After being inactive since January, 2015, this well is now back on-line:
16457, 922, EOG, C & B 1-31H, Parshall, t5/07; cum 437K 10/15; went inactive 1/15; active as of 10/15; a full 31 days first month back on status; 2,500 bbls/month;
Note the jump in production for this well; sundry forms do not shed any light on reason for jump in production; we saw something similar about a year ago:
18973, 2,579, QEP/Helis, State 1-16/21H, Blue Buttes, t10/10; cum 567K 10/15;
inactive 4/14; looks like it might be back on line as of 10/14; yes,
now shown to be active, 12/14; huge jump in production in 12/14; coming
back on line after permission to commingle production from multiple
wells; large production number could be due to 'mis-allocation' during
early commingling; random update, March 20, 2015; random update, May 7, 2015;
December 7, 2015: OPEC never was a cartel -- at least not since 1998 (and probably even earlier, but that's as far as the graph below goes).
Whatever hope the old cartel had of
reasserting control over the oil producing nations ended
on Yom Kippur of 1973, with the Egyptian invasion of the
Sinai. The renewed war in the Middle East caused an oil-buying
frenzy in Europe and Japan, as nations fought to build up
their reserves of crude oil. Saudi Arabia and other oil
producers adopted a policy of charging whatever the freight
would bear. Within weeks, the posted price for crude had
more than doubledto $5.60 a barrel. No OPEC control was
involved: it was a war that permitted individual nations
to raise their prices.
Another price explosion followed the
announcement by Saudi Arabia and other Arab states, in October
of 1973, that they were cutting back oil their oil production
and embargoing shipments of oil to the United States. This
cutback did not result from any OPEC decision, either. Indeed,
many OPEC states, including Iran. Indonesia, Venezuela,
Ecuador, and Gabon, actually increased production (and even
a few Arab states in OPEC, notably Iraq and Algeria, did
not reduce their production). It was almost exclusively
an initiative of Saudi Arabia.
Moreover, the Saudi decision
to shut down 10 percent of the country's oil production
was not based entirely on considerations of the plight of
the Arabs. The Senate Subcommittee oil Multinational Corporations
ascertained from testimony of American engineers who were
responsible for operating the Saudi fields in 1971) that
a 40 percent cutback in the giant Ghawar field was required
for the installation of water injection equipment. If it
had not made these cutbacks, the entire reservoir of oil
would have been jeopardized. Jerome Levinson, the general
counsel of the committee, writing under the name Peter Achnacarry,
stated: ". . . the embargo saved Saudi Arabia from the embarrassment
of having to explain supply shortages resulting from technical
problems."
By cloaking the cutback in a political purpose,
the Saudis were able to induce other Arab producers, both
inside and outside of OPEC, to join them.
In the wild price spiral that followed
the Saudi shutdown, the official OPEC price was completely
disregarded by other members. Iran and Qatar held auctions
to determine how high they could raise prices. At its subsequent
meetings, OPEC could do no more than ratify the prices that
had already been established by a panicked market.
Original Post
I get a kick out of the Bloomberg interpretation of the graph below: "OPEC's crude production has exceeded its target for 18 months straight." Really? OPEC has greatly exceeded its target since 1998. It appears that on only two occasions did production actually hit or drop slightly below target in the past 17 years or so. What's this "18 months straight" crap? Yes, strictly speaking, but absolutely "inaccurate." In addition, the delta between the target and actual production was much, much wider in the early days of the Bakken boom (2009 - 2012) than it is now.
Speaking of graphs, I forgot to post the weekly natural gas fill / draw rate (a dynamic link). I believe this is the first week this year that there was an overall net draw on natural gas, down 53 Bcf.
Working gas in storage was 3,956 Bcf as of Friday, November 27, 2015,
according to EIA estimates.
This represents a net decline of 53 Bcf from the previous week. Stocks
were 543 Bcf higher than last year at this time and 247 Bcf above the
five-year average of 3,709 Bcf.
At 3,956 Bcf, total working gas is above the five-year historical
range.
OPEC agreed to set a new oil-output ceiling of 31.5 million barrels a day, a level that’s in line with the group’s most recent production estimate. Crude fell as much as 3.6 percent in New York.
