[TheAntiDoomer]

http://www.midasletter.com/2013/04/enha ... s-1304022/

Melzer has no doubts about the oil. He calls west Texas residual oil zones, or ROZ in drilling lingo, the rozapolis because of their enormous potential. Montana, North Dakota and Wyoming are also rich in residual oil, says Vello Kuuskraa, who helped develop wells near Fort Worth, Texas, in 1997 that showed the viability of hydraulic fracturing, or fracking, and unleashed U.S. fossil-fuel fever.

Unlike fracking, in which drillers blast water, sand and chemicals into wells to shatter shale and release oil and gas, CO2-enhanced drilling induces a chemical reaction that makes oil less sticky and helps it flow from microscopic pores in the rock. CO2 costs about $35 per metric ton in west Texas, and drillers recycle it as many times as possible to dislodge more oil.

Such drilling has the potential to unlock 100 billion barrels of recoverable U.S. reserves, says Kuuskraa, president of Advanced Resources International Inc. in Arlington, Virginia. U.S. reserves total 222.6 billion barrels this year, the EIA says.

[ROCKMAN]

Thanks to high oil prices there are certainly EOR projects that have become viable or at least have a potential that can be tested. In 3 weeks I’ll drill a straight hole in a 60 yo Texas field. If I get the reservoir data I’m hoping for we’ll drill a horizontal well to try to capture the residual oil. But not a new idea in this trend. Was first tried by another operator almost 20 years ago but didn’t prove to be economic. I developed an alternate method about 10 years ago but the project wasn’t marketable until oil prices increased sufficiently. There’s another field on trend that has a CO2 line being built to it from a power plant in a nearby county. The line will cost $160 million with the govt chipping in $120 million of that. Good to be sequestering that CO2 but even better if the tax payers didn’t have to pick up the majority of the cost. Much the same dynamic with the shale plays these days: the potential in these plays has been known for decades and the tech to produce them has been around for 20 years. Just took higher oil prices (and desperate public companies IMHO) to jump start them.

But I think there may be too much optimism as about the potential for significant oil recoveries from other EOR projects. True: lots of residual oil out there. But for the last 60+ years every project with such potential has undergone some level of EOR that was economical at the time to pursue. Much of the current production in west Texas is coming from reservoirs that had EOR techniques applied to them beginning decades ago. Every field I’ve produced over the last 38 years utilized whatever technology that was ECONOMIC to max recovery. IMHO there is no vast inventory of fields where EOR methods have never been applied. But there are reservoirs that may now be viable for EOR given higher oil prices.

Some folks consider the recent increase in US oil production as an indication that PO isn’t a factor. IMHO the increase in the exploitation of unconventional reservoirs is one of the best proofs that we are on an EVENTUAL down ward trend. I drilled and frac’d my first Eagle Ford Shale well over 25 years ago. I pumped my first super frac (500,000#) in a fractured reservoir down a straight hole in 1979. Neither effort proved economical. If oil prices were still below $40/bbl I doubt many, if any, shale wells would be drilled today. But they are and are adding to our supplies. More EOR projects, which are now economical due to those same high prices, will likely add more to our production. But such predictions are read by much of the public as a forecast of eventually lower oil prices. In reality, just the opposite is true IMHO: the gains will be attributed to high oil prices…not a relief from them.

BTW: the viability of frac'ng horizontal wells was proven long before anyone frac'd a well outside of Fort Worth. The horizontal drilling and frac'ng of the Austin Chalk in south Texas was the hottest play in the US at the time. I'm more then glad to acknowledge Mr. Kuuskara's efforts but he weren't the first. He didn't prove nuthin many other operators didn't already know.

[Poordogabone]

Such drilling has the potential to unlock 100 billion barrels of recoverable U.S. reserves

I have no doubt that this statement is true, question is at what price?
I am sure as well that the world could potentially spit out a few more trillion barrels if the price were right. If you're ready to pay an arm and a leg for a gallon of gasoline or a loaf of bread there's lot of potentials out there.

[MD]

Thanks to high oil prices there are certainly EOR projects that have become viable or at least have a potential that can be tested...

Some folks consider the recent increase in US oil production as an indication that PO isn’t a factor. IMHO the increase in the exploitation of unconventional reservoirs is one of the best proofs that we are on an EVENTUAL down ward trend.

