Posted on 01/09/2016 7:35:24 PM PST by familyop
...Fayetteville Shale play officially bit the dust...tight oil horizontal rig count was down by 20...Bakken-Eagle Ford-Permian HRZ rig count was down by 14. The Bakken lost 3 rigs, the Eagle Ford, 4, and the Permian, 7.
(Excerpt) Read more at oilprice.com ...
Probably a good time to start buying leases.
TO all to read Arthur Berman: He has never thought any unconventional oil or gas drilling has benefited anybody.
See 2 articles wherein he was later discredited
http://marcellusdrilling.com/2015/12/art-bermans-peak-oil-theories-again/
http://www.chron.com/business/steffy/article/Shale-or-sham-A-skeptic-speaks-out-1748427.php
Wait for it, the buys will be in bankruptcy again. Probably not worth $500 and acre bonus right now.
This shift in Saudi strategy is either a ruse or a black swan type event. An article from earlier this week strongly suggests the new young prince is digging in for the long haul. Just amazing, seems to be reacting to a problem they created and can end.
Cutting programs and raising the price of fuel?
http://www.freerepublic.com/focus/f-news/3380092/posts
Privatizing Aramco?
http://www.worldoil.com/news/2016/01/07/saudi-arabia-considering-ipo-for-aramco
Shale can and will reduce their cost but they will struggle to repel the environmental attacks on fracing. In times such as these I have been able to reduce drilling times by as much as 2/3 and over-all cost of wells by 50% through efficiency, waste reduction, detailed time and motion studies, bench marking and solid engineering and technology. The same things are possible in shale. In boom times the mean usually represents about double the optimum that is usually achieved in parts throughout the field but hardly ever combined in one project at one time.
There is a lot of oil and gas in shale. The porosity compared to other rocks of the same depth is massive but the spaces are small and not connected very well if at all. The resource is there but converting it to reserves is not so easy.
I can’t figure out what the house of Saud is thinking or planning with their newly public strategy of digging in for the long haul of a low price environment that they created.
Can anyone else?
On a second subject, I have been a supporter of Berman’s position on shale for some time taking the position that shale is not a company builder since after payout production, while having a long tail, can’t self-fund development. Shale wells have stubbornly held up production this last year and I struggle to see why not being a shale player. I suspect that it is the desperation to continue cash flow just a little longer to save the companies by continuing to drill and frac at distressed prices for services until better days arrive. We all thought that this would be short lived and that the Saudi’s did not have the ability to flood the market as much as they have nor for as long as they have nor did I suspect that US production or even world production would hold up so stubbornly.
Unlike Art, I admit my predictions of almost a year ago were wrong. I had this pegged for another ‘98-’99 event where production and demand came into balance within 18 months by about October of ‘99. It is looking more like ‘86 again where we did not enter boom times again until ‘05. I hope not for the sake of the younger people in the upstream oil and gas industry. Those were gut wrenching decades.
I don’t think Art has been fully discredited.
The declines of 70% on his family of wells examples is for real and so are the flush economics of the wells. If you understand decline curves and oil and gas economics the point he makes is clear.
The marcellus article is just talk with no facts and the chron article is from 2009 and says nothing to discredit Art at all but merely reports what he says and says that devon and chesapeke are doing well as is petrohawk etc. They aren’t doing so well now. In successful efforts accounting they are goners as they are in most of the their debt to equity ratio calculations for solvency with the rules that they implemented in ‘09 their reserves attributed to drilled and undrilled are in the dumper by nearly 50%.
I have had Art in my office explaining his work in 2010, and seen his work for years.
He is associated with another who is like him: scare mongers who use selectively data to support a ‘sky is falling’ atmosphere.
Bankers like someone like that to true up an oversell that oil companies might give to them, so there is work out there for types like that.
And yes, I do understand decline curves after working +40 years as a Reservoir Engineer, Reserves auditor and Petroleum Economist.
The world is much brighter than how he portrays it.
“There is a lot of oil and gas in shale. The porosity compared to other rocks of the same depth is massive but the spaces are small and not connected very well if at all. The resource is there but converting it to reserves is not so easy.”
After working unconventionals in US for a number of years, I am convinced that unconventional oils is not where the greatest potential exists. It is in gas instead.
Oil simply will not flow the very small pore spaces easily enough to find many commercial opportunities. In fact, outside the Bakken, which is a unique petroleum system not found anywhere else that I have seen, the only liquids produced are in the form of gas at reservoir conditions (i.e. -condensates and NGLs), with some true oils when conditions of high gors exist.
