Another Ignorant Forecast of the Death of the Shale Boom

Guest “riiiight” by David Middleton

From the perpetually wrong Nick Cunningham at Oil Price Dot Com…

US Shale Production Is Set For A Steep Decline
By Nick Cunningham – Oct 01, 2019

U.S. oil production fell in July, another worrying sign for the shale industry.

The latest EIA data shows that oil output fell sharply in July, dipping by 276,000 barrels per day. The decrease can be chalked up to outages related to a hurricane that forced oil companies to temporarily idle operations in the Gulf of Mexico. Offshore Gulf of Mexico production plunged by 332,000 bpd in July.

As a result, the dip in output might easily be dismissed as a one-off aberration. However, U.S. output has stagnated in 2019, ending several years of explosive shale growth. Compared to December 2018, total U.S. production was only up 44,000 in June 2019, which essentially means that despite heady forecasts and lots of hype, U.S. shale has plateaued this year.

Because the Permian drives much of the growth and commands most of the attention, it is instructive to look at Texas. The latest EIA data shows that Texas boosted production by 40,000 bpd in July from a month earlier, which is not trivial, but down sharply from the triple-digit monthly gains routinely posted throughout much of 2017 and 2018. Year-to-date, Texas has only added 125,000 bpd, a rather modest figure. The state added 474,000 bpd in the first seven months of 2018 by comparison.

[…]

For shale drillers, the problem is made worse by the fact that they are facing financial stress and the prospect of persistently low prices. The rig count has fallen sharply, down roughly 20 percent since last November. Drillers are cutting back, hoping to improve their cash flow position amid investor scrutiny.

[…]

Oil Price Dot Com

At no point does Mr. Cunningham cite anything that supports the notion that “US Shale Production Is Set For A Steep Decline”. The hurricane-related shut-in of Gulf of Mexico production is totally unrelated to the Permian Basin and “shale” plays in general.

Hurricanes and the Obama maladministration’s unlawful drilling moratorium/permit-torium are obvious on this production plot:

Figure 1. U.S. Gulf of Mexico oil production (US EIA)

Most, if not all of that 332,000 bbl/d is already back online. GOM production is on track to exceeding 2 million bbl/d in early 2020.

A slowdown in growth is not a steep decline. As awesome as the Permian Basin is, production growth can’t perpetually accelerate. Mr. Cunningham did note that falling oil prices are a factor… It’s actually the only factor. The fact that every oil well ever drilled exhibits a decline curve, means that the only way to maintain and/or increase production is to keep drilling.

The Baker Hughes rig count for the Permian Basin pretty well tracks the price of crude oil (WTI).

Figure 2. Baker Hughes Permian Basin rig count and WTI.

The rig count has been falling with the price of crude oil since December 2018. With the rig count falling, the rate of production growth has slowed down, but “U.S. shale” has not “plateaued this year.”

The EIA tracks the monthly productivity changes for tight oil and shale gas plays. The September 2019 Drilling Productivity Report: For key tight oil and shale gas regions shows that U.S. tight oil plays are still growing, with almost all of the growth in the Permian Basin.

Figure 3. Month-over-month change in crude oil production for U.S. tight oil plays.

All of the regions, except the Haynesville, exhibited continued increases in productivity (new-well oil production per rig). The Haynesville is almost exclusively a gas play.

New Permian Basin wells are nearly 8 times as productive as they were in 2010.

Figure 4. Productivity = More results per unit of effort. (US EIA Drilling Productivity Report)

While the rate of production growth has slowed, there’s no “plateau” in sight…

Figure 5. Peak Oil my @$$. (US EIA Drilling Productivity Report)

Mr. Cunningham then went with the “but, but, but, they can’t make money” angle, citing himself in the process…

For shale drillers, the problem is made worse by the fact that they are facing financial stress and the prospect of persistently low prices

Nick Cunningham

US SHALE INDUSTRY TURNS CASH FLOW POSITIVE
August 21, 2019

In a remarkable turnaround, the second quarter of 2019 is the first three-month period on record when US shale operators achieved positive cash flow from operations after accounting for capital expenditures, according to Rystad Energy.

Rystad Energy – the independent energy research and consultancy in Norway with offices across the globe – has studied the financial performance of 40 dedicated US shale oil companies, focusing on cash flow from operating activities (CFO). This is the cash that is available to expand the business (via capital expenditure, or capex), reduce debt, or return to shareholders.

In the second quarter of 2019, 35% of operators in the peer group balanced their spending with operational cash flow, and reported an accumulated $110 million surplus in CFO versus capex.

[…]

Rystad Energy

While the more successful shale players, like EOG and Cabot, have been generating free cash flow for the past several years, the less successful companies are catching up.

Figure 6. Free cash flow is what enables companies to buy back stock, pay off debt, pursue M&A opportunities, etc.