... But such predictions are read by much of the public as a forecast of eventually lower oil prices. In reality, just the opposite is true IMHO: the gains will be attributed to high oil prices…not a relief from them.

So X decades from now we will be strip mining Texas to get at the $1000 oil? Because we can and someone will still want it? And someone will be still shouting from the sidelines that it's the route back to cheap oil?

Yes I stated it to the absurd. We're still a few tiers below that point, but that's essentially what we're hearing now.

Thanks ROCKMAN for your contributions as always.

[ROCKMAN]

MD – I think the real tragedy is that some folks think we’ll repeat this process as oil prices increase. We saw what happened when oil hit $146/bbl. As a result of those high prices and the subsequent demand destruction we added less oil reserves. Same thing we saw with NG. And some day NG prices will recover and a lot of dry gas shales will once again be drilled. But it will coincide with consumers paying 50% or more than they are now. This is not a new cycle…been happening since the beginning of the fossil fuel industry. But there’s a big difference in the future IMHO. Today we are exploiting reserves we knew were there but weren’t economic to develop at the then current prices. As I mentioned elsewhere some folks think the DW Gulf of Mexico play is something new but it actually began about 35 years ago with over 160 fields out there developed to date. We developed the technology to chase it and eventually the price of oil got high enough to swing the effort into high gear.

But IMHO there’s no price of oil that can get high enough to make us push into deeper waters because there’s little potential left in deep waters of the world’s oceans. The vast majority of the oceans have zero hydrocarbon potential. That was proven decades ago. And the shales? At least in the US the vast majority of the shales have been tested and have little or no potential even at current high oil prices. I’m talking 100’s of formations in different areas. Which is why more than 80% of all shale production is coming from just two formations. There are numerous shale formations above and below the Eagle Ford that have been evaluated for decades. The hottest play in the US about 25 years ago was one of these formations: the Austin Chalk was horizontally drilled and frac’d in a frenzy comparable to what we see going on today. But today the AC is fairly dead because most of the viable locations have been depleted. Even $100+ oil didn’t revive the play.

There still may some big upside potential in foreign shale deposits. But a number of non-geologic factors hinder their potential IMHO. Only time will tell if they’ll add any significant production to the global total. Perhaps the biggest undeveloped potential remains in Venezuela. Political change is required to make that happen IMHO. And the Canadians will certainly keep dishing out nice production from the oil sands. But those numbers are already accounted for. Nothing new to look at here…move along. LOL. And the Green River Shale? Just a wild guess but I doubt we’ll ever sustain a high enough oil price to make it viable.

So IMHO: no…there are no big oil reserves out there that can be developed at 50% or even 100% higher oil price then we have today even if the economies could sustain themselves at such a price level.

[Pops]

Kopits and the WSJ are again saying we've reached that Nirvana called peak demand, people just don't want oil anymore so maybe we don't need to amp up production?

[snort]
Could it be that we just can't handle the cost of "enhanced recovery"?

Here is what I guessed a couple years ago:



The red band is my WAG at the limit the economy can handle and the orange trend line is my other WAG at the increasing cost of extraction. The lines converge sometime soon, what happens then?

The price can't rise beyond what people can pay and on the flip side it can't fall below the cost of new production to replace depletion or supplies would become so short the price would rocket and...

Actually I think that is exactly what will happen - increasing volatility as commercial stocks and spare capacity alternately dwindle and surge causing the price to likewise wobble. But the big change will be the ceiling of what people can afford to pay falls because the economy will shrink.

Here's my 2020 peak oil challenge price chart:



As of 2005, 60% of global production came from just 1% of fields, 25% from 20 fields (Hook, et al) Perhaps we'll just ride the giants down the slope.

[ROCKMAN]

Pops – WAG’s are WAG’s but your logic seems valid. I’ll assume when you refer to what limit the “economy” can handle you mean the US economy. Obviously there are other economies in the world that have already reached that intersection…some long ago. Greece is an easy example including the social unrest that comes along with the increased unemployment and decreased lifestyles. Other factors led to their current condition but energy costs have had their impact.

