I admitted in plain English that I haven't read the 10Ks, etc. and also notice that you don't have the guts to either read them or clearly admit that you don't give a damn about the actual and more complete facts.

You conveniently attempted to change the subject away from how V was and is correct about the depletion rates, and all the other actual examples about how he has been correct over the years - and won't even admit that he was correct, and has a massively successful track record.

Very cool how you compound your failures!

* Orwell is even prouder now.
* "It's different this time".
* Facts that contradict your fixed ideas should never be viewed, but always attacked.
* No one ever has vested interests that cause intentional or inadvertent spin.
* What's this about all the ass comments? Something we should know perhaps?
* Nice job on avoiding facts like that rig count chart from Baker Hughes.

You can slither away in shame now, or keep on making a fool of yourself - or whatever.

 
At 7/09/2012 8:24 PM, Blogger VangelV said...

Unless you count the CBO. Of course, it's easy to be right all the time when your starting assumption if you are right (seriously, read a CBO Stimulus Report some day. It begins with a sentence that essentially means "Assuming the Stimulus created jobs, how many jobs did it create?").

:) The CBO has been consistently underestimating the cost of new programs and overestimating new revenues.

 
At 7/09/2012 8:29 PM, Blogger Bakken1515 said...

So bart i want to know why the total onshore rig count in the us makes it not look promising for the bakken? Yes it is down but the rig count in ND is still at its highest level ever. The rig count in ND im sure will drop this year and you and Vange will try to point to this and say see we are right but that is not the case. Most of the leases have been held by drilling now so they are going to be utilizing more skid capable rigs and laying over the rigs they were using to jump around and hold leases. So this is just the beging of the next step for this great bakken oilfield.

 
At 7/09/2012 8:34 PM, Blogger VangelV said...

i don't think anyone sensible argues that production rates on these wells drop like a rock.

what does seem to matter though is the absolute level of production in the first few years.

if this chart from ND is to be believed, then these wells throw off big profits even in the first year, more than covering all the startup/drilling/etc costs.

if that is so, then why are these a bad investment?


If the wells did throw off big profits they would not be bad investments at all. In fact, if you have a decent well in a core area you can make a lot of money.

The problem is that the average ND well cannot be in the core areas. The core areas have been producing for some time and are now on the downside of the production curve. To increase production you need to go out to the lesser quality shale areas in the decent formations or to the good areas of the marginal formations. These wells do not produce enough cash flow to finance further drilling, which means that to continue operations the companies have to keep adding debt.

Note that the reported profits are based on depreciation costs that are not supported by the actual production data but are based on models that have yet to be proven. The SEC permits this, which means that the profit numbers are to be questioned and that we have to look at the actual cash flows and debt levels, neither of which cannot be misstated.

This leaves you with a choice. You can buy the models and the hype or you can look at the 10-K filing with the SEC and see that there is no way for these companies to self finance even though they have been in the shale oil and gas production business for more than half a decade. When you look at the filings and listen to conference calls in which CEOs talk about funding gaps that need to be closed by new borrowing or asset sales you should be quite skeptical. And if you still have doubts I suggest that you go back and listen to the hype about shale gas production that was being spun by the industry (and people like Mark) not that long ago.

 
At 7/09/2012 8:57 PM, Blogger VangelV said...

First, no one is arguing about depletion rates because they do not matter. Second, the "so what" is all that matters. The typical well generates more than $20 million in net profit. Period.

Really? Given that most of the oil is produced in the first two years why are the cash flows negative and why are the operations not self financing for most shale producers?

And which company is reporting a $20 million NET profit per well? How does its cash flow statement look? How about its debt levels? Is that typical of the other companies? If it is, why are the cash flow numbers so bad and why is there such a reliance on the use of debt by companies that have been around for more than several years?

I'm quite sure that the companies in question are not paying the royalties and taxes involved, on profits that they did not earn, just to keep the "scam" going. If you prefer the "facts" presented at "Vanges" "peak oil" websites to the government agencies of ND, fine.

First of all, they have to pay the royalty, which is just a percentage of the oil that comes out of the ground. Second, the tax question is not easy to settle and you need a forensic accountant to figure out what is going on most of the time. Weren't we arguing about the Marcellus Shale not all that long ago. Some of the numbers that I have seen show effective tax rates of less than 3% for the more productive wells and less than 1% for the typical low productivity well.

The best way to see what is going on is to look at the actual 10-Ks and to listen in on the conference calls, not to make claims that you can't support or repeat hype coming from the promoters and the government.

 
At 7/09/2012 9:25 PM, Blogger gasminder said...

Sigh - I come to this discussion late and it's pretty chaotic already. However I cannot resist the urge to clarify one simple point for "bart".

No one questions the decline rates on these wells. Anyone who does so does not understand the basic facts that are clearly in evidence. So your insistence that a steep decline curve proves "Vangel" correct and the "deniers" wrong is missing the point by a wide margin.

