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How 185 Million Barrels of Oil Can Simply Vanish
DailyFinance ^ | Feb 17th 2014 | Matt DiLallo

Posted on 02/18/2014 4:46:49 AM PST by thackney

Pioneer Natural Resources looks to be sitting on an unbelievable amount of oil and gas. The company now controls about 845 million barrels of oil equivalent, or BOE, proved reserves and thinks that number is only the beginning. However, on paper, its reserves are actually slowly shrinking.

Recently, the company reported its latest reserve numbers, which showed a curious negative revision to its proved reserves. The company actually axed nearly 185 million barrels of oil from its books along with another 115 billion BOE of natural gas and natural gas liquids. With oil currently selling for about $100 per barrel, that's a lot of potential future revenue that just got wiped out. It also makes one wonder how over a hundred million barrels of oil can simply vanish?

The horizontal shift Pioneer Natural Resources is one of the many energy companies in America that has made the switch from drilling vertical wells to horizontal wells. Because of this, the company isn't going to be drilling all of its planned vertical wells. It will instead eventually drill horizontal wells to tap the oil and gas located in these areas. However, because there isn't enough current data on the horizontal wells that Pioneer Natural Resources has drilled so far, it can't support the replacement of the previously booked vertical reserves with new horizontal reserves. This is how hundreds of millions of barrels of oil simply vanish, at least on paper.

This isn't an occurrence limited to Pioneer Natural Resources. Fellow Permian Basin driller Laredo Petroleum Inc also revised millions of barrels of oil off of its proved reserve estimate. Its latest proved reserve estimate shaved 18 million barrels of oil off its book. However, Laredo Petroleum had to do this because it also has removed vertical drilling locations in favor of adding higher return horizontal locations.

The great reappearing act

While these companies can't put these new reserves on the books just yet, that doesn't mean these reserves won't be added in the future. In fact, Pioneer Natural Resources expects it should be able to add more than 600 million BOE of new horizontal reserves by the end of 2016. That's on top of the 72 million BOE in new horizontal reserves the company already added this year from its horizontal development in the Permian Basin. That, however, is just the tip of the iceberg for Permian Basin drillers like Pioneer Natural Resources.

As the slide above {beelow} shows, Pioneer Natural Resources thinks that it's actually sitting on about 11 billion barrels of oil and gas. That's more than 10 times its proved reserves. The same goes for Laredo Petroleum as it sees its net resource potential being more than 10 times its current proved reserves.

It's a similar story at other Permian focused drillers. Diamondback Energy Inc , for example, has proved reserves of 63.6 million BOE. However, as it adds up the resource potential from new horizontal targets like the Wolfcamp, Spraberry, and Cline formation, it sees total horizontal resource potential of 393 million BOE. That's a pretty compelling upside for Diamondback Energy investors, and right in line with what others are seeing.

Investor takeaway

The switch from vertical to horizontal drilling in the Permian Basin is causing companies like Pioneer Natural Resources and Laredo Petroleum to shave off millions of barrels of oil reserves. However, the disappearance of those reserves is only temporary. Once these companies have more data, it's quite likely they will add back an even greater number of future reserves.


TOPICS: News/Current Events
KEYWORDS: energy; oil

1 posted on 02/18/2014 4:46:49 AM PST by thackney
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To: thackney

First, close the EPA and jail the Enviro-whackos wanting to prevent energy production.


2 posted on 02/18/2014 4:55:46 AM PST by G Larry
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To: thackney

This is the only thing that kept the US from having another Great Depression. Obama was foiled by the independent oil men of Texas and Oklahoma, but it will never be mentioned in the history of this horrible economy. That is a shame.


3 posted on 02/18/2014 5:00:32 AM PST by txrefugee
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To: thackney

Oil reserves are just estimates. Nobody knows
for sure till AFTER the oil is pumped how much
there was. The system by it’s nature lends itself
to error, changes and fluctuations. I’m sure it
also lends itself to purposeful manipulation of
the information to allow involved parties economic
advantages. Humans are involved and humans tend
to be either incompetent, error prone or when it comes
to large sums of money greedy......greedy enough to
fabricate information.


