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Discussion: (47 comments)

  1. The problem with all the hype is that nobody is making money from the production side. While the drillers, the other service sector players, workers, and local tax collectors are doing well the producers are still depending on debt to close their financing gaps.

    And whatever happened to the shale gas boom that you were touting. It may have escaped your notice that there are production declines in the Barnett and Haynesville shale formations that were supposed to show growth for decades. The Woodford Shale formation is also showing a decline and Fayetteville Shale is not looking very good. The shale oil story is not going to turn out much better because it is very hard to make a true profit outside of the core areas. By the middle of next year we should be getting some scary reports and industry books that outline just how badly the retail investors were fooled by all of the hype surrounding shale potential and many of the boom towns will go back to being what they used to be before the easy money made its way to them. Hopefully some of the strippers who made their way there will have saved enough to retire by then.

    1. Vangel,

      Can you expand on who you mean when you say “producers”? I don’t understand why you don’t include drillers, workers, and other service sector players as “producers”.

      1. I mean the investors who pay the drillers, workers, etc., who help them produce the oil and gas. The only way the game continues is if it can generate positive cash flow. The problem is that it can’t, a fact that Mark has ignored for some time.

    2. The decline may have something to do with this: a 16-year low in gas rig counts.

      Anyway, I’ve seen your comments on this blog for years now, and don’t take everything at face value: some things you have good points, other topics you don’t.

      Take shale gas vs. shale oil for instance. I believe you may have valid points here because other analysts too share similar views and have done so for several years; a simple Google search reveals these.

      However, you seem to be a lone wolf on shale oil, as repeated google searches turn up nothing. This is a sharp contrast to the dot com bubble, the housing bubble and the European debt crisis, where it was simple to dig up info.

      So in the meantime, I don’t believe your claims on shale oil hold water. As for your ominous Bakken forecast… this is hardly the first time you’ve given a dim outlook. Usually when you do, it seems to fall flat on its face

      1. However, you seem to be a lone wolf on shale oil, as repeated google searches turn up nothing. This is a sharp contrast to the dot com bubble, the housing bubble and the European debt crisis, where it was simple to dig up info.

        I think that you mean tight oil in shale formations, not shale oil. Shale oil is not economic except in a few areas in a handful of formations and is far too expensive. The cost of upgrading kerogen is prohibitive and the methods used, which have been around for decades, have yet to yield much in the way of production.

        As for tight oil in shale formations, we have the same situation as with gas. You can make a very nice profit in the core areas of the good formations but not in the non-core areas. This means that you can have some wonderful wells that give you a huge windfall but that the average well will still be a loser.

        The trick is to look at the actual production data and to look at the 10-K filings for the shale producers. The ones that I have looked at have been hyping shale for several years but have yet to produce operations that can generate positive cash flows. You listen to the conference calls and you hear among the hype a lot of talk about the need to close financing gaps through asset sales, new financing, or equity dilution. That would not happen if the sector were viable.

        Now you may turn out to be right for being optimistic eventually but I cannot see the objective evidence for that now. If you hang around people from the sector you find a lot of promoters and a lot of hype but not a lot of profit for those who are convinced to put their money into the cash flow negative operations. Frankly, if oil prices stay high it is a lot safer to buy into the tar sands operations of the established players who have already depreciated much of their initial investment and hope that management does not get too ambitious with their capital investment plans. While the potential gains may not be as great as buying oil properties in Kurdistan or selling shale to people who have no clue about the real economics, they should be a lot steadier over time.

        So in the meantime, I don’t believe your claims on shale oil hold water. As for your ominous Bakken forecast… this is hardly the first time you’ve given a dim outlook. Usually when you do, it seems to fall flat on its face

      2. However, you seem to be a lone wolf on shale oil, as repeated google searches turn up nothing. This is a sharp contrast to the dot com bubble, the housing bubble and the European debt crisis, where it was simple to dig up info.

        Do you mean tight oil in shale formations or shale oil? There is a huge difference between the two.

        So in the meantime, I don’t believe your claims on shale oil hold water. As for your ominous Bakken forecast… this is hardly the first time you’ve given a dim outlook. Usually when you do, it seems to fall flat on its face..

        But I was certainly right about the lack of positive cash flow in the Bakken and the failure of the shale gas producers to make money.