The question is whether the Bakken itself is an economic play. Assuming your decline curve is correct in it's depiction of an "average" Bakken well then it is indeed economic. The decline curve you present shows a well that in the first two years of it's producing history generates (at $80/bbl oil) about $28 million in gross value. Assuming a 25% royalty (which is a conservative assumption) the cash flow (before taxes and transportation) would be around $21 million (in the first 2 years). These are back of the envelope and both taxes and transportation are significant in the Bakken but the suggestion that these wells are not economic is simply not supportable.

Dry gas shale plays are uneconomic for all the reasons Vange is touting. I'd also agree with him that much accounting wizardry is being used to justify a massive destruction of capital in those plays (as a large proportion of working engineers will admit if enough alcohol is applied). It's also true that much hype on the potential of these plays is ongoing. But to contend that money is being lost by the early and large Bakken players is to ignore reality.

 
At 7/09/2012 10:05 PM, Blogger bart said...

So bart i want to know why the total onshore rig count in the us makes it not look promising for the bakken?

Who said I was only talking about the Bakken?

Why do you apparently think that a *total* onshore rig count that's been going down for 8-10 months is good, if you do?

Obviously the chart includes way more than the Bakken. What does that say about shale in the whole country, the basic costs and payback, and also demand?

Do you see what I'm driving at?
Mostly I don't give a damn if you or anyone else agrees or not in the area, just that you actually see what that chart could (and likely does) mean.


If anyone wants to believe that the Bakken and shale etc. are our salvation, be my guest.

I remain quite skeptical, given the highly emotional and charged environment that surrounds the entire area (including peak cheap oil), charts like that one and many more, and the track record of Vangel and his research.


/rant
Will someone besides me even have the common courtesy to recognize publicly that Vangel has had it right all along about the depletion rates?... especially the ones who should man up and admit that they were incorrect.

And no, this is not a pose or PR or spin or similar. Vangel gets attacked a lot, and mostly because he holds opinions (based on many facts and much research) that are contrary to mainstream beliefs - and he's been like that for the many years that I've known him... and the huge majority of the time he has been proven correct on the intermediate or long term.
/rant off

 
At 7/09/2012 10:06 PM, Blogger bart said...

This comment has been removed by the author.

 
At 7/09/2012 10:20 PM, Blogger bart said...

No one questions the decline rates on these wells.

Horse puckey.
I'm not talking about only this thread. Perhaps you haven't seen any of the vitriol aimed at Vangel over the months about the depletion rate issues and much more?


Anyone who does so does not understand the basic facts that are clearly in evidence. So your insistence that a steep decline curve proves "Vangel" correct and the "deniers" wrong is missing the point by a wide margin.

Read my prior post and the rant, plus take heed of his track record.

Opinions differ greatly in this area and I'll take his track record every time over anyone here, and with the caveat that I know his way better than anyone else. It's also among the top 1% of anyone I know or have ever known, so for you to come out of nowhere and say he's not correct - well, it means nothing.


And all your numbers don't take any of Vangel's links or facts into account. Sorry, that doesn't work for me either.

I also have never presented a decline curve for the Bakken.

Plus neither he nor I have EVER "contend(ed) that money is being lost by the early and large Bakken players is to ignore reality." He actually stated that money was made and is being made in the core a few posts up - and *very* clearly just a few posts up.

Please - get your facts straight before making unfounded and incorrect assertions.

 
At 7/09/2012 10:57 PM, Blogger Bakken1515 said...

Bart in my post i never said that the total rig count going down was a good thing or anything like that. I was talking about the Bakken only just as this article is. You can not compair the Bakken play to any other shale oil play. There is a reason every new shale play is compaired to the bakken and never lives up because it is not the bakken. that is the same way with shale gas it can not be compaied to shale oil. i never once said that it was the nations salvation nor will I ever. But you can not denie that it has been a salvation to thousands of people who have found good pay in it when there was no where else to turn. now will that good pay continue forever no it will not and no one expects that but for the past 10 years and forseeable future it has and will provided me very well and i know i can cound on having a job in the oilfields of nd untill i am able to retire and in that time there will also be oil co. making money in ND shale oil

 
At 7/09/2012 11:01 PM, Blogger bart said...

But you can not denie that it has been a salvation to thousands of people who have found good pay in it when there was no where else to turn. now will that good pay continue forever no it will not and no one expects that but for the past 10 years and forseeable future it has and will provided me very well and i know i can cound on having a job in the oilfields of nd untill i am able to retire and in that time there will also be oil co. making money in ND shale oil


More power to you and the others you noted, and in all seriousness too.

 
At 7/09/2012 11:36 PM, Blogger Benjamin said...

Maybe Che will someday comment about ethanol, the GOP moonshine that is our nation's largest renewable, sustainable, and socialized program, by far.

 
At 7/09/2012 11:36 PM, Blogger Benjamin said...

According to Oxy, a typical oil shale well in CA costs only $2 million to drill, and generates $12 million in revenues in year one.

Some say CA shale oil will dwarf all others.

 
At 7/10/2012 1:05 AM, Blogger Unknown said...

