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Guest Post: About That Shale Oil & Gas Miracle

Tyler Durden's picture




 

Submitted by Jim Quinn of the Burning Platform blog,

Not a day goes by without a story in the MSM by some industry shill like Daniel Yergen about the imminent energy independence of the Great American Empire. Shale oil and gas will revolutionize the American energy prospects. We have hundreds of years of oil and gas under our feet. We will be a net exporter in the next few years. A glorious future awaits. Politicians tout the billions of barrels to be extracted from Bakken, Eagle Ford and the hundreds of untapped shale formations across the country. Wall Street puts out glowing investment analysis papers promoting the latest IPO. There’s just one little problem. It’s all hype.

Royal Dutch Shell is one of the biggest corporations in the world, with financial resources greater than 99% of all the organizations on earth. Their CEO probably knows a little bit more about oil exploration than the Wall Street systers and CNBC bimbos. His company has poured $24 billion into shale exploration in the U.S. It has been a huge failure. They have already written off $2.1 billion. They are trying to sell huge swaths of land in the Eagle Ford area. They are losing money in the shale oil and gas business. If Shell can’t make it profitable, who can?

The flow rates are too low. The extraction costs are too high. Companies will only invest in ventures where they have a reasonable chance to make money. Shell is a rational company, led by a rational man. He says they can’t make money. Of course, if oil prices reach $150 and natural gas prices reach $8, then companies can make money. All of the cheap easily accessible oil and gas have been accessed. Only the expensive hard to access oil and gas are left. The shyters never mention these facts when they tout our future energy independence.

Reality is a bitch. The truth will set you free.

   

Peter Voser says he regrets Shell’s huge bet on US shale

By Guy Chazan

Peter  Voser said the failure of Royal Dutch Shell’s huge bet on US shale was a  big regret of his time as chief executive of the company.

Speaking to the Financial Times three months before he is due to step down,  Mr Voser also described the technical setbacks Shell has suffered in its  exploration campaign off the coast of Alaska as one of his greatest  disappointments in the job.

Shell has invested at least $24bn in so-called unconventional oil and gas in  North America. But it is a bet that has yet to pay off. Its North American  upstream business has struggled to turn a profit and in August Shell announced a  strategic review of its US shale portfolio after taking a $2.1bn impairment. “Unconventionals did not exactly play out as planned,” Mr Voser said.

He will be replaced next year as head of Europe’s largest  oil company by market value by Ben  van Beurden, the company’s current head of refining and marketing.

A Swiss national, Mr Voser was part of the executive team that steadied Shell  in the aftermath of a reserves misreporting scandal in 2004 that rocked investor  confidence in the company.

As CEO from 2009, he is credited with overhauling the company’s notoriously  complex structure and delivering some of the largest projects in Shell’s  history, including a $19bn gas-to-liquids plant in Qatar.

He also reaffirmed Shell’s status as one of the leading  innovators in the oil industry by moving ahead with the world’s first  floating liquefied natural gas project.

But his last months in the job were tarnished by Shell’s setbacks in the US.  Like other majors, it entered the American shale sector late in the game and was  accused by some investors of overpaying for assets. Its earnings were then hit  when a supply boom pushed US gas prices to 10-year lows.

As well as its $2.1bn  writedown, mostly related to its US tight oil assets, Shell also said its US  exploration and production business was lossmaking and would likely remain so to  the end of the year and possibly beyond.

Just last month, Shell said it had put its acreage in the  Eagle Ford shale in Texas up  for sale, as part of a strategic review of its US shale portfolio.

Mr Voser said Shell’s Upstream Americas business was in the red because of a “strategic decision to slow down” on shale in the face of low gas prices. “Therefore you are hit with more than $3bn of depreciation whilst you don’t have  the revenues against it,” he said.

He also acknowledged that exploration results in the US shales had been  disappointing. “We expected higher flow rates and therefore more scalability for  a company like Shell,” he said.

Shell’s US unconventional oil and gas operation was an “emerging strategic  business which needs attention, needs fixing over the next two, three, four  years”. He said an expected increase in the company’s tight oil production in  the US “will help us get into a more reasonable profit and cash position in the  future”.

Mr Voser also said rhetoric about the US shale revolution being exported to  other countries was “hyped”, and that the rest of the world was in an early “exploration phase” which could yield “negative surprises”.

He singled out China, where Shell has drilled 22 wells, as one of the most  prospective countries for shale gas, but warned that costs there were higher  than in the US.

Mr Voser acknowledged problems in Alaska, where Shell has spent nearly $5bn  on an offshore exploration campaign but has yet to complete a single well, amid  regulatory and technical problems.

He pointed to the failure of a containment dome, a piece of equipment  designed to catch any oil leaking on to the seabed, which was damaged during  testing last year.

“That was a big disappointment to me personally,” he said. The incident  forced Shell to delay its drilling plans, and Mr Voser said the company still  didn’t know “if we’ll go back [into Alaskan waters] in 2014 or 2015”.

 

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Mon, 10/07/2013 - 14:02 | 4031111 TheMayor
TheMayor's picture

He should have invested in North and South Dakota, not Alaska.

There, problem solved.

Mon, 10/07/2013 - 14:08 | 4031122 hedgeless_horseman
hedgeless_horseman's picture

 

 

There’s just one little problem. It’s all hype.

 Really?  The crude oil coming from shale plays in Texas and North Dakota seems real enough.

Mon, 10/07/2013 - 14:12 | 4031149 Flakmeister
Flakmeister's picture

You do understand API>45 condensate coming out of the EFS is not oil, do you?

Mon, 10/07/2013 - 14:21 | 4031158 hedgeless_horseman
hedgeless_horseman's picture

 

 

Definition of Crude Oil for chart data.

Honestly, though, I don't care.  I am making money off the steel going into the ground, not the stuff coming out.

 

Check the date--------------------------------------------------->

Wed, 11/17/2010 - 13:48 | Link to Comment

hedgeless_horseman

hedgeless_horseman's picture

Hey man, I am peak oil aware.  Check my history on this blog. 
Nevertheless, you do know that producers in Eagle Ford are using
horizontal drilling and fracking technology to produce oil, not gas? 
They are having success all the way up to Dallas county.  I know this
only buys a few months of global demand, but Kunstlers statement re
shale requiring huge investment is false.  This I do know, and with this
knowledge has come some excellent returns.

Mon, 10/07/2013 - 14:28 | 4031194 Flakmeister
Flakmeister's picture

Fine, but I didn't realize that you were merely talking your book...

http://www.rbnenergy.com/too-wrong-for-too-long-the-eagle-ford-crude-condensate-challenge

The liquids are counted as oil, but they ain't...    They only have ~67% of the energy density of crude....

Edit: here is another article

http://www.rbnenergy.com/dont-let-your-crude-oil-grow-up-to-be-condensate

Mon, 10/07/2013 - 14:28 | 4031216 MiguelitoRaton
MiguelitoRaton's picture

1. The large companies like Shell have a very high-cost business model developed around more traditional (low-intensity) drilling. This model does not apply to high-intensity shale drilling.

2. Don't confuse the ROI (eROI) or net energy between shale oil and oil shale, VERY different in every way!

3. It is costly, but it is plentiful and we have only begun to tap the opportunity (although it is larger in Russia, Brazil, China and other areas than in the US.

In other words, you are wrong about everything...

Mon, 10/07/2013 - 14:38 | 4031230 Kirk2NCC1701
Kirk2NCC1701's picture

And fracking requires only Benny Bucks, Labor and Energy, right?  No vast amounts of H2O needed?

Just want to make sure people are doing the NPV equivalent of drilling, by calculating the TCO (TOTAL Cost of Ownership).  Otherwise, it's a.... "shell" game, propagated by snaky oil salesmen.

Mon, 10/07/2013 - 14:40 | 4031274 MiguelitoRaton
MiguelitoRaton's picture

A typical golf course takes 51M gallons per year (much higher in the desert). the typical oil fracture process takes 2MM gallons (down from 5MM). So the water for a single year of watering a golf course equates to fracturing enough wells to provide the gas for cooking, space heating and water heating for 500K homes or about the population of Houston (although their space heating requirements are low). Houston has 165 golf courses. So in other words the water usage is a red herring that only works on the uninformed.

Mon, 10/07/2013 - 15:17 | 4031421 Tall Tom
Tall Tom's picture

Right now the Shale Wells are producing 2M Barrels per day. That production is expected to grow. Of course Water usage will grow along with the new wells. We use roughly 18M bbl of Oil per Day in a Depressed Economy. That usage will also increase IF there is ever an Economic Recovery...which is doubtful.

 

Furthermore Shale Oil Wells deplete at a rapid rate. This encourages more drilling and increased water usage as a result. The Water used now with existing wells is a static point.