        You might want to preorder Bill Powers’ book, Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth, from Amazon or his publisher. After being positive on shale gas production Bill finally figured out that critics like Berman were right and dug up enough information to make him speak out against the hype coming from the promoters in the industry and the government. From what I can tell we are on the same road with oil in shale formations. A few years back everyone was holding up the Elm Coulee as an example against my arguments. I don’t hear about that today because the field is already showing a huge decline over the past few years and the production numbers are no longer supportive of the narrative from the optimists. As more and more of the producers write down the value of their assets you will finally have the evidence that you seek. In fact we are already seeing write-downs for gas just as I have been predicting.

        http://www.bloomberg.com/news/2012-07-26/shale-writedowns-begin-as-lower-prices-follow-record-m-a.html

        Of course I could be wrong. Perhaps someone will finally get around the EROEI problem and figure out how to extract the oil from the shale formations or to upgrade the kerogen into oil. But I doubt it and if I were interested in energy I would rather be looking at very cheap conventional oil or coal companies.

        1. Steven Hales

          Asset writedowns are price driven and do not affect cash flows or have anything to do with profitability.

          1. Asset writedowns are price driven and do not affect cash flows or have anything to do with profitability.

            But in the shale game profitability is all about the EURs. If I estimate that I will get 1 MMb out of a well the depreciation is a lot different than if I use the actual 350 thousand barrels of ultimate production. Even if prices stay stable there will come a point when I will have to write down the undepreciated part of the well. Given the rules that allow accountants all that leeway you can’t rely on anything but the debt on the balance sheet or cash flows as being representative of reality. And even there you have some issues because companies have figured out ways to hide their true debt levels by using various contracts.

            As I wrote when the gas debate was still hot all we need to figure out who is right is time. It is now looking as if the skeptics on shale gas were right. In a year or two we are going to figure out if they are also right about the oil.

        2. “Do you mean tight oil in shale formations or shale oil? There is a huge difference between the two.”

          My understanding is kerogen shale is referred to as oil shale, while formations such as the Bakken or Eagle Ford are referred to as shale oil; I’m referring to the latter.

          I will now tackle the next two paragraphs out of order…

          “You might want to preorder Bill Powers’ book, Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth, from Amazon or his publisher…”

          As I mentioned before, there is evidence and other analysts that back you up on shale gas; I don’t dispute this. The debate is whether shale oil formations such as the Bakken or the Eagle Ford are profitable. While one can easily google info to back you argument up – and come up with some worthy results within the first 10 results – there’s nothing that registers on the shale oil extraction, and for the most part, it looks very positive.

          The major sticking point appears to be the price difference between oil and natural gas.

          “But I was certainly right about the lack of positive cash flow in the Bakken and the failure of the shale gas producers to make money.”

          To back your argument up, could you please provide links to 10K reports and the conference calls you frequently mention that provide the bleak outlook?

  2. the story has two parts to it:

    ” Drilling More and Using Less”

    the CAFE standards are also playing a significant role in the reduction of imports – and future prospects.

    http://www.nytimes.com/2012/03/23/business/energy-environment/inching-toward-energy-independence-in-america.html?pagewanted=all

    looks like the US hit peak oil in the 1970′s

    http://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus1&f=m

    1. Are you implying that, without CAFE standards, people would choose cars that get lower mileage?

      Or, are you implying that, without CAFE standards, automakers would shove less-efficient cars down our throats, whether we want them or not?

  3. this is part of the story:

    So far in 2012, the U.S. has imported less oil than at any time over the last 15 years (during the entire George W. Bush Administration). You have to go all the way back to 1997 to find a year when the U.S. imported less oil.

    U.S. Imports of Crude Oil
    Not Seasonally Adjusted

    1/2 Year Quantity in barrels (Jan. – June)
    2012 1,573,029,000
    2008 1,787,933,000
    2004 1,902,607,000
    2000 1,674,108,000
    1999 1,616,337,000
    1998 1,609,336,000
    1997 1,464,233,000

    http://www.huffingtonpost.com/natalie-pace/oil-imports_b_1854832.html

    1. The only thing Obama has to do with this oil boom is timing. If anything he is trying to hinder the oil industry.

      1. re: hinder

        there’s a hell of a lot production of gas and oil given that “hindering”.

        where’s the evidence to show that Obama has “hindered” the Bakken Oil bonanza?