Hello, people ... before you tout onshore rig counts you need to separate oil from gas rigs. The former are increasing, the latter are decreasing. That's why the overall count looks like it's flattening out.

BTW drilling in many of these "non-core" areas are finding new pay zones which are often as good as the original Middle Bakken shale core area. For example, this:

"In February of this year, Whiting (WLL) started identifying the Pronghorn Sands in its Lewis and Clark and Pronghorn prospects. Initially I had wondered why Whiting had changed the name of the pay zone. The reason is clear now, as the Pronghorn has a much different geology. Whiting's Lewis and Clark Prospect was once thought of as a lesser portion of the play as the middle Bakken thins and is not economic. Whiting, Continental (CLR), Occidental (OXY), Fidelity (MDU) and Chesapeake (CHK) all have rigs in this area, and believe the Pronghorn could deliver very good returns."

Somewhere I read the Williston Basin could have as many as 9 different pay zones, or some number like that.

 
At 7/10/2012 4:49 AM, Blogger gasminder said...

Bart said
I also have never presented a decline curve for the Bakken.


Well if you will look at the 8th post in this comment thread you will see a link that you posted to a chart. That chart is what is known as a "decline curve".

Horse puckey.
I'm not talking about only this thread. Perhaps you haven't seen any of the vitriol aimed at Vangel over the months about the depletion rate issues and much more?


But I'M talking about this thread and the confusing of issues that are absolutely correct in most gas shale plays but do not apply to the Bakken just because it is called a "shale" play. Regardless my point is that initial decline rates (which is what Vange refers to in THIS thread) are not in question. They are easily verifiable public information.

And all your numbers don't take any of Vangel's links or facts into account. Sorry, that doesn't work for me either

I'm sorry I seem not to have made it clear. The numbers I presented simply take the decline rates that YOU linked in defense of your position and apply an $80 oil price to those rates. My numbers were not intended to be a robust analysis of global shale plays - they were intended to show that YOUR data supports a very strong economic return using the posited decline rates.

Plus neither he nor I have EVER "contend(ed) that money is being lost by the early and large Bakken players is to ignore reality." He actually stated that money was made and is being made in the core a few posts up - and *very* clearly just a few posts up.

Well I would tell you that in many of your posts it is difficult to determine WHAT you are contending outside of strong appeals to emotion and to the "authority" that is Vangel. I read CD every day but only look at the comments when a post catches my eye & time permits. Thus I may have missed a great deal of the "links & data" that "Vange" has posted. If you go back and read the paragraph you are replying to you'll see it is a statement of agreement with much of his position on dry gas shale plays. The issue here is that while the argument re: self-funding is accurate for major national shale players I don't see how anyone is pulling data from 10K's or conference calls that is specific to "non-core areas of the Bakken". The statements are correct for the shale players corporate positions in total but is being extrapolated in sloppy fashion. Both you guys keep making statements that are true in general - my argument is about the application to the Bakken (or oily Eagleford) specifically.

Please - get your facts straight before making unfounded and incorrect assertions.

You're welcome to point out any unfounded & incorrect assertions I've made. Arguing from emotion and fuzzy restatements of well known analysis (much of Vanges argument sounds like a rehash of Art B's work) that were not intended to apply to this play don't count though.

 
At 7/10/2012 8:50 AM, Blogger morganovich said...

gasm-

"My numbers were not intended to be a robust analysis of global shale plays - they were intended to show that YOUR data supports a very strong economic return using the posited decline rates."

those were not "his" numbers. he linked to them showing what the study said. they have then further argued that those were numbers for the best wells in prime areas and that the production figures from the more marginal wells currently being drilled were much lower.

i have not looked at any real data here and cannot speak to that in any detail, but it certainly sounds plausible and the accounting rules around these wells are arcane and highly prone to abuse.

i'd be careful around the current shale story as a result.

i don't really know what the economics are and thus, do not have a real opinion here apart from seeing enough potential red flags to be very cautious.

further, you are coming in without a fair bit of context. in past threads, may have called vangel a liar on production curves dropping so steeply. that may not have happened on this thread, but it has been a prominent feature of others. if they seem a little touchy on the topic, that may be why.

 
At 7/10/2012 9:03 AM, Blogger bart said...

Well if you will look at the 8th post in this comment thread you will see a link that you posted to a chart. That chart is what is known as a "decline curve".

I stand somewhat corrected since I was using decline curve in a different sense.


But I'M talking about this thread and the confusing of issues that are absolutely correct in most gas shale plays but do not apply to the Bakken just because it is called a "shale" play. Regardless my point is that initial decline rates (which is what Vange refers to in THIS thread) are not in question. They are easily verifiable public information.


Limiting an issue to just what is on one thread is just plain silly, given the many times this issue has come up, and the refusal of the huge majority to even look at 10Ks, etc. That's like talking about nuclear energy but only referring to Fukushima - aka cognitive dissonance.


Additionally, I *still* have not seen anyone even vaguely grant that Vangel has been right when talking about depletion rates for months and he has caught hell for it. That's doofus at best.

