Shocking Prediction: The 'Second Phase' Of The Oil Boom Could Eclipse The First

investinganswers ^ | December 31, 2013 | Jody Chudley

[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.

[Salvation]

Are refineries prepared for additional production?

[Ozark Tom]

Eugene Island block 330

[ckilmer]

Are refineries prepared for additional production?
...............
Well you have to know that for now what happens is that every time production in the USA goes up — the refineries lower their orders from overseas suppliers. So its net net eqaual amounts of oil going in and out of the refineries.

[ckilmer]

My understanding is that the gulf of Mexico operations will be raising their production about 200,000 barrels a day annually for each of the next three years or so. (That’s a total of 1.2 million barrels@ day more than today’s levels in three years.)

Are you hearing anything different?

[SunkenCiv]

Today, the U.S. is on pace to overtake Saudi Arabia as the world's top oil producer by the end of the decade... The application of horizontal drilling and multi-stage fracturing (or "fracking") has... made the renaissance in American oil production... the first phase of horizontal oil production is only expected to recover 2% to 15%... there will still be an enormous amount of oil left in the ground... enhanced oil recovery (EOR) methods... combined with significantly lower costs of second phase production, could drastically improve profit margins... 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... 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.

Thanks ckilmer.

[ckilmer]

“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
................
No. As oil production increases there will in time be a supply glut that will cause the price of oil to drop and kill the higher cost producers. only those producers that who have worked hard to get their costs down will survive. This technique for enhancing production will be one way to keep costs down.

Meanwhile we we be enjoying lower gasoline prices. But that’s likely a couple years away. It will come in steps.

Imho the long term trends are now in the direction of much lower oil prices. but there will be wild fluctuations

[ckilmer]

....and the Green River Formation weighs in a 3 Trillion Barrels of oil....with 1 Trillion Barrels recoverable with todays technology.
............
there’s still some small players left there. but the last big player, shell oil —recently pulled out.

[Domestic Church]

Makes sense to sell it and use before Toyota comes out with a new engine that doesn’t need it...in a decade or two.

[ckilmer]

Makes sense to sell it and use before Toyota comes out with a new engine that doesn’t need it...in a decade or two.
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oh yeah. even the iranians get it.

they have been telling the saudis that if they get an agreement from the USA that lifts the sanctions on them—they will jack up their oil production by 2 million barrels a day.

Naturally, this will help kill the American oil production Renaissance—by hastening the moment when oil prices decline sharply.
so the obama administration is all in favor of a deal with the iranians. Anything that will kill the US oil industry—the obama administration is in favor of.

Its grievous that none of our representatives can figure this out.

(I am in favor of a significant decline in oil prices but not before US oil production is 5 million barrels @ day higher than today. At 5 million extra barrels @ day the USA is no longer a net oil importer.)

[thackney]

So any fuel source for the fire would work the same. Not a function of the coal but the lack of a thermostat and air duct system.

[Chode]

i heated with natural gas/base board heating and fuel oil for most of my life, and the ambient air temperature changed from warmer than i wanted it when the heat kicked on down to where i did want it or a little below till the thermostat kicked on again, but no so with coal, it burns at the same rate all the time and if i put a thermostat on it, stay even more constant

and wood does the same thing as in when you put more wood on the fire the stove gets hotter cause it has more fuel and when it burns down it gets cooler, like overnight when you are sleeping and wake up to a cooler house than when you went to bed

but i guess straight gas would do the same thing if it burned 24/7 like coal does

[ckilmer]

If the day comes when oil is purchased in some other currency, you will learn the true meaning of “devalued”.
‘’’’’’’’’’’
Not going to happen.

The USA has in the last 24 months moved from behind the curve to being ahead of the curve. That’s how big events in the oil patch happen to be.

[Rodamala]

Yeah... I saw another thread on FR yesterday that kinda offended me as a Lucky Strike man, because the writer refered to the whole ABCLGBTXYZ crowd as "LSMFTs"...

"...The LSMFT community, i.e., the Lezbo Sodomite Masochist Fag Transangered community."

[arthurus]

I never smoked Luckies but my Dad did. I smoked Picayunes until they quit making them. Then I quit.

[R W Reactionairy]

"Didn’t EPA, Interior Dept and this administration put most of the Green River formation off limits.

Doesn't really matter. Plenty of large blocks of oil shale land are privately owned. Nothing much is happening with this potential resource because at present, extraction is not economic [and may never be at anything like existing crude oil prices.]

[R W Reactionairy]

"there’s a great pressure, way down in the earth, that pushes the crude near to the surface on it’s own. it’s pushing up against the bottom of the underlying rock source. do we have reason to believe it will ever stop doing that?"

To the extent that oil pushes to the surface it is largely lost. The great fields of Saudi Arabia did not develop from the richest source rock. The key to those accumulations is a very good series of traps which allow the oil to accumulate. I am told the best thing about those traps is the cap rock which kept the oil from traveling further upward and degrading into tars and other very thick heavy goop ... or oxidizing completely at the surface.