Posted on 11/17/2013 5:44:15 PM PST by ckilmer
Two recent well-respected and long-running oil industry publications have proclaimed that booming production in North America, particularly in the U.S. shale fields, will hit a plateau as early as 2016 and that production declines will follow soon thereafter. Last week the Organization of Petroleum Exporting Countries (OPEC) set the decline date sometime before 2020 and this week the International Energy Agency (IEA) set the 2016 plateau date.
The boom in U.S. production is set to displace Russia as the top oil-producing country by next year. Had you said this to anyone five years ago, you might have been laughed out of the room. And as both OPEC and the IEA have made clear, the U.S. is not likely to stay on top for long.
That view is not widely shared among the companies that are operating in the Bakken shale play or the Niobrara or the Eagle Ford or the Permian Basin or any of a number of other shale regions. In fact, more than one company think that the boom is just getting underway.
We should assume, of course, that both sides are talking their book, but if we take a look at what’s happening in the shale plays, the scales tip in favor of the operators and away from the cartel and the IEA for two basic reasons. First, technological advances, and second, the vast size of the resource.
Technology first. Continental Resources Inc. (NYSE: CLR) is the largest leaseholder in the Bakken shale play and has been working the field for the longest time. In its third quarter earnings report the company said it had reduced its average well cost to $8 million, two months earlier and $200,000 below its target price. Much of this savings is related to a new technique where one well-pad serves several wells, each of which is draining a different part of the oil-bearing rock.
According to an engineering manager at oil field services giant Schlumberger Ltd. (NYSE: SLB) told Platts that U.S. shale production is only going to go up. His reasons: the vast size of the resource and growing familiarity with it. He also said that there’s plenty of room to improve extraction techniques and minimize the pushback from environmental groups. In the Eagle Ford shale play, for example, Schlumberger now uses well log data to determine the first five wells to drill in a new area. The technique has improved production by 33%.
Everyone knows that fracked wells produce at their maximum level within a very short period of time compared with conventional vertical drilling techniques. Everyone also knows that the maximum level of production tapers off just as quickly and has a very short tail. What not everyone knows is that horizontal drilling techniques and hydraulic fracturing currently recover less than 20% of the oil in place, and in some places even less than that. As technology improves and gets cheaper, companies will return and squeeze more oil out of the reservoir.
Another area where technology has vastly improved is in water consumption. A Texas company is developing technology that uses no fresh water and others have figured out methods for reclaiming 95% of the water used in fracking operations.
Total production costs have fallen from around $80 a barrel three years ago to around $50 to $60 a barrel today at the most advanced producers’ sites. As WTI prices continue to slide, wringing out production costs will become more important than ever. Energy consulting firm Bentek has said that even if oil prices fall to around $60 a barrel production will continue to grow.
We’ve already noted that Continental Resources and Schlumberger are advancing drilling technology and making money while doing it. Other publicly traded firms developing better and cheaper ways of extracting oil include SAP AG (NYSE: SAP), which has developed technology that allows a drilling company to monitor the operation of thousands of pieces of equipment in real time from a single location. The software has cut maintenance and repair time in half, and when downtime can cost half a million dollars a day, the software quickly pays for itself.
Chevron Corp. (NYSE: CVX) currently reuses all the water it uses for drilling in the Marcellus shale play in Pennsylvania, and reuses about 80% of the produced water that flows from producing wells. The company believes that regulatory agencies could soon require that 100% of the produced water be recycled, and it is aiming to do just that.
The fastest growing segment of General Electric Co. (NYSE: GE) is its oil and gas equipment business which contributed more than $15 billion to the company’s 2012 revenues and more than $2 billion to earnings. Like SAP, GE is getting into the big data business as a complement to its existing work as a designer and manufacturer of compressors, turbines, generators, and other drilling equipment.
Will the fracking revolution carry the U.S. to the top spot in global oil production? Absolutely, but the question is how long can it stay there. OPEC and the IEA reckon not for long. But given the size of the resource and the number of big, experienced firms that continue to invest billions of dollars in technology to get even more out of U.S. shale plays, expecting U.S. production to peak in less than six years seems like a foolish bet.
key points.....
“What not everyone knows is that horizontal drilling techniques and hydraulic fracturing currently recover less than 20% of the oil in place, and in some places even less than that.
Total production costs have fallen from around $80 a barrel three years ago to around $50 to $60 a barrel today at the most advanced producers’ sites. As WTI prices continue to slide, wringing out production costs will become more important than ever. Energy consulting firm Bentek has said that even if oil prices fall to around $60 a barrel production will continue to grow.”
So the only cloud on the horizon is Obama and the Dems.
the USA has dug itself into capital hole....that is the USA has been exporting money for decades to pay for oil and what not.
It will take several decades for our country to recapitalize.
The elements are currently in place for this to happen.
Lots and lots of things can go wrong. Known wrecking balls are the democrats. Prayer is helpful on this score.