Where's the discussion about problems with payback away from the core?

Where's the discussion about biased depreciation rates?

Where's the guts to go look at 10Ks, etc?

Where's the acknowledgement about his track record of being right *way* more than not?


I'm sorry I seem not to have made it clear. The numbers I presented simply take the decline rates that YOU linked in defense of your position and apply an $80 oil price to those rates. My numbers were not intended to be a robust analysis of global shale plays - they were intended to show that YOUR data supports a very strong economic return using the posited decline rates.

First, it's not MY data. It's from ND, a player with vested interests and about which I have repeatedly and unequivocally stated that I'm skeptical about.

In other words, you use data that I suspect (while it proves that Vangel is and was correct, which is why I posted it), tell me its my data and then tell me that I'm wrong?
Give me a break!

 
At 7/10/2012 9:03 AM, Blogger bart said...

(continued)


Well I would tell you that in many of your posts it is difficult to determine WHAT you are contending outside of strong appeals to emotion and to the "authority" that is Vangel. I read CD every day but only look at the comments when a post catches my eye & time permits. Thus I may have missed a great deal of the "links & data" that "Vange" has posted. If you go back and read the paragraph you are replying to you'll see it is a statement of agreement with much of his position on dry gas shale plays. The issue here is that while the argument re: self-funding is accurate for major national shale players I don't see how anyone is pulling data from 10K's or conference calls that is specific to "non-core areas of the Bakken". The statements are correct for the shale players corporate positions in total but is being extrapolated in sloppy fashion. Both you guys keep making statements that are true in general - my argument is about the application to the Bakken (or oily Eagleford) specifically.

All you have to do if you think I'm being unclear is ask. Yes, I can be quite abrasive at times (and I'm far from the only one) especially when others are avoiding (intentionally or not) facts that are on the table but not viewed.

OT, but the first few posts I made here were were met with name calling and personal attacks for holding opinions backed by real facts that differ from the majority - and I responded in kind... and now I'm "guilty" of being unclear? Wow...


You may certainly accuse me of appeal to authority, but as you yourself admitted you don't know Vangel's track history, nor have you looked at 10Ks or depreciation issues., nor have you commented about the differences between core and periphery returns, and you've also artificially limited the discussion to Bakken when he and I are not just talking about it but rather the whole issues of returns across all fields.
Since when does one field (and only it's core) out of so many in the country mean that it makes the whole area and points correct?


Yes, I'm defending Vangel because I know how many times he has been right over the last decade plus, but if you want to spin that as appeal to authority while not knowing or being aware of his track history then I suggest that logic is not your strong suit.





Please - get your facts straight before making unfounded and incorrect assertions.

I stand by that statement, and have detailed yet again where you and the other detractors have either ignored facts on the table or failed to do full research. Saying I haven't in the light of how many times I (and Vangel) have mentioned 10Ks etc - well, it's just plain spin and duplicitous.

 
At 7/10/2012 9:10 AM, Blogger bart said...

further, you are coming in without a fair bit of context. in past threads, may have called vangel a liar on production curves dropping so steeply. that may not have happened on this thread, but it has been a prominent feature of others. if they seem a little touchy on the topic, that may be why.

Agreed & confirmed.

There's quite a difference between reasoned discussion and baseless attacks, aka being called a denier and much worse.

 
At 7/10/2012 9:20 AM, Blogger bart said...

before you tout onshore rig counts you need to separate oil from gas rigs. The former are increasing, the latter are decreasing. That's why the overall count looks like it's flattening out.

It doesn't *look like* the rig counts are decreasing, they actually are - regardless of the composition of oil and gas rigs.

And gas is still close to *very* low prices, the lowest in many years. With gas rig counts increasing with such low prices, and demand for both oil and gas being low, that makes little financial or other sense.

 
At 7/10/2012 10:15 AM, Blogger VangelV said...

what is your basis for saying that the unit economics of a well wind up being negative?

i'm just trying to get my arms around this. can you point to some specific data?


I am just pointing to the 10-Ks and the conference calls. If you read carefully and pay attention you see that the operations cannot generate enough cash flow to be self financing. Now this would not be a problem if we are looking at brand new companies just starting out but if you have a company that has been around a few years the alarm bells should be ringing.

Assume that the optimists are right and that the wells are as profitable as they claim. Of the $20 million in profit you will see most of it in the first two to three years because after that production is below 50 bpd in production and often in the single digits. This means that the company should quickly be self financing and would not have to rely on debt. But that is not what the 10-Ks are showing. Debt keeps rising rapidly and cash flows remain negative years after production began. In one of the postings above (or the other thread) I showed an illustration that shows how the math works out. You can get production to go up but after a while the depletion is so high that you get a steep cliff once drilling stops. This means that Mark's prediction of a sustained 1 mbpd production is very unlikely. I still point to the Elm Coulee as a good predictor of what will happen. You will see production increase to a point and that will be followed by a decline until the bump is gone and the old trend line resumes. This should happen some time within the next two years, particularly if financing becomes tight for companies that have been destroying capital by producing shale oil and gas at a loss.

