Less Than 2 Percent of Permian Basin Is Commercial at $30 Oil

About that American oil independence narrative. Dead shale walking. The debt saturated shale oil companies are filing bankruptcy on a weekly basis and the trend will only accelerate from here as their hedges expire and oil prices continue to fall. You can stick a fork into the shale oil/gas miracle. I can’t remember who predicted this over a year ago.

Guest Post by Art Berman

Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.

Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.

To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the USA is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.

The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.

None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.

Bone Spring-Wolfcamp Location Map 13 Dec 2015
Figure 1. Horizontal Wolfcamp-Spraberry & Leonard-Bone Spring play location map, Permian basin.
Source:  Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Reality Check:  The Claims vs. Proven Reserves for the Permian Basin

Pioneer claims more than 10 billion barrels for its Spraberry-Wolfcamp position, and EOG claims 2.35 billion barrels for its Bone Spring and Wolfcamp plays.

Let’s put that in context.

Total proven crude oil and condensate reserves for the United States as of the November 2015 EIA report are 39.9 billion barrels. So, these two companies claim that they have reserves or resources of more than one-quarter of all U.S. reserves in 3 plays in the Permian basin. According to the same EIA report, the Permian basin has less than three-quarters of a billion (722 million) barrels of proven tight oil reserves.

Right.

Pioneer’s claim is by far the more preposterous of the two but it wasn’t very long ago (May 2014) that EOG CEO Bill Thomas told investors that his company wasn’t really all that into the Permian basin. Pioneer CEO Scott Sheffield has been making statements for a few years about the Spraberry that ought to give his company’s General Counsel heart seizures.

“The Spraberry Wolfcamp could possibly become the largest oil and gas discovery in the world.”

It is incredible that analysts have not challenged Sheffield’s claim over the last two years that the Spraberry is second only to the Ghawar Field (Saudi Arabia) as the world’s largest oil field.

What exactly do analysts analyze, anyway?

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Desertrat
Desertrat

WTI at $35, yeah. Canadian tar sand oil is selling at around $20, which is why Alberta’s economy is already in the toilet.

The Saudi glut is painful, even to them. They’re burning through their reserves at a great rate, since they need $90/bbl oil to balance their budget.

Anonymous
Anonymous

Oil has always been boom or bust for as long as I can remember.

And I’m pretty old.

And political manipulations of it -both national and international- have always been a part of the boom and bust cycle.

I doubt that is going to change as long as petroleum remains the basis of our civilization, and I doubt there is anything the environmental leftists will allow that will replace it.

Hollow man
Hollow man

My tromping grounds. It is bad here. Oilfield traffic has slowed dramatically. The struggle is real and theft is rising

Roy

The stuff produced from fracking is kerogen which can only be distilled to produce condescends and gasoline. It contains 15 to 20% condescends while WTI and Brent contain about 10% condescends. The Canadian tar sands Bitumen will only distill from the upper end of the distillation process, asphalt and heavy oils. The Bitumen is too thick to be pumped and is diluted with from 20 to 40% kerogen or tight light oil.

Refineries are increasingly rejecting blends of heavy crude + condensate that technically meet API gravity ceiling of 42 but are deficient in middle distillates like diesel.

Now that Congress has passed a law allowing for the export of crude maybe we can foist the blends and LTO off on foreigners.

bb

Honest Question for all you economic wiz kids. Why is there an oil glut to begin with? Low consumption or to much production ? Maybe something else ?

overthecliff

bb, I think the whole thing was to get investors to take the risk. They did and found the oil and developed the wells. Financial types conspire with Arabs to bankrupt the investors. Then they buy up all the assets for pennies on the dollar .(with zirp loans of make believe money)

The suckers are broke,the bankers own the resources, here comes $5.00 gasoline. Pretty good plan wasn’t it.

SSS

“You can stick a fork into the shale oil/gas miracle. I can’t remember who predicted this over a year ago.”
—-Admin

Stuff it.

“It ain’t

SSS

Fucking auto post again.

