Recent comments by energyecon

A Christmas Story is one of the most survivable for those suffering from YDS (Yule Deficit Syndrome).

Four horsemen - it's traditional!

I like to think of us as future Guild Navigators. The Guac must flow!

New Keyboard Tarrakis!

Ah, the retailers of haterade come out to show their true colors... so much for the cover story.

Bottom for oil in 2015 is $35: Kloza

New Keyboard The compnay you keep these days

The Future of Fuel Prices - Articles - Fleet Management - Articles - TruckingInfo.com

"Forecasting anything beyond 90 days makes witchcraft look like some sort of exact science."

That was the caveat of Tom Kloza, chief oil analyst for the Oil Price Information Service, when we asked him about his oil and diesel price predictions
for 2010. However, he did have some general thoughts about where prices will go - and about how the factors that drive the prices of oil and diesel fuel have changed.

"We may look back on the early part of this decade and remember when oil wasn't an asset class unto its own," Kloza says. "Crude pricing isn't so much a reflection of what it costs to bring it out of the ground and sell it anymore. It's more of a proxy on the optimism on the economy three to six months from now."

Hmmm, no links provided Im shocked, shocked to find that gambling is going on in here!

Pretty meaningless comparisons without context. The well costs from the SJ Basin vs. the Bakken will be a function of total depth, lateral length and completion intensity with quite different recoveries from the two formations. In terms of analyzing well productivity, you need to normalize results to production or reserves per 1,000' of lateral (in the SJ Basin, IIRC they are drilling ~5,000' laterals typically, while in the Bakken longer laterals are now the norm approaching ~10,000').

Much of the additional costs of these wells lies in the completions aka fraccing. Over time, the completion technology has moved towards higher intensity (more frac stages grouped closer together with more proppant pumped into the formation). For individual wells, the completion costs run half or more of the total well cost.

And the 'old school' wells might be something that recover 50,000 barrels or less as compared to 500,000 or 1,000,000 - there are a ton of considerations - costs like that sound like 'West Texas post holes'.

edit: old school also being vertical wells, not horizontal

Good luck with that. UK .gov will put a stick in the spokes of any deal

Takeover noise from 2010
BBC News - Why is BP important to the UK economy?

FTA:

The newly revised price targets include 2014 target of $95, $81 in 2015, and $81 in 2016.

And watch that top line form this plot (rig count):
http://cdn1.valuewalk.com/wp-content/uploads/2014/11/Crude-Oil-1.jpg

Likely you understand that is the oil field services sector and not the upstream producers, but that distinction may not be well understood, that these are the companies selling drilling and completion services to the oil companies, not the oil companies themselves. It would interesting to see if there is a separate index for those companies, particularly the independents.

The economics are not uniform across the different plays, nor are they uniform within each play. Similarly, the debt positions of individual companies vary - some were overlevered for $100/bbl oil. As has occurred in the past, ala Buffett when the tide goes out etc.and the prudently managed companies will acquire those assets.

TMS is one of the more marginal tight oil plays (requires a higher breakeven oil price).

New Keyboard Whatever shadows flit across the cave wall for you... (that's for you vonbek)

Oil is a commodity subject to price cycles.

“If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Eads told Bloomberg.

Yep.

he perfect quote for this discussion is Benjamin Franklin’s admonition: “A lie gets halfway around the world before the truth has a chance to get its pants on.” Except of course, that it was said by Winston Churchill. This is exactly the reason why we must pay heed to Abraham Lincoln, who once tweeted, “You cannot believe everything you read on the Internet.”

Support for sum luk re: raising the bar here

Stop Making Intellectually Disingenuous Market Arguments | The Big Picture

The hunt for the truth has been replaced by the search for bragging rights.

Hey RIF did you ever play Myth or Myth II? Just dusted Myth II off and have been having quite a bit of fun with that after re-reading all the Black Company novels on a Kindle Paperwhite...

If i had to quote odds I'd say you had a better chance with Powerball but YMMV.