Let me be clear again. If you own a well in a core area of a good formation you will make a decent profit. Nobody on my side of debate is claiming otherwise. The point is that such wells are very rare and that the average well in a shale formation will not be profitable once the proper EURs are used to determine the depreciation costs. Yes, you can report an accounting profit by manipulating the assumptions. But you will not have positive cash flows that will reward investors as truly productive companies do.

I suggest that you look at the analysts that I have cited previously and that you try to refute their claims by using the real production data. And I suggest that you look at the misdirection that has taken place. Not very long ago Mark was touting the profitability of shale gas. He went as far as suggesting that the US would build new chemical plants to take advantage of the glut and become a net exporter to other countries. The problem is that if the US paid the global price the chemical companies would find gas to be much more expensive and that if gas remained cheap the companies would not stay solvent. Mark did not look at the contradiction between his two positions and most of the optimists gave him a pass because, just like him, they want to believe. But investment is not about belief but about cold hard reality.

 
At 7/10/2012 10:23 AM, Blogger VangelV said...

Note also that they've been adding about 30 new weeks every week for the last year.

1500 new wells and the production is still less than 100 bpd. That only proves what I have been saying about the math and the depletion rate.

 
At 7/10/2012 10:25 AM, Blogger VangelV said...

"Vange", like you, provides little in the way of supporting evidence for his arguments, and when others who challenge him do, he retreats into bullshit attacks on their source, regardless of their sources veracity.

Little supporting evidence? Look at the 10-Ks and show me where you see any pure shale producer show a positive cash flow or stable debt levels? If shale were such a great investment why isn't it self-financing and why are CEOs talking about funding gaps and asset sales on the conference calls?

 
At 7/10/2012 10:46 AM, Blogger morganovich said...

v-

"
I am just pointing to the 10-Ks and the conference calls. If you read carefully and pay attention you see that the operations cannot generate enough cash flow to be self financing. Now this would not be a problem if we are looking at brand new companies just starting out but if you have a company that has been around a few years the alarm bells should be ringing. "

i get it, but this is general, not specific.

can you point to a couple of specific 10ks worth looking at?

 
At 7/10/2012 1:06 PM, Blogger gasminder said...

Limiting an issue to just what is on one thread is just plain silly, given the many times this issue has come up, and the refusal of the huge majority to even look at 10Ks, etc. That's like talking about nuclear energy but only referring to Fukushima - aka cognitive dissonance.

Except that my comment to which you originally replied was in the context of THIS thread and the data it presented plus the comments from yourself & "Vange" on this thread in regard to the Bakken play. I find is silly to continue to make vague references to someone else said on some other thread.

Additionally, I *still* have not seen anyone even vaguely grant that Vangel has been right when talking about depletion rates for months and he has caught hell for it. That's doofus at best.

I can't be responsible for what others have/haven't said. The few posts I've made in other threads here have supported the assertion that dry gas shale plays are generally using decline curves that are difficult to justify technically. However, (and you still refuse to even engage the crucial question)that does not mean that the Bakken curves are uneconomic.

Where's the discussion about problems with payback away from the core?

Where's the data to suggest that such problems exist? Please don't tell me to "look at the 10Ks etc" unless you have one you can point me to that specifically breaks out Bakken non-core decline curves (something that would be quite a surprise).

I was going to continue on with each of these statements but it grows boring. Calling on the brilliance of Vange as the answer to every argument is not advancing the argument. So just one more:

First, it's not MY data. It's from ND, a player with vested interests and about which I have repeatedly and unequivocally stated that I'm skeptical about.

In other words, you use data that I suspect (while it proves that Vangel is and was correct, which is why I posted it), tell me its my data and then tell me that I'm wrong?
Give me a break!


You posted a link to a chart and stated basically "Vange is correct". I looked at that chart and showed how it does not support the argument that the Bakken is uneconomic. Sorry if I assumed data you used to prove a point was data you did not believe. After having tried to discuss actual facts with you I am not surprised that your immediate argument became "well I don't believe that data anyway".

One final time - the thread to which we are commenting was a discussion of the economic benefits of the Bakken play. While it is absolutely true that in general the shale players have destroyed capital (a fact clearly in evidence in their 10K's and reports) and have required vast infusions of new capital to remain in business, nothing has been presented here that indicates the Bakken in particular suffers from those same problems. It is my contention that at $80 oil and above is is not accurate to suggest that it does.

 
At 7/10/2012 1:10 PM, Blogger VangelV said...

So bart i want to know why the total onshore rig count in the us makes it not look promising for the bakken? Yes it is down but the rig count in ND is still at its highest level ever. The rig count in ND im sure will drop this year and you and Vange will try to point to this and say see we are right but that is not the case. Most of the leases have been held by drilling now so they are going to be utilizing more skid capable rigs and laying over the rigs they were using to jump around and hold leases. So this is just the beging of the next step for this great bakken oilfield.

Let me take a stab at this by putting it in context.