 

What you are not considering are the DIFFERENTIALS when projecting the growth of production into the future. In order to grow production to what America uses CURRENTLY it will take at least 9 Times as much water if it were a linear relation. But because of the rapid depletion rates of Shale Oil Wells the water usage will grow EXPONENTIALLY just to maintain a constant production level.  All growth is Exponential.

 

Exponential Growth leads to Exponential Collapse. Thus it is both unsustainable and unfeasible.

 

You may make money in the short term. But it is just like any other Ponzi Scheme. The first "investors" get paid while the rest of the suckers will lose.

 

So what is the Red Herring argument for the uninitiated really? Aren't you the one providing the Red Herring by comparing Today's minute water usage comepared to Houston Golf Courses?

 

Knock yourself out. If you buy into this you are buying into a false panacea. Fresh Water is a limited resource as well as Shale Oil. Exponential Growth in limited resource environment is destined for failure. That is the inherent outcome.

 

Of course you may not care as it is all about you, you and your personal profits, your greed, right?

 

You will reap what you sow and the next ten generations will pay the price. So much for morality.

 

Go ahead. Justify it. Don't think about this. And by all means give it a Red Disapproval. By all means never learn Math. That is only for nerds.

Mon, 10/07/2013 - 16:20 | 4031709 SRSrocco
SRSrocco's picture

By the way, for all those who were putting a great deal of faith in that OIL SHALE, Shell drops another Hammer:

Shell Abandons 800 Billion Barrel Deposit, Beaten by the Regions Geology

Looks like Shell is abandoning its 800 billion barrel OIL SHALE deposit in Colorado after 31 years of experimentation to focus on more PROFITABLE projects.  Furthermore, Chevron pulled out of its OIL SHALE project last year.

That chart that Jim Quinn put in his article I put together a few years ago in my PEAK SILVER ARTICLE.  OIL SHALE's EROI is worse than SHALE OIL.

OIL SHALE EROI = 1.5-2/1

Yeah, the Tight Oil plays will add a bit more oil so the United States can continue driving SUV's going to Starbucks for a cup of coffee for a few more years.

I would like to add, that even though some of these smaller Shale Oil Companies are making money, it looks like they don't really care about putting in much of the way of FUNDS to help repair and maintain the roads that are being destroyed by Fracking & Oil Transporation Fleets.

I have seen figures in the $billions for road repair in Texas and the local govts have only received a fraction of that amount.

Yeah... SHALE OIL & GAS is a GOOD DEAL if you can get in quick make some profits while refraining to pay external costs to infrastructure and etc.

Mon, 10/07/2013 - 16:54 | 4031821 Flakmeister
Flakmeister's picture

Pretty much on target....

The 800 billion was boe OOIP so the number was always hyped beyond belief, sort of like saying that 500 million tons of Tater Tots have the equivalent of 500 tons of enriched Uranium as a fuel input to reactor...

The Green River deposits Shell are walking away from are properly referred to are kerogen, the geological precursor to oil. It is a rock that may feel a bit waxy if the organic content is great enough... 

There are some bitumen deposits in the area but that cannot be mined like in Alberta and given the water required to extract them, they might as well be on the moon....

Mon, 10/07/2013 - 18:37 | 4032163 SRSrocco
SRSrocco's picture

Flak... agreed.  Tater Tot Uranium Equivalent... good laugh. It's always nice to find some humor in society that is about to collapse.  Yeah, OIL SHALE or KEROGEN RESOURCES is siimlar to stating "Water Reserves contained in all the paved cement in all the U.S. Interstate Highways."

One more tidbit... some of the larger Shale Oil Companies may be stating positive NET INCOME, but they got serious NEGATIVE FREE CASH FLOWS.

According to the ENERGY POLICY FORUM:

EnergyPolicyForum stated:

“Free cash flow of Continental Resources, a big player in the Bakken, has dropped from a loss of ($430M) to a loss of ($2.4B) since 2010. And Continental is not the only one. Devon Energy’s free cash flow has dropped from ($1.2B) to a significant ($3.5B) over the same time frame. Range Resources, who are drilling primarily in the Marcellus, booked a negative free cash flow of ($556M) in 2010 and this has deteriorated to ($1.0B). Kodiak Oil and Gas, another Bakken player, had negative free cash flow in 2010 of ($170M). It has now deteriorated to ($1.0B)

----------

This kind of reminds me of a line by ole George Carlin... FOLKS, THERE'S A LOT OF BULL SH*T OUT THERE AND IT AINT GOOD FOR YOU."

Mon, 10/07/2013 - 21:52 | 4032764 James_Cole
James_Cole's picture

This kind of reminds me of a line by ole George Carlin... FOLKS, THERE'S A LOT OF BULL SH*T OUT THERE AND IT AINT GOOD FOR YOU."

Yeah, the shale dream was / is financed by wallstreet and is about as reality based as your average twilight movie. 

The good news is, in 20 yrs all this stupid shit will be nothing but a bad memory starring mostly forgotten greedy morons.  

http://solartribune.com/wp-content/uploads/2011/07/nrel.gov-solar-cells-...

Mon, 10/07/2013 - 18:44 | 4032213 883dave
883dave's picture

Out of the typical Frac of 2MM gallons, 10% to 30% comes back to the surface with the gas. This leaves 1.4 to 1.8MM gallons of water that is absorbed into the formation.

At the golf course the water is kept in the ecosystem, we get to use it again.

Water usage is the red herring of the uninformed, the real problem is the 70% to 90% of the usable potable water that we take from the surface of the planet and leave underground. 

This water will eventually migrate up to the surface so we can use it again, but what is the time frame? hundreds, thousands, millions of years.

 

 

Mon, 10/07/2013 - 19:33 | 4032391 AGuy
AGuy's picture

"Water usage is the red herring of the uninformed, the real problem is the 70% to 90% of the usable potable water that we take from the surface of the planet and leave underground. "

Water that is sequestered permanently underground isnt the problem. The World surface is 70% water. The issue is that fracking demands a lot of water, which is outstriping the available supply in these regions. Most of the regions where fracking occur have insufficent water resources before fracking. At some point Fracking will consume 100% of the avail water supply preventing further expansion. The only solution is to build expensive piplines that may be hundreds of miles long to bring in more water. This of course drived up costs even when fracking is already very expensive compared to conventional drilling.

The Second issue is that may of the Well casing are done piss poor as the workers are paid on how quickly they can complete a well. So they end up doing shoddy work that permits the water to seep around the casing and contaminate ground water systems, making it useless of drinking and irrigating crops.

Mon, 10/07/2013 - 20:01 | 4032489 Kirk2NCC1701
Kirk2NCC1701's picture

Sounds like the the only true winner in Fracking -- w/o any "unintended consequences" -- is the drilling industry and its suppliers. 

Bullish for Dick Cheney & Friends.  And the brokers/traders who trade their stock.  Just so we're clear who the beneficiaries and the shills are.

"Where your treasure is, there will your heart be also." - Jesus (Matthew 6:21)

Mon, 10/07/2013 - 22:23 | 4032837 MiguelitoRaton
MiguelitoRaton's picture

And your PROOF on the leakage around casings is....well...non-existant. 

Tue, 10/08/2013 - 09:29 | 4033476 883dave
883dave's picture

Yes 70% of the world surface is water, 2.5% of this is fresh water. 70% of the 2.5% of fresh water on the planet is stored in ice and mountian snow pack.

Fracking uses fresh water, and yes it is outstripping the available water in some regions. 

So once we sequester 1%, 2%, 10% or ?% of the available fresh water underground, do we start to use salt water to drink?

 

Mon, 10/07/2013 - 14:34 | 4031236 CrashisOptimistic
CrashisOptimistic's picture

The chart says shale oil for the EROI number, not oil shale.  They are very different.  The number is for shale oil.  Oil shale is far worse.

Mon, 10/07/2013 - 14:43 | 4031281 MiguelitoRaton
MiguelitoRaton's picture

True on eROI. It doesn't show Corn ethanol, which depending upon who you ask ranges from 1.3 to .8 and uses FAR more water AND leaches pesticides and fertilizer into the water table.

Mon, 10/07/2013 - 19:35 | 4032403 AGuy
AGuy's picture

"True on eROI. It doesn't show Corn ethanol, which depending upon who you ask ranges from 1.3 to .8 and uses FAR more water AND leaches pesticides and fertilizer into the water table."

I think you mean -1.3 to .8. Corn enthanol has a negative return on energy. They don't use ethanol to distill it, they use NatGas or Coal. The only reason it produced for fuel is because of a gov't mandate.

 

Mon, 10/07/2013 - 20:42 | 4032599 Cloud9.5
Cloud9.5's picture

What happens to the sour mash after it comes out of he still?  My grand pa fed his to his pigs.

