Posted on 01/01/2014 7:37:40 AM PST by ckilmer
Shocking Prediction: The 'Second Phase' Of The Oil Boom Could Eclipse The First By Jody Chudley December 31, 2013
Shocking Prediction: The 'Second Phase' Of The Oil Boom Could Eclipse The First
Five years ago the idea of an oil boom happening in the North America was not much more than a dream.
Today, the U.S. is on pace to overtake Saudi Arabia as the world's top oil producer by the end of the decade.
It isn't as though the oil industry didn't always know that formations such as the Bakken in North Dakota and Eagle Ford in Texas contained lots of oil. Oilmen have been thinking about these plays for decades.
The problem was that there was just no way of getting that oil out of the ground without losing lots of money.
The application of horizontal drilling and multi-stage fracturing (or "fracking") has changed all that and made the renaissance in American oil production front page news.
What is still to come, and what most investors don't realize, is that the "first phase" of the oil "boom" in America is only recovering a fraction of the oil that it can -- and I predict will --produce in the "second phase," which has already started.
Despite being a true breakthrough, the first phase of horizontal oil production is only expected to recover 2% to 15% of the oil in areas such as the Bakken and Eagle Ford shales.
That means there will still be an enormous amount of oil left in the ground.
In the second phase of production, the most innovative companies will get to more of those reserves, and I predict a more profitable wave of the horizontal drilling boom will occur. If that happens, enhanced oil recovery (EOR) methods will turn oil producers into cash flow machines, and make some investors richer.
Why is this second phase of the horizontal boom going to be so profitable?
Further advances in technology, combined with significantly lower costs of second phase production, could drastically improve profit margins for oil producers.
First, let me talk about the lower costs of producing more oil.
During the primary phase of production, all of the land that contains the oil had to be leased or purchased, roads had to be laid to access drilling sites, pipelines needed to be put in place, well batteries had to be constructed and natural gas processing needed to be paid for.
Now, with the necessary infrastructure in place, that money doesn't have to be spent again. So each incremental barrel of oil produced through EOR is more profitable than the barrels produced under primary production.
The price per barrel of oil sold isn’t going to change, but the cost to produce that incremental oil through EOR is going to decrease.
Enhanced oil recovery techniques aren't new; they've been around for decades. It's just that they haven't been applied to the types of reservoirs that are being developed with horizontal drilling, until recently.
Now, there are several companies already using existing technology to innovate in the oil sector.
My favorite is a Canadian company called Lightstream Resources (OTC: LSTMF) that has found a way to quadruple production from some of its older wells through EOR.
This mid-sized Canadian company is using natural gas injection in its Saskatchewan Bakken play at Creelman to pull more than 200 barrels of oil per day from 5-year-old wells that at this stage of their life should be producing only 50 barrels a day.
To create this production increase, not a lot of incremental capital has to be spent. The main incremental costs to Lightstream relate to the drilling of injection wells (which paid for themselves through primary production before being converted to an injector) and the natural gas that is being injected (which will eventually be recovered anyway).
On top of lower production costs, Lightstream believes by rolling out natural gas injection across its Bakken land base, it can increase the amount of oil it will recover from its current estimate of 15% to almost 30% of the oil in place.
Given that we are talking about a percentage increase that is being applied to 1.69 billion barrels of oil, the numbers involved are very large.
To give you an idea of just how large, every 1% increase creates 17 million barrels of additional reserves for Lightstream. And combined with lower "second phase" costs, EOR can double Lightstream's reserves without coming anywhere close to doubling the amount of capital required to extract the oil.
Despite being a true breakthrough, the first phase of horizontal oil production is only expected to recover 2% to 15% of the oil in areas such as the Bakken and Eagle Ford shales.
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do you agree with this assessment?
As the sheeple fill up their tanks for holiday trips, paying over $3/gal. for gas, do not celebrate this “oil boom” too loudly. Our shale oil will be sent from Cushing, OK to Houston for refining and then shipped to Japan and China.
Our devalued dollar will still be used to price gasoline, unfortunately, so we will still be screwed.
What’s EOR stand for? Expended Or Recovered?
