Have you seen any data on the opex for operating the early unconventional wells vis a vis current unconventional wells? Some small independents seem to be salivating at the opportunity to acquire these properties to producie the “long fat tails”.
I am not an engineer but I try to think about the down hole problems of replacing ESPs, tubulars, corrorisn, bad cement jobs, casing leaks, and all everything else at an oil price of $30-45/ barrel and then receiving a JIB for those costs in the mail.
I suppose few, if any, of these operators are pubcos, so this data is probably not available but I am beginning to think about who is going to pay for the P&A, clean up, and restoration after the can has been kicked as far down the road as it can be kicked.
I have worked the unconventional plays pretty much from the beginning and find that the costs are a moving target. In other words, it is difficult to compare costs, prices and reserves from 2006 to 2014. I believe that there are always companies and people who see a great opportunity if only they can buy a position without all the sunk costs. The trouble is that they think they are the first and only ones to think of that idea and experience says that’s just not the case.
The reality is that the “long fat tails” of production are not a very big prize mainly because they are neither long or fat but short and thin. If a company thinks they can make money on the last 15% of a well’s production, good for them. In addition to the potential maintenance problems you mention, there is water disposal and plugging and abandonment costs.
I can’t work in the realm of “what-ifs” and “maybes” about what might happen as a result of something that is only indirectly related to an outcome that hasn’t happened yet.
Rig count is a perfect example. We have seen a massive drop in rig count with little apparent correlation so far to production. What would you propose that I do with rig count in a study like this? Same for drilling permits, capex declines and most of the other things in your list?
I work with data. I leave speculation to journalists and promoters. There is enough uncertainty in the data that I choose to use that I don’t need to include things that I view as too uncertain to use. I may be wrong about these choices but they are my choices to make for my posts.
Steve Kopits is referring to demand growth in millions of barrels per year and my graph is demand growth year-over-year percent–same data, different measurement.
Art – Great job of laying out the facts via real data on graphs which clearly depict how we have gotten to where we are today with oil production and consumption. Incorporating GDP, oil prices, QE, private equity, interest rates, demand, consumption, US dollar, etc gives a pretty clear picture of how crude oil has evolved, and/or related to the various factors which have driven crude oil over the past 55 years.
You have come up with a very nice fact driven composite accounting of how we have ended up where we are with global oil. I’m a retired Petroleum Geologist the same age as you, thus I appreciate your contributions to the industry. We live and work through this period of the oil industry, but most professional Geologists do not have the time to tie all the various facts together in order to understand how we got to our current situation. Your data driven work is very much appreciated, and I hope folks in the industry use your fact driven presentations to help plan for the future. I respect your job of weaving the facts together, and generally leave the speculating out of the history of how we have evolved over the past 55 years.
Looking forward to your follow-up emails – I was introduced to you over the weekend on your Haynesville Shale Break-Even article by my partner Mike Conlon.
Arts the man
Comparison of the three shale oil companies on slide 9 reminds of my favorite quip — “Best looking horse in the glue factory”, with reference to EOG.
Nick,
I like your quip. I remember an early mentor who described it as “the best of a bad lot.”
All the best,
Art
Art,
Have you seen any data on the opex for operating the early unconventional wells vis a vis current unconventional wells? Some small independents seem to be salivating at the opportunity to acquire these properties to producie the “long fat tails”.
I am not an engineer but I try to think about the down hole problems of replacing ESPs, tubulars, corrorisn, bad cement jobs, casing leaks, and all everything else at an oil price of $30-45/ barrel and then receiving a JIB for those costs in the mail.
I suppose few, if any, of these operators are pubcos, so this data is probably not available but I am beginning to think about who is going to pay for the P&A, clean up, and restoration after the can has been kicked as far down the road as it can be kicked.
John,
I have worked the unconventional plays pretty much from the beginning and find that the costs are a moving target. In other words, it is difficult to compare costs, prices and reserves from 2006 to 2014. I believe that there are always companies and people who see a great opportunity if only they can buy a position without all the sunk costs. The trouble is that they think they are the first and only ones to think of that idea and experience says that’s just not the case.
The reality is that the “long fat tails” of production are not a very big prize mainly because they are neither long or fat but short and thin. If a company thinks they can make money on the last 15% of a well’s production, good for them. In addition to the potential maintenance problems you mention, there is water disposal and plugging and abandonment costs.
Thanks for your comments,
Art
1) Why do you rely on EIA data as gospel given their historically large adjustment #’s to demand?
2) Why do you not factor in data on the 60%+US rig count decline?
3) Why do you not factor in data on 75% Texas oil drilling permit decline?
4) Why do you not factor in US shales 72% first year decline rate.
5) Why do you not factor in discussion of massive global capex cancellations/declines
6) Why do you not factor in the fall in global rig utilization
7) Why do you say global demand growth is but 1/2 of 1.7 demand growth used by Steven Kopits of Prienga
8) Why do you measure only US excess inventories and not global inventories
9) Why do you ignore Chinese SPR oil demand forecast
10) Why do you measures excess oil inventories in units, not days of demand cover
Joel,
What’s your point?
I can’t work in the realm of “what-ifs” and “maybes” about what might happen as a result of something that is only indirectly related to an outcome that hasn’t happened yet.
Rig count is a perfect example. We have seen a massive drop in rig count with little apparent correlation so far to production. What would you propose that I do with rig count in a study like this? Same for drilling permits, capex declines and most of the other things in your list?
I work with data. I leave speculation to journalists and promoters. There is enough uncertainty in the data that I choose to use that I don’t need to include things that I view as too uncertain to use. I may be wrong about these choices but they are my choices to make for my posts.
All the best,
Art
Joel,
Steve Kopits is referring to demand growth in millions of barrels per year and my graph is demand growth year-over-year percent–same data, different measurement.
All the best,
Art
Oil prices are low enough to create some big problems in the Middle East
18/10/2015
Saudi Arabia’s fiscal break-even oil price to be around $US 100 mark for the foreseeable future
http://crudeoilpeak.info/saudi-arabias-fiscal-break-even-oil-price-to-be-around-us-100-mark-for-the-foreseeable-future
Art – Great job of laying out the facts via real data on graphs which clearly depict how we have gotten to where we are today with oil production and consumption. Incorporating GDP, oil prices, QE, private equity, interest rates, demand, consumption, US dollar, etc gives a pretty clear picture of how crude oil has evolved, and/or related to the various factors which have driven crude oil over the past 55 years.
You have come up with a very nice fact driven composite accounting of how we have ended up where we are with global oil. I’m a retired Petroleum Geologist the same age as you, thus I appreciate your contributions to the industry. We live and work through this period of the oil industry, but most professional Geologists do not have the time to tie all the various facts together in order to understand how we got to our current situation. Your data driven work is very much appreciated, and I hope folks in the industry use your fact driven presentations to help plan for the future. I respect your job of weaving the facts together, and generally leave the speculating out of the history of how we have evolved over the past 55 years.
Thanks, Daniel.
I appreciate your comments.
All the best,
Art
Looking forward to your follow-up emails – I was introduced to you over the weekend on your Haynesville Shale Break-Even article by my partner Mike Conlon.