Mon, 10/07/2013 - 14:37 | 4031264 Flakmeister
Flakmeister's picture

There are two oil shale plays that have been demonstrated to be profitable, they respresent about 3% of world liquids production adn both are on course to peak out and crash after about ~25% higher rates within 5 years. This is a revolution?? This is the global equivalent of scraping your hashpipe for a hit...

So put down the hopium pipe and plan accordingly... 

Finally, don't fucking dare put words in my mouth, show me where I discussed EROEI or ROI...

Mon, 10/07/2013 - 19:35 | 4032395 BigJim
BigJim's picture

Did you hear that, sonny? Don't you DARE put words in The Flakman's mouth!

Just get him onto the subject of AGW and you won't have to...

Mon, 10/07/2013 - 19:54 | 4032460 Flakmeister
Flakmeister's picture

You might enjoy this, but I feel it is above your pay grade....

http://www.nature.com/nature/journal/vaop/ncurrent/full/nature12534.html

Ta ta....

Mon, 10/07/2013 - 20:22 | 4032548 phaedrus1952
phaedrus1952's picture

Greetings, Flak. I always enjoy reading your input on the Hedge, even though I disagree with about 110% of your views. Gotta call you on this one, though.  If one of your "profitable" shale plays is the bakken, well ... I'd be prone to being somewhat cautious prognostication-wise.  The field has yet to be delineated (the outer geographical limits, that is.  Chesapeak just lost 60 million "finding"  the southwest boundaries).  Most significantly, the underlying formations (the various benches of the Three Forks and the Tyler formation to mention just two, have completely unknown potential ... although Hamm recently speculated the Three Forks may hold as much recoverable hydrocarbons as the Bakken formation.

As relevant as anything in these discussions, imho, is the phenomenal pace of innovation in this industry. The Initaial Production as well as improving  extraction processes are producing far, far more product than even imagined a year or so ago.  Look up ANY output predictions regarding the Bakken from 2010 or 2011 and you can see how they have been stunningly surpassed.

I sure appreciate the passion you all bring to these discussions, Flak, but, damn, Sam ... like the guy once said "You are entitled to your own opinions, but not to your own facts."   Best regards,  Gerard

Mon, 10/07/2013 - 21:53 | 4032772 CrashisOptimistic
CrashisOptimistic's picture

"I am loathe to predict the output of the Bakken because in 2009 and 2010 I didn't think it would amount to much, and now it's approaching 1 mbpd."

Reply was:

"In 2009/2010 the price of oil was $65/barrel.  If it still was, it would be producing nothing and you would have been right."

There's no real new technology there.  Fracking and horizontal drilling were used in Texas in the 1990s and shut down because uneconomical.

This oil is coming from price, not tech.

Mon, 10/07/2013 - 23:14 | 4032940 phaedrus1952
phaedrus1952's picture

Hey Crash, This is the kind of statement that makes me prone to  discontinue discussions with people holding different perspectives from me. I truly seek out informed, hopefully high integrity  people who see things from a different slant. Debating with the motherfucker looking back at me in the mirror as I shave is not a productive use of my time. HOWEVER ... to use the phrase "there's no real new technology there" is both accurate and grossly misleading.  Horizontal drilling and fracking certainly have been utilized for some time now, but there have been significant advances in just these past ten years or so.  Multi well drilling per pad as well as multi level lateral drilling are exponentially lowering the cost of operations.  Multi stage fracking enables much higher and more complete extraction of the hydrocarbons.  As I've said elsewhere on this thread, the real game changer may well be waterless fracking, even using the targeted wells own gas as the liquified, carrying medium.

To say this technology is not new is, I think, disingenius. Of course, higher pricing will spur more activity, but I truly do not get your point in saying that.

Tue, 10/08/2013 - 00:15 | 4033040 Flakmeister
Flakmeister's picture

In the oil patch, price and technology are interchangeable. If he price is high enough, technology can coax flow but only at the price of a steep declines....

No matter how you cut it, you are running out of Bakken that is worth drilling, 

http://www.reuters.com/article/2013/05/08/column-kemp-us-oilwells-idUSL6N0DP2LW20130508

tie that in the Hughes analysis in "Drill Baby Drill" from the post-carbon inst...

Crash does tend to overemphasize EROEI. The decline in the metric is telling us we are are going to hit the wall very soon but in the mean time is is party on as long as liquids are the outcome of your BTU arbitrage. So while I think that EROEI is not a real factor yet, it will be... 

And people being overly enamoured of EROEI beats the hell out of wingnuts touting abiotic oil as manna from heaven....

Mon, 10/07/2013 - 22:13 | 4032812 James_Cole
James_Cole's picture

I sure appreciate the passion you all bring to these discussions, Flak, but, damn, Sam ... like the guy once said "You are entitled to your own opinions, but not to your own facts."   

http://peakoilbarrel.com/bakken-update-july-production-numbers/

Tue, 10/08/2013 - 11:49 | 4033991 IrritableBowels
IrritableBowels's picture

"The big jump was caused by a record number of additional wells in the Bakken. There were 206 additional wells in the Bakken in July, the exact same number as as in all North Dakota."

Mon, 10/07/2013 - 14:52 | 4031314 Nothing but the...
Nothing but the truth.'s picture

An even bigger problem is that when all the prospectors finally come to the same conclusion our environment will already be fooked.

Mon, 10/07/2013 - 16:07 | 4031344 epwpixieq-1
epwpixieq-1's picture

"It is costly, but it is plentiful"- clearly misunderstanding of the physical reality.

A simple "similar" statement "Gold is costly, but it is plentiful" and is absolutely true. There is so much gold in the world Waters and Soil too, but is PROHIBITIVELY costly ( hint, it requires A LOT of ENERGY ) to extract. And by the way when you speak about cost better speak in energy terms because otherwise nothing makes sense ( to an inquisitive person ), and everything is diluted.

On (implied) thing in the above statement that is not mentioned loudly, although it is true, it does not require changing big part of the underlying infrastructure for fuel distribution, and this is where the big benefit ( or problem if you look from alternative energy stand point ) is, for it will not require changing/shifting the power structure in the society.

The problem is extremely deep and complex, and simplisitc wrong (even stupied) statement like this can only confuse some of of the readers that do not have knowledge of the energy dynamic and associated with it wealth dynamic of the world. For one thing is sure. All wealth in the world, is ( more or less ) tied to the Energy we can control.

 

Mon, 10/07/2013 - 14:35 | 4031242 Herd Redirectio...
Herd Redirection Committee's picture

"Kunstlers statement"

Talking your own book...

Dodgson, we got Dodgson here!

Mon, 10/07/2013 - 19:44 | 4032422 Jumbotron
Jumbotron's picture

but Kunstlers statement re
shale requiring huge investment is false.  This I do know, and with this
knowledge has come some excellent returns.

 

Bullshit Hedgeless.  It takes oil over 80-90 dollars a barrel to justify the cost for the return.

It's your right to flip shale plays like your flipping houses.  But you're still a douche for doing so.   For you are propping up with your money not with the sweat of your brow a failing dream of eternal cheap energy and the bullshit economic system and lifestyle that it has brought and was promised to us all in perpetuity.

Fuck you and your excellent returns.  They won't be worth shit much longer with a QEternity fueled blowup the likes of which will make Tugunska look like a bottle rocket.

Mon, 10/07/2013 - 14:22 | 4031191 prains
prains's picture

there's so much bullshit and sell side spin surrounding Shale Oil that it's virtually impossible to know what the fuck is really going on.....except for one thing....big oil is involved.... and big oil would fuck a dead donkey for a dollar, that is a certainty y'all can take to the bank, they've been fucking that donkey for decades and they ain't stoppin now

Mon, 10/07/2013 - 14:31 | 4031228 bagehot99
bagehot99's picture

This is not to say, and Voser doesn't say, that shale is a not better and profitable play for smaller, specialist firms. That is how you make money in Shale. People who own refineries and operate at that scale cannot operate a scattered site production infrastructure, which multiple small companies can. 

Mon, 10/07/2013 - 14:33 | 4031233 Harbanger
Harbanger's picture

"Shell is a rational company, led by a rational man. He says they can’t make money. Of course, if oil prices reach $150 and natural gas prices reach $8, then companies can make money."

At the pace that we're monetizing debt, I don't see those prices as far fetched.

Mon, 10/07/2013 - 14:35 | 4031251 CrashisOptimistic
CrashisOptimistic's picture

Irrelevant. Oil hit $147 in 2008, long before QE was a phrase even in the lexicon.

Recognize the meaning of that table of EROIs.  It defines the future.  Not money.  Money is an imaginary item.  Joules are not.

Mon, 10/07/2013 - 14:53 | 4031312 Kirk2NCC1701
Kirk2NCC1701's picture

+1.  Note that one does not need a degree in physics or math to sell stuff (Oil, Financial 'Products', Services, Newsletters...)  You just need better math skills than you 'mark'.  ;-)

But it helps to have a real degree, if you intend to plan an Energy future that has... 'legs'.