The increase is from a previous output target of 30 million barrels and does not include production from Indonesia, which joined the producer group after a break of almost seven years, according to a delegate with knowledge of the matter, who asked not to be identified because the decision hasn’t been made public. OPEC pumped about 31.4 million barrels a day of crude in October.
Venezuela, whose foreign currency reserves are at the lowest level in 12 years, led calls for a reduction in output, supported by Ecuador.
Iran is poised to boost output after sanctions over its nuclear program are lifted and it won’t seek permission from OPEC to do so. OPEC requires consensus among members to alter its output ceiling. Global oil stockpiles have risen to record levels as Saudi Arabia, Russia and Iraq boosted supply.
The market is oversupplied by as much as 2 million barrels a day, equivalent to about 2 percent of global output.
The biggest non-story this week was the fact that OPEC punted, agreeing to agree to disagree, and letting members pump what they want. Although it rebounded slightly by the end of the week, WTI settled below $40 for the first time in more than three months earlier in the week.
The week ended with North Dakota issuing seventeen new permits, and QEP renewing twelve permits that were, apparently, about to expire. Meanwhile, the EIA is reporting a significant increase in crude oil storage capacity and inventory at Cushing, OK, and along the Gulf Coast. I did not link the article, but there was a story this past week that "a lot of money is being made in oil storage." If I see the article again, I will try to remember to link it. It was also noteworthy that Saudi oil imports into the US have plummeted in the most recent reporting period, though that was simply a snapshot in time. Most surprising, given the low cost of gasoline, demand for gasoline dropped for the first time this year below that demand for the same time period one year ago. Call me crazy, but that may be the biggest US economy story this week. If it's not the biggest US economy story this week, it's certainly the biggest story not reported. There are some analysts suggesting the US may slide into a recession next year; I ignored that talk until I saw the "gasoline demand" graph.
Fadel Gheit, managing director and senior analyst at Oppenheimer, told
Yahoo Finance's Alexis Christoforous in the video above that
$100-per-barrel oil is a thing of the past—$60 to $70 per barrel is the
new normal.
December 10, 2015: a must-read analysis from RBN Energy -- A New World Order? -- Global Crude Supply and Demand Through 2025. Bottom line: Although demand will increase, the report projects that demand growth is
not expected to push prices back to 2014 levels before 2025. As the
current crude oversupply is brought back into balance with demand the
report suggests that we can expect a sustained period of supply/demand
equilibrium with lower price volatility.
December 9, 2015: this is a teaser article to sway you to subscribe to an investment news letter, so consider that when reading it. But this writer says what I'm saying: we're not going to see $60 oil any time soon.
“The decision by the Organization of the Petroleum Exporting Countries to keep pumping at current production levels is either the ‘stupidest’ possible move the cartel could make or the ‘right call’ to defend market share from U.S. shale producers,” a handful of analysts told MarketWatch.
Most of the talking heads these days make it seem like OPEC has options in today’s oil market. Newsflash: They don’t. Once the U.S. shale boom made obvious the fact that the globe is NOT running out of black gold, it fundamentally changed the oil game.
“Oil sheiks don’t hold all the trump cards. Sure, they have the option to cut production. But when you actually look at the facts surrounding a production cut decision, you’d quickly realize that the amount of oil that OPEC would conceivably cut, wouldn’t rally oil prices much at all,” explains our resource maven Matt Insley. “It’s not like a few million barrels per day off the quota is going to get oil prices back to $80 – that simply won’t happen.”
The real trump card is the fact that the U.S. has a hell of a lot of economic oil at $50-60 per barrel. So we won’t see the price of oil rally much higher than that for any extended period of time, Matt says. Simply put, once the price of oil heads above $60, the U.S. shale spigots open up.
December 8, 2015: from the EIA, today:
While U.S. onshore oil production is expected to continue
declining through most of next year, offshore oil output in the Gulf of
Mexico is on track to steadily rise.
In its new monthly forecast, the
U.S. Energy Information Administration said offshore Gulf oil production
is expected to increase to 1.7 million barrels per day during the
fourth quarter of 2016 up about 250,000 barrels per day from the fourth
quarter of last year.