4 posted on 02/18/2014 5:03:39 AM PST by nvscanman
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To: thackney

the climate change, peak oil types use this info by the way. they point out that the wells are drying up faster then predicted....just keep that in mind...


5 posted on 02/18/2014 5:17:25 AM PST by Irishguy
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To: Irishguy
All I know US has increased output and yet Gasoline prices have not move much in the Country.

EPA rules on power WOW, people I know who have a modern house about 2100 square feet no heat from electricity running about 500.00 a month. Unreal

6 posted on 02/18/2014 5:25:26 AM PST by scooby321
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To: nvscanman

“...Oil reserves are just estimates. Nobody knows
for sure till AFTER the oil is pumped how much
there was. The system by it’s nature lends itself
to error, changes and fluctuations....”

Amen, brother. I’m going thru a series of facility upgrades throughout south Texas right now. The facilities were built in 2010 based on just these types of estimates. Now, we’re finding out there is much more product than anyone ever estimated or dreamed of, and those original facilities are not large enough to handle the increase in volumes. Estimates are estimates...don’t bet the whole farm on them regardless of what business you’re in.


7 posted on 02/18/2014 5:29:05 AM PST by lgjhn23 (It's easy to be liberal when you're dumber than a box of rocks.)
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To: scooby321

All I know US has increased output and yet Gasoline prices have not move much in the Country.

Thank your government for that one....BIG TIME. Look at the taxes they levy on the product. Look how they prevent additional refining capacity from being built. They ARE the problem.


8 posted on 02/18/2014 5:32:10 AM PST by lgjhn23 (It's easy to be liberal when you're dumber than a box of rocks.)
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To: thackney

As the slide above {below} shows, Pioneer Natural Resources thinks that it’s actually sitting on about 11 billion barrels of oil and gas. That’s more than 10 times its proved reserves. The same goes for Laredo Petroleum as it sees its net resource potential being more than 10 times its current proved reserves.
..............
yeah this is what happens when they optimized the manufacturing process so that one pad has 30 wells going in all directions at various levels. This is what brings down the price per barrel of oil. This is why I think the Permian production has not really begun to take off yet. But when it does, it will be impressive and really dwarf what’s going down currently in eagle ford and the baaken.

And likely too its the ten fold increase in reserves that these guys are talking about ... — is the reason you hear talk that the permian basin is second only in size to the Saudi Ghawar Field


9 posted on 02/18/2014 5:39:47 AM PST by ckilmer
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To: scooby321
All I know US has increased output and yet Gasoline prices have not move much in the Country.

Somewhat counter-intuitively, I suggest this is on net a good thing.

If gasoline (actually oil) prices were to drop dramatically, a lot of the drilling would quickly stop.

Horizontal drilling is a good deal more expensive and much lower prices would mean a lot of the wells being drilled would quickly be considered uneconomic. Drilling would stop. It's possible a lot of the drilling capacity would move overseas where they could still make money.

From a national security standpoint, I think adding as much production capacity as possible here is a lot more important than having gas be a dollar cheaper at the moment.

10 posted on 02/18/2014 5:45:34 AM PST by Sherman Logan
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To: thackney

For those who want to see a 6 minute video showing how horizontal drilling and fracking is done, Northern Gas and Oil has done a great one.

It includes a visual piece on how fresh water aquifers are protected from contamination.

http://www.northernoil.com/drilling-video

Knowledge is power, keep the link and pass it on.


11 posted on 02/18/2014 5:46:06 AM PST by Balding_Eagle (Over production, one of the top 5 worries for the American Farmer every year.)
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To: Sherman Logan

Gasoline is easy to ship a priced globally. Natural gas is not easy to ship and priced locally. So nat gas is cheap and gasoline is not.

There are other factors - taxes, dollar value, ethanol, state-mandated blends, etc. But, in the end, US refiners are not going to sell gas here for a dollar when they can get four dollars elsewhere.


12 posted on 02/18/2014 7:17:07 AM PST by stinkerpot65 (Global warming is a Marxist lie.)
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To: thackney

The biggest winners in this new ‘oil boom’ is the state of Texas and the Counties that claim Property taxes on all aspects of the oil and gas products removed/recovered from their jurisdictions.

Why you might ask? Because they get a cut right off of the top on everything that the private companies, the private land owners, the private royalty owners earn/receive through their investments in this petroleum rich area of the country.