Gas on the other hand is massive in potential, and is where the true attractiveness of unconventionals will occur.
So, in a sense, what Art says on oils has some degree of merit, but on the overall unconventionals (and he was using natural gas unconventionals in the Marcellus, Haynesville and Barnett for his original arguments), it is hyperbole.
“On a second subject, I have been a supporter of Berman’s position on shale for some time taking the position that shale is not a company builder since after payout production, while having a long tail, can’t self-fund development. Shale wells have stubbornly held up production this last year and I struggle to see why not being a shale player. I suspect that it is the desperation to continue cash flow just a little longer to save the companies by continuing to drill and frac at distressed prices for services until better days arrive. We all thought that this would be short lived and that the Saudi’s did not have the ability to flood the market as much as they have nor for as long as they have nor did I suspect that US production or even world production would hold up so stubbornly.”
I am not following the arguments you postulate here. perhaps rewording for my benefit?
These Shale Drillers Could Soon Default As Credit Options Run Out
http://www.freerepublic.com/focus/f-news/3381785/posts
Trying to take your posts in order of chronological progression:
1. Then you are able to converse at much more than a layman’s perspective on the subject of oil and gas and reservoir engineering in particular. Good. We share the time frame of experience and, save for drilling and completions, similar background.
2. I don’t understand the scare mongering but it does always attract attention. I am not a regular reader of oilprice.com or the other since it seems to not require any qualification to opine there whether you are a petroleum engineer or some kind of sociology major from Queens, NY. I have supposed that professionals write there trying to provide a little clear light on the subjects. Yes indeed though, the chicken little’s and glass half-empty folks do add realism to the sellers of deals blue sky, roses and lollipops.
3. Gas moves best, condensate second and oil last. Thank goodness shale “oil” tends to be uncooked with the light ends present or it would not flow at all!
4. And we agree that the greatest potential is in gas. Much more mobile under a greater number of circumstances than liquids but we can take the liquids with the gas of course. Do you suggest that the reservoirs are retrograde? ...”the only liquids produced are in the form of gas at reservoir conditions (i.e. -condensates and NGLs)”. I hope they are not and their production characteristic does not suggest that they are to my knowledge. Otherwise we would see massive negative effect of condensate banking and as you know that is only partially recoverable at best. What do you say of the Eagle Ford or the deep Wolfcamp (I never thought I would ever see anyone in the far SW part of the Permian Basin) compared to the Bakken with respect to the liquids?
5. I ran economics on full cycle field developments for several unconventional opportunities and could not make the project, as a whole, fly without constant infusions of cash that was returned with high rates of return but the mass of wells and associated production would never sustain a drilling unit. Meaning that a rig could not drill and complete fast enough to capture the moderate production of its flock of wells so that the production from those wells would sustain the operation. I was running economics based on a flock of analyst presentations and as you know, those are about as good a picture as you can have painted for you. This is not to say though that the tail production is not valuable just that it will not spin up cash flow at a good enough rate to sustain the development activities. With efficiency improvements though it might. I’d like to to a bench marking and goal oriented study to see what it would take to have a self-sustaining development operation. Screwing that together and making it happen would be a lot of fun.
6. “I am not following the arguments you postulate here. perhaps rewording for my benefit?” Nicely put, much better than the usual “are you just stupid?” offered by some on this board.
OPEC, particularly the Saudis, have offered more production than I thought they were capable of and flooded the market on their own
Domestic production should have fallen by some percentage of the expected unconventional new well decline rate of 70% per year or so and in proportion to the number of rigs that have been laid down. For the number of rigs that fell, I thought would have generated declines similar to the projections Berman did where he used a population sample as if drilling had ended and projected that. Recall the case of following a population of Bakken wells from 2010 forward. That production, albiet in the sweet spots, fell like a rock. Even my own basin studies have shown that a huge proportion of the annual production gains have come from new wells. Domestic production has not fallen much at all for a year even though the rig count has dropped like a rock. How has production held up? Are the declines of unconventional not as expected? I am really doubtful of that based on what I hear of declines. It is hard to get good timely data to do a first hand analyssi though as you know. Is drilling truly becoming so efficient that fewer rigs can drill enough wells to sustain the peak? I am also doubtful of this since it usually takes a year for the survivors to pull themselves up and get on with improvements. Is completion efficiency improving that much in compensation? I am also doubtful of this since I know a fellow who is a completion / frac techniques leader and he says that things are not a lot better if at all.