But here is where I might dissect your chart a tad. There’s always been a segment of the American economy that fell beyond your intersection. In the 1950’s there was some percentage that fell outside your envelop but I won’t try to put a number to it. As a child growing up in New Orleans my family fell into that group beyond your intersection for whom energy in the form of gasoline or electricity for air condition were out of reach. And that portion of the population has probably varied up and down over time depending on the state of the economy. Perhaps what we’re seeing now is that as we approach your intersection a greater and ever increasing percentage of the US population is slipping towards that dark side. This lackluster “recovery” may be a manifestation of this dynamic.

So now I envision not just one curve but several curves with intersections at different dates. I don’t know: maybe 5 curves each representing 20% of the population. This also leads to the concept that supply will always satisfy demand if one defines demand as what one can afford and not what one desires or needs. But for the upper 20% it won’t be a walk in the park…the other 80% aren’t going to disappear. Some see the Mad Max world developing and others a less dramatic future. I won’t offer my own hypothesis. Seen to many sci-fi movies and thus weirdly prejudiced. LOL.

The only potential I see to alter that path is for the alts to start pushing that intersection further into the future. But chicken/egg slaps us upside the head: we have to continue to consume expensive energy to maintain economies while we expend even more capex to develop alts that will EVENTUALLY lower the cost of energy. That’s where I see the hoped for transition period not developing quick enough.

Of course, the solution is obvious: just load everyone into the Way Back machine and go 40 or 50 years into the past and start making those adjustment we now know we needed to start back in the day.

[rockdoc123]

But I think there may be too much optimism as about the potential for significant oil recoveries from other EOR projects. True: lots of residual oil out there. But for the last 60+ years every project with such potential has undergone some level of EOR that was economical at the time to pursue. Much of the current production in west Texas is coming from reservoirs that had EOR techniques applied to them beginning decades ago. Every field I’ve produced over the last 38 years utilized whatever technology that was ECONOMIC to max recovery. IMHO there is no vast inventory of fields where EOR methods have never been applied. But there are reservoirs that may now be viable for EOR given higher oil prices.

I’m going to provide a devil’s advocate to some of this. Although I agree with your comments as they apply to North America they don’t necessarily apply with the same level of truth to elsewhere in the world. My last thirty years in the industry has given me exposure to pretty much every place in the world where oil is currently producing or where you would normally look for it. There are many place where there have been almost no EOR programs applied. Argentina is a good example of this, there are many fields there that were brought on stream and produced with no infill drilling or pressure maintenance let alone water or miscible flooding. In Algeria to my knowledge there are only two fields that have had much in the way of attempts at enhanced recovery and those both by Sonatrach with non state of the art methodologies. In Russia I participated in the first rush of North American companies into look at field refurbishments and that was almost entirely to do with infill drilling, recompletions and in some cases fraccing to get past damage. When the Russians kicked everyone out the technology went along with them leaving only a few joint ventures such as TNK BP working on fields meaning there is probably a lot still left to do. Sudan production only came onstream in the very late nineties and the projected primary recovery is only going to be around 30%. These are reservoirs with porosities up to 25% and permeabilites in the hundreds of md and to my mind that means there is an opportunity for EOR especially if one can effectively handle the very high water cuts as a consequence of extreme vertical perm. And regardless of the North American experience enhanced methods for recovery have been quite successful in Saudi Arabia with recovery factors now sitting around 60% and predicted to go to 70% or so in fields that had 30% primary recovery. So I caution in making sweeping statements using just North America as an example. I have no idea how much can still be added, at best I suppose it might keep the peak plateau out a few years but as I have said here countless times that is very important. And as to North America the current recovery factor predicted for a lot of the non-mineable oil sands is less than 10%, a few % increase on that would not be a negligible amount of oil.

BTW: the viability of frac'ng horizontal wells was proven long before anyone frac'd a well outside of Fort Worth. The horizontal drilling and frac'ng of the Austin Chalk in south Texas was the hottest play in the US at the time. I'm more then glad to acknowledge Mr. Kuuskara's efforts but he weren't the first. He didn't prove nuthin many other operators didn't already know.

Although I appreciate your “well son, we fracced them wells years ago” analogs they have little whatsoever to do with what is going on in the shales currently. I’ve been around in the business as long as you and was exposed to the sorts of fracs we did back in the seventies and eighties as well, but prior to my retirement I spent a lot of time looking at shale opportunities around the world. The horizontal wells aren’t the same, and the fracs aren’t the same. The results are hence completely different. With regards to your view on EagleFord it is generally agreed by operators and independent analysts that the all-in breakeven price for oil in EagleFord is somewhere near $50/bbl. Most companies who work this trend get a bit of an uplift on WTI and sell their oil at $100/bbl. This is an extremely profitable part of the business which is why it has garnered so much attention recently. I plan on posting a bit on shale production issues over the next few days.