Mon, 10/07/2013 - 19:10 | 4032314 AGuy
AGuy's picture

"Irrelevant. Oil hit $147 in 2008, long before QE was a phrase even in the lexicon."

GreenSpan dropped rates to 1% and told everyone listening to go by a home or a second home using an ARM. You could call that QE-light since it had the same effect by driving up asset prices. If Greenspan didn't drop rates, the price of oil would have risen considerably slower than it did.

 

 

Mon, 10/07/2013 - 18:35 | 4032168 11b40
11b40's picture

My thoughts exactly.

Prices will rise as suply tightens.  As prices rise, conservation/innovation will kick in.  We will adapt over time.  There are still huge savings to be had in right-sizing, insulating, and general energy effeciency.  Solar, wind, and battery technology continue to improve and will keep getting more competitive as prices rise.  One day, we may even find a way to truly clean up coal energy, and if that happens, America is off to the races.

Technically, if you can afford the start-up now, you can make your home an energy profit center over time.  You can also trade in the SUV for something that gets you 40-50 mpg.

There is nothing to replace the bang you can get from refined petroleum at this point.  As it gets more expensive, it will be used much more conservatively and for the things that absolutely demand it.  Heating water for your shower or central heating unit with petroleum products is a waste.

We will adapt; we will survive.  If we had a brain, we would already have been taxing it and using those taxes to jump-start green enrgy companies & garage mechanics tinkering around on their own, unique ideas.  The country was on a rapidly growing trend-line in the late 70's & early 80's when we had all the tax credits for insulation, winterizing, and solar, but the Reagan revolution put a stop to all that non-sense.  After all, this is the American Empire.  Get out of my way, bitchez, or I will run you over with my Hummer!

Mon, 10/07/2013 - 20:02 | 4032495 Jumbotron
Jumbotron's picture

"Prices will rise as suply tightens.  As prices rise, conservation/innovation will kick in.  We will adapt over time.  There are still huge savings to be had in right-sizing, insulating, and general energy effeciency.  Solar, wind, and battery technology continue to improve and will keep getting more competitive as prices rise.  One day, we may even find a way to truly clean up coal energy, and if that happens, America is off to the races."

Are you serious or high?  That is the MOST assinine statement to date.  All of your high tech magical advances came about not because of higher prices....but through cheap energy.  What you say about adapting is true.  But not to ever higher technological achievements in solar tech and batteries which are coming about, once again, not because of higher prices....but through huge industrial economies of scale made possible due to cheap energy.  Take away the magic and most innovations of the high tech sort will begin to starve and dwindle. 

We have had battery technology ( at least drawings showing crude chemical battery designs for nearly two thousand years).  Yet the best we can do for long term storage are banks of heavy lead acid.....or light weight but short life lithiums prone to explode.  Or NiCad's which are chemical nightmares.  Don't EVEN get me started on hybrids or Tesla's.

We've NEVER spent more money on all of this green tech (and I think we should), however, let us do ourselves a favor and not blow sunshine up our ass with a wind turbine about how we get there.  It SURE as hell will not come from scarcity of cheap energy and higher prices.  That only makes the even more expensive Green Tech viable for personal use.  It WILL NOT fuel future innovations.  That takes LOTS and LOTS of cheap energy......which we do not have any more of.

Mon, 10/07/2013 - 14:57 | 4031338 surfersd
surfersd's picture

What does that mean? As Crude API moves to condensate it means that there are less heavy ends in the barrel and so less need for refinement. All refiners have to do is increase the heavy crude mix to offset the condensate's lack of heavy ends.

The refiners are not crying about this problem believe me. Particularly the fact that that this oil is being produced 100 miles from their refineries. Look to the Platts report that shows the massive pipeline and terminal  infrastructure that is being put in place around this non-crude.

 

 

 

Mon, 10/07/2013 - 15:20 | 4031439 Flakmeister
Flakmeister's picture

They are.... the money is to be made in the distillates, not the light end....

http://www.rbnenergy.com/the-ethane-asylum-big-time-ethane-rejection

Mon, 10/07/2013 - 19:02 | 4032284 surfersd
surfersd's picture

Distillates are the light end. Butanes/Gasoline/Distillates are the light end. Residual fuel, bunker fuel, asphalt and petroluem coke is the heavy end.

Mon, 10/07/2013 - 19:58 | 4032477 Flakmeister
Flakmeister's picture

I was referring to diesel...  mea culpa, the heavy part of the light end... 

Mon, 10/07/2013 - 14:13 | 4031153 The man with po...
The man with pointy horns's picture

How much of this increase in production is because of exponential expansion of shale gas and shale oil? Given these rapid depletion rates how soon will it be when that North Dakotan and Texan crude oil production comes plummeting down?

Mon, 10/07/2013 - 14:52 | 4031324 firstdivision
firstdivision's picture

I would wager quite soon as there are some big boys trying to sell off the mineral rights they bought, without even placing a platform on the land. 

Mon, 10/07/2013 - 20:42 | 4032600 phaedrus1952
phaedrus1952's picture

While only the future will show how this plays out, I feel highly confident, based on the most recent - ie. last few months published figures -  that the depletion rate will be far more acceptable from a business perspective, as well as the rapidly improving initial production rates.  The accompanying chart to this article shows a 1,000 barrel IP well still generating $10,000 a day revenue (@$100/bbl) ten years down the road.  The Bakken is now regularly producing wells with 3 to 5 thousand/day IP wells.

As waterless fracking technology - still in its infancy - becomes the norm - worldwide shale production is apt to explode.

Mon, 10/07/2013 - 14:21 | 4031188 Canadian Dirtlump
Canadian Dirtlump's picture

Indeed. There are many juniors and large companies building value in many unconventional and conventional plays and have been for years. This article ( as a derivative of the many others writing off north american energy production ) seems to target natural gas. Long term, anyone who doesn't think natural gas WILL and SHOULD play a huge part of the energy infrastructure is fooling themselves. It can and should.

 

Incessantly whining about how bad unconventional oil and gas is, and erecting hyperbolic straw man arguments using idiot mainstream media talking points is as disingenuous as Jim Cramer shiiting his pants over the prospects of energy independance.

 

As usual, the truth is somewhere in the middle. Responsible and safe extraction of natural resources may not make the US independant of foreign energy, but it will certainly help, and can and has added value. Much more than screaming into an echo chamber with only critique and no solutions.

Mon, 10/07/2013 - 14:49 | 4031303 BobPaulson
BobPaulson's picture

The key thing to remark on in the whole North American market is that gas is cheap (because of the shale plays) and is priced locally, and WTI is in pretty good shape. This has a big impact on Canada who use cheap gas to produce (SAGD) and upgrade. The end of the pipe is oil, not gas and low gas prices push the profit to the end of the pipe. Keystone is obviously part of the picture for facilitating this movement.

Do the majors give a shit if the oil stays in North America? Save your profits for when you sell it overseas. Keystone is all about getting WCS to salt water, not to North American consumers. Energy independence is irrelevant for oil companies. Nation states think along those lines, and frankly the big oilcos want to avoid trapped markets with taxes and environmental regulations.

So, as for fracking: Of course the workover only gives you two years of flow. The money you get from each frac increases the revenue enough to pay for the next frac. I would be more worried if the profit model was based on a 20 year production cycle with the insanely low interest rates we have, cause that would be dead in the water with a rate bump.

The technology is pretty young too. So far most has been developed by trial and error. I know most of the fracking companies are spending quite a bit on research compared to five years ago. I know of at least one project in Russia where they are injecting nitrates underground to stimulate the wells (crazy shit you couldn't get permission to do in North America). 

I think since fracking is mostly local and short term, it will mean EROI will go up, but they don't give a shit. Their product is fuels, not efficiency numbers.

Mon, 10/07/2013 - 16:48 | 4031802 Paveway IV
Paveway IV's picture

+1 for your observation that oil majors could give a damn about the pipe dream of 'energy independence'. They can't build LNG terminals fast enough in the Gulf of Mexico to dump U.S. NG. TEPCO has forwards for the next decade to buy LNG from Japanese companies that are financing the LNG terminals that have not even been built yet. Technically, the Japanese are not even allowed to buy it (trade agreements B.S.) but they already got the green light from their bought politicians in LA and TX.

 

"...I would be more worried if the profit model was based on a 20 year production cycle with the insanely low interest rates we have, cause that would be dead in the water with a rate bump..."

Well, maybe not a 20-year cycle, but the profit model is terribly flawed if you don't assume astronomically inflated oil prices an no other changes. You can only hide so much of your real costs from Joe 'Due Dilligence' Six-pack by transporting them into the future via the magical land of accounting. That profit model crumbles under the weight of either time or rising interest rates. I dunno... maybe it will be different this time.