        1. Typical larry g: “where’s the evidence to show that Obama has “hindered” the Bakken Oil bonanza?“…

          Can you say E-P-A?

          Let me guess, you didn’t even bother to look, right?

          1. After three years of debating him why do you expect him to change now?

          2. After three years of debating him why do you expect him to change now?“…

            Heh!

            Yeah, it seems kind of silly vangel but I can always hope…

          3. You go ahead and hope but if you expect change you may have to wait some time.

          4. yeah I looked. And I asked for REAL restrictions that are in place right now that has “hindered” the Bakken Oil and what you provided was just more scare tactics of what the EPA “might” do.

            none of that has impacted Bakken. It’s just more anti-Obama blather.

          5. larry g clueless as ever and proud of it says: “And I asked for REAL restrictions that are in place right now that has “hindered” the Bakken Oil and what you provided was just more scare tactics of what the EPA “might” do.

            none of that has impacted Bakken. It’s just more anti-Obama blather“…

            Idiot child! Everytime the EPA comes in using extorted tax dollars to put the arm on the industry, the state and the companies have to spend money on compliance paperwork and like as not legal fees…

            Pull your head out obamabot…

          6. as usual with Juandos, the facts are irrelevant to his bigger anti-govt/anti-Obama message.

            the man is useless except as a spigot for vitriol.

          7. as usual with Juandos, the facts are irrelevant to his bigger anti-govt/anti-Obama message“….

            Theat’s the problem larry g you and your mancrush never deal with the facts…

            The facts always unddercut your stance regardless of what it is…

          8. Juanos you lost track of the difference between facts and propaganda a long, long time ago, boy.

            you’re just a propaganda machine now.

          9. Juanos you lost track of the difference between facts and propaganda a long, long time ago, boy“…

            Keep digging that hole larry g, its fun to watch…

  4. Citizen B.

    The capacity of the Strategic Oil Reserve is 727 million barrels. In 2011, 30 million barrels of oil were released to market in response to the Libyan induced supply disruption.

    Those 30 million barrels have not been replaced. Has North Dakota and other oil patches being so rich in production lessened the need for a reserve? I would argue that now is the time to fill the reserve back to capacity when supply is surging.

    1. The original purpose of the Strategic Reserve was to mitigate against a possible supply disruption like the one threatened by OPEC in 1973. It’s not clear that such a large reserve serves any practical purpose these days.

      Use of oil from the reserve is more a political tool these days than to fill any actual need. “Oh Look! we’re doing something” the politicos can say.

      Keep in mind that replacing oil in the reserve has the effect of increasing demand, and thus raising prices.

      1. Citizen B.

        OK, thanks Ron. I thought the Reserve was much older. It’s interesting that the first oil put into the reserve was Saudi Arabian @ $15.00 a barrel in 1977 vs. the price in 1973 of under $5.00 a barrel.

  5. The “i” at the end of “Saud” makes it possessive. So, “Saudi Dakota” literally means “the Saud family’s Dakota”. I don’t think this is that’s what you were going for. Before the Al-Sauds it was just Arabia and it is in Arabia that we find oil regardless of who rules it.

  6. Obama and his team is busily plotting ways to stem this tide of oil in gas so it doesn’t interfer with the path of his beloved ‘Green Energy’. Here comes the ‘rules’.

  7. Max Planck

    “Based on new estimates, the IEA projects that America will surpass the world’s longstanding top oil producer, Saudi Arabia, by the year 2020.”

    Which is precisely what I said a month ago responding to a lame AEI hit piece on Obama’s energy policy.

    Between declining consumption, increased natural gas, more use of alternatives, we’re finally getting there.

    Give it time, and we’ll be bigger than OPEC. And that’s without Keystone.

  8. There’s always a tendency to take today’s conditions and extrapolate them out into infinity.. (tech bubble, housing market) – has anyone read projections as to how long this boom expected to last? Probably damned hard to do, just wonder if any oil wonks have made any projections…

    1. ” how long this boom expected to last? ”

      Max put his finger on it though – conservation, less energy use through more efficient technologies is as big a part of this as domestic production.

      what would be interesting would be to know what fleet miles per gallon would make us independent of foreign oil.

      It’s probably a very high number – too high to be realistically reached but it would put some context on usage vs supply.