13 posted on 02/18/2014 8:33:09 AM PST by The Working Man
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To: lgjhn23

It would not matter if we found enough oil to float this country. The price for oil is determined by the commodities traders on wall street. The oil companies have nothing to do with what they get for their oil.


14 posted on 02/18/2014 9:09:38 AM PST by biff (WAS)
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To: biff

Yep, that is why it sometimes goes down as well as up. < /sarc>


15 posted on 02/18/2014 9:35:49 AM PST by thackney (life is fragile, handle with prayer)
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To: biff

Pricing is ultimately determined by the consumer market. If people quit buying the stuff, the futures traders would take a bath.

But that’s not going to happen anytime soon. Asian consumption has been the main driver in commodities markets for the past 15 years.


16 posted on 02/18/2014 9:37:14 AM PST by CowboyJay (Cruz'-ing in 2016!)
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To: CowboyJay

You quit first. I promise to follow!!


17 posted on 02/18/2014 10:13:06 AM PST by biff (WAS)
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To: G Larry

Think about how to make it politically feasible to shut down the EPA?


18 posted on 02/18/2014 1:40:24 PM PST by 1010RD (First, Do No Harm)
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To: 1010RD

The campaign would be focused.

The function of the EPA is to ensure clean air and water.

The practice has beed to pervert that charter into a mechanism to SHUT DOWN ENERGY PRODUCTION, INDUSTRIAL PRODUCTION, AGRICULTURAL PRODUCTION, and most elements of growth of any kind.

To help the agency focus on the narrow nature of its charter, we are cutting the budget by 90%.


19 posted on 02/18/2014 3:19:50 PM PST by G Larry
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To: thackney
The headline skert me.

Forgive me for changing the subject, because the accounting differences are important facets, but;
I was alarmed at the thought that the Dhims had found a way to crony-capitalize 185 million already extracted, already-paid-for barrels of oil from Strategic Oil Reserve holdings.

Not to be a bother (you can ignore this question) but how many barrels have we lost from there during this last Demo-Rat Admin? They always dipped into in the past, with incoming Republican Presidential Admins having to replace it.

20 posted on 02/18/2014 3:44:08 PM PST by BlueDragon
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To: G Larry

Why hasn’t that been proposed already? Because it is politically untenable. You have to win not just the vote in Congress, but the President’s signature and likely a judge’s ruling at some point in the process.

You don’t get there by fiat or whim. It will take a long term campaign to change minds, just like on abortion and guns.


21 posted on 02/18/2014 3:55:53 PM PST by 1010RD (First, Do No Harm)
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To: BlueDragon

From 726,542,000 barrels mid 2011 to 695,969,000 now.

History since 1982:
Weekly U.S. Ending Stocks of Crude Oil in SPR
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCSSTUS1&f=W


22 posted on 02/18/2014 4:10:16 PM PST by thackney (life is fragile, handle with prayer)
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To: 1010RD

I totally disagree.

Nixon created the EPA via Executive Order.

President Cruz can abolish it just as easily.


23 posted on 02/18/2014 4:22:28 PM PST by G Larry
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To: thackney
Thank you, sir. Forgive me for creating work, having to spend the time to find the link, code it, post it and the rest.

I knew you would know where to zero in, so my continuing thanks to you for bringing to us here all which you have done, for years now.

24 posted on 02/18/2014 5:21:43 PM PST by BlueDragon
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To: G Larry

Nonsense. We’re not avatars in some MMOG. There isn’t the political will to do it. It would be the last act of his Presidency.

It will take time, subtlety and compromise to get us where we want to go. There isn’t any superman, that’s dreamworld stuff. Reality is that it will be a long and bloody slog, uphill all the way, but if we hold Congress for a generation we’ll get there. The signs are already in place.


25 posted on 02/18/2014 6:53:26 PM PST by 1010RD (First, Do No Harm)
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To: 1010RD

Try reading my post #19 again.

The President makes that repeated assertion about the over reach of the EPA.

It is NOT an impeachable offense.

It is the Job FIx the economy needs.

Noe of the rules imposed since 2008 have improved the quality of anything.


