How Low Will Price of Oil Go? Brent Won't Go Below $83/Barrel

Due to factors discussed before and which I won't go into again (at least for now), Saudi Arabia has the "power" to raise the global price of oil, but it no longer has the clout it once did to lower the price of oil.

That is a shift from the 1980s when Saudi Arabia had enough oil that it could affect the price of oil going up or coming down. Now, Saudi Arabia can only affect the supply of oil to result in increased price.


It turns out that Saudi Arabia's budget requires that oil stay at least above $83. This is what Saudi feels it requires to distribute enough money across the kingdom to prevent unrest being seen in much of the Mideast.

Many of OPEC’s biggest producers are using the price gains to increase public spending, partly to guard against popular unrest. Saudi Arabia announced a multiyear spending package of $129bn and is expected to spend about $35bn in 2011.

This largesse means the country now needs an oil price of $83 per barrel in order to balance its national budget this year. “The more they earn, the more they tend to spend. So the oil price they need is ratcheted up,” said Leonidas Drollas, chief economist at the Centre for Global Energy Studies in London.

$83. That's an important number to remember. Some time ago, EOG said the Bakken was "robust" at $40/bbl of oil  Based on the current delta, Brent $83 oil translates into about WTI $73 oil.

Investors Only: Yet One More Article Touting Natural Gas -- Wall Street Journal

Analyst: there is not one natural gas exploration and production company that I would recommend that investors stay away from.

That about sums it up.

Flashback: The Bakken Boom Began With Vertical Wells in Elm Coulee (Montana)

This article was published in 2007. It provides a bit of perspective to the current Bakken boom.

The first commercial Bakken well at Elm Coulee was completed in 1981 by Coastal Oil and Gas. Early wells were vertical completions and were often a fall-back position for an unsuccessful deeper well-test. After stimulation, vertical Bakken wells have historically exhibited a respectable initial production, but with high initial declines followed by long-term, low productivity. A typical economic vertical well would initially produce at more than 100 b/d of oil, but would soon decline to approximately 15 b/d to 20 b/d of oil.

Production thereafter exhibited a minimal decline and due to the low production rates, oil price was the major factor in economic operations. Gas/oil ratios were approximately 750 Mcf/bbl, however, no sales outlet was available, and casing-head gas was used on the lease. Superior productivity was dependent upon intersecting local fractures to double or triple the IP and the corresponding long-term productivity rates. The estimated ultimate recovery (EUR) of the typical economic vertical Bakken completion is estimated at 130,000 bbl of oil. Assuming a 30-year project life, however, that results in unfavorable project economics.

The first horizontal, Upper Bakken wells were drilled in Richland County in 1989 and 1990, but few were successful. The EUR rates for these horizontal wells were estimated at 21,000 boe. In 2000, Lyco Energy initiated the current horizontal activity by drilling the Burning Tree State 36-2H using an improved completion technique. The Lyco well’s IP was 196 b/d of oil, 85 Mcf/d of gas and 7 b/d of water, and the EUR is currently estimated at more than 300,000 bbl of oil. 

Although not addressed in this article, early on it was felt by some that horizontal drilling would obviate the need for fracture stimulation. How things have changed!

Enjoy!

Just When I Think I'm Going To Run Out Of Material, Rigzone Comes Through

What a great article to cross my computer screen a few minutes ago! A must read.

Enjoy.

It will be linked under "Publications" later.

The first paragraph:

Maybe you've seen the advertisements from various financial newsletters touting the investment potential of companies involved in developing the Bakken oil shale formation that spreads across North Dakota and Montana and into the neighboring Canadian provinces of Saskatchewan and Manitoba. The claims, which several years ago appeared outrageous, of the Bakken containing eight times the amount of oil as in Saudi Arabia or 21-times the reserves held by Kuwait seem less than fantasy today. 

"World-Class" Ethane Cracker in Louisiana? -- Not a Bakken Story

This is great news for Louisiana, hit hard by the moratorium and now the permitorium.

Chevron Phillips Chemical Company is mulling a "world-class" ethane cracker in Louisiana.

I was going to write what I really thought about this story but I was not ready to absorb all the arrows that would have been shot my way, so I will leave it at that.

I wish the Louisiana folks the best; they certainly deserve a better hand than they've been dealt.

******

On Luck, or Being Dealt a Good (or Bad) Hand

I am re-reading Tom Shippey's J.R.R.Tolkien: Author of the Century for the third time. In this book, Shippey discusses The Hobbit and The Lord of the Rings, as well as other Tolkien works. Shippey has a great section on "luck"and how Tolkien approached it:

As with the ironies of interlace, the logic of luck (or chance, or fate, or fortune, or accident, or even wyrd) seems in Tolkien's view to be this: there is no knowing how events will turn out, and it is certainly never a good idea for anyone to give up trying, whether out of despair or out of a passive confidence that some external power will intervene. 

It seems as if that line could have been written with New Orleans in mind.