Positive operating cash flow is essential for staying in business. It means your operations are generating more than enough revenue to cover your operating costs. Free cash flow is like Nirvana. It means that your operations are generating more than enough revenue to cover your operating costs (OpEx) and your capital expenditures (CapEx).

Cash Flow
Cash flow is the net amount of cash and cash equivalents being transferred into and out of a company. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders and pay expenses. Cash flow is reported on the cash flow statement, which contains three sections detailing activities. Those three sections are cash flow from operating activities, investing activities and financing activities.

Free Cash Flow
Free cash flow (FCF) is the cash a company produces through its operations after subtracting any outlays of cash for investment in fixed assets like property, plant and equipment. In other words, free cash flow or FCF is the cash left over after a company has paid its operating expenses and capital expenditures.

Free cash flow shows how effectively a company generates and uses its cash. Free cash flow is used to measure whether a company has enough cash, after funding operations and capital expenditures, to pay investors through dividends and share buybacks. To calculate FCF, we would subtract capital expenditures from cash flow from operations. (See “What’s the Formula for Calculating Free Cash Flow?“)

Investopedia

It’s not easy to generate free cash flow in this business, conventional or unconventional. Oil and gas exploration and production (E&P) is very capital-intensive. Companies with solid operating cash flows and EBIDAX often don’t generate free cash flow due to their CapEx. It was actually more difficult when oil was over $100/bbl, because the cost of doing business goes up and down with the price of oil.

Idiots and decline curves

The shale doomsayers will often latch onto decline rates. Shale and other tight reservoirs (unconventional) generally exhibit steeper decline rates than conventional wells.

Figure 7. Comparison of average decline rates for “shale” and deepwater GOM (Gulf of Mexico) wells. (Rystad Energy)

“Shale” does have a few advantages over deepwater GOM:

  1. Virtually no exploration risk.
  2. Lower drilling and operating costs.
  3. On production faster.

However, the steep decline curves necessitate a higher operational tempo to maintain and/or grow production.

Figure 8. It takes about 400-500 drilling rigs to maintain and/or increase Permian Basin oil production. It only takes 20-40 rigs to maintain and/or increase GOM oil production. The Permian Basin accounts for nearly 2/3 of Texas oil production. The rig counts are only for rigs drilling oil prospects/development wells.

That said, the decline rates for “shale” wells aren’t some sort of Achilles Heal. A comment to my last post linked to a very frackingly stupid article, suggesting that the decline rate caused the oil to “vaporize…

More Than 50% Of The Mighty Permian’s 2018 Oil Production Has Vaporized

POSTED BY SRSROCCO IN ENERGY, NEWS ON OCTOBER 4, 2019

As dark clouds gather on the financial horizon, big trouble is brewing in the U.S. Shale Oil Industry.  While most Americans are focused on the Mainstream media’s coverage of the ongoing Washington D.C. circus, the real threat to the domestic economy lies in the country’s oil heartland.  And, if we look at what is taking place in the United States’ largest shale oil region, the signs are troubling.

The Permian Oil Basin in Texas and New Mexico accounts for nearly half (46%) of the total U.S. shale oil production.   According to the data from Shaleprofile.com, Permian’s oil production peaked in May at 3.43 million barrels per day.  Due to the massive decline rate, production in the Permian has stalled this year.

The chart below shows the Permian oil production declining even though more wells continue to be brought online.  Unfortunately, there aren’t enough wells being added to offset the tremendous decline rate.  You will notice how quickly the oil production that was added in 2018 (Light Blue color) has declined in just half a year:

[…]

EROI SRSrocco REPORT

“Vaporized”???

Figure 8. Argh. (EROI SRSrocco REPORT)

Dude! That’s how decline curves work. Every well ever drilled exhibits a decline curve. If the decline curve was “killing the ability of shale companies to increase production,” there would have never been an increase in production.

Figure 9. Production from new wells – decline of legacy production = net change… Same as it ever was. (US EIA Drilling Productivity Report)

If the shale players had drilled no new wells in the Permian Basin since 2010, the decline rates would have done this to oil production.

Figure 10. Drill, baby, drill or die. (US EIA Drilling Productivity Report)

A sober analysis

I am sober at the moment… But not an objective observer. I not only work in the evil oil & gas industry, I am also a YUGE fan of it too. Robert Rapier, on the other hand, is generally very objective.

Oct 3, 2019
U.S. Crude Production Returns To Record Levels

Robert Rapier Senior Contributor
Energy

Were it not for the explosive growth of U.S. oil production over the past decade, the recent attacks on Saudi’s oil infrastructure would have undoubtedly had a much larger impact on the world’s oil markets. Now, less than a month later, the prices of West Texas Intermediate and Brent crude are actually below the prices prior to the attacks.

