Replies to post #2061 on The Rising Influence of Rising Affluence

[DewDiligence]

The Bakken and the Eagle Ford are each expected to ultimately produce 4 billion barrels of oil. That would make them the fifth- and sixth-biggest oil fields ever discovered in the United States.

…The fields are attracting billions of dollars of investment from foreign oil giants like Royal Dutch Shell, BP and Norway's Statoil, and also from the smaller U.S. drillers who developed the new techniques like Chesapeake, EOG Resources and Occidental Petroleum.

I’m astonished that the AP article does not mention HES, which is perhaps the premiere Bakken play among publicly-traded companies.

[DewDiligence]

More on the boom in US shale oil...

http://online.wsj.com/article/SB10001424052748704858404576134553990567750.html

›US Rig Count Doubles

FEBRUARY 10, 2011
By RYAN DEZEMBER And MATT DAY

CUERO, Texas—Oil-drilling activity in the U.S. has accelerated to a pace not seen in a generation as energy companies, oilfield contractors and landowners rush to exploit newly profitable sources of crude.

The number of rigs aiming for oil in the U.S. is the highest since at least 1987, according to Baker Hughes Inc. The 818 rigs tallied by the oilfield-service company last week are nearly double last year's count and about 10 times the number that were drilling for oil in the late 1990s.

While the drilling surge is unlikely to yield enough crude to alter the global oil-supply picture, analysts say the new activity, centered on so-called unconventional reservoirs, could greatly boost domestic oil production and help offset declining output in Alaska and the Gulf of Mexico.

These reservoirs, trapped in tight shale-rock formations, were deemed too hard to crack a decade ago. But in the past two years, breakthroughs in drilling technology, combined with the resilience of high oil prices, have led companies like Chesapeake Energy Corp. and Petrohawk Energy Corp. to switch rigs formerly devoted to drilling for natural gas to emerging oilfields like the Eagle Ford shale formation, which stretches from the outskirts of Houston and San Antonio, Texas, south into Mexico.

In this sun-scorched cattle country, prolonged drought and financial strain gave way to prosperity when the oil-patch leasing agents began pouring into town three years ago. For struggling ranchers the proceeds from the subsequent land deals and royalties from the intense oil drilling that is now under way are "pennies from heaven," says real-estate broker and oil-and-gas producer David Phillip. "All these new trucks you see ranchers driving," he says, "it wasn't from cattle."

Land prices in the area have risen exponentially, and ranchers such as Mike Green, who owns about 70 acres along the Guadalupe River in the heart of the Eagle Ford's oily swath just outside Cuero, are holding out for higher offers. Three years ago ConocoPhillips's Burlington Resources unit offered Mr. Green $400 an acre to lease the land, Mr. Green says. He declined: "That's like beach-front property."

His belief that prices would rise appears to have been validated. Last fall, Petrohawk paid the state $12,012 an acre for mineral rights in the river's bed.

The Eagle Ford experienced a more-than-tenfold increase in the number of wells drilled last year over the 94 completed in 2009 and is slated for even more development this year. And the trend is playing out nationally, in formations such as the Bakken Shale in North Dakota and the Monterey Shale in California.

Oil production from these sources is expected to reach 1.5 million barrels a day by 2015 from fewer than 500,000 barrels a day now, according to energy consultancy Wood Mackenzie. That is similar to the amount of crude produced in the offshore Gulf of Mexico, and the equivalent of nearly 30% of current U.S. production. That extra million barrels per day could help replace some expensive oil imports as conventional oilfields in the rest of the country decline.

To extract the rock-bound crude, explorers and producers will boost spending this year by an estimated 8.1% to $93.6 billion, according to a Barclays Capital survey of 210 companies.

In recent months large natural-gas producers Devon Energy Corp., Chesapeake and Petrohawk have outlined major transitions to oil exploration. Even Chinese state oil giant Cnooc Ltd. is also embracing unconventional oil: its first major investment in the U.S. consisted of an Eagle Ford joint venture with Chesapeake. Large, oil-focused companies such as Anadarko Petroleum Corp., Occidental Petroleum Corp. and ConocoPhillips are also ramping up their drilling programs from California to North Dakota to Texas.