C'mon don't be hiding your candle of brilliance under a bushel basket, with your incredible insights you can get on Bloomies and straighten them all out!

Alternate scenarios include an overextended police force focused on other parts of the jurisdiction seeking assistance, or more darkly, less than adequate information regarding the risk profile to a couple of federal agents from the agency poking their noses in where they are not wanted with respect to the Brown incident.

Facepalm Yeah, right after your transportation needs are met with flying electric cars powered by unicorns and That elusive pot of gold

Reply function is a wondrous thing.

Care to revisit your characterization of the Ferguson grand jury?

You must be thinking of a different skk - the only time this one was ever mistaken was the one time he thought he might have made one...

Good to see you feeling sarky vonb!

I'm sure you are right, I'll bet my tail production is too low an estimate.

Looks like that is it - after 2 years well making 50 BOPD not 5 per Carrizo in the Niobrara

http://www.niobraranews.net/wp-content/uploads/2014/07/Carrizo_Decline_Curve.png

edit: found that in this compendium of published well stats for the Niobrara - looks like more of a 350 MBOE type well

Decline Curves of the Niobrara | The Niobrara News

that's pretty much what I've seen in the few decline curves I've looked at. Initial production of 900 BOD is pretty good. Thinking through the Niobrara example I have which starts at about 600 BOD, the cumulative production after 2 yrs is about 67,000 BO. Being generous and going out another 45 yrs at 5 BOD gets me another 82,000 BO for a total of about 150,000 BO. The 400,000 just seemed high to me, but I really don't have enough data to say.

Pretty typical for core EFS well EUR.

Except that will be incredibly front end loaded - starting at maybe 750 a day to start and down to 300 or less by year end of year 1 and so on...

I didn't realize

...oh so many things.

Do you actually read what you write in between swigs of cough syrup and cheap liquour?
Mirror mirror on the wall, who is paying for this all?
New Keyboard teh ironieez and incredible lack of capacity for introspection are endlessly entertaining

500,000 BOE well
- 400,000 BO
- 100,000 BOE Gas

Take oil at $50/bbl and mark the gas a zero - gross revenues are $20 million. Knock off $5 million for royalty. Knock off another $2 million for various production taxes. Down to $13 million. Say the well costs $8 million. Down to $5 million. If operating costs are $8/BOE, that is down another $4 million. Net at these assumptions $1 million pre-tax undiscounted.

Except oil is at $75 now, so that gross revenue would be $30 million, with that much more wiggle room on the cost and time value side of the equation.

Oil wells are like (rather short lived in the case of tight shale) factories. You don't need to recover all your investment in the first year. I think you'd need to look at total lifetime costs and returns and I don't think you have the right data to do that.

A single year does not tell the whole story. But the biggest challenge I see is that many companies target a growth rate in production in the tight oil plays that guarantees that they will outrun their cash flows. If investors begin to demand more capital discipline from the smaller players we may begin to see more of a 'drill to fill' approach, where the drilling schedule is set to keep the existing infrastructure investments full.

The slope of costs for today's tighter oil is drastically steeper - so the previous norms of "finish-it-anyway-at-a-loss" as actually being the more economic choice is no longer true. As price drops - it's no longer a foregone conclusion that if a well is in the pipeline, it's going to get finished.

Once a well is started, it will get finished - but onshore that is a $7-$8 million dollar investment bringing on 1,000 BOE/D that rapidly goes on decline while for an offshore field that requires a platform and a pipeline you may have $5-$10 billion invested that comes on at 100,000 BOE/D and spends about 1/3 of its life on a plateau (wells are added over time to keep the facility full).

And timewise it may be 2 months from well spud to sales while a platform could be 4-5 years.

KP is running in the Peak Oil camp these days... will wonders never cease!

Granted my limited knowledge on the subject, but this is what I know from various horses' mouths...
This company and others like it
Check-6 | Accelerating Human Performance
are in high demand right now to increase rig move speed, reduce accidents, and overall reduce costs. Shaving even a single day off a rig move saves a bunch. The companies that weren't over leveraged, are looking at going lean and mean cheetah over lazy alpha male lion.