Mon, 10/07/2013 - 17:31 | 4031921 Flakmeister
Flakmeister's picture

There are those that desperately want global pricing for NG....

Doesn't matter that Joe Sixpack will get screwed by $15 NG, there are those that want MOAR now....

Mon, 10/07/2013 - 14:25 | 4031203 I am a Man I am...
I am a Man I am Forty's picture

I was pimping Oasis Petroleum a while back and it's up 100% plus.  Everyone understands the depletion rates.  If you spend 8 or 9 million on a well and sell $35M worth of oil like they do in the Bakken seems like a pretty good deal to me.

Mon, 10/07/2013 - 14:35 | 4031229 hedgeless_horseman
hedgeless_horseman's picture

 

 

As I have said here before, if one must own stocks, then APC isn't a bad choice.

Mon, 10/07/2013 - 14:56 | 4031332 firstdivision
firstdivision's picture

I just picked up a large lot of some battery maker called A123.  I bet it'll be worth a kajillion dollars with the expansion into electric cars.

Mon, 10/07/2013 - 14:58 | 4031350 surfersd
surfersd's picture

Hahaha. Didn't they file for bankruptcy? One of their big utilty projects in California with SCE doesn't work. Be careful

Mon, 10/07/2013 - 15:09 | 4031385 firstdivision
firstdivision's picture

If I have to use sarc tags, I'm not doing it right.

Mon, 10/07/2013 - 17:06 | 4031865 Paveway IV
Paveway IV's picture

I'm totally screwed. Where am I going to get another set of batteries for my luxurious Fisker Karma? Those sneaky Finns ripped me off! 

Mon, 10/07/2013 - 20:47 | 4032617 phaedrus1952
phaedrus1952's picture

Hey, Big Red One,  ya needed to put /s on that post.  :)

Mon, 10/07/2013 - 19:19 | 4032345 AGuy
AGuy's picture

"  If you spend 8 or 9 million on a well and sell $35M worth of oil like they do in the Bakken seems like a pretty good deal to me."

Every well drilled costs millions of dollars, but not every well produces millions of dollars. Many well's drilled are dry or do not produce enough oil to offset the costs.

Sooner or later they are going to run out of water needed or they are going to run out of paydirt (fields that are profitably drilled). It looks like the TX and ND shale plays will peak in 2014 or in 2015. Depletion is going to eventually catchup with production and that will be end of the Shale "Miracle". Shale is not a game changer, it just buys us a few years before the crisis begins.

Mon, 10/07/2013 - 21:09 | 4032673 phaedrus1952
phaedrus1952's picture

No disrespect, but the vast majority of comments on this thread do not show much current knowledge of what is occurring up in the Bakken,  The generally accepted productive reservoir (NOTE this is the Bakken middle bench, NOT the Three Forks and - possibly - Tyler formations),covers an area twice the size of New Jersey, about 15,000 square miles). 99% of the wells drilled within hit oil.  

Wells are now producing 3,000 bbl/day at the outset with Statoil having two producing 5,000+.  An 80% depletion rate after one year on those wells still generates $100,000/PER DAY @ $100/bbl. Ten years later, according to the chart accompanying this article, that well will throw off 50 thou per day. The technological innovations continue at a stunning pace.  Anyone using predictive data from even one year ago may be conversing in Fred Flintsone-speak ... yabba dabba doo.

Waterless fracking is in its infancy and will prove to be a worldwide game-changer, imho.

Mon, 10/07/2013 - 21:57 | 4032785 Jack Burton
Jack Burton's picture

The market will decide. Demand. Cost of Production. Things like that. The only thing that matters in this is how much does it cost to get the barrel of oil up and into a market. Fracking works, we can all see that. How it plays out in the long term is something only the market can decide. Water adds to costs, how fast new wells lose production capacity is lart of the costs. I have faith in the markets. If this fracking is viable and turns a continuous profit, then it will continue. I place little store in claims of vast oceans of oil underground. The market ONLY cars at what price a barrel you can pull it out. Demand is going to rise. The world outside of the western nations is booming. China is signing contracts with Russia for oceans of oil and they still need more and more and more. Most Chinese drivers haven't hit the road yet. 300,000,000 more will be hitting the road in the next few years. Brazil, India even Africa, they all want cars. Russia went from a nation where only high party officails had cars, to where nearly everyone of working age has one. Demand is going to stay very high! So, that means high cost oil can be produced at a profit. For now, I am betting the fracking play is ON.

Mon, 10/07/2013 - 14:42 | 4031282 Freddie
Freddie's picture

More pro-Tesla propaganda.

Mon, 10/07/2013 - 15:04 | 4031365 rubiconsolutions
rubiconsolutions's picture

What you fail to understand there @hedgeless_horseman is this - there may in fact be a trillion barrels of oil in the Bakken and other US shale deposits. However, if it takes 800 billion barrels worth of energy to crack it loose and refine it then that is not a particularly efficient source of energy is it? The days of Jed Clampett shooting his gun and finding oil are over. 

Mon, 10/07/2013 - 15:46 | 4031588 WarHorse
WarHorse's picture

Shell bought assets at the top of the market and they DO NOT hedge.  WTF did they expect?

Mon, 10/07/2013 - 18:39 | 4032190 Notarocketscientist
Notarocketscientist's picture

THE FRACKING PONZI SCHEME Robert Ayres, a scientist and professor at the Paris-based INSEAD business school, wrote recently that a "mini-bubble" is being inflated by shale gas enthusiasts. “Drilling for oil in the U.S. in 2012 was at the rate of 25,000 new wells per year, just to keep output at the same level as it was in the year 2000, when only 5,000 wells were drilled." http://www.forbes.com/sites/insead/2013/05/08/shale-oil-and-gas-the-cont... Why America's Shale Oil Boom Could End Sooner Than You Think http://www.forbes.com/sites/christopherhelman/2013/06/13/why-americas-sh...

 

FRACKING WILL CREATE AN ECONOMIC CRISIS Overinflated industry claims could pull the rug out from optimistic growth forecasts within just five years. A report released in March by the Berlin-based Energy Watch Group (EWG), a group of European scientists, undertook a comprehensive assessment of the availability and production rates for global oil and gas production, concluding that: "... world oil production has not increased anymore but has entered a plateau since about 2005." Crude oil production was "already in slight decline since about 2008." http://www.guardian.co.uk/environment/earth-insight/2013/jun/21/shale-ga...

 

FRACKING OUR WAY TO A TOXIC PLANET Elevated levels of methane, ethane and propane gases were found in drinking water wells in Pennsylvania, close to operations that shake natural gas loose from underground shale formations in a process known as fracking, scientists reported on Monday. Mr. Johnson and his colleagues found 82 per cent of drinking water samples contained methane, with concentrations six times higher for homes within 1 kilometre of natural gas wells than for homes farther away. Ethane concentrations were 23 times higher for homes close to natural gas wells; propane was detected in 10 drinking water wells, also within 1 km of a natural gas well. http://www.theglobeandmail.com/report-on-business/industry-news/energy-a...

 

POISONING OUR LAND Over the past several decades, U.S. industries have injected more than 30 trillion gallons of toxic liquid deep into the earth, using broad expanses of the nation's geology as an invisible dumping ground. No company would be allowed to pour such dangerous chemicals into the rivers or onto the soil. But until recently, scientists and environmental officials have assumed that deep layers of rock beneath the earth would safely entomb the waste for millennia. There are growing signs they were mistaken (or lying of course) http://www.scientificamerican.com/article.cfm?id=are-fracking-wastewater...

Mon, 10/07/2013 - 21:43 | 4032745 putaipan
putaipan's picture

from one 'not a rocket scientist' to another....after reading through this thread, all my simple mind could come up with was this- since it's all one money at the top, the profits just move from oil to water. we're all gonna owe our souls to the nestle company.

Mon, 10/07/2013 - 14:39 | 4031273 mirac
mirac's picture

oil sands are much more predictable but enviornmentally a problem...but Shell has done very well in Alberta on regular exploration of both oil and gas...

We are probably looking at a mini ice age which would be bad for Alaska.  Coldest summer in 84 years up there.

Free Energy/Zero Point Energy is the future...wood stove and solar will do for now

Mon, 10/07/2013 - 15:00 | 4031355 akak
akak's picture

Actually, it was the warmest June and July on record in 84 years in much of Alaska, not the coldest.  Believe me, I suffered through every 80+ degree day of it.

Mon, 10/07/2013 - 15:03 | 4031369 Flakmeister
Flakmeister's picture

Bugs must have been horrific....