These companies are applying to oil shales the same horizontal-drilling and hydraulic-fracturing techniques that they developed to coax natural gas out of tight, deeply buried rock formations. So successful were producers in that pursuit that they created a glut of natural gas and pushed prices into a protracted slump. Despite high heating demand during this winter's unusually frigid temperatures, natural-gas futures are on track for their lowest winter peak since 2001-02.

Oil, on the other hand, is a more profitable commodity; its prices are approximately $90 a barrel, about twice the level seen in the immediate aftermath of the financial collapse of 2008.

Analysts say that the oil frenzy is unlikely to result in a similar slump. Unlike domestically traded natural gas, however, oil is priced mainly on worldwide demand [no kidding]. And no matter how much crude comes out of North America's unconventional reservoirs, the global appetite for oil—which the International Energy Agency predicts will rise to 89.1 million barrels a day this year—won't be sated. Nor is the production likely to significantly affect prices, says Wood Mackenzie's Matthew Jurecky.

Mr. Phillip, the real-estate broker, is also taking note. He says the South Texas countryside glows at night as small producers flare gas that they cannot sell because pipelines are bloated. As a result, Mr. Phillip, who operates seven traditional vertical gas wells, will begin drilling his first horizontal oil well into the Eagle Ford this week.‹

[DewDiligence]

More than you probably wanted to know about the Eagle Ford shale:

http://seekingalpha.com/article/257877-major-players-in-the-eagle-ford-shale

[DewDiligence]

US Shale Oil: “Like Adding Another Kuwait”

[US oil production from such “unconventional” sources as the Bakken and Eagle Ford could reach 3M bbl/day by the end of the decade, comprising a third of total US production.]

http://www.nytimes.com/2011/05/28/business/energy-environment/28shale.html

›May 27, 2011
By CLIFFORD KRAUSS

CATARINA, Tex. — Until last year, the 17-mile stretch of road between this forsaken South Texas village and the county seat of Carrizo Springs was a patchwork of derelict gasoline stations and rusting warehouses.

Now the region is in the hottest new oil play in the country, with giant oil terminals and sprawling RV parks replacing fields of mesquite. More than a dozen companies plan to drill up to 3,000 wells around here in the next 12 months.

The Texas field, known as the Eagle Ford, is just one of about 20 new onshore oil fields that advocates say could collectively increase the nation’s oil output by 25 percent within a decade — without the dangers of drilling in the deep waters of the Gulf of Mexico or the delicate coastal areas off Alaska.

There is only one catch: the oil from the Eagle Ford and similar fields of tightly packed rock can be extracted only by using hydraulic fracturing, a method that uses a high-pressure mix of water, sand and hazardous chemicals to blast through the rocks to release the oil inside.

The technique, also called fracking, has been widely used in the last decade to unlock vast new fields of natural gas, but drillers only recently figured out how to release large quantities of oil, which flows less easily through rock than gas. As evidence mounts that fracking poses risks to water supplies, the federal government and regulators in various states are considering tighter regulations on it.

The oil industry says any environmental concerns are far outweighed by the economic benefits of pumping previously inaccessible oil from fields that could collectively hold two or three times as much oil as Prudhoe Bay, the Alaskan field that was the last great onshore discovery. The companies estimate that the boom will create more than two million new jobs, directly or indirectly, and bring tens of billions of dollars to the states where the fields are located, which include traditional oil sites like Texas and Oklahoma, industrial stalwarts like Ohio and Michigan and even farm states like Kansas.

“It’s the one thing we have seen in our adult lives that could take us away from imported oil,” said Aubrey McClendon, chief executive of Chesapeake Energy, one of the most aggressive drillers. “What if we have found three of the world’s biggest oil fields in the last three years right here in the U.S.? How transformative could that be for the U.S. economy?”

The oil rush is already transforming this impoverished area of Texas near the Mexican border, doubling real estate values in the last year and filling restaurants and hotels.

“That’s oil money,” said Bert Bell, a truck company manager, pointing to the new pickup truck he bought for his wife after making $525,000 leasing mineral rights around his family’s mobile home. “Oil money just makes life easier.”