[…]

Back in the summer, it looked like that production growth was slowing. Year-over-year production growth had been slowing since early in the year, and monthly production had been declining heading into summer. The key driver of these developments was that production growth in the important Permian Basin had plummeted over the past year.

But that was then and this is now.

Production started rising again during the summer, and last week the Energy Information Administration (EIA) reported that weekly production tied the all-time production record of 12.5 million BPD of U.S. crude oil production that had been first reached a month ago. This week’s report showed that production declined slightly to 12.4 million BPD, but is still 1.3 million BPD higher than it was a year ago. That is still robust year-over-year growth, and is higher than it was heading into the summer.

About half of the 400,000 BPD production increase since summer comes from the Permian Basin. Production there continues to grow, albeit at the slowest pace in three years.

[…]

Forbes

What a difference two days can make:

US Shale Production Is Set For A Steep Decline

Nick Cunningham, BA history, U of Maryland, MS international relations, Johns Hopkins. October 1, 2019

U.S. Crude Production Returns To Record Levels

Robert Rapier. BS chemistry & math, MS chemical engineering, Texas A&M University. October 3, 2019

Or maybe it’s the difference between ignorance and knowledge of the subject matter.

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94 thoughts on “Another Ignorant Forecast of the Death of the Shale Boom

  1. “A slowdown in growth is not a steep decline. ”

    it would be funny to show skepics a production chart and tell them it is temperature.
    I’m sure they would find the decline, or pause or hiatus

        • From birth to about age 18, I grew in height. For several decades my height plateaued (sort of like a hiatus, or something).
          In the past 15 years I have experienced a slow decline in height (and a bit of expansion in the middle).
          I can report that should the rate of decline over the past 10 years continue for 500 more, I will be 1.9 feet tall and 5.97 feet wide.
          Mathematical certainty is reassuring.

          • 2′ Tall and 6′ wide sounds a little Burial Casket Shaped
            6′ tall and 2′ wide is adult male standing
            2′ tall and 6′ long is adult male in repose

    • But when the Model Cargo Cultists says it (GMST) is supposed to be accelerating Steven…

      Model fail.

      • Actually, it’s supposed to decelerate. Temperature/CO2 sensitivity is supposed to be a flattening logarithmic curve. And the methane time bomb is supposed’ve been debunked, because the melting of the clathrates is exothermic, or endothermic, or something that absorbes the heat that does the melting.

    • Yeah Steven, hiding the decline in oil production is much harder, being something real. You can’t Karlize it. Denying the hiatus in temperature over ~2 decades, matching the length of time of the ‘big’ warming that had climateer’s buns in a twist, can easily be fiddled.

      The hiatus is even more dominant a feature in that most of the warming of the end of the last century was simply a crawling back out of a 35 year ” ice age cometh” stretch that also had buns in a twist. And that decline was essentially a sliding down from the late 1930s peak temperatures that rivalled the 1998 El Nino year!

      The recent El Nino that gave weather privateers so much relief has much dissipated, too. One thing is sure, with the developing world doubling down on fossil fuel use to garner economic prosperity for its citizens, we have no choice but to do the big CO2/temperature experiment over the coming decades. It will be good for real science. Im betting on a Garden of Eden Earth of plenty and fine weather. What about you?

    • Hi Steven,
      Favour possible?
      Can you email me a link to the daily temperature data max and min BEST uses for Macquarie Island WMO 94998. Also Giss and Hadley if at fingertips. I have BOM. As gathered and lightly massaged, not gridded.
      We are in the middle of connecting to the National Broadband Network that is dropping out, making searches for data a pain. Geoff S

    • You’re saying that a slowdown in growth IS a steep decline?
      Or are you saying the “The Pause” really happened despite the CliSci “projections” that it SHOULDN’T have happened? (And the BEST efforts by Karl to say say it didn’t.)

  2. David Middleton

    “That said, the decline rates for “shale” wells aren’t some sort of Achilles Heal Heel ?”

  3. “One of the painful signs of years of dumbed-down education is how many people are unable to make a coherent argument. They can vent their emotions, question other people’s motives, make bold assertions, repeat slogans—anything except reason.”

    Thomas Sowell

  4. “Or maybe it’s the difference between ignorance and knowledge of the subject matter.”

    BINGO !

  5. Hey David. Have you got any info on the company using sound waves to generate flow from shale oil wells? I heard about that 2 years ago and can’t remember the name or seen any follow up on it. Sounded like an interesting idea.

    Just curious. Thanks

  6. This morning on Radio New Zealand, the Govt funded broadcaster, there was an interview with Sir John Porritt, son of a one time NZ Governor General. He is visiting NZ to lecture our universities on how to incorporate climate change into all tertiary syllabi, not just subjects relating to hard science. Among his comments, he claims that Exxon new of global warming in the seventies, actively promoted the anti global warming movement in the eighties and the executives of the time should be prosecuted for criminal misinformation. As an ex oilman I wonder who is the criminal.