Mon, 10/07/2013 - 15:15 | 4031412 akak
akak's picture

Voracious!  And my business has me in the field most days during the summer (as well as the abbreviated spring and fall), in the course of which I can NOT even wear a headnet due to visibility problems.  I had to resort to formulating my own blend of DEET and various essential oils to even make my time outdoors bearable, and finally hit on a blend that worked 100% for up to seven hours.  Sadly, and foolishly, I did not exactly measure the 9 or 10 ingredients in it, and now cannot replicate it.

Mon, 10/07/2013 - 15:26 | 4031460 prains
prains's picture

akak

what's the mountain pine beetle like up there, we're getting destroyed?

Mon, 10/07/2013 - 15:36 | 4031514 akak
akak's picture

Well, not having pine trees in most of Alaska  (only small and scattered ones in Southeast Alaska), I have not heard of it, nor expect that it is much of a problem if at all.  However, our forests were decimated by the spruce bark beetle back in the 90s, with vast dead mountainsides still very much in evidence.  How wild fires did not destroy all the dead spruce lands on the Kenai Peninsula and in Southcentral Alaska I will never know.

Mon, 10/07/2013 - 15:33 | 4031508 Flakmeister
Flakmeister's picture

Skin so Soft was always the charm, at least my tree planting friends swore so....

Mon, 10/07/2013 - 15:40 | 4031542 akak
akak's picture

Not up here!  That stuff is like a bugle call for the mosquitos, in my experience.

DEET works well, for as long as it lasts on the skin, but in my (extensive) experience for only about three hours, max, no matter the concentration.  Adding certain essential oils can extend that period of effectiveness, while adding some repellancy against some of the flies and biting gnats that are not repelled by DEET.  You will smell like a lemon-scented perfume factory while wearing the stuff I mixed up for myself, though --- and for a few days afterward.

Mon, 10/07/2013 - 15:46 | 4031566 superflex
superflex's picture

Skin so Soft is feminine pussy shit.  100% DEET is the only deterent to black flies and mosquitos.

You have no experience working outdoors do you Flakmesister?  

Tree planting friends = hippies reeking of patchoulli.

Mon, 10/07/2013 - 15:49 | 4031596 Flakmeister
Flakmeister's picture

Ever been to Horsefly?

Take a guess how it got's it name...

While you are at it, go fuck yourself...

Mon, 10/07/2013 - 15:58 | 4031642 superflex
superflex's picture

Somebody needs a Pamprin

Mon, 10/07/2013 - 18:01 | 4032039 Flakmeister
Flakmeister's picture

Hey buddy, you started it...

Mon, 10/07/2013 - 21:15 | 4032682 phaedrus1952
phaedrus1952's picture

C'mon guys,  fight nice

Mon, 10/07/2013 - 15:52 | 4031609 akak
akak's picture

 

Tree planting friends = hippies reeking of patchoulli.

Ironic that you say that, as patchouli is one of the essential oils which in combination with others, and with DEET, makes a damned fine insect repellant.  You'll smell pretty damn strong of it, though, and your clothes will hold that smell for a month or more unless repeatedly washed.  As my outdoor clothes generally get dirty after the first day anyway, I will often not wash them for a month or more, although I try to not go out in public with those clothes if I can help it.  But you can get away with shit like that in Alaska.

Mon, 10/07/2013 - 17:39 | 4031956 yabyum
yabyum's picture

Deet, Now wthat shit will alter your DNA.

Mon, 10/07/2013 - 16:00 | 4031644 Totentänzerlied
Totentänzerlied's picture

Can't use DEET or citronella - nasty reaction. Skin So Soft works for a few hours, provided you don't venture into any infested areas. And it only works within a few inches of the covered area. As soon as it rubs off any patch of skin, you're live bait once again. Gotta spray it on thin clothing too (gloves, socks), or you will be bitten right through it.

 

Mon, 10/07/2013 - 21:45 | 4032754 mirac
mirac's picture

Sorry, my mistake. I was wrong...it was the shortest

http://www.sott.net/article/266900-Shortest-summer-on-record-in-Alaska

Siberia not looking good either...

http://www.sott.net/article/266915-Record-cold-in-Siberia-This-is-not-th...

 

We are headed for an ice age, hopefully a mini ice age but still it is not a good idea to be up there anymore

Mon, 10/07/2013 - 22:54 | 4032902 Flakmeister
Flakmeister's picture

Are you serious?

Mon, 10/07/2013 - 15:03 | 4031359 Flakmeister
Flakmeister's picture

What planet do you come from?

 

Mon, 10/07/2013 - 14:59 | 4031348 thunderchief
thunderchief's picture

I never quite understood this whole idea of pumping sludge deep into rock formations and blasting out gas.  Who would want to drink the water near any of these toxic sights or own a property? 

Mon, 10/07/2013 - 15:58 | 4031628 superflex
superflex's picture

The sludge you speak of is 99.5% water and sand.  The remainder is biocides, surfactants, scale and corrosion inhibitors, pH adjustors, friction reducers and acids.  You obviously dont know shit about fracking.

Drinking water aquifers are generally 50-200 beet below grade.  Oil and gas bearing shales occur between 1,500 to 4,500 feet below grade.  Fracking fluids are injected at extermely high pressure into the host rock (shale).  At no time are they introduced into aquifers.

The boreholes are cased (or even double cased) when penetrating drinking water bearing zones.

Keep spreading your FUD.

Mon, 10/07/2013 - 16:59 | 4031839 Flakmeister
Flakmeister's picture

And you keep ignoring the casing failures.....

Do you think everyone is a fool to be exploited?

Mon, 10/07/2013 - 15:12 | 4031408 thunderkiss
thunderkiss's picture

I live in Dallas but grew up in Three Rivers, TX on top of the Eagle Ford.  I agree that shale oil will not save the world and provide energy for eternity.  There will be an end.  But still, we should celebrate the great things that are happening there.  Just because Shell pulled out doesn't mean the whole play is unprofitable.  There's a ton of companies making great returns down there, not to mention a bunch of lucky redneck friends of mine making a killing for being part of the lucky sperm club.  Average well costs continue dropping, now at about $6.5 mil (not sure if lease rights are factored in that) and Eagle Ford oil sells for a premium to WTI.  And they're getting better and better at increasing recovery rates.  There is real money being made.  And oh by the way, below the Eagle Ford is another shale called the Pearsall Shale.  There haven't been many wells drilled into it yet but so far it's looking like another promising play.

Yeah, there will be an end to it but we should still be thankful our country has it and the people who have rolled the dice to get it.  Who would've thought this would come about back in just 2008?!

Mon, 10/07/2013 - 22:49 | 4032888 jerry_theking_lawler
jerry_theking_lawler's picture

Question/Observation: In the leading graph depicting depletion rate, there is some information missing, right? Here goes:

 

Lets say the well averages 500 bpd...and @365 days that is 182,500 barrels, right? and oil is selling for $90/barrel, right? Isn't that a $16mm well in year 1?, so, year 2 is $4mm, it is still a $20mm well. What's the cost to drill and service? $5mm? That is a $15mm profit in two years, right?

 

Can somone let me know where to invest for this kind of return (because I missed out on the Fed induced stawk market rally).....

Mon, 10/07/2013 - 23:51 | 4033009 phaedrus1952
phaedrus1952's picture

Greetings, Mr. Lawler. I am just re-scrolling thru this thread and your post caught my eye.  Yes, this stuff (as per the North Dakota State generated data clearly shown in the article's chart) is FREAKIN' mucho profitable right now.

There is so much emotion tied in to all this hydrocarbon/fracking/global warmining (whoops, climate change), running out of stuff perspective, that a simple reading - as you have done - of the financial returns can be a little startling.  Generally accepted numbers ... cost per well 8 million and dropping.  Total return over 40 year production run 35 million at s$100/ bbl. Vast majority of payoff is in first few years.

Bakken wells are now initally producing 3 to 5 thousand bbl/day.

Dresser-Rand is to introduce shortly a mobile, micro gas liquification plant that could re-define the entire shale oil/gas drilling industry.  If it works as expected, on site gas could be recovered for sale (not wastefully flared off) and even reinjected into the well to frack without using water.

Possibly the biggest result would be opening up vast areas of the world where there are huge shale deposits but little water.

Mon, 10/07/2013 - 14:04 | 4031117 Kirk2NCC1701
Kirk2NCC1701's picture

It was all intended to "buy time" for the Petro-Dollar anyway.

While the plundering (swapping paper/confetti/toxic assets for real assets) by the 1% continues.

Mon, 10/07/2013 - 15:21 | 4031440 Totentänzerlied
Totentänzerlied's picture

"Buying time" is the sum of everything the US has done since WWII, and will do for the remainder of its existence. The event horizon was passed when domestic production peaked. Interesting times.

Mon, 10/07/2013 - 14:09 | 4031129 0b1knob
0b1knob's picture

More peak oil propaganda from somebody with a political agenda.   Oil and gas wells have to be reworked or refrackted periodicly.  Thats always been true.