Based on the industry’s plans, shale and other “tight rock” fields that now produce about half a million barrels of oil a day will produce up to three million barrels daily by 2020 [i.e. about a third of total US oil production], according to IHS CERA, an energy research firm. Oil companies are investing an estimated $25 billion this year to drill 5,000 new oil wells in tight rock fields, according to Raoul LeBlanc, a senior director at PFC Energy, a consulting firm.

“This is very big and it’s coming on very fast,” said Daniel Yergin, the chairman of IHS CERA. “This is like adding another Venezuela or Kuwait by 2020, except these tight oil fields are in the United States.”

In the most developed shale field, the Bakken field in North Dakota, production has leaped to 400,000 barrels a day today from a trickle four years ago. Experts say it could produce as much as a million barrels a day by the end of the decade.

The Eagle Ford, where the first well was drilled only three years ago, is already producing more than 100,000 barrels a day and could reach 420,000 by 2015, almost as much as Ecuador, according to Bentek Energy, a consultancy.

The shale oil boom comes as production from Prudhoe Bay is declining and drilling in the Gulf of Mexico is being more closely scrutinized after last year’s Deepwater Horizon disaster.

What makes the new fields more remarkable is that they were thought to be virtually valueless only five years ago. “Everyone said the oil molecules are too large to flow in commercial quantities through these low-quality rocks,” said Mark G. Papa, chief executive of EOG Resources.

EOG began quietly buying the rights to thousands of acres in the Bakken and Eagle Ford after an EOG engineer concluded that the techniques used to extract natural gas from shale — fracking, combined with drilling horizontally through layers of rocks — could be used for oil. Chesapeake and a few other independents quickly followed. Now the biggest multinational oil companies, as well as Chinese and Norwegian firms, are investing billions of dollars in the fields.

The new drilling makes economic sense as long as oil prices remain above $60 a barrel, according to oil companies. At current oil prices of about $100 a barrel, shale wells can typically turn a profit within eight months — three times faster than many traditional wells.

But water remains a key issue. In addition to possible contamination of surface and underground water from fracking fluids, the sheer volume of water required poses challenges, especially in South Texas, which faces a severe drought and rapidly diminishing water levels in the local aquifer.

At the rate wells are being drilled, “there’s definitely going to be a problem,” said Bay Laxson, a local water official.

Dave Thompson, regional production superintendent for the oil company SM Energy said the industry knew that water issues were “an Achilles heel.” He said his company was building a system to reuse water in the field.

But unlike Pennsylvania and New York, where fracking for natural gas has produced organized opposition, the oil industry has been mostly welcomed in western and southern states.

Thanks to the drilling boom, the recession bypassed North Dakota entirely. Here in Dimmit County, Tex., the unemployment rate has fallen in half, and sales tax receipts are up 70 percent so far this year, allowing the county to hire more police officers and buy sanitation and road repair equipment.

“In my lifetime, this is the biggest thing I’ve ever seen,” said Jose Gonzalez, 78, a retired teacher and son of migrant farm workers, who leased mineral rights to Chesapeake for $27,000 and sold another plot for $100,000 to a company building an RV park for oil workers. “You can see I’m happy.”‹

[DewDiligence]

‘Peak Oil’ Believers Have Been Wrong At Every Turn

[See #msg-58237630 and #msg-63674156 for related stories, and see #msg-59847334 for a contrary (pro Peak Oil) view.]

http://online.wsj.com/article/SB10001424053111904060604576572552998674340.html

›For decades, advocates of 'peak oil' have been predicting a crisis in energy supplies. They've been wrong at every turn…

SEPTEMBER 17, 2011
By DANIEL YERGIN

Since the beginning of the 21st century, a fear has come to pervade the prospects for oil, fueling anxieties about the stability of global energy supplies. It has been stoked by rising prices and growing demand, especially as the people of China and other emerging economies have taken to the road.

This specter goes by the name of "peak oil."

Its advocates argue that the world is fast approaching (or has already reached) a point of maximum oil output. They warn that "an unprecedented crisis is just over the horizon." The result, it is said, will be "chaos," to say nothing of "war, starvation, economic recession, possibly even the extinction of homo sapiens."