Not that long ago Mark and many others were touting a shale gas revolution that would produce a huge glut of product and drive prices lower. The new supply would bring back chemical companies, fuel electricity generation plants as older coal plants were being shut down, and perhaps lead to exports.

The problem with all this was profitability. Many of us argued that there was no way for shale gas companies to make money at prices that were below $7.50 per Mcf. Did we make up this number? No. We simply repeated what the gas companies were saying when prices were high and looked to go higher.

As soon as we brought up the facts the optimists went on the attack and brought up lower cost numbers. What they did not say was that the new numbers did not include the leasing costs, full depreciation costs, and depended on a total production level that was much higher than what the production data was showing as probable.

What was being ignored by the optimists was a decline in drill rigs working on shale plays. With the low cost the lenders were no longer willing to buy the debt of shale gas producers.

So what was the response? The companies reinvented themselves as shale liquids operations. They made a new set of claims and stated that if their EURs were sound all they needed was $60 to $80 oil to be profitable. What was lost on the optimists was the fact that these companies were sitting on a huge amount of debt from their failed shale gas experiment and that the assumptions for shale liquids were just as uncertain as the assumptions given for shale gas.

I look to Montana as the example for what will happen in ND. Montana had one great area for oil production. It is the Elm Coulee field, which was a very good source of oil that was very profitable to produce. From 2001 to 2006 the total production in the state more than doubled thanks to investment in this field. But that was it. While drilling is still going on production has collapsed and the production level for 2011 is lower than the production in 1987. Montana still has drill rigs operating. But it is hard to get many because there is little oil in place that is economic to produce.

The drill rigs looking for oil in ND are increasing even as the shale gas rigs are falling in number. This means that unless some off shore wells come on line or there are new conventional sources opened up we will see a decline in gas production over the next year. While the production of oil may go up slightly, without proper economics the shale liquids bubble will be just as dead as the bubble in shale gas.

https://images.angelpub.com/2012/04/12627/mt-production.jpg

http://www.eia.gov/naturalgas/weekly/img/20120524_itn.png

 
At 7/10/2012 1:16 PM, Blogger VangelV said...


Bart in my post i never said that the total rig count going down was a good thing or anything like that. I was talking about the Bakken only just as this article is. You can not compair the Bakken play to any other shale oil play. There is a reason every new shale play is compaired to the bakken and never lives up because it is not the bakken. that is the same way with shale gas it can not be compaied to shale oil. i never once said that it was the nations salvation nor will I ever. But you can not denie that it has been a salvation to thousands of people who have found good pay in it when there was no where else to turn. now will that good pay continue forever no it will not and no one expects that but for the past 10 years and forseeable future it has and will provided me very well and i know i can cound on having a job in the oilfields of nd untill i am able to retire and in that time there will also be oil co. making money in ND shale oil


I think that we are talking about two things. Nobody denies that it is not good for people to find jobs that pay well and to see the value of their property go up. Nobody denies that you can make money off decent wells in the core areas. (See Elm Coulee for a perfect example.) The argument is not about that but about the AVERAGE well in the BAKKEN formation. We all know that the Bakken is not uniform and that thickness and quality of rock varies throughout. The problem that I see is that the optimists are confusing the good results in the core areas as being indicative of the entire formation and that they do not understand what it would take to sustain the 1 mbpd rate that Mark is touting as likely. Given the high depletion and the lower productivity of newer wells outside of the core areas you would need more and more drilling just to stay even. The problem is that the math does not work. I cited a figure that illustrated what the reality means but most people seem not to have looked at it or to grasp the meaning.

 
At 7/10/2012 1:19 PM, Blogger VangelV said...

According to Oxy, a typical oil shale well in CA costs only $2 million to drill, and generates $12 million in revenues in year one.

The geologists that I know are telling me that the California shale formation is the most productive. One problem is that it is in California. The second problem is that it cannot offset the depletion from other sources for very long, particularly once its own depletion has to be made up.

The big problem is and will continue to be depletion and its effect on depreciation costs. Until people figure that out there will be problems for the industry and the only thing that the optimists will accomplish is to divert attention from the very dire problem that is facing us.

 
At 7/10/2012 1:26 PM, Blogger VangelV said...

i get it, but this is general, not specific.

can you point to a couple of specific 10ks worth looking at?


I am sorry but the optimists already gave us several worthy examples of good companies in the sector a few weeks back. When I looked at their 10-Ks I did not find positive cash flows or stable debt on the balance sheet. When I listened in on the conference call I noticed all the references to funding gaps that required new financing or asset sales. When I get the time I will see if I can find the links.

But let me suggest something. Pick out a few companies in the sector and look at their balance sheets and cash flow statements. Read the notes and listen to the conference calls. If you can find one good one let me know which one it is. I have tried but have had trouble finding any company that would make a good long term investment. (Note that I do not depend on a company being bought out because the BOE ratios allow a conventional producer to hide reserve declines. It is possible to make money from a bad company taken out at a premium. When I talk about a good long term investment I mean a company that can produce a decent return from operations.)

 
At 7/10/2012 1:33 PM, Blogger bart said...