I'm old enough to remember when the North Slope oil fields came into production in the mid seventies.   At that time the estimate from geologists was that there would be about 10 years of good production, 15 years of decline, and the entire field would be abandoned and capped after 25 years.   Well its 35 + years later now and the North Slope still produces 1 million plus barrels per day.

Projections are just POOHA figures.   If shale oil and gas are bad investments then oil companies will not drill them.  Its called capitalism.

Mon, 10/07/2013 - 15:36 | 4031516 Totentänzerlied
Totentänzerlied's picture

"If shale oil and gas are bad investments then oil companies will not drill them."

As marginal cost-of-production rises (and affordability - access to credit - diminishes), oil cos will not operate at a loss for very long, they'll just stop drilling and pumping and PRODUCING. Then the oil majors, for all intents and purposes nationalized and having no need to operate at a profit, will be backed up by the full power of the world's militaries which will duke it out for whatever's left - " " "capitalism" " ", of course. It sounds familiar because most of it has already happened in various places (MENA), but the next round will make all that's come before look like sunday school.

Mon, 10/07/2013 - 16:09 | 4031697 0b1knob
0b1knob's picture

"if oil prices reach $150 and natural gas prices reach $8, then companies can make money"

Energy prices were at that level quite recently.   Again its just capitalism.   Prices will rise to a market clearing level.  What else is new?

The actual point that Shell management is making is exactly the opposite of what the author says.  "Shell’s Upstream Americas business was in the red because of a “strategic decision to slow down” on shale."   They overpaid for rights and got in trouble because the DIDN'T drill.

Mon, 10/07/2013 - 14:12 | 4031130 Bam_Man
Bam_Man's picture

So in other words, we can have "energy independence", but only at $150+ per barrel. Terrific.

Serves the greedy scumbags at Shell right for thinking prices were headed there by next week. Too bad it only took $100 per barrel to begin destroying global demand.

Mon, 10/07/2013 - 14:47 | 4031295 cougar_w
cougar_w's picture

Propaganda at any price is worth the price. We can put this whole thing behind us; the wells either will produce and save the day, or the US economy is going to blow itself to rat shit. Pretty simple and unambiguous really. People can believe whatever they want to believe and gain whatever comfort they can in preparing for either heaven or hell.

Mon, 10/07/2013 - 15:51 | 4031613 Totentänzerlied
Totentänzerlied's picture

Global demand is not being destroyed, global population is still rising, is it not? There is no slack in this market. When it does start to fall off the cliff, that's when you panic. The game is to slowly boil the world's poorest as prices (inevitably) rise, to remove demand. It's already begun, of course: Egypt, Syria, Libya, et al. You set up a cliff and slowly push people off it, too slow and demand will drum up prices and blow the whole thing up, too fast and society implodes as the number of destitute grows exponentially. The name of the game is "lower demand".

How do you lower almost totally inelastic global demand for an essential resource? You kill lots of people.

We can have energy independence, if demand falls enough...

$150/bbl with today's dollar would push tens of millions in this country into abject poverty overnight, so, yes, that might do the trick, but it would also lead to Civil War II post-haste. 

Mon, 10/07/2013 - 14:10 | 4031132 Its_the_economy...
Its_the_economy_stupid's picture

Happy Ending Ranch in N Dakota is where the money can be made.

Mon, 10/07/2013 - 16:52 | 4031812 superflex
superflex's picture

That and double wide sales

Mon, 10/07/2013 - 21:24 | 4032701 phaedrus1952
phaedrus1952's picture

I heard the girls were making 2k/nite but everyone is keeping that part of the boom real qt.

Mon, 10/07/2013 - 14:15 | 4031133 CrashisOptimistic
CrashisOptimistic's picture

Most ppl don't realize that the Texas Eagleford is outputting more than the Bakken -- though as Flakdood says, it's not really crude.

But at what effort (always talk in terms of effort, not cost)?

Here is the most important snippet from the article:

"Just last month, Shell said it had put its acreage in the  Eagle Ford shale in Texas up  for sale, as part of a strategic review of its US shale portfolio."

 

BTW Tylers, thumbs up on the EROEI chart.  That sucker is the most important table of numbers you've ever published and it's surprisingly hard to find.

Mon, 10/07/2013 - 14:11 | 4031137 dogbreath
dogbreath's picture

a friend working on a seismic exploration program ajoining a Shell program (apples to apples) told me that Shells program was 3X the cost of the program he worked on.   Shells problem is their size and competes with .gov for how inefficient they are

Mon, 10/07/2013 - 14:36 | 4031247 NaN
NaN's picture

Exactly. As oil gets tighter, more risks will be taken by smaller players that cut corners, thus ensuring more accidental externalities.

Mon, 10/07/2013 - 14:47 | 4031304 cougar_w
cougar_w's picture

Accidental externalities for the win.

Tue, 10/08/2013 - 00:04 | 4033021 phaedrus1952
phaedrus1952's picture

Risks taken by smaller players ... hmmm.  Thinkin,   thinkin.  What was it, couple years ago?  Small mom and pop outfit named British Petroleum cut a few corners on the last couple of days of drilling a hellacious (sp?) well in Da Guf? Yeah, gotta keep your eye on them little guys ...

Tue, 10/08/2013 - 00:45 | 4033046 Flakmeister
Flakmeister's picture

In all fairness Haliburton probably did lie to them about the shortcomings of cement job given the pressure...

Tue, 10/08/2013 - 01:36 | 4033111 phaedrus1952
phaedrus1952's picture

Good point, Flak. Seeing as how they were all just about wrapping up the job and gettin outta Dodge, a little too much "it'll be all right" unfortunately took hold with terrible consequences.  

Mon, 10/07/2013 - 14:12 | 4031138 booboo
booboo's picture

"If Shell can’t make it profitable, who can?"

Dear Leader Comrade Zero? Stalin had his timber Gulags, Zero can have his Shale Gulags, Uncle Warren, Commissar of Efficiency can ship the bodies in and the shale oil out.

Mon, 10/07/2013 - 14:12 | 4031141 Seize Mars
Seize Mars's picture

Sigh. Oil is a financial asset, not a commodity. The business of producing it doesn't need to be profitable. Interest charged on federal reserve notes is profitable enough to make it all worthwhile. Let the insults begin.

Mon, 10/07/2013 - 14:29 | 4031224 CrashisOptimistic
CrashisOptimistic's picture

You're about 25% correct.  The 75% will kill you soon, literally.

There are indeed places on earth that you can create oil with dollars.  Ghawar is such a place.  Money is spent on drilling new wells to offset the dying old ones and oil comes out and Saudi Arabia hangs on a bit longer.

Most places are not like that.  Money was spent in Indonesia and their output still fell, and now they are no longer in OPEC because an importer can't be a member of the Organization of Petroleum Exporting Countries.  Oil companies spent money there to try to stop the decline and it didn't work.  Geology always wins in the end.

As noted in the article, shale is not living up to the spreadsheet.  Dollars can't create much more oil than they have there.  Have a look at the UK (Scotland's) oil output.  Money has poured in there to drill more wells closer together to get every last bubble of porous rock drained, but the output continues its decline.

25% of oil can be made with dollars.  75% is geology, and geology always wins.

Mon, 10/07/2013 - 14:34 | 4031244 prains
prains's picture

your point is gravitational

Mon, 10/07/2013 - 14:45 | 4031293 Seize Mars
Seize Mars's picture

**buzzer sound**
"25% of oil can be made with dollars??"
Next.

Mon, 10/07/2013 - 14:51 | 4031317 cougar_w
cougar_w's picture

I think he means you can pull an extra 25% out of a bad play by throwing a ton of money at the problem. This is certainly correct. And with Ben printing money for any purpose that anyone can imagine, the money isn't a problem so long as the debt is never intended to be paid.

Do you see now how this is going to work out?

And keep in mind, this is the end-game. No future required.

Mon, 10/07/2013 - 15:27 | 4031456 Seize Mars
Seize Mars's picture

Petrodollar
Oil=dollar

If oil is **perceived** as scarce, LGPP's are perceived as being valuable. (Little Green Pieces of Paper.)

If oil=dollar is true (and it is), then having Shell throw their hands in the air and declaring that oil is scarce (corollary: unprofitable) is equivalent to LGPP's having value.

This is usually where the ad hominems start. Sorry if truth is unsettling.

Mon, 10/07/2013 - 15:32 | 4031496 prains
prains's picture

maybe your equation no longer works....what then?

Mon, 10/07/2013 - 15:45 | 4031577 Seize Mars
Seize Mars's picture

Have you accepted LGPP'S in return for your labor, or other "real" goods today? My guess is you have. So it appears that the scam is humming along nicely, yes?
What if? What if the scam stops? I hope it does so we can find out.
As our friend "LawsofPhysics" is fond of saying, nothing changes until supply lines break.