The date of the predicted peak has moved over the years. It was once supposed to arrive by Thanksgiving 2005. Then the "unbridgeable supply demand gap" was expected "after 2007." Then it was to arrive in 2011. Now "there is a significant risk of a peak before 2020."

But there is another way to visualize the future availability of oil: as a "plateau."

In this view, the world has decades of further growth in production before flattening out into a plateau—perhaps sometime around midcentury—at which time a more gradual decline will begin. And that decline may well come not from a scarcity of resources but from greater efficiency, which will slacken global demand.

Those sounding the alarm over oil argue that about half the world's oil resources already have been produced and that the point of decline is nearing. "It's quite a simple theory and one that any beer-drinker understands," said the geologist Colin Campbell, one of the leaders of the movement. "The glass starts full and ends empty, and the faster you drink it, the quicker it's gone."

This is actually the fifth time in modern history that we've seen widespread fear that the world was running out of oil. The first was in the 1880s, when production was concentrated in Pennsylvania and it was said that no oil would be found west of the Mississippi [LOL]. Then oil was found in Texas and Oklahoma. Similar fears emerged after the two world wars. And in the 1970s, it was said that the world was going to fall off the "oil mountain." But since 1978, world oil output has increased by 30%.

Just in the years 2007 to 2009, for every barrel of oil produced in the world, 1.6 barrels of new reserves were added. And other developments—from more efficient cars and advances in batteries, to shale gas and wind power—have provided reasons for greater confidence in our energy resiliency. Yet the fear of peak oil maintains its powerful grip.

The idea owes its inspiration, and indeed its articulation, to a geologist who, though long since passed from the scene, continues to shape the debate, M. King Hubbert. Indeed, his name is inextricably linked to that perspective—immortalized in "Hubbert's Peak."

Marion King Hubbert was one of the most eminent—and controversial—earth scientists of his time. Born on a ranch in San Saba, Texas in 1903, he did his university education, including his Ph.D., at the University of Chicago. One of his fundamental objectives was to move geology from what he called its "natural history phase" into its "physical science phase," firmly based in physics, chemistry and, in particular, rigorous mathematics.

In the 1930s, while teaching at Columbia University, Hubbert became active in a movement called Technocracy and served as its educational director. Holding politicians and economists responsible for the debacle of the Great Depression, Technocracy promoted the idea that democracy was a sham and that scientists and engineers should take over the reins of government and impose rationality on the economy. "I had a box seat at the Depression," Hubbert later said. "We had manpower and raw materials. Yet we shut the country down."

Technocracy envisioned a no-growth society and the elimination of the price system, to be replaced by the wise administration of the Technocrats. Hubbert believed that a "pecuniary" system, guided by the "hieroglyphics" of economists, was the road to ruin.

In the late 1940s, Hubbert heard another geologist say that 500 years of oil supply remained in the ground. This couldn't possibly be true, he thought. He started doing his own analysis. In 1956, he unveiled the theory that would forever be linked to his name. He declared that U.S. oil production would hit its peak somewhere between 1965 and 1970.

His prediction was controversial, but when U.S. oil production hit its high point in 1970 and began to decline, soon followed by the shock of the 1973 embargo, Hubbert appeared more than vindicated. He was a prophet. He became famous—and so did Hubbert's Peak.

For many decades, the U.S. had been, by far, the world's largest oil producer. All through the 1960s, domestic production had supplied 90% of demand. No longer. To meet its own growing needs, the U.S. became a major importer, deeply enmeshed in the world oil market and a new set of geopolitical concerns.

Hubbert was very pessimistic about future supply. He warned that the era of oil would be only a brief blip in mankind's history. In 1978, he predicted that children born in 1965 would see all of the world's oil used up in their lifetimes. Humanity, he said, was about to embark upon "a period of non-growth."

Hubbert used a statistical approach to project the kind of decline curve that one might encounter in some—but not all—oil fields, and he assumed that the U.S. was one giant oil field. His followers have adopted the same approach to assess global supplies.

Hubbert's original projection for U.S. production was bold and, at least superficially, accurate. His modern-day adherents insist that U.S. output has "continued to follow Hubbert's curve with only minor deviations."