“It ain’t over till it’s over.”
—-Yogi “SSS” Berra

SSS

@ Admin

Despite recent focus on the downward momentum, Credit Suisse global energy research analysts predict a recovery for prices in the second half of next year. “The ingredients are there: Oil demand is growing and supply is rolling over,” they explained in a note. “The wildcards that could inflict further pain are higher OPEC growth than our forecasts, or economic retrenchment.”

“How are your high dividend funds doing bucko?”
—-Admin

My investment portfolio is doing just fine. Cap gains back in the black overall, dividends and interest holding steady. I’m an extremely conservative and patient investor. Thanks for asking.

SSS

Administrator says:

“SSS can’t figure out the comment system, but he’s an expert on shale oil.”

I think it’s a malfunctioning touchpad on my laptop, but none of the disabling instructions I can find fit the menu tabs available on my laptop. It’s a goddamned CIA conspiracy, IMHO. Heh.

starfcker
starfcker

Jim, overthecliff nails it. Remember goldman’s motto, “don’t be the first one through the door”, (that’s the guy who gets the bullet in the face). Shale oil will be very profitable at a much lower price, it will just have different (bankster) owners.

yahsure
yahsure

I figure it is the U.S. and the Saudis getting at Putin and Putting those evil oil folks out of business in the U.S.
There are so many ways to change things.Hydrogen? NG? Heck trucks should be commercial vehicles only,piss poor daily transportation is what they are. I filled up for 1.19 a gallon with my grocery store discount last night. I had a buck a gallon off.Later i saw gas at 2.00. I figure oil will go back up next spring. By then many will be bankrupt,Just like the Saudis want.

BEA LEVER
BEA LEVER

Admin- Starfcker and SSS used up all of their fingers and toes and at that point were completely lost in the maff side of the conversation.

starfcker
starfcker

Jim, the oil industry is reducing CAPEX, because the infrastructure has already been built, at full price. All the geology has been done, at full price. All of the support structure, roads, housing, transport, etc, has been built at full price, through the miracle of counterfeit money. Those rigs aren’t going away. Sure, the independents are choking on debt, and plenty will go belly up, and all that debt dissappears with them, leaving a much lower cost structure for the new bankster owners

starfcker
starfcker

Bea, shush. Go find a mirror, “PREZ-EE-DENT TRUMP”

BEA LEVER
BEA LEVER

Soon as the Russians throw in the towel, oil will rise to $150 pb overnight. That is if they can break Putin’s back with lost oil revenue.

SSS

Admin

Walgreens (up over 100% of cost basis plus 1.71% dividend yield), USAA tax-exempt bond fund (paying 2.4%), Johnson&Johnson (up 70% over cost), and Philip Morris (up 167% over cost and a whopping 4.66% dividend yield).

As I said, patience. If you weren’t so mean to me, I’d tell you more. Heh.

starfcker
starfcker

Jim, I’m too lazy today to bicker. I’ll see if I can put together an article this week and we can have at it then. It’s not just energy that the banks use these tactics on.

starfcker
starfcker
BEA LEVER
BEA LEVER

One down, One to go………Admin’s superior brain gets the best of Starfucker.

phoolish
phoolish

Exactly how is it that the us is going to export oil when it imports 8 million barrels per day? Must be some of that no-child-left-behind math.

starfcker
starfcker

Bea, remember this. Jim wins when the economy collapses and rand paul assumes the presidency (trump will drop out, at freefall speed) the mighty starfcker wins when president trump turns the economy on a dime. Seen any polling data lately?

BEA LEVER
BEA LEVER

Star- You better take that comedy act on the road before Admin comes back in to kick your ass again over the Trump as president crack. One ass whoopin in a day should teach you not to mess with Admin………Your out of your league, back under the porch.

