The 'Unknown Unknowns' That Threaten U.S. Shale

Authored by Tsvetana Paraskova via OilPrice.com,

Three years after the oil price crash, the U.S. shale patch is on its second growth phase and is expected to continue to increase its production, at least through the next five years.

The global oil markets have become increasingly dependent on U.S. tight oil supply - and the oil industry is still coming to grips with this new reality, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, wrote in a recent article.

Current projections put the Permian on the forefront of the United States’ ability to deliver increased tight oil supply to the global markets. However, forecasts for the shale patch are as dynamic as production and drilling rates are. And some ‘known unknowns’ have been surfacing such as higher gas-to-oil ratios in some wells, and the parent/child wells issue, Flowers says.

Wood Mackenzie said last month that signs had started to show that intensified drilling in the Permian doesn’t deliver commensurate volumes of oil. Although WoodMac thinks that such setbacks could just be growing pains and Permian drillers could indeed ‘change the laws of physics’, it had warned three months ago that drillers might soon start to test the region’s geological limits. If exploration and production companies can’t overcome the geological constraints with tech breakthroughs, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question and potentially significantly influencing oil prices, WoodMac said in September.

In his December article, WoodMac’s Flowers included this observation in the Permian’s ‘known unknowns’:

“Growth might also be constrained by shareholders demanding that independents rein back from volume-driven targets.”

Those ‘known unknowns’ serve as a warning: the oil market can’t be complacent and just assume that the Permian boom will deliver as expected, according to Flowers. The Wolfcamp may be the star of the Permian, WoodMac says, but “there are more than likely ‘unknown unknowns’ out there too. And if there are, there’s not another Permian ready to step in; and conventional options will take time to crank into action.”

The Eagle Ford and the Bakken combined represent nearly half of the current U.S. tight oil production, according to Wood Mackenzie, which is expressing new doubts that those two plays could offer long-term commercial drilling inventory as operators move out beyond the sweet spots. Therefore, the analysts downgraded the growth rates for both plays from the mid-2020s, but have significantly upgraded the Permian growth pace, especially for the Wolfcamp basin.

If the Permian turns out to have ‘unknown unknowns’ alongside the ‘known unknowns’, the U.S. shale patch may not deliver as expected.

Currently, WoodMac’s supply/demand balance forecasts show that the U.S. and OPEC will “do battle for contestable demand that will climb to over 5 million b/d by 2024.”

The analysts believe that U.S. shale will take the lion’s share of that demand—90 percent—as its production will double to 9.6 million bpd by 2024 from 4.9 million bpd in 2017, while OPEC will be left with meeting less than 1 million bpd of that additional demand.

Three years after the oil price crash, the most unexpected outcomes in the global oil market are the second wave of U.S. shale growth, OPEC’s “zealous adherence” to the cuts, and the resilience of some non-OPEC non-U.S. producers, WoodMac says.

While Mexico, China, and Africa as a whole have been “heavy casualties” of the lower-for-longer oil prices, Russia, Canada, and the North Sea have surprised on the positive side by adapting remarkably well to the low oil prices. Russia is the “poster child” of this resilience. Canada is also doing well with Duvernay liquids where breakevens are competitive with U.S. plays, and with better uptime from oil sands projects. The North Sea has also been a positive surprise, with the UK leading the way with aggressive cost cuts that have helped to raise oil production, WoodMac says.

Still, U.S. tight oil, especially the Permian, will be the main growth story over the medium term, but ‘unknown unknowns’ may be lurking out there and could restrain the pace of that growth.

Comments

BobEore Stuck on Zero Thu, 12/14/2017 - 20:38 Permalink

\not at all/

It's a "known unknown"... of the kind where...

a)transfer fiat funds to fun luvin guys with a stack o shiny to sell strangers with no sniffer for DANGER.

b)b-come the owner of a stack o shiny. Wait several minutes... then declare personal bankruptcy, after watching your new 'investment' devalue in front of your eyes.

c)find message boards where you can LOUDLY proclaim that - your stak hasn't diminished by a SINGLE GRAM since (....fillinyourfavetimelinehere) and tell everyone who might dare point out your precarious hold pon sanity to ...STFU!

It's unknown what motivates parties to this type of transactional insanity to -do what they gotta do- but... at least the known element is that

they gonna do it ... no matter how many times you tried to save their sorry asses from the buzzsaw of BIGGOLDS' siren song!

In reply to by Stuck on Zero

MK ULTRA Alpha Thu, 12/14/2017 - 19:25 Permalink

If repeal of restrictions on Alaska National Wildlife Refuge is in the new tax reform bill, then expect to see massive discoveries in less than three years. Will this require a new pipeline? Alaskan oil is piped to port and then shipped to Japan. A massive find will result in less demand for OPEC oil from Japan, increasing the US percent of the global oil market share.

Anteater MK ULTRA Alpha Thu, 12/14/2017 - 19:40 Permalink

They already have a proven field right next to PB, and haven't developed it. ANWR is a known unknown. The AOP and PWS terminal facilities are exceeding their planned lifespan. The proposed Alaska gas pipeline has been kicking around for over a decade. Right now there is a massive slump. Hundreds of projects are on hold.Production of tight oil in the Permian will follow a sharp log-curve with abrupt rise into a horizontal taper, then sudden decline and a long and unprofitable tail. In others words, oil will be abundant for 3-5 years, then will disappear. ANWR will remain dormant until then.So enjoy the brief last hurrah of the New American Century, before all the limbs fall off the retail tree, and we're back to Little House on the Prairie, and fighting over who gets to cut the town square oak tree for firewood.Russia, China and KSA will be payback from hell for the Trump Years.