    • Peter Fraser; as you know, this is par for the course in NZ. The whole of our MSM, especially TVNZ and NZH, have totally swallowed the CAGW lies and do not hesitate to repeat their nonsense daily . I am surprised that there does not appear to be a single investigative journalist who can see this golden opportunity to make their name in revealing the truth behind this enormous hoax. I presume they all left their training establishment thoroughly brainwashed.

  7. For shale drillers, the problem is made worse by the fact that they are facing financial stress and the prospect of persistently low prices.

    Good old supply-and-demand strikes again. You would expect output to drop to the point where the market price and the cost of production reach some kind of somewhat profitable balance.

    • All oil companies face the financial stress of low oil prices. This has always been the nature of the business.

  8. History and International Relations. The man has no math knowledge, no training that requires rigorous analysis and no real world testing experience – exactly the kind of man our government hires to formulate energy policy.

  9. David, while I am not on board with the completely dire predictions for shale oil, I do see some very troubled times for the industry as a whole. Your rosy outlook after ONE quarter of positive free cash flow is misplaced, your graph only went back to 2014 and there was half a decade of negative numbers preceding it. Everyone knows that Wall Street was eager to see some positive numbers and the only way shale oil could deliver was to significantly curtail capex but this also brought a near flat line of growth. Lets be honest, ONE quarter of free cash flow of 110 million on an investment reported to be 350 billion is not much of an achievement to crow about!! Investors are very leery about how they are going to recoup hundreds of billions of investment in a business model that requires nearly every earned nickel to be plowed back into the ground just to maintain production little lone grow.

    You also conveniently try to dovetail shale oil declines with conventional declines and nothing is further from the truth. As you mentioned all oil and gas plays have to contend with declines but no other segment deals with the 70-80% declines of shale oil, the industry average is roughly a tenth of that.

    Shale oil/gas and mostly the Permian have been a blessing, I shudder to think where energy prices would be without it but they have made themselves out to be a successful sector with break evens in the $40-50 price band, it is increasingly becoming evident the sector as a whole requires oil to be in the $70-80 before the free cash flow to modestly grow production and give investors their promised returns can be achieved.

    • I am with Tracy on this one. It is becoming increasingly clear that shale needs more than $52 WTI to work. I’m not predicting an impending collapse in shale oil production but at $52 WTI production will remain flat. David obviously has a lot more faith in the EIA weekly guesstimates than I do. They have been running 300-400K barrels ahead of the monthly reports all year. The EIA is projecting a 19 exit rate for US production at 13M barrels per day. I say that is impossible given the declining rig count and completion rates. August saw the lowest number of well completions in Texas this year. I see 3 big problems for US shale 1) Most shale drillers make no money at $52- companies like EOG are the exception and not the rule 2) The decline rate for legacy production increases each month- its 100K per day higher in the Permian than this time one year ago. The sane rate of drilling results in smaller overall production growth. 3) Debt- it took almost $200B of debt to get US shale production up to near 8.5M barrels a day- Wall Street (now worried about being repaid won’t be doling out much more to most of the unprofitable drillers).

      Can US shale oil production continue to grow ? Yes, but it will take $70-80 WTI for that to happen. From all the numbers I am seeing US shale production will remain flat at current prices.

      • “The decline rate for legacy production increases each month- its 100K per day higher in the Permian than this time one year ago.”

        You realize that the reason for that is that the average age of the wells has decreased as a result of the increased rig count 2017-18?

    • No doubt that a ton of equity has been destroyed since the oil price collapse from late 2014 through early 2016. This is why most publicly traded oil company stock prices currently reflect ~$30/bbl oil prices.

      I think I was fairly clear in pointing out the difference of decline rates and the challenges faced by most “shale” players. However, those challenges aren’t terribly different than the ones we face in conventional E&P. We also had to drastically cut OpEx and CapEx to demonstrate we could make money at ~$50/bbl.

      Furthermore, I don’t think I made any forecasts, rosy or otherwise.

  10. “Or maybe it’s the difference between ignorance and knowledge of the subject matter.”

    Nick Cunningham is probably just writing exactly the ignorant-of-subject energy sector propaganda his bosses hired him to write. And if he didn’t, they’d probably fire him and hire someone who would write propo pieces their owners want to see reach the public. Which is probably how he got the job in the first place.

    • I was going to say maybe it’s the difference between having an agenda, and objective research.

    • The problem with journalism in general — not just climate journalism — is there is no penalty for getting facts wrong. As long as the facts are not so wrong they become legally actionable. Any string of false statements is good journalism as long as it captures reader interest.

      The other thing to keep in mind is: you have no reason to believe the press does a better job on any topic than they do on climate issue.

      IOW: If they’re entertaining, they’re rewarded; if they’re right, it’s a bonus.

