Idle Rambling For Entertainment Purposes Only -- January 1, 2015

I grew up in oil country and never paid much attention to it until 2007.

Oil was discovered in North Dakota the year I was born. I was always impressed with the photographs taken by Bill Shemorry. I was the editor of the high school newspaper in my senior year and met Bill Shemorry on more than one occasion when down at The Williston Herald overseeing the weekly newspaper getting printed. A weekly or a monthly. It must have been a monthly; there's no way I could have gotten a weekly out, but I honestly forget. I will look it up later. It's funny what the mind remembers; what the mind forgets. I do remember The WHS Coyote was the best newspaper in the world. LOL. Not because of me but because of our adult "mentor" who volunteered her life to the publication for several years and to the wonderful staff I had.

I pretty much took the oil industry for granted. I saw an occasional pumper in the area, and the refinery east of Williston, whose last owner was Flying J, I think, before it was decommissioned many decades ago.

I have photos of the Williston Basin boom back in the 80's I think it was, and I have photos of the Alaska pipeline coming out of Prudhoe Bay, but after college, oil was the last thing on my mind until the oil embargo.

It was then that I realized "we" were riding on borrowed time. It was just a matter of time before the world ran out of oil, and life would be over as I knew it.

You know, this is what concerned me most -- God's honest truth, as they say -- this is the only thing that worried me about running out of oil: my grandchildren would never experience the enjoy of cruising in a muscle car up and down Main Street. Think American Graffiti. I was truly depressed thinking about what my grandchildren would miss, and what I had growing up. I didn't have a car until I graduated from college (except for a 1948 Willys jeep my dad got me in my senior year of high school but I didn't take to college; I gave it to me brother, or rather left it and he took possession, including rebuilding the engine in the garage).

I personally no longer care whether we have cars or not, or whether I can cruise up and down Main Street; my time has passed. But I would be devastated if my granddaughters could not experience the thrill of cruising. It's too bad the "bench seats" were replaced by individual front seats. 

I believed the Peak Oil theorists.

Wow, how times have changed. I asked this question last week: is this slump in the price of oil, this tsunami of oil a short-time phenomenon or are we at the very beginning of a new era in energy, easily lasting the rest of my investing life, perhaps the rest of my human life, perhaps to the end of my daughters' lives?

I don't know, but it's a question I never thought I would ask.

Disclaimer: my numbers may be way off. If the numbers are important to you, go to the source. I'm simply rambling here.

Earlier I posted a presentation that suggested the total North American oil production would increase from about 10 million bopd to 16 million bopd between 2010 and 2020. Mexico's production would actually decrease slightly through 2020; Canadian production would go up slightly (perhaps matching Mexico's decrease); the bulk of the 6 million bopd increase would be from the United States, and much of that would be unconventional oil.

Wow, there are so many story lines here. Remember how we all thought shale oil was too expensive? Now they're finding enough $35-oil in the Bakken to surprise even me. It almost seems shale oil production could be the new pricing barometer: at $35-oil only a few areas remain in play; as the price of oil moves toward $100, more areas return to active development; above $150-oil, new plays are developed. (That story line was touched upon by another writer about two weeks ago and one I had hoped to get back to.)

The technology keeps getting better. Our knowledge of the geology keeps improving. The infrastructure keeps building. I'm reminded of all this by a story that Don sent me, over at SeekingAlpha by Richard Zeits.

This is not an investment site. Do not make any investment, financial, or relationship decisions based on anything you are about to read. In fact, if you are someone with impulse control problems, it would be best for you to avoid reading the story at the link. Fortunately the stock market is closed today.

The "takeaway" from Richard Zeits' article: the Utica is a monster. In Ohio. In Pennsylvania. (In New York State we will never know. LOL.)

To illustrate Utica's truly exciting productive potential, it may be instructive to look at the performance of Rice Energy's Bigfoot #9H dry gas Utica well in Belmont County, Ohio. The well tested in June of this year with an initial rate of ~42 MMcf/d from a ~7,000-foot lateral with 40 frac stages and was placed into sales during the second quarter.

The Bigfoot's performance is beating initial expectations. The well is producing on a restricted choke program at a flat rate of ~14 MMcfe/d. As of early November, in about five months, the Bigfoot had cumulatively produced approximately 2.0 Bcfe. Most importantly, the well's average pressure decline had been approximately 11 psi/d, which is better than the initial 12.5 psi/d "High Case" model and may indicate a higher production trajectory over time.

Rice's updated "High Case" for the well suggests cumulative production from the well over the first 18 months online of ~7.3 Bcf. This would put the well at par with some of the best wells drilled in the Marcellus dry gas sweet spot in Susquehanna County of Pennsylvania.

That was deep in the article, as background, or as a reference point. This was the "new stuff": 

Notwithstanding the fact that the past decade was full of extraordinary shale gas discoveries, the era of shale exploration in North America is far from having run its course.

A week ago, Range Resources extended its peers' earlier success in the relatively new deep Utica/Point Pleasant dry gas play.

Range announced the result of its first test, the Sportsman's Club #11H well, located in Washington County, Pennsylvania.

The well achieved an average 24-hour rate of 59 MMcf per day flowing against simulated pipeline pressure and conditions (Range did not provide the choke data).

This is the strongest 24-hour rate reported so far in the entire Marcellus/Utica area and is one of the most prolific onshore gas wells (based on the 24-hour production test) ever drilled in North America.

To convert MMcf-ngl to boe I use the "6003" conversion factor.

There are any number of conversion factors; and these conversion factors are based on any number of parameters, or maybe just one parameter (BTU equivalency), so my conversion factor may not be your conversion factor. In fact, my conversion factor might be really, really wrong. If this information is important to you, go to the source. 
 
 Before I go on, note something about those production rates. They are choked back. LOL. Choked back. Think about that.

Then, think about this, from the article: " the updated high case [estimate] for the well suggests cumulative production from the well over the first 18 months online [could be] ~7.3 Bcf."

7.3 billion cf / 6003 = a really big number for boe over the first 18 months. Compare that number with boe-numbers of 500,000 boe over 18 months in the Bakken.

I make a lot of simple arithmetic errors. If this is important to you, I would go to the source; I have now moved into fantasy land on the blog.

The well's production to date: "As of early November, in about five months, the Bigfoot had cumulatively produced approximately 2.0 Bcfe."

2,000,000,000 / 6003 = another really big number. And that's just over the first five months.

My hunch: EOG is going to be reporting similar boe numbers in the Bakken before this is all over. Maybe not this year. Maybe not next year. But someday. (With apologies to Humphrey Bogart in Casablanca.)

Disclaimer: that was an opinion. Do not make any investment, financial, or relationship decisions based on anything you read at this blog or think you may have read at this blog. The blog is for entertainment purposes only. It used to be for education and entertainment purposes, but it's a new year, and I'm pretty much going to stick to entertainment.

The US is barely into this new energy revolution. The price of oil may go back up to $65 sometime in my investing lifetime but I am no longer worried about my granddaughters cruising down Main Street in a 2020 Honda muscle car (I assume GM muscle cars will all be in the dealers' service garages for recalls).   

By the way, I used to think about all those "0 to 60 mph" in 1.6 seconds or whatever it was when I was looking at muscle cars back in the day. Now that I'm older and driving on LA freeways, I am more interested in maximum number of feet to go from 60 to 0. LOL.