26 posted on 02/18/2014 7:19:42 PM PST by G Larry
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To: G Larry

I’m not arguing in favor of the EPA’s overreach and overregulation. But, we have tens of thousands of graduates of our very best government schools who are trained enviros. They’re not going to sit tight while conservatives “destroy the environment”.

That said, we can moderate the worst laws, modify the regulations and settle court cases that tie the EPAs hands without setting off terrible alarms. Democrats get away with it because they have a capon media. We can’t, so we must be wise as serpents and gentle as lambs.


27 posted on 02/18/2014 7:33:47 PM PST by 1010RD (First, Do No Harm)
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To: 1010RD

I understand your point.

I’m simply tired of tip toeing around the liberals.

If the President stands up repeatedly and makes the case I did in Post #19, there’s NOTHING “they” can do about it.

He defends his position by stating:

“I don’t care about the emotional nonsense the left is promoting.
Our air and water has been sufficiently clean for a long time, and NONE of the laws passed in the last 10 years have improved that case.


28 posted on 02/18/2014 7:42:24 PM PST by G Larry
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To: Irishguy

http://www.resilience.org/resource-detail/1789950-snake-oil-how-fracking-s-false-promise


29 posted on 02/18/2014 8:36:57 PM PST by American Constitutionalist
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To: G Larry

I understand your frustration and it’s easy to vent here on FR. My point is that we didn’t get here overnight. Liberals took a century to get where we are today.

I think we can get back in 25 years or less, but to do it we need to:
1. reach out to minorities and Millenials using logic, clarity and gentleness. People are emotional and confrontation rarely works.

2. Hold Congress for a generation or more and that means dealing with RINOs and liberals. There are areas of agreement where we can make real progress.

3. Share our vision in an affirmative way. We have a devil of a time at PR given that liberals have a hundred billion dollar media arm.

The reality is that we’re a minority. We have to sell our ideas to the mushy middle and even to some liberals to get them to move our way and win elections. It all starts with ideas and ends with winning elections. If you don’t win you cannot play.


30 posted on 02/19/2014 6:46:45 AM PST by 1010RD (First, Do No Harm)
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To: 1010RD
Sometimes patience and subtlety are necessary.

Clipping the EPA’s wings is NOT such a case.

The President can do it instantly, and with a clear, unapologetic message.

31 posted on 02/19/2014 6:56:25 AM PST by G Larry
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To: G Larry

Why didn’t Reagan, Bush or GW Bush do it that way then?


32 posted on 02/19/2014 7:42:16 AM PST by 1010RD (First, Do No Harm)
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To: 1010RD
Under those administrations, the EPA had the appearance of moderating their impact on industry.

Under Obama, its become a blatant hammer to shut down energy, industry, and the economy.

33 posted on 02/19/2014 9:05:02 AM PST by G Larry
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To: G Larry

You’re describing the reality under each of those Presidents, not one of which permanently changed or crippled the ability of the EPA to cause harm and abuse against the country.

What I want is the EPA hobbled, limited and eventually wound down and delegated to the states. No President can do that by fiat. You could do that over time via legislation, but you need to capture the mind and beliefs of the voting public first. That takes time and an education. I’d start with West Virginia coal miners and their communities.


34 posted on 02/19/2014 7:30:35 PM PST by 1010RD (First, Do No Harm)
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To: biff

“You quit first. I promise to follow!!”

No way! You first. ;)


35 posted on 02/19/2014 9:11:26 PM PST by CowboyJay (Cruz'-ing in 2016!)
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To: 1010RD

“No President can do that by fiat.”

WHY NOT????

Especially after the liberties and precedence this clown has established.

There is no law constraining such action.
Bunch of job killing, paper pushers hit the streets, so the working man can produce energy and goods and services.

How will the corrupt media compete with THAT reality?


36 posted on 02/19/2014 9:48:47 PM PST by G Larry
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To: G Larry

“No President can do that by fiat.”

WHY NOT????

Yeah, why not? This super turd on a stick has set the precedence of ruling by fiat with his phone & pen. It will allow the next president to do so as well.
Just just the damn beast down and be done with it.
Let em howl like starving babies.


37 posted on 02/21/2014 11:19:34 AM PST by lgjhn23 (It's easy to be liberal when you're dumber than a box of rocks.)
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