    • Cunningham’s background is centered around environmental topics.
      His archived articles at the oilpricedotcom site show several where he openly laments how the Shale Revolution has pushed back the adoption of wind/solar power generation.
      He has no prior experience of the upstream hydrocarbon industry at all and, frankly, loathes it.

  11. All this….and no talk of logistics, or pipeline capacity…..which is being hamstrung by enviro/wackos? Output means nothing if it ain’t flowin’ to market.
    If output can’t flow….it doesn’t count as output.

    Full Stop.

    Hence, this is perfect fodder for entirely uninformed, alleged reporters….possessing zero scientific analytic ability, but keen on PC stuff.

    I wonder if the dweeb author considered any of this……..?

    • Tom
      The Cactus II and Epic (conversion) pipelines are coming online with about 1 million bbld capacity.
      By year’s end, the Gray Oak will add another million bbld takeaway capacity.

      A 2 Bcfd gas pipeline just came online and the infrastructure to ship gas to Mexico continues to expand.

      At near 3 million bbld export right now, reverse lightering is getting much of the earl to the big VLCCs, while frenzied port buildout continues.

      There are about 10 plans floating around to have deepwater port capabilities including some that will mimic the LOOP operation off Nawlins. That is, building offshore loading buoy terminals that can load 2 million bbld into a VLCC.

      I do not think that people have grasped the magnitude of what is unfolding.

  12. For ‘woke’ forecasters of things climate and fossil fuels, their chief modus op is wishful thinking. And of course for weather the totes have fixers. “Just give us the forecast you want to happen”.

  13. There ARE issues that throttle the growth of oil-shale. 1) Profit and 2) transport. That is about it with the control of the U.S.

    Shale Oil Producers are at the point of a new industries career point where they need to show financial discipline and a consistent profit. Once an industry reaches this point, the winnowing of smaller less efficient companies is a natural consequence – it’s called Capitalism.

    The other issue is harder to nail down. There is so much oil and gas being produced in the Permian, producers have trouble getting it to the buyers. This artificially raises the price of a unit of energy, so making a profit gets harder. Putting in new oil and gas lines is a nightmare due to bureaucracy and misguided-environmentalist-pseudopods… (you know, the wild-eyed emotional-but-not-rational green activists).

    Without additional capacity, you have a good-old bottleneck in your supply chain. Fix that and a lot more oil can make it from the field to the buyers at a cheaper price, profits stay nicely healthy, and more oil can be produced.

    The only other influence is world demand versus supply. That is beyond the ability of a U.S. company to fix. Companies just have to learn to live through cheap oil (by reducing demand and spending less) and take full benefit from expensive oil (which the pipeline bottleneck makes it difficult to do).

    Meanwhile I expect Shale Oil to continue to become cheaper to produce, although not at the previous rate…they are nearing a boundary line and as they approach it it gets harder and harder to become more efficient. The only way I know of to change the boundary line is new technology – and no one can predict if/when/what that will be.

    • Robert of Texas,
      Lunacy like this is not helping US producers.
      Massachusetts Gets A New Russian ‘Pipeline’ Thanks To Collusion, Hypocrisy, and Incompetence
      https://climatechangedispatch.com/massachusetts-gets-a-new-russian-pipeline-thanks-to-collusion-hypocrisy-and-incompetence/
      But thanks to their efforts, New England is now importing liquefied natural gas, commonly known as LNG, from Russia, despite the fact that America leads the world in natural gas production.
      If it seems ridiculous, that’s because it is.

      Lacking Pipelines, New England Awaits Its First-Ever Shipment Of Russian Gas https://climatechangedispatch.com/lacking-pipelines-new-england-awaits-its-first-ever-shipment-of-russian-gas/

      • KcTaz
        While the first shipment of LNG from Yamal to the Everett terminal (via Grain) in 2018 got a lot of headlines, this past winter’s shipment into the offshore Northeast Gateway buoys got zero attention.

        For the entire month of January, 2019, the FSRU Exemplar from Excelerate regasified a shipment of LNG that was sourced from Yamal and transhipped to St. Nazaire.
        In fact, when the Ecemplar was joined by a sister FSRU – the Express – a record sendout rate of 800 million cubic feet was achieved using the dual yolk system 13 miles off Boston.

        This achievement played a huge role in expanding the adoption of FSRU processes and hardware across the globe.
        From Port Kembla to Thi Va to Sergipe, massive power plants are going to be fueled by cheap, now accessible, LNG.