Thackney knows a lot more than I, and Smokin' Joe here in the Bakken too.
But living in the area you hear the same thing from the oil men, some of the good ones, that the amount of oil still likely recoverable is staggering.
A fellow who works for one of the big companies told me that much of it might not be available through present technologies; but given the quantities that appear to be there, he said, they will find a way to get it.
As the sheeple fill up their tanks for holiday trips, paying over $3/gal. for gas, do not celebrate this “oil boom” too loudly. Our shale oil will be sent from Cushing, OK to Houston for refining and then shipped to Japan and China.
Our devalued dollar will still be used to price gasoline, unfortunately, so we will still be screwed.
You have a good point there. However in my mind the BIGGEST and Brightest aspect of all of this new recovery of oil through horizontal wells is that it was the spike that ended the dreams of the Democrats and so-called elites to totally kill the U.S. during BHO terms of office.
Yes they still might succeed, but they would be finished by now if it hadn’t been for the ‘new’ energy boom in petroleum.
If they are counting Kerogen and not just oil already cooked out of the rock, 2% may be too high of all petroleum.
If they are only talking about crude oil similar to what is in production today 5%~15% is probably in line, but can vary greatly between fields.
What the article seems to leave out is how the production rates in most EOR systems is far lower than the initial production. And the cost per barrel is far higher to produce.
It is a fairly reliable source for production, but it is not cheap and fast. It will happen, but it will reduce the falling rate of production, not create a new production boom. But it is a great source for continuing jobs.
EOR = Enhanced Oil Recovery
Methods can include injection water, condensate, CO2, etc from the edges of the field and pushing/sweeping more oil back to the production wells.
Enhanced Oil Recovery techniques.
What’s EOR stand for? Expended Or Recovered?
Enhanced Oil Recovery (abbreviated EOR) is a generic term for techniques for increasing the amount of crude oil that can be extracted from an oil field
http://en.wikipedia.org/wiki/Enhanced_oil_recovery
Does it mean the Arabs will be swimming in their oil as America won´t need it ?
would love to see Arab countries going down.
The price per barrel of oil sold isn’t going to change, but the cost to produce that incremental oil through EOR is going to decrease. and there it is...
“...it was the spike that ended the dreams of the Democrats and so-called elites to totally kill the U.S. during BHO terms of office.”
Good point, Working Man. The oil industry gave us the only genuine boost in the disastrous Obama economic bust, so that helped the Red States that were smart enough to seize this life line.
We can’t count the phony boost on Wall St., because the Federal Reserve was pumping their funny money onto the trading floor, inflating the stocks bubble that will burst one of these days, making the first round of bailouts look puny in comparison.
Does it mean the Arabs will be swimming in their oil as America won´t need it ?
would love to see Arab countries going down.
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Viet Nam crashed and burned in 1975. 15 years later the Soviet Union fell in 1990. The fall of the soviet union represented a strategic victory in the context of which viet nam was a tactical defeat.
I think that Afghanistan is on its way to being a tactical defeat—but I think the oil trends have shifted to where we are on our way to a strategic victory—by means of lower oil prices and oil independence.
Just like what happened with the cold war —I think 15 years from now the price of oil will be totally crushed—leading to a strategic victory in the war on terror.
So yeah if you count 15 years as long term—then the long term trends have shifted to being in our favor.
Short term—say five years from now—I don’t think the USA will be net importing any oil at all. The USA will be completely oil independent.
However, the demand for oil worldwide is strong and growing—and there are few other oil suppliers able to bring oil onstream in scale. So, the price of oil by the barrel—I don’t think will go below 60-70 dollars @ barrel.
That may shave as much as a dollar off the price of gas.
The price of oil that will cause a real explosion in worldwide prosperity and crush the gulf states is in the $30 @ barrel range. That’s what’s coming 15 years from now.
I have a degree in mechanical engineering, and horizontal drilling blows me away.
This is great news! Hopefully we can purge the government of liberals of both parties
Thanks Funny.
“The price per barrel of oil sold isn’t going to change, but the cost to produce that incremental oil through EOR is going to decrease.”
Cool! More oil for less cost and we pay the same price./sarc
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