-——Can Fracking Keep U.S. No.1 Oil Producer? -——
It doesn’t matter
-——Can Fracking Keep U.S. No.1 Oil Producer? -——
It doesn’t matter
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It does matter for at least the next decade —or until something else better comes along. The biggest most important thing is that fracking shifts capital flows around the world. Fracking steadily shrinks the size of the trade deficit. Fracking will steadily lower the cost of oil. Fracking will undergird the US economy —producing 2% economic growth alone— so that despite the tremendous screw ups of the Obama administration — the USA will stay afloat. Fracking contributes about 100 billion to federal coffers annually — shrinking the size of the federal deficit.
The authors believe based on their interviews with the big companies involved that the fracking revolution is only getting started.
You confuse producing lots of oil and being number 1
it is possible to be oil independent and not be the #1 producer.
I guess the phrase “well respected” is being corrupted.
Not if Obama can prevent it.
Production cost do not include exploration cost, ie, reserve replacement cost.
You confuse producing lots of oil and being number 1
it is possible to be oil independent and not be the #1 producer.
..............
The key points in the article based on inteviews with the majors—are that fracking costs have plunged from $80@ barrel to $50-60@ barrel. That current technology is only getting 20% of the oil in place. That the companies involved in fracking believe that the USA is only in the very earliest days of the technology.
What’s the point here.
The point is that there is enough visibility to predict that production can grow by 1 million barrels@ day for the next 2-3 years—as it has for the last three. Citibank analysts have separately said that they expect that the USA will become oil independent by 2020. That means that production will have to rise by five million barrels @ day.
Does being oil independent mean that the USA will be the #1 oil producer in the world? Not necessarily.
But oil independence is certainly a step in the right direction,.
Here’s the way citibank puts it.
The probability of North American energy independence is extremely high, but even the prospects of US energy independence are real. Burgeoning US energy independence brings with it an opportunity to re-define the parameters of post-Cold War foreign policy and provides unexpected opportunities for the country’s foreign and trade policy.
The implications for the global petroleum sector — for trade, for shipping, for the relationships among crude oil streams — are also profound, as are the implications for oil prices, which will be weighed significantly by this profound change in the position of the United States. Perhaps the most significant change in store befalls the geopolitics of oil and natural gas, where there is a long list of winners and losers, and where win-win solutions for producing and consumer countries might well prove to be elusive and where bitter politics of adjustment could be another complicating element of the global geopolitical landscape.https://www.citivelocity.com/citigps/ReportSeries.action?recordId=16
Not if Obama can prevent it.
..........
true. that’s the wild card in this business.
This may help explain the difference and why one cost is discussed separately from the other.
Obama will be gone in 3 years. The wild card is who will replace him.
Production cost do not include exploration cost, ie, reserve replacement cost.
...........
Yeah, you’ve mentioned that before. But technology is such a huge wild card. Consider the statement that they’re only getting 20% of the oil “in place” with current technology.
I find that shocking. I thought they were getting 40% of the oil in place. 20% leaves a whole lot of room for growth 10-20 years from now when technology improves with no exploration or reserve replacement costs.
Something I don’t understand but maybe you can explain. The article says
“According to an engineering manager at oil field services giant Schlumberger Ltd. (NYSE: SLB) told Platts that U.S. shale production is only going to go up. His reasons: the vast size of the resource and growing familiarity with it. He also said that there’s plenty of room to improve extraction techniques and minimize the pushback from environmental groups. In the Eagle Ford shale play, for example, Schlumberger now uses well log data to determine the first five wells to drill in a new area. The technique has improved production by 33%. “
Do you consider well log data to be a facet of drilling costs or exploration costs.
Well...not everyone knows where China is on the globe.
Obama will be gone in 3 years. The wild card is who will replace him.
.......
If obamacare is still killing the dems, then likely a republican. That will take out the risk of the feds screwing the oil companies and may even make such places like Nevada open for oil drilling. (imho there’s there’s a couple billion barrels of drill-able oil there that the feds have locked up.)
That said 2016 is a long way away. Anything can happen between now and then.
Everyone knows...Everyone also knows...
Well...not everyone knows where China is on the globe.
............
China may well be a big shale gas producer in 5-10 years.
We’ll see. The USA has the infrastructure in place to do the fracking. Maybe saudi arabia does too. but few other countries already have the infrastructure in place to do the fracking. That’s expensive.
Do you understand how many decades it took us to change 20% in traditional reservoirs to 30%, and tertiary methods to 40%?
This isn't something just waiting around for someone to take a look at it. It is a massive undertaking.
Well log data can be part of either production development or exploration, if I understand it correctly. If you are drilling in a new area, well log data is part of the analysis in finding commercial plays. It is also used to select the best drilling locations and the like for developing a play found to be commercial producing.
I know it is wikipedia but it includes links to real sources at the bottom of the page.
http://en.wikipedia.org/wiki/Hydraulic_fracturing_by_country
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