  14. Hi Steven,
    Favour possible?
    Can you email me a link to the daily temperature data max and min BEST uses for Macquarie Island WMO 94998. Also Giss and Hadley if at fingertips. I have BOM. As gathered and lightly massaged, not gridded.
    We are in the middle of connecting to the National Broadband Network that is dropping out, making searches for data a pain. Geoff S

    • This was for Steven Mosher, link to his post failed and left me stranded. The joys of the communications revolution! Geoff S

  15. Any business large enough to affect a national economy will face ups and downs as circumstances change. When the majority of people wish the business to continue, it is not helpful for media people to badmouth. Managers at the top of the business actually do welcome the rare expression of approval, though in present times criticism seems to be 100s of times greater.
    Accordingly, I send a genuine well done to David Middleton. May you enjoy it as well earned, as I used to do when I was in comparable circumstances. Geoff S

  16. Cunningham has a long history of being staunchly anti shale, ferociously anti hydrocarbon, and – with his recent move to Portland from Pittsburgh – likely to be anti capitalism.

    That Steve Rocco guy is an extraordinarily entertaining buffoon who seems to never just go away.
    In the years that I have glanced at his work, it seems he is perpetually announcing shale’s imminent demise.

    The bigger, yet highly under reported, news is the rising percentage of hydrocarbon recovery that is taking place in the unconventional world.
    Rising from a 3 to 5 per cent rate of capture, Bakken operators are now recovering in the 20% range with the newest iterations of completions.

    The EOR pilot work being done by Liberty Resources is looking promising with results expected to be announced next summer.

    Evidence continues to grow that the larger asphaltene molecules are playing a role in the “dreaded decline” profiles as pressure drawdown is enabling the smaller molecules to ‘squeeze through’ the microscopic fissures while their larger cousins cannot and restrictions occur.

    The Permian boys are still battling with the learning curve with the vast vertical as well as aerial extent of that play.
    Early, early innings yet.

    • He’s the ignorant version of Art Berman. Art’s realistic skepticism of “shale” is grounded in geology and resource economics. While I often disagree with Art’s conclusions, I can at least follow his logic. Cunningham just parrots the latest negative headlines.

      • David
        If the Jurassic reservoirs in Da Guf such as Appomattox prove viable, entire new horizons may come into play.
        If these are akin to the Pre Salts down off Brazil, Katy bar the door.

        Offshore Newfoundland has hopes for a similar outcome.

        The 20,000 psi infrastructure being set up for the Anchor project also lends hope for an expansion lf what is deemed feasible.

        • Appomattox and the Norphlet play are for real… Unfortunately, most of the GOM Mesozoic potential is in the off-limits Eastern GOM.

          The plays off Newfoundland are very cool and should extend to the northern part of the Atlantic OCS (also off-limits).

  17. As I understand it, a shale oil well’s production falls off sharply after first few years, requires refraccing, then tails off again.

    and wells are drilled first in the most productive parts of the shale.

    so constant redrilling of new wells is required to maintain production and as later ones are on less productioe zones, more of them.

    I also understand that the profit from an initial tranche of wells is needed then to finance the next set.

    In other words, this whole industry constantly requires to do more to maintain the same output, requires money just to keep it going.

    surely at some point we get to the point where production levels across the US can’t be kept up? Or the money runs out?

    (the financing here does seem a little like a ponzi scheme… just a little)

    • Griff, for once you have produced an almost factually correct post. You just need to remove the sixth word: “shale”.

      And one thing more: the production falls off essentially from day one, not after “a few years”

  18. Just for the record, none of the formations being drilled in the Permian are shale. Wolfcamp & Bone Springs are carbonates and the Spraberry is a silty sand.

    • Most “shale” plays aren’t actually shale. “Shale” has become a catch-all word for tight oil & gas reservoirs.

      Shale can be defined as: ”Shale is laminated, indurated (consolidated) rock with > 67% clay-sized materials.” Jackson, J.A. (1997). Glossary of Geology, 4th Ed., American Geological Institute.

      While it is always good to have reliable sources of knowledge, please take a look at the mineral composition of known shale gas plays in the U.S., as presented in Fig. 1 – which shows that almost none of the U.S. shale gas plays meet the criteria of the definition given above. According to this definition, there are no shale gas plays in the U.S. “Houston, we have a problem …”

      https://halliburtonblog.com/is-it-shale-or-not-shale-that-is-the-question/

      • Love that plot! Thanks! A friend working his first “shale play” told me they are producing from rock best described as chert. Not much luck fracking gumbo!

        • That must have been a very odd play. It is hard to think of a less suitable source or reservoir rock than chert. It would make a good cap rock though.

    • Billyjack

      Your comment is not only dead on correct, it goes a long way in understanding much of the challenges the Permian boys are experiencing these past couple of years.
      For contrast, the Bakken operators have a – relatively – homogeneous geological formation, especially with the Middle bench, with which they have over a decade’s worth of hard won (and expensive) experience.

      The cutting edge approach regarding completions entails landing point precision down to about 3 foot +/- depth.
      Each stage is being engineered with a ‘fracture gradient’ of less than 500 psi.
      The efforts, generally described as Extreme Limited Entry, attempt to create and maintain an ever expanding “pressure bubble” of 1,500 to 2,000 psi underground out to 500 foot +/- half lengths and staying within zone vertically. Use of near wellbore and far field diverters alongside microproppants play roles in this.