    2. The Unknown One

      Yes Moe, someone has made an estimate of how long the ND oil boom will last.

      Oil Production Potential of the North Dakota Bakken (PDF)
      ^
      From pg. 7:
      “The carrying capacity of the North Dakota Bakken is established above at 38,980 wells. The three oil production scenarios are shown in Fig. 8. The corresponding well counts required for three oil production scenarios are presented in Fig. 9. The graphs in Figs. 8 and 9 terminate on the year when well saturation of the well development area occurs. The year when well saturation occurs is provided in parenthesis on the cumulative labels in Fig. 9.

      For a 2.0 MMbbl/d oil production rate, well saturation occurs in 2034. For a 1.5 MMbbl/d oil production rate, well saturation occurs in 2045. For a 1.0 MMbbl/d oil production rate, well saturation occurs in 2065.”

      So, if these estimates are in the ballpark, the boom will peter out anywhere from the 2030′s to the 2060′s, depending on assumptions.

      1. I remember when oil was discovered in Alaska and there were all sorts of opinions about how long it would last and now we do know…. and we do know that these new fields do run out.

        The wild card on how long they last – is conservation.

        cars that get 10-20 more miles per gallon can be game changers in the longer run.

      2. Thanks for this!

      3. Blue Eyed Indian

        This study was well done but is now obsolete. The study contemplated four wells per drilling unit. New studies indicate twelve to sixteen wells are possible.

  9. In 2008, or thereabouts, conservative estimates, 3.65 billion barrels of recoverable oil; active drilling through 2030 and production through 2100.

    Since then, corporate estimates: one trillion bbls original oil in place (OOIP) and 8% recovery.

    Barring the EPA shutting fracking down, the Bakken will be around for a few years.

    As far as declining natural gas production: supply and demand; markets; rigs being stacked. This is not rocket science.

    1. Barring the EPA shutting fracking down, the Bakken will be around for a few years.

      You want to see the future of the Bakken? Look at the production from the Elm Coulee field.

      1. Blue Eyed Indian

        The Elm Coulee wells were completed utilizing open hole or pre-perforated liner “hail mary” fracs. Comparing Elm Coulee wells to the new swell packer completions is like comparing a Model T to a 550 horsepower BMW. Sorry,V, but your ignorance is showing and an astute oil analist would realize you have not a clue of which you speak.

  10. You are quoting statewide numbers, not Bakken numbers. The oil boom is only in the western part of the state. Try job creation in just 1 small town and see what happens…http://data.bls.gov/timeseries/LAUMC38487805

    Multiply that by a lot of small town….”game changer”.

    1. The quote is statewide which is the sum of “a lot of small town” plus everything else.

      Do you have any idea why the state payroll survey employment level (increase of 22,300 over the prior 12 months ending September 2011 versus a national increase of 2.87 million) is higher than the household survey employment level? It should be the opposite. The job stats seem very odd/weird relative to other states across the two employment series.

      Whether you look at payroll or household, the North Dakota employment increase is not a “game changer”.

      1. Ooops…screwed that up. It should read “national increase of 1.89 million”.

        1. Again, your quote is statewide, which includes more than half of the state that isn’t producing oil AND includes many eastern NoDak towns that are not benefiting or are only marginally benefiting from the oil boom. If you just look at the oil producing counties of western ND and eastern MT, the exponential rise in jobs may not be a “game changer” nationally, but regionally, it is huge. If you haven’t actually traveled to the Bakken and spent a day or two driving around in the last year, I recommend you do so, seeing is believing.

        2. Jethro, the point is simple. I don’t care about Williston, North Dakota (ND). I flew over it last week, but the clouds were inconvenient so I couldn’t see the disgusting methane flaring.

          The “fetish” issue promulgated by Dr. Perry is that in the last 12 months ND created 1.18% of national jobs (payroll survey) and created 0.20% of employed persons (household survey) in the U.S.

          Color me skeptical.

        3. Jethro, the point is simple. I don’t care about Williston, North Dakota (ND). I flew over it last week, but the clouds were inconvenient so I couldn’t see the disgusting methane flaring.

          Too bad. It’s a beautiful sight on a clear night.

    2. But that is the problem; shale formations are not homogeneous and outside of the core areas there is no profit to be made. Most small towns will not benefit because the producers can’t make a profit.

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