[Pops]

Thanks roc, you 2 rocks have a good time but let me ask a couple of questions.

There are over 500m wells in the US with an average production of 10b/d. We have a large infrastructure and lots of small independent operators who can do fine with a string of strippers producing a tiny amount of oil, right? But that is that true elsewhere?

Considering most reserves are controlled by national oil companies and those that aren't are run by the majors and some in very inhospitable locals (unlike Crawford county TX, lol), what is the probability that the level of sponging up dregs employed in the US will ever happen elsewhere?

And again the question isn't entirely how much can ultimately be extracted but how fast? An extra 10 or 20% would be great – but spread out over 100 years not so much.

[ROCKMAN]

Pops – Very valid observation about squeezing the last few drops out. US independents are in a very different world them most other operators around the world. Lots of reasons you have probably guessed. Sweat equity is the short answer. And not just by the operators by also the small service companies. The Halliburtons/SchlumbergerSema do fine working for the bigger companies low profit margin operators require low margin service companies.

And then there’s the character of the mineral owners. Private US mineral owners exist at a scale virtually unseen in the world. Here you negotiate with a single individual (or perhaps his lawyer) over tens or hundreds of acres of leases. Overseas you may negotiate with a bureaucratic system over a concession covering perhaps hundreds of thousands of acres. And sometimes just bidding against other major players. There’s no room for a 2 or 3 man company in such a horse race. But there have been some smaller but well-funded that have on occasion beat the big guys.

I don’t like predicting the future but it’s difficult to imagine the dynamics changing significantly even when an NOC starts sliding towards lower productivity wells. Not universally true but many of the larger US marginal fields were once owned by Big Oil but sold them off to little oil because they just couldn’t allocate efforts to such small scale operations.

rocdoc - I'll catch up with you in the morning.

[rockdoc123]

Considering most reserves are controlled by national oil companies and those that aren't are run by the majors and some in very inhospitable locals (unlike Crawford county TX, lol), what is the probability that the level of sponging up dregs employed in the US will ever happen elsewhere?

It's actually happening already in some places. Egypt is a good example. The major discoveries were made by very large multi-nationals but as time progressed smaller and smaller companies got involved. Now most of the on-going exploration is done by companies with less than $150 MM market cap. In Australia the on shore shale gas/oil story is all being driven by small companies. Indonesia is another good example with most of the majors having left some time ago and all of the new exploration being done by small companies, some private, some public. Outside of Algeria (which tries to restrict participation in their industry to the majors only) most of onshore Africa is being explored by little companies. Some which were small have become big...eg. Tullow was a startup prior to making it big in Uganda, Cairn Energy's claim to fame was it was lead by a CEO who was capped several times for the Scottish National Rugby team suddenly became a big company through some success offshore India and probably one of the best Cinderella stories is Kosmos who as a startup made a huge discovery offshore Ghana and subsequently became a big company.

Let me clear up a misconception about ownership in the International realm. There are only a handful of countries left that preclude foreign participation in their oil and gas business. Invariably every country maintains the right of ownership of oil but with production sharing agreements you have the right to explore, produce and lift oil to be sold at world price. In such arrangements the host country would take a percentage of the oil liftings and pay taxes for the operator. Other countries such as Colombia and Peru operate with Royalty tax arrangements whereby the NOC does not take any of the liftings but rather gets paid through a royalty arrangement. Slightly more defensive countries such as Iran or Mexico allow for foreign participation but only under service contract arrangements. Under those contracts the operator does the work and is paid on a fee/bbl lifted arrangment in most cases and in some an additional amount for increased production above some predetermined level. In all of these cases, however foreign companies have access to hydrocarbons and benefit monetarily.

[ralfy]

12 Mb/d for North America to meet 19 Mb/d US oil consumption, probably with the hope that consumption will drop significantly while not affecting the economy.

About that last point, though, a related one:

"These Charts Better Not Reflect The True State Of The US Economy"

http://www.zerohedge.com/news/2013-04-0 ... us-economy