Except that my comment to which you originally replied was in the context of THIS thread and the data it presented plus the comments from yourself & "Vange" on this thread in regard to the Bakken play. I find is silly to continue to make vague references to someone else said on some other thread.

Please continue with your cognitive dissonance, and refuse to join the real discussion or comment on the full issues - aka, a one trick pony.


However, (and you still refuse to even engage the crucial question)that does not mean that the Bakken curves are uneconomic.

An outright lie, and with extra smelly spin - well done!

You obviously missed the multiple times than V or I have said that the core is profitable... and you continue to avoid that, this time covering it up with specious lies etc.


Where's the data to suggest that such problems exist? Please don't tell me to "look at the 10Ks etc" unless you have one you can point me to that specifically breaks out Bakken non-core decline curves (something that would be quite a surprise).

You can either read what Vangel has said or not - it's not my problem.


I was going to continue on with each of these statements but it grows boring.

Cool that you've given up, and even earlier than my best guess.

 
At 7/10/2012 1:40 PM, Blogger bart said...

V said: The problem is that the math does not work. I cited a figure that illustrated what the reality means but most people seem not to have looked at it or to grasp the meaning.

As is sadly "normal" with the religious fervor and high emotion displayed when facts are ignored or rejected.

 
At 7/10/2012 3:08 PM, Blogger gasminder said...

Please continue with your cognitive dissonance, and refuse to join the real discussion or comment on the full issues - aka, a one trick pony.

That one trick pony was the horse you rode in on. In this entire thread you have made exactly one data based statement and you immediately decided you didn't believe the data when it was shown to be inconvenient. There is no value in an argument where every rational statement is countered with insult and straw men. Even the straw men are demolished with vague reference to the wisdom of the genius (yet never any actual view of that genius).

MC Gupta said it best:

NEVER ARGUE WITH A FOOL

It is best not to argue,
But if you do at all,
Never do so with a fool.
A fool can defeat all.

He does not care for the facts.
He does not know debate.
He’s a stranger to reason.
Logic he can negate.

In the end the fool will win,
His logic is so strong!
Decides what he does not like
And then it must be wrong!

 
At 7/10/2012 4:45 PM, Blogger bart said...

Please don't tell me to "look at the 10Ks etc"


Yep, keep on running and hiding from the facts and refusing to even look. It proves my entire case so very well in the sense that you're so sure of your wrong data that you won't even spend 5 minutes daring to look.

Be sure to never ever look at anything that might alter your fixed ideas.

Too funny that you7 ran and hid from that long list of facts, the various charts etc.



Please continue with your cognitive dissonance, and refuse to join the real discussion or comment on the full issues - aka, a self admitted one trick pony.

 
At 7/10/2012 4:47 PM, Blogger bart said...

And another one that's still so very funny, reposted for amusment of others:

However, (and you still refuse to even engage the crucial question)that does not mean that the Bakken curves are uneconomic.

An outright lie, and with extra smelly spin - well done!

You obviously missed the multiple times than V or I have said that the core is profitable... and you continue to avoid that, this time covering it up with specious lies etc.

 
At 7/10/2012 5:47 PM, Blogger gasminder said...

Too funny that you7 ran and hid from that long list of facts, the various charts etc

Can you point to any fact you've posted in this entire discussion? You linked one chart but immediately claimed you didn't believe it. Where are these facts and charts you claim I'm ignoring?

You're certainly a case study in post-modern argument style but that doesn't get us anywhere.

 
At 7/10/2012 8:54 PM, Blogger bart said...

Keep up the footbullets, stimulus/response automatic posts and lies as long as you must.

That's an order!

 
At 7/11/2012 12:23 AM, Blogger Bakken1515 said...

vangel i dont know why time and time again when talking about the bakken shale oil play you always want to bring up shale gas that is not what i am talking about im not even talking about any other shale oil play. since 2005 year after year there have been oil co. turning a profit on bakken shail oil. Yes look to Montana all you want it is a perfect example of what is and will happen to ND you said it yourself it was a very profitable field. The differance is that elm coulee is very small area compaired to that of all the fields in the ND bakken. Also when drilling the elm coulee field 10000ft laterals and 40 stage fracks were unheard of. You are right production will drop off dramaticaly when drilling is stopped but of coarse it will in any type of oil play that will happen. yes more drasticly in the bakken shale then in conventional plays but is that to say because it is going to drop we should not drill it? The chart Bart shows in this thread is the average bakken well. not the average bakken well in the core areas. also new core areas are being found month after month. there are lots of wells in ND that come in higher and lots that come in lower and this is in all areas of the bakken not just core areas. we are almost 10 years into this "boom" if it was not profitable they would not still be drilling it. For an oil play to be deemed good by your standards do all who play have to turn a profit? if so there has not been a good oil play yet! what has to happen in the bakken for you to stop criticizing in every post? or are you so blinded by your hatred for shale oil plays that you will never see all the good that has and will come out of this for almost everyone involved?