      Kinda like the old drunken monkey trying to screw a greased football (gridiron ball for the non Yanks) while wearing roller skates … lottsa moving parts.

  19. As always, a hugely enlightening post. Thank you, sir. I’ve been puzzled by the doom headlines on Drudge for some time, now. This post puts things in perspective.

    I’ve stopped going to Drudge. I find links from WUWT to be more enlightening, and news sources outside the United States more objective than domestic ones. That includes, btw, Al Jazeera. Who would’ve thought they would have more journalistic integrity than the now Onion-like New York Times, whose content I now dismiss out of hand.

  20. When I worked for “small oil”, one of our key factors was not profit, but payout time, the time required to get your initial investment back. Get your upfront money back and drill another. Profit would come, price dependant, down the road. A price shift meant the tail of the decline curve of an older well could prove to be more or less valuable than initially expected, so they were just accumulating assets of unknown value.

    Plays with a steep decline curve are perfect for this approach. We didn’t look at them as disappointing wells, but rather as wells with a nice early cash bonus at known prices. Pessimists call them wells which have a plunge in production. Realists see them as low risk, modest wells with a nice fast return of upfront costs.

    • Doug

      If you regularly check in on Bruce Oksol’s themilliondollarway site, you will discover a unique source of free data from a retired (military) Williston native who has been meticulously tracking and describing Bakken wells’ output since the beginning.

      You may be surprised at just how misplaced (and somewhat inaccurate) much of the production reporting has been.
      Fact is, operators have continuously been seeing increases – often 5 to 10 fold – of output from older wells when new offsets are fractured.
      Virtually no reporting on this is taking place, but the assumption of elevated formation pressure causing higher production from the older ‘parent’ wells seems strongly correlated.

  21. Peak oil is a lot like climate change.
    Everything is evidence that there predictions are finally about to come true.

    • I like both because they can be subjected to analysis and predictions that serve to gauge the understanding of how they work. If predictions are wrong they should force a change in how we understand them.

      My current prediction in oil is that World crude plus condensate production in 2019 will be lower than in 2018. We should know in 9 months.

  22. David, as always, your post is educational and entertaining.

    I’ve lost my pointer to the info on DNC (drilled not completed) wells. At one point it was somewhere around 5500 holes, where is it today?

  23. Although I might have missed this point in my quick review of both your post and some of the comments, one item which the energy “press” tend to latch on is rig count. For some reason the “press” cannot seem to grasp that you don’t need ans many rigs to drill long lateral horizontal wells (both tight gas and oil) as was needed to drill “old style” vertical/ directional wells to develop the same acreage. Press reports equate drop in rig count = contracting industry/energy recession (due to low commodity prices). As you noted you cannot look at these individual issues in a vacuum but must be considered in context.

    • You do need to drill wells. While Permian Basing rigs are about 8 times as productive as they were 10 years ago, a prolonged drop in the rig rate will caused a falloff in production.

  24. I enjoy your oil and gas debunking posts. I would add that economically, the Tight Oil and Gas industry looks a lot more like a manufacturing industry than a traditional oil and gas play because there is essentially zero exploration risk. Therefore players are primarily competing on driving down scale and experience curves as they introduce new techniques and tools that reduce labor costs and increase per well yields. It’s more like making steel than offshore which still has a large speculative component. And since each basin is different, I predict you’ll see basin specialization by companies because the experience curves will differ.

    • Mr. Reeves
      That is an oustanding analogy on so many levels.

      From the world class snubbing companies originating in the Appalachian Basin enabling operators to drill 20,000 foot laterals to the Monobore drilling in the shallower Niobrara, the incredible speed of technological advances is simply breathtaking to behold.

      The brand new $300 million water treatment plant from Antero in West Virginia may well be ‘obsolete’ with the latest chemical iterations allowing slickwater fracs to partially use treated produced water.
      Implications for Permian completions should be obvious.

      Unfortunately, mainline ‘reporting’ does not regularly offer opportunities for observers to learn of these matters … let alone project future ramifications.

      New, young, hard charging CEO of EQT, Toby Rice, is attempting to position the company – now the largest gas producer in the US – to be profitable at $2 HH.

      2 bucks for freakin’ a million btus, Mr. Reeves.

      And THAT is one reason why the incredible buildout of processes and hardware involving mid scale, small scale, even micro scale LNG all over the place.
      Combined with the most recent advances in modularization from the ships, the liquefaction trains, the containers to ship/store the stuff, we will see an explosive, global spread of LNG use in the coming years.

      (BHGE is committed to building mid sized trains totalling 60 mtpa – million tonnes per annum – at their Avenza plant in Italy.
      For context, that is within shouting distance of Qatar’s current 77 mtpa output).