December 7, 2015:this article over at Platts is additional support for my argument that we are not going to see any supply-demand re-balance for a very long time. Everyone, including me, thought by shutting down those big CAPEX projects, oil prices would start to stabilize as early as 2016. Yergin has moved that out to 2017. But it turns out a lot of big CAPEX projects were well on their way in 2013 and will be coming on-line in 2016 and 2017:
Global oil supply is continuing to increase faster than demand in a
trend unlikely to be reversed next year, Total CEO Patrick Pouyanne said
Monday.
"The market is oversupplied and production capacity will
continue to grow because a lot of projects were sanctioned in 2013 and
2014," Pouyanne told reporters on the sidelines of the International
Petroleum Technology Conference in Doha.
The bulk of those upstream oil projects would come on-stream in 2016 and
2017. As a result, the international market would remain oversupplied
in 2016.
Global crude and condensate output
capacity this year was expected to rise by 1.7 million-1.8 million b/d
in total from the 2014, marking one of the two biggest annual increments
of the past decade, he said.
Original Post
My Disclaimer/Welcome provides my philosophy regarding my commentaries and the purpose of this blog. The bottom line is that this is idle chatter, personal thoughts, probably not ready for prime time, and certainly not well written, but it provides a bit of my thoughts on the current situation in a very, very general way.
There are two questions that need to be addressed. The first has to do with the price of oil, the second has to do with how this will all play out.
Price of oil
As I've stated many times, I won't predict the price of oil -- there are just too many variables. It's a fool's errand to predict the price of oil.
However, many talking heads suggest that prices will "stabilize" -- whatever that means -- sometime next year (2016) or 2017 at the latest. These talking heads argue that all the cancelled CAPEX projects will eventually catch up with us and sooner or later we will see a relative shortage of oil. I've said the same thing, using hyperbole, suggesting we will hear talk of $200-oil when we start to see the effects of those cancelled CAPEX projects, that is, a shortage of oil. The most recent to suggest a relative shortage sooner than later was Dan Yergin, in a video/article over at CNBC. Not only did he suggest the cancelled CAPEX projects would result in a shortage of oil, he suggested that by 2020, the world will require an additional 7 million bopd.
I mentioned that I disagree with Yergin, and I am now convinced that I have been wrong suggesting that we will "soon" hear talk of $200-oil in the not-too-distant future due to all those cancelled CAPEX projects. I'm wrong; it's not going to happen.
I am not aware of any cancelled CAPEX projects in Saudi Arabia or anywhere else in the mideast -- the CAPEX projects that have been cancelled have been off-shore deep sea projects and projects in the Arctic. It's my impression that the Mideast has more than enough oil to adequately supply Europe, and along with Russia enough to supply China, for the next several years without any major new projects. Iran is soon to come on board (Saudi Arabia, by the way, says Iran is a "non-factor"; despite the sanctions, Iran has been producing, exporting oil all along and once sanctions are removed, we won't see that much difference; I don't agree; there are reports already of any number of German companies ready to move into Iran as soon as sanctions are lifted).
Meanwhile, in the western hemisphere, the glut of North America oil will last quite some time. I assume western Canadian oil production has been cut considerably. US shale production has not been reduced all that much yet, but potential production has been greatly reduced. I can't speak to the Permian or the Eagle Ford because I don't follow them closely. But I do follow the Bakken pretty closely. Unfettered, Bentek said North Dakota could produce 2.2 million bopd; that was at the beginning of the boom; since then, potential production in North Dakota has increased significantly.
If in the December Director's Cut (October data), North Dakota production comes in over 1 million bopd that will speak volumes. Bentek has already said that North Dakota's October production will come in at 1.2 million bopd. If that's accurate, that will be huge. The number of active rigs have been below 70 for quite some time, and despite that, there are now more than 1,000 wells waiting to be fracked.
I only assume it is "worse" in the Permian and the Eagle Ford.
As the price of oil starts to move up, those SI/NC or TATD wells in the Bakken will be fracked, and operators will add more rigs.