Depending on the generation of drillship (which relates to the water depth it can handle) fully loaded rig rates were running $1 million day recently.

Pulling out a thin petroleum based card from my wallet, I then swiped it through a reader that then asked me my zipcode, and after answering that query, it enabled me to have my fill of petroleum delivered through rubber hoses made of the same into my enclosed chariot without me ever touching, seeing or smelling nearly 150 pounds of the good stuff, that would enable me to drive 400 miles without stopping if I wanted to.
Now, imagine telling that story to somebody in 1849?

YouTube - Steppenwolf - Magic Carpet Ride 

Firemane,

Good questions - things are actually a bit different this time - the structural change for supply relates directly to the nature of tight oil.

In the previous cycles, new fields brought online were much lumpier and represented many fewer decision points. Examples would be Prudhoe Bay and the TAPS bringing that oil to market, or more recently the large deepwater developments in the Gulf of Mexico. Once these projects are sanctioned and steel is getting cut, the decision to proceed is pretty much one way (even if unprofitable, it will be loss minimizing to continue). These cycle times were years long, and then the increment of production brought on line was in the hundreds of thousands of barrels per day.

Now, with the high cost marginal supply represented by tight oil. there are literally hundreds or thousands of decisions to be made with respect to each well to be drilled (though typically the quanta is that of a drilling rig contract). Higher real prices are what have cracked the nut on turning this resource into reserves, along with the application of technology that has been in the oil patch for decades.

But all the tight oil rock is not of the same quality, think of it like a target with the very best at the center. As prices rise, then more of the outlying rings become economic to produce (become reserves), and as they fall that shrink wraps back towards the center (those reserves become resources, still there but uneconomic until prices come up or costs come down or some combination thereof).

Much of the analysis at IHS and another information service outfit, ITG, involves detailed economic analysis at an individual well level to define those concentric rings of the targets for the various tight oil plays. And one example is the Eagle Ford shale, where at the heart of the bullseye 10% ATAX IRR breakeven price runs ~$45/BOE (with gas at 20:1, and economic equivalent rather than an energy equivalent).

Also, the productivity and decline characteristics of these wells needs to be understood. Each well may have 0.5 million BOE or less, (as compared to deepwater wells that may run 10 million BOE or more), but the tight oil wells may cost $7-$8 million in the Eagle Ford shale as opposed to $200 million or more in the deepwater Gulf of Mexico. And all oil wells decline after their initial peak production, it is a basic physics exercise, it is just that the tight oil wells do itat a MUCH faster rate.

The resulting structural changes in oil supply relating to tight oil are a much shorter cycle time to bring new supply online, and in much smaller increments (even at the drilling rig level). And the varying nature of the rock quality for the different plays results in a dispatch curve of resources that are bid into and out of reserves status as prices rise and fall. So the expectation of cycle time needs to be modified from past experience as new supply can come online much faster (effectively storage in the ground), but once the drilling slows significantly we will see the decline occur much more rapidly than in the past as well.

New Keyboard Dogs may bark, but the caravan moves on...

New Keyboard That quote isn't even contained in the link you posted.

Here is the article that contains that quote:
Oil at $75 Means Patches of Texas Shale Turn Unprofitable - Bloomberg 

Which also contains this quote:

About 80 percent of potential growth from U.S. shale oil in 2015 would remain economic at $70 a barrel, IHS Inc. said in a report today. At an average annual price of $77 a barrel, output will rise by 700,000 barrels a day in 2015, compared with more than 1 million barrels a day this year, the Englewood, Colorado-based data provider said.

I'll run with IHS on this one, rather than a crude trader who lost his @ss on a contango trade (burned by the shale production surge).

First price cycle some have experienced.... Yaaaaawwwn

Look for the low in real prices ever in this data set - that is when I cut my teeth in Curses! Oiled again!
Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)
(set to imported crude, monthly, and then slide the time bar all the way to the left to 1968)