  25. I was habitating oilprice.com in it’s first year of operation.
    What I read in both the published articles and forum was an absurd
    collection of reporting and posting on it’s forums.

    It was mainstream to report and argue the merits of Peak Oil and the
    complete failure of the fracking processes; as well as the massive decline
    rate in production output. Several authors repeatedly suggested the industry
    would never go cash flow positive. This was later followed by the push of
    “green” energy and the consequences of AGW.

    After some five years of this drumbeat and shoddy and nonfactual
    journalism, I discontinued my membership. My emails to the chief editor
    provided no relief.

    It did not come to a surprise to me that this website and it’s board originate
    from the UK.

  26. Back in the 1980s I prepared an annual reserve report for a small oil company. Their annual production had been steady for years as they relied on bank loans to finance a few new wells every year. But when the oil price crashed in late 1985, the bank ceased lending, the company couldn’t drill and their reserves and value declined precipitously. It’s the red queen effect. You have to keep running just to stay in place. We will eventually hit a plateau in the shale wells, but that should take quite a few years.

  27. The Bakken and Eagle Ford have seen essentially flat production for years. This will eventually happen to the Permian. The question is when. I believe the answer is price. I expect flat to slightly up production from the Permian at $53 WTI. At $75 production could push higher for several more years. The price of WTI a year out is anyone’s guess.

    Halliburton announced more layoffs today. Decreased rig counts and completions are killing the service companies.

    • The service companies always get hammered the most when oil & gas prices fall.

      When the Permian eventually peaks, oil will probably push $100/bbl.

      • I agree. I’m in the camp that believes oil would have never dropped under $100 had it not been for the Permian. And its the Permian’s spectacular growth in 18 (plus a significant increase from the GOM) that is sitting on top of oil prices right now. The IEA is expecting most new oil growth over the next 5 years to come from the US and Iraq. The Permian is expected to be the single biggest contributor. For that to happen I believe oil prices will need to move meaningfully higher.

  28. Here’s a question… Can older oil field production be pushed even further by drilling new horizontal wells – I am assuming there is already a method to increase the hydro-static pressure in place. Or are the older sites just too lean to pursue?

    • It depends on the nature of the reservoir. In Ghawar, they drill horizontal wells to stay above the oil/water contact (which has moved up-dip with oil voidage, and to avoid a high permeability zone that can draw up water like a straw.

  29. Drilling a new well is expensive, whereas producing oil from an existing well is relatively cheap, even though the production rate declines with time.

    There are a lot of factors that a US oil producer can’t control, that influence the price of oil. A hurricane can temporarily take Gulf of Mexico production offline, but that doesn’t usually last long–the wells are back online about a week after the passage of the hurricane, so that a hurricane will temporarily drop production, without enough time to drill new wells.

    But an international event such as the bombing of the Saudi refinery by Iran could take a large amount of crude off the market for months or years, which could increase oil prices for long enough to incentivize new drilling, as Permian producers rush to meet the demand at a high sales price. The Permian production has probably also been helped by the failure of Venezuelan production due to mismanagement by the Maduro regime.

    Another factor that is frequently overlooked by analysts is that fracked oil from the Permian Basin and Bakken fields contains much less sulfur than Middle East oil, and is also lighter, meaning that it yields more straight-run naphtha and diesel and less residue (high-boiling compounds requiring cracking), meaning that it is cheaper to refine into saleable products.

    American refineries may be willing to pay a premium for such light, sweet crude over Middle East crude, since they get more useful products, and they don’t have to pay to ship it across an ocean, only across the state of Texas.

  30. I’m a fan of WUWT and of David Middleton. Like him, I earned my keep in the oil industry. However, I am at odds with him on his analysis. Figure 6, which shows that the shale oil peer group of 40 companies have only just gone positive in Q1 2019 with regard to cash flow after Capex is not a good indicator. It is an indictment of the whole industry.

    What are the key performance indicators of an industry that has spent the last 5 years in negative territory with regards to cash flow after capex? Maximise production, get management bonuses, but give a damn about the financial health of the company? Would a more sane approach to supplying capital have led to less robust production increases with a concomitant increase in price?

    As he rightly points out, if it were not for the shale industry, the recent attacks on Saudi oil installations would have had an effect on oil prices. Well yes, and a whole lot of professionals who lost their jobs in the last 4 – 5 years might have had a better chance of recovering a job.

    The increase in shale fraccing oil production (quite often done at a loss) has kept the market over supplied with oil, hence keeping prices down, despite production reductions in places like Venezuela.

    • I think you have to take a step back to 2014, when oil was over $100/bbl. It wasn’t overproduction here that triggered the price collapse. It was OPEC’s surprise decision to not cut production to maintain prices. In a failed effort to take back market share, they increased production and triggered the price collapse.

      Since then, the entire industry has had no choice other than maximizing production while slashing costs.

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