Mon, 10/07/2013 - 21:04 | 4032665 hardcleareye
hardcleareye's picture

Isn't oil both a financial asset and a commodity?  What a interesting way of perceiving it.... explain some more.....

Mon, 10/07/2013 - 14:13 | 4031151 yogibear
yogibear's picture

"He also acknowledged that exploration results in the US shales had been  disappointing. “We expected higher flow rates and therefore more scalability"

It goes along with expecting much higher employment rates in the US.

All liberal propaganda and BS.


Mon, 10/07/2013 - 14:16 | 4031161 Flakmeister
Flakmeister's picture

Everything you need to know about the shales is here

http://www.postcarbon.org/drill-baby-drill/

 

When they run out of new Bakken to drill in a few years, production collapses....

Likewise with the EFS...

Mon, 10/07/2013 - 14:35 | 4031255 Spastica Rex
Spastica Rex's picture

What casues me to giggle is that we will know whether shale reinvigoartes a fossil fuel driven world before very long. It either will, or it won't. Our continued "investment" in the ME gives me pause.

>>tee-hee<<

Mon, 10/07/2013 - 14:49 | 4031307 Flakmeister
Flakmeister's picture

I think you already know the answer...

 

Here is a very good article on Choo-Choos that puts some of the Keystone talk into perspective

http://www.rbnenergy.com/go-your-own-way-the-slow-crude-train-from-canada

Mon, 10/07/2013 - 14:52 | 4031321 cougar_w
cougar_w's picture

It's all smoke and mirrors. But then, what else is new?

Mon, 10/07/2013 - 20:58 | 4032643 hardcleareye
hardcleareye's picture

Thanks for the link Flak... good read.

Mon, 10/07/2013 - 14:46 | 4031286 prains
prains's picture

Flak

 

what's the life span of all future american oil production relative to current world consumption (not even increasing but just current). this tells us what the most optimistic sell side scenario predicts they can produce for use in YEARS.

Is it 20 years of production, 3 years?

How long do they have to avoid the inevitable? what's the best case unicornian dream here?

Mon, 10/07/2013 - 14:58 | 4031349 Flakmeister
Flakmeister's picture

That is a tough question and I don;t know if phrasing it as you did is instructive:

The US pushes very hard on its depleted oil assets. P/R is about 7% (or ~15 years of production at current rates on currently proven reserves), but there is still a lot of oil to be found, it just wont flow fast. The US will likely produce on average 3 mmbpd for the next 40-50 years. There will hundreds of thousands of stripper wells.....

So I think it is safe to say that the US will be producing 6-10% of world production for a long time, however world production will be 50% of what it currently is in 20-30 years...

Mon, 10/07/2013 - 15:09 | 4031382 prains
prains's picture

sorry Flak i guess i was asking for the bulk unicornian number estimated to be in the Bakken play and put that against the number of barrels consumed per year (currently), divide total fantasy barrels by consumption gives total number of wishful years of oil

 

the point being is that it's best sell side fantasy output is shortlived on a generational timeline and only serves to kick the can of avoidance a little further down the road. shouldn't oil at this point in time be looked at as a transitional energy source to a mixture of other sources?

Mon, 10/07/2013 - 15:19 | 4031427 Flakmeister
Flakmeister's picture

Yes, re: oil's role, but only a few see it that way because the alternatives are all flawed in some way...

Oil is solar power concentrated over many 10 of millions of years....  200 million years of oil formation being torched in 200 years is not a recipe for a sustatainability....

Mon, 10/07/2013 - 15:29 | 4031482 prains
prains's picture

LOL.....we're flawed in some ways as well.....that shouldn't stop us from execising some< mark to truth >at some point, hopefully before that point is inevitable

Mon, 10/07/2013 - 17:50 | 4032010 Ident 7777 economy
Ident 7777 economy's picture

 

 

 

" Oil is solar power concentrated over many 10 of millions of years ..."

 

As opposed to EVERY other collection of 'elements' (gold or AU for instance) or compounds (CU or AL found oxidized) found in the earth's crust.

 

Why do I NOT buy your 'theory'?


 


Mon, 10/07/2013 - 20:59 | 4032632 hardcleareye
hardcleareye's picture

I'm guessing you were sleeping during high school chemistry...... lol

Mon, 10/07/2013 - 14:15 | 4031164 Catullus
Catullus's picture

The shale plays are such a failure that the prices fell because of increased supply. They're clearly pulling out more gas from the ground. I guess they should appologize that they didn't predict sub-$4 gas for nearly two years. Gosh! What a failure. They didn't make money on the first three years of a 30 year play. Sell sell sell. Thank god they had the credit ratings and cash flows to expand their balance sheets for the past half decade. God only knows where'd they be with cash burning a hole on their EVs.

Mon, 10/07/2013 - 14:20 | 4031192 CrashisOptimistic
CrashisOptimistic's picture

Okay, you don't understand the geology or the business.

Gas is not drilled for in the US, generally.  It is NGLs, natural gas liquids, that fund the drilling.  Gas can't pay for it.  So structures are drilled that have promise of propane and butane and ethane to flow out as liquid (which are priced way above gas) and those will pay for the side effect product, which is gas.

This is why gas prices are low and stay low.  Not because gas was found and brought up at such a low price.  But rather because liquids were sought and gas was an extra.

Mon, 10/07/2013 - 15:00 | 4031261 prains
prains's picture

Crash

 

why do you make so much sense? this isn't going to play well with others, and that's just not right! you have to say what people want to hear, how else do you think an echo chamber works?

Mon, 10/07/2013 - 14:38 | 4031263 Catullus
Catullus's picture

So gas prices are low because of the increase in supply of gas? Thanks for that. I should have taken more geology than economics. Then I'd "know the business".

They went after NGLs and gas was a biproduct? So why write down the assets, genius? You valued it for the NGLs and not the gas... Or was the gas the marginal revenue that made the ventures profitable? Do geologists make decisions on the margins? Or is that some thing you learn in business school not to do?

Mon, 10/07/2013 - 14:52 | 4031315 CrashisOptimistic
CrashisOptimistic's picture

No, it doesn't work that way. 

At $4 nat gas can't serve as a marginal justification for drilling.  That's cutting the decision margin too fine for such expensive drilling/fracking. 

The NGLs fund that, and don't require a narrow margin.  They pay the bills. 

The gas is an extra.  It can pay for the pipeline that carries it and not much else.  Its profit on that small part of the costs can exist, but the gas itself won't exist without the liquids flow.

The ramifications of this are profound from the perspective of LNG exporting ports proposed for building in the US.  If the liquids stop flowing, then gas totals won't exceed domestic consumption.  The export terminals will have nothing to load.

An even worse event would be a sharp and long lived recession that takes the price of liquids down for a long time.  That shuts off drilling altogether.

Mon, 10/07/2013 - 14:17 | 4031178 swedish etrade baby
swedish etrade baby's picture

The price of ng in the U.S.A. is much lower than in Europe and Asia. I would think that would benefit american companies that use ng. Compare how the shareprice of  TerraNitrogen have developted over the last decade with the norwegian competitor Yara.

Mon, 10/07/2013 - 14:29 | 4031206 Beatscape
Beatscape's picture

This is a problem with Shell, not the success of oil extraction from shale formations.  Seems like this guest post article has some hidden agenda... 

 

Mon, 10/07/2013 - 14:27 | 4031211 BAINES03
BAINES03's picture

Paragraph 2 - "systers"

Paragraph 3 - "shyters"

Does anyone edit these articles??  Or speak English?

Mon, 10/07/2013 - 14:32 | 4031237 ebworthen
ebworthen's picture

One of my Sisters is a Shyter, just don't tell her I told you so.

Mon, 10/07/2013 - 14:26 | 4031213 Ignatius
Ignatius's picture

"Energy Independence" is the hype to sell the idea that fowling the environment and water resources is 'worth it' while others gain the short term profit.

Mon, 10/07/2013 - 17:43 | 4031980 Sparkey
Sparkey's picture

You've got that right Ignatius, we would all be better off with the clean land and water, people are really going to miss that in the future!

Mon, 10/07/2013 - 14:29 | 4031222 ebworthen
ebworthen's picture

Oh hell, and I was so looking forward to living in a trailer in South Dakota and freezing my ass off at work with no Women to date when I'm off shift!

Mon, 10/07/2013 - 14:42 | 4031283 Herd Redirectio...
Herd Redirection Committee's picture

You could always move to the Arctic!

Mon, 10/07/2013 - 14:47 | 4031305 prains
prains's picture

....hard to find good take out there

Mon, 10/07/2013 - 14:57 | 4031333 cougar_w
cougar_w's picture

The polar bears would have to agree.

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