 
At 7/11/2012 8:25 AM, Blogger VangelV said...

vangel i dont know why time and time again when talking about the bakken shale oil play you always want to bring up shale gas that is not what i am talking about im not even talking about any other shale oil play.

I bring up the shale gas story because we were being sung the same song on gas as we are on oil. When reality finally intervened and the promoters could no longer hide from it they moved on to the shale liquids story. What I am saying is that the data so far does not support the idea that the average ND well will be economic. That brings us back to profitable operations in the core areas but uneconomic operations outside of those areas.

since 2005 year after year there have been oil co. turning a profit on bakken shail oil.

All I ask is that we are given a list of companies that have positive cash flows and are not adding a lot of debt to their balance sheets. You would think that seven years is a long time to reach the self financing stage. Now compare that number to the number of companies in the Bakken and see what conclusions you can draw.

Yes look to Montana all you want it is a perfect example of what is and will happen to ND you said it yourself it was a very profitable field.

That is my point. It was a core area in the Bakken but its economics did not extend outside of its boundary. When Mark and the promoters of shale are spinning their narratives they project results from core areas outside of those areas. On one of the threads there was a suggestion that a company that was looking at the lower Bakken formation would have results that were even better than the results from the core in the middle Bakken formation.

I look to companies like CXO, AXAS, QEP, WLL, CLR, and EOG and see that they are still adding debt and reporting negative cash flows. Shouldn't these companies be self financing if the profits are what is being claimed and you can get payback in months? See the problem? The back of the envelope claims and the reality do not seem to match up.

 
At 7/11/2012 8:43 AM, Blogger VangelV said...

The differance is that elm coulee is very small area compaired to that of all the fields in the ND bakken.

The Elm Coulee is a field in the Bakken. That is my point. When the promoters talk about the Bakken they extend the results from core areas, like the Elm Coulee, to the entire basin. But Montana shows how foolish that is because there was no way for the economics of the Elm Coulee to be etended to the entire Bakken basin within the state.

Also when drilling the elm coulee field 10000ft laterals and 40 stage fracks were unheard of. You are right production will drop off dramaticaly when drilling is stopped but of coarse it will in any type of oil play that will happen.

That is not true. The typical vertical wells that have not used enhancement techniques show a very gradual decline rate and can remain very productive for decades. Very large conventional fields deplete at around 3% per year. The smaller the field the greater the depletion rate. Enhanced recovery techniques and horizontal wells lead to a much faster decline and tight gas and oil fields that use horizontal wells decline at more than 65% per year.

yes more drasticly in the bakken shale then in conventional plays but is that to say because it is going to drop we should not drill it?

I have never said that. All I have said is that only the core areas that can provide a real profit should be drilled and that the optimists and charlatans who try to pretend that the results from the core areas can be extended to the entire basin do not deserve our attention.

The chart Bart shows in this thread is the average bakken well. not the average bakken well in the core areas. also new core areas are being found month after month. there are lots of wells in ND that come in higher and lots that come in lower and this is in all areas of the bakken not just core areas. we are almost 10 years into this "boom" if it was not profitable they would not still be drilling it.

Why would they not drill it as long as there is money to be borrowed and equity to be sold. The management team of an oil company can make a hell of a lot more money drilling oil at a loss than sitting home looking for a job. I thought that after the housing bubble fraud people would understand that as long as they could make money people will push unprofitable activities for as long as they could.

For an oil play to be deemed good by your standards do all who play have to turn a profit?

No. But if a formation is deemed good you better have the net returns be positive.

if so there has not been a good oil play yet! what has to happen in the bakken for you to stop criticizing in every post? or are you so blinded by your hatred for shale oil plays that you will never see all the good that has and will come out of this for almost everyone involved?

There is no 'hatred' towards shale. I am simply writing about illogical arguments and what I see as outright fraud. Last year I was pointing out that Aubrey McClendon's statements did not seem to be indicative of the real world results by his company. This year the SEC and investors took a close look and threw him out. I suggest that he is the first of many CEOs who will have the same type of experience. And in the end I will be reading from all of the suckers who bought the story about how obvious it was that shale formations were not what they were being sold as. I heard the same thing after the tech and housing bubbles that I had been screaming about popped.

 
At 7/11/2012 11:54 AM, Blogger bart said...

That is my point. It was a core area in the Bakken but its economics did not extend outside of its boundary. When Mark and the promoters of shale are spinning their narratives they project results from core areas outside of those areas. On one of the threads there was a suggestion that a company that was looking at the lower Bakken formation would have results that were even better than the results from the core in the middle Bakken formation.

I look to companies like CXO, AXAS, QEP, WLL, CLR, and EOG and see that they are still adding debt and reporting negative cash flows. Shouldn't these companies be self financing if the profits are what is being claimed and you can get payback in months? See the problem? The back of the envelope claims and the reality do not seem to match up.


Their "religion" doesn't allow them to grant any possibility of truth to *all* the facts. It reminds me of similar responses of extreme greenies.

The Hopium is with them, and they'll likely believe the next "wonderful paradigm" too. Sad.

 

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