BEA LEVER
BEA LEVER

SSS is vewy, vewy quiet about his high yield Energy fund, guess Admin wins that one too. Better luck next time Spooky ! 🙂

starfcker
starfcker

Bea, I don’t like to fight with jim. But I wouldn’t be a pal if I didn’t help him along a little bit. Voting starts in 6 weeks. I’m not real familiar with freefall speed, and all, but seems to me the time for trump to quit is running out really fast. When he starts running the 50 state primary table, (6 weeks is only 43 days, bea, more maff) then what? And c’mon jim, the hitler card AGAIN? In a half hearted thread like this? Save some ammo, you’ve got 9 more years to hate on trump

BEA LEVER
BEA LEVER

How can anybody take those two clowns serious, they pull complete BS out of their backsides and throw it up against the wall. A pathetic attempt to dazzle Admin with their (lack of) knowledge.

Sensetti
Sensetti

I’m going to take a position in oil and gas Stocks when they reach the bottom! Why do I think this will be a smart move? Because Fourth Turnings bring war, most likely this one will destroy Middle Eastern oil infrastructure and that’s one hell of a game changer! I want to invest in a domestic company that has plenty of conventional oil well’s pumping!
I more than welcome anyone to trash this idea!

Sensetti
Sensetti

Chesapeake is a basket case! I’ve known that for years. Their entire program was one giant financial engineering scheme! I have a good friend who’s a landman and he’s bought lease’s for Chesapeake at one time. We’ve had many discussions over Chesapeake’s operations!

Sensetti
Sensetti

Carl Icahn reduced his share of Chesapeake from 5.8% to 4.15%.

SSS

Admin

I used the words “cost basis” and “patience” in my comments about Walgreens, Johnson&Johnson, and Philip Morris. Can you add the first to the second and appreciate the capital gains + dividends I’ve enjoyed, not to mention the increase on shares owned through dividend reinvestment? I’ve had those stocks for years, and they are winners for me. I could give a flying fuck what they’ve done lately. I’m still sitting on a tidy profit. Try Procter&Gamble and tell me how stupid that is.

I never said anything about high yield energy funds. My energy investments are totally in preferred common stocks (par value $25/share) issued by power companies, and the interest being paid ranges between 5 1/2% to just under 8%. Good for about $22,000 a year in interest. Not bad in today’s world of 0.1% interest paid on savings accounts. I have one of those, too. There’s 3 years worth of retirement income in there.

“How can anybody take those two clowns (starfckr and SSS) serious, they pull complete BS out of their backsides and throw it up against the wall. A pathetic attempt to dazzle Admin with their (lack of) knowledge.”
—-Bea Lever

Tell me again how clownish I look with my reply above to Admin. So bite me.

Sensetti
Sensetti

The only way Chesapeake could even be looked at as a potential buy is the Carl Ichan connection. Carl is backing Trump, if Trumps elected Carl’s investments may suddenly find favorable winds by coincidence of course.
Chesapeake is a basket case, I would never be able to understand all their financial shenanigans! So I’ll have to look elsewhere!

SSS

Admin @ SSS, w/ my answers in parens

Please provide me with the names of those preferred stocks. (No.) I need to do my due diligence before buying. (Get cracking.) Are they unaffected by the energy market and interest rates? (No and no. Preferred common stocks have fixed interest rates, but can be recalled at $25/share.) Inquiring minds want to know. (Inquire away.)

bb

Thanks Admin ,Overthecliff and all others for responding. I just thought there might be a 800 pound gorilla in the room no one was able to see.I don’t know much about oil companies or their stock value. I guess I’ll stick to gold and silver.

SSS ,I sincerely hope your investments do well in the future .

Starfcker ,hang in there . This can be a tough place sometimes.

Westcoaster
Westcoaster

You guys settle down in there. Admin’s right.

SSS

Westcoaster says: “You guys settle down in there. Admin’s right.”

Admin and I got into a pissing contest less than a year ago about fracking when oil was around $50/bbl. It’s now over $15/bbl lower, so his argument about the fracking industry is stronger. Much stronger. It ain’t looking good. (Natural gas is another story.)

But I’m not settling down, and you’d better hope I’m right in the long run. Think about it. For yourself, your family, your community and your country.

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