I also expected that even a modest increase in consumption would have offset the glut within a year. Consumption has increased but not as much as I thought it would even though we are seeing record total miles driven figures.
All-in-all, I expected production, particularly domestic production, to decline more than it has, the Saudis to not be able to produce much above 10 mmbopd and for consumption to increase by a modest 1.2% and that the glut would have been harvested by now as decline and consumption increase curves crossed. We were just not that far out of balance until the Saudis started flogging the production rates. I expected the signs of balance would have at least been showing by last fall and that by spring we would be at or near balance. None of these things appear to have happened yet.
Is that adequately reworded?
I also see you have not been here long. Welcome. It can be a magnificent waste of time.
My Dad’s boss said in the 80s when he retired that a Commodore 64 was the best anti-senility medicine ever invented. I wonder what he would say about the internet?
1. yes
2. yes
3. Yes for the three, although the amount of free gas(as well as overpressure) appears to significantly change the ability of reservoir liquids to be produced. The gas drives a lot of liquids to the wellbore as it expands. A super-duper gas expansion mechanism to make it.
4. most not retrograde but exist as gas in reservoir and are transformed to liquids on way to surface. The Bakken I am very familiar with. It is simply a reservoir unmatched elsewhere due to a. a carbonate having heavy fracturing between the two overlying/underlying shales that are the source beds, of world class quality. b. very high overpressurization due to the hydrocarbon expansions into the carbonate c. relatively light liquids. Nothing like it anywhere else as I see.
5. I agree. the big variable, besides pricing of course, is the variance in capital cost modeling. These have proven to be quite different in the unconventionals. Put that with the dominant ability to improve productivity, any static model can be non-descriptive of eventual reality.
6. will think about it and revert.
And I am not really new here, just a change of alias.
bookmark
“Domestic production has not fallen much at all for a year even though the rig count has dropped like a rock. How has production held up?”
I postulate that the severe initial declines relatively quickly(my assessments in 5 years or less to <10%/yr and in 10 years to <5%/yr). Albeit rates are lower, this is a very shallow decline factor caused by a slow process of leakage from tite matrix rock into fractures and into wellbore.
So earlier wells have shallow declines while newer wells are falling fast.
The one element one might not account from when one looks at drilling rigs only is that that correlation is not necessarily true today in unconventionals. Many wells are drilled but not completed immediately. Indeed today, there are 1400 wells in april already drilled like that in just the Eagleford. http://www.bizjournals.com/sanantonio/blog/eagle-ford-shale-insight/2015/04/ihs-39-companies-sitting-on-1-400-drilled-but-left.html
So when prices rise, will rigs immediately follow? Probably not as fast as one would think as the low-hanging fruit are those wells that need completion.
To the previous points:
4. Then the Bakken is similar to the coal seams interbedded in the very tight Mesa Verde in the Four Corners area. There several companies encountered over pressured coal in the coal bed methane days and staged blowouts to create gob holes in the block coal seams. The Mesa Verde more-or-less collapsed into the holes creating massive secondary fracturing and high production. Not saying the same of the Bakken but that the coal seam, like shale, released into the carbonate. Similar thing happens in the Penn sands of the Fayetville Shale area. We saw absolutely flat declines in that area 40 years ago. Stephens production were kings of the area but did not relate the flat declines to leakage from the Fayetville and I believe that was / is the process in play.
5. NO DOUBT that the capital cost modeling can change the whole game of self-funding. I can make a model sing any song you want it to sing so long as honesty and objective realistic evaluation are not considered. You can pull the levers on project gearing in lots of ways to make the story look good or find the goal to make it profitable. Then the real engineering starts.
6. Separate reply.
So this suggests that the “fraclog” was in fact real?
I agree with the decline curve assessment but the first year decline is precipitous and you do not disagree with the 70ish percent decline of the IP within the first year? My point here is that the share of production represented by new wells and the decline of those new wells should have had significant effect on domestic production.
“So earlier wells have shallow declines while newer wells are falling fast.” Exactly and I’ll buy into most of this since I have thought that, like the Penn wells producing from Fayetville leakage, the latter decline reaches equilibrium of some sort and the decline is arrested albiet at a very low production rate.
The article you cite was from April. I suspect that the “fraclog” is about over by now.
Have a great week.
“The article you cite was from April. I suspect that the “fraclog†is about over by now.”
actually, I believe the inventory of drilled and uncompleted wells has grown significantly.
I see this one from October http://www.worldoil.com/news/2015/10/19/frac-truck-boneyards-dw-monday
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