In reply to by MK ULTRA Alpha

RationalLuddite Thu, 12/14/2017 - 19:34 Permalink

I will posit a known unknown - the more energy the US uses to extract these ultra low net energy reserves,  the faster the industry will collapse.  We just don't know when. But i suspect that by your 2024 time of peak production you will see a collapsed US industry,  producing little if any shale oil. 

Magooo Thu, 12/14/2017 - 19:37 Permalink

U.S. SHALE OIL PRODUCTION UPDATE: Financial Carnage Continues To Gut Industry As the Mainstream media reports about the next phase of the glorious U.S. Shale Oil Revolution, the financial carnage continues to gut the industry deep down inside the entrails of its horizontal laterals.  The stench of fracking fluid must be driving shale oil advocates utterly insane as they are no longer able to see the financial wreckage taking place in these companies quarterly reports.This weekend, one of my readers sent me the following Bloomberg 45 minute TV special titled, The Next Shale Revolution.  If you are in need of a good laugh, I highly recommend watching part of the video.  At the beginning of the video, it starts off with President Trump stating that the U.S. has become an energy exporter for the first time ever.  Trump goes on to say, “that powered by new innovation and technology, we are now on the cusp of a new energy revolution.”  While I have to applaud Trump’s efforts for putting out some positive and reassuring news, I wonder who is providing him with terribly inaccurate energy information.I would kindly like to remind the reader; the United States is still a NET IMPORTER of oil.  We still import nearly six million barrels of oil per day, but we export some finished products and a percentage of our shale oil production.  Thus, we still import a net of approximately three million barrels per day of oil.A few minutes into the Bloomberg video, both Pioneer Resources Chairman, Scott Sheffield, and Continental Resources CEO, Harold Hamm, explain how advanced technology will revolutionize the shale oil industry and bring down costs.  I find that statement quite hilarious as Continental Resources and Pioneer continue to spend more money drilling for oil and gas then they make from their operations.  As I stated in a previous article, Continental Resources long-term debt ballooned from $165 million in 2007 to $6.5 billion currently.  So, how did advanced technology lower costs when Continental now has accumulated debt up to its eyeballs?Of course… it didn’t.  Debt increased on Continental Resources balance sheet because shale oil production wasn’t profitable… even at $100 a barrel.  So, now the investor who purchased Continental bonds and debt are the Bag Holders.Regardless, while U.S. oil production continues to increase at a moderate pace, there are some troubling signs in one of the country’s largest shale oil fields.Shale Oil Production At the Mighty Eagle Ford Stagnates As Companies’ Financial Losses MountIt was just a few short years ago that the energy industry was bragging about the tremendous growth of shale oil production at the mighty  Eagle Ford Region in Texas.  At the beginning of 2015, Eagle Ford oil production peaked at a record 1.7 million barrels per day (mbd).  Currently, it is nearly 500,000 barrels per day lower.  According to the EIA – U.S Energy Information Agency’s most recently released Drilling Productivity Report, oil production in the Eagle Ford is forecasted to grow by ZERO barrels in December: https://srsroccoreport.com/u-s-shale-oil-production-update-financial-ca…

BobEore Magooo Thu, 12/14/2017 - 20:50 Permalink

Or...

read all about it... right here on the hedge...

http://www.zerohedge.com/news/2017-11-15/us-shale-oil-production-update…

when Big Gold's biggest mouthpiece... get's trounced by the gold media mafiyas' BIGGEST NIGHTMARE...

and in the tradition of ED FERHAT AND Lou THESZ

...leaving his latest shale oil scribbling idling abandoned on the tarmac ... to run hide under bus!

Yowser!

In reply to by Magooo

Big Creek Rising Magooo Thu, 12/14/2017 - 21:11 Permalink

Uh, maybe Continental's debt grew because they borrowed lots of money to become one of the largest leaseholders in the country and found willing lenders because of their track record and proprietary technology.Maybe production is down because, like oil companies have done for decades, some are sitting on proven reserves until prices become more favorable.Maybe if you rely soley on a federal agency (like EIA) for information you dont know shit.

In reply to by Magooo

max_is_leering Thu, 12/14/2017 - 19:39 Permalink

the Russians have safer, and cheaper, methods for extracting "tight oil" but the IMF (amerika controlled) will not offer loans to Russian companies, or joint ventures, to press this technology forward... the tentacles reach far and wide, as we can't have the Russians at the forefront of ANYTHING!... fucking imbeciles

BetterRalph Thu, 12/14/2017 - 22:12 Permalink

Can we build a NEW American Pyramid instead? Something bigger than Egypt? Using the Corel Castle toolbox.
The only thing threatening shale is STUPID. where ever stupid goes, shale cowers in fear.

D503 Fri, 12/15/2017 - 00:29 Permalink

Lol, Johari window. Well people, there are also unknown knowns, that which is known by other players but unconceived of by the first person perspective. It's always possible, though indeterminable, that what you don't know you don't know, is well known by someone else.