If the price of oil moves toward $60 and if the tea leaves suggest the price will remain above $60 and perhaps even increase, then the other plays, such as the Niobrara will come back into play.
Bottom line: with OPEC's failure to discipline itself this past week, we will see a new trading range for the next six months, a trading range between $30 and $40. (By the way, when Janet Yellen raises rates, that will strengthen the dollar, and oil will fall -- all else being equal -- another $3 to $5. If there is a recession next year, the price of oil will drop even further.)
The $30 to $40 trading range will last until the middle of the year (2016) when it will "stabilize" or get back to $40 - $50, where it will remain for quite some time. We might see $60 again in my investing lifetime but I doubt it. [About ten minutes after I wrote and posted that, I find that Platts is saying the same thing: the "fat python may be here to stay."]
Oil's finite nature has proven remarkably slippery. Peak Oil theories
dictate that there can only be so many barrels beneath the ground, and
at some point the world will have pumped more than half of them, and
it's all downhill from there. But how many barrels are available is a
function of money as well as rocks: If you make it cheaper to get at
barrels, then more of them "exist." Consider that since 1980, the world
has produced just under 900 billion barrels of oil -- and its proved
reserves actually went up by just over 1 trillion barrels in that time.
Let's parse that last sentence. Since 1980 -- 35 years -- the world has produced less than 900 billion barrels of oil. During that time global reserves actually went up by 1 trillion bbls.
Does
anyone remember the estimated original oil in place (OOIP) in the
Bakken alone?
Five hundred (500) billion bbls. At a recovery rate of 20% that equals
100 billion bbls or more than 10% of all the oil produced globally since
1980. A lot of companies are going to go
bankrupt or otherwise disappear but the Bakken oil is not going to go
anywhere, and operators are not going to forget how to frack. And with
less than 60 active rigs and 1,000 wells drilled to depth but not
completed, and production still at one million bopd, it's not difficult
to see that if push comes to shove, North Dakota can easily get to two
million bopd. And that's just the Bakken. They say the Permian is better
and the Eagle Ford is probably just as good.
How will this play out?
The other question is how this plays out? The question is asked with a country like Venezuela in question. I don't know; I don't understand macroeconomics and the oil industry well enough to even hazard a guess.
For those who are trying to answer the question, it's not as simple as saying there is a "glut of oil." It's not just "a glut of oil" but it's the kind of oil that matters. US refineries are optimized for heavy oil (a long, long story, that involves the Keystone XL which we've discussed numerous times before). The only reason Bakken oil "works" is because it is mixed with heavy oil before refining. Despite the glut of US shale oil, the US still needs to import heavy oil from somewhere -- Canada, Venezuela, for example. So, although Venezuela itself looks like it's about ready to implode, the fact is that US imports of Venezuela oil -- though way down by historical standards -- seems to have plateaued for the past several years. Canada is even more interesting -- staggering, one might say. If there is such a huge glut of US oil, one has to ask the question why Canadian imports are where they are -- and this is without the Keystone.
By the way, did you see what Venezuela was asking OPEC to do? All Venezuela was asking for was a 5% cut in production. Five percent would not have made a difference in the actual glut; but just the psychology of a "cut" would have "stabilized" prices -- or at least that's what it appears Venezuela was suggesting.
Bottom line: the US will need to continue importing heavy oil from somewhere -- Venezuela, Canada, regardless of the political events in those countries.
Existentialism
I think the more interesting question is the existential question. Saudi Arabia needs $100-oil, as do most other OPEC countries. $20-oil could do significant harm to the US oil industry but $20-oil won't destroy the US oil industry. Saudi and the Mideast do not have enough oil to supply the entire world with $20 oil. It will be interesting to see how long Saudi Arabia and the other Mideast countries can survive on $30 oil. I personally don't think very long.
This all precludes a major geopolitical event such as a) an all-out war in the Mideast; or, b) the entire state of California falling into the Pacific Ocean. Either of those two things happening will have a significant effect on the price of oil. I say that because my hunch is that President Putin is also very interested in the existential question, specifically Russian existentialism. Forcing a bear into a corner is not necessarily something one wants to do.