But it all comes down to how one defines "minor." Hubbert got the date exactly right, but his projection on supply was far off. He greatly underestimated the amount of oil that would be found—and produced— in the U.S.

By 2010, U.S. oil production was 3½ times higher than Hubbert had estimated: 5.5 million barrels per day versus Hubbert's 1971 estimate of no more than 1.5 million barrels per day. Hardly a "minor deviation."

"Hubbert was imaginative and innovative," recalled Peter Rose, who was Hubbert's boss at the U.S. Geological Survey. But he had "no concept of technological change, economics or how new resource plays evolve. It was a very static view of the world." Hubbert also assumed that there could be an accurate estimate of ultimately recoverable resources, when in fact it is a constantly moving target.

Hubbert insisted that price didn't matter. Economics—the forces of supply and demand—were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.

The idea of "proved reserves" of oil isn't just a physical concept, accounting for a fixed amount in the "storehouse." It's also an economic concept: how much can be recovered at prevailing prices. And it's a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.

In the oil and gas industry, technologies are constantly being developed to find new resources and to produce more—and more efficiently—from existing fields. In a typical oil field, only about 35% to 40% of the oil in place is produced using traditional methods.

One example is the "digital oil field," which uses sensors throughout the field to improve the data and communication between the field and a company's technology centers. If widely adopted, it could help to recover an enormous amount of additional oil worldwide—by one estimate, an extra 125 billion barrels, almost equivalent to the current estimate reserves of Iraq.

New technologies and approaches continue to unlock new resources. Ghana is on its way to significant oil production, and just a few days ago, a major new discovery was announced off the coast of French Guiana, north of Brazil.

As proof for peak oil, its advocates argue that the discovery rate for new oil fields is declining. But this obscures a crucial point: Most of the world's supply is the result not of discoveries but of additions and extensions in existing fields.

When a field is first discovered, little is known about it, and initial estimates are conservative. As the field is developed, more wells are drilled, and with better knowledge, proven reserves very often increase substantially. A study by the U.S. Geological Survey found that 86 percent of oil reserves in the U.S. were the result not of what was estimated at the time of discovery but of revisions and additions from further development.

Estimates for the total global stock of oil keep growing. The world has produced about one trillion barrels of oil since the start of the industry in the 19th century. Currently, it is thought that there are at least five trillion barrels of petroleum resources in the ground, of which 1.4 trillion are deemed technically and economically accessible enough to count as reserves (proved and probable).

Based on current and prospective plans, it appears that the world's production capacity for "oil and related liquids" (in industry jargon) should grow from about 92 million barrels per day in 2010 to over 110 million by 2030. That is an increase of about 20%.

But this is no done deal. There are many "buts," having to do with what happens above ground. The policies of governments around the world—especially concerning taxes and access to resources—have a major impact on whether and when oil is discovered and developed [duh].

Wars and civil wars, social turmoil and political upheavals, regional conflict, corruption and crime, mismanagement of resources—all of these can affect not only current production but also investment and future prospects. Environmental and climate policies can alter the timing and scale of development, as can geopolitics and politics within oil-producing countries.

In short, in a world whose $65 trillion economy depends greatly on oil, energy security will be a lasting and critical preoccupation.

Meeting future demand will require innovation, investment and the development of more challenging resources. A major reason for continuing growth in petroleum supplies is that oil previously regarded as inaccessible or uneconomical is now part of the mix, such as the "presalt" resources off the coast of Brazil, the vast oil sands of Canada, and the oil locked in shale and other rocks in the U.S.

In 2003, the Bakken formation in North Dakota was producing a mere 10,000 barrels a day. Today, it is over 400,000 barrels, and North Dakota has become the fourth-largest oil-producing state in the country. Such "tight" oil could add as much as two million barrels a day to U.S. oil production after 2020—something that would not have been in any forecast five years ago.

Overall U.S. oil production has increased more than 10% since 2008. Net oil imports reached a high point of 60% in 2005, but today, thanks to increased production and greater energy efficiency (plus the use of ethanol), imports are down to 47%.

Things don't stand still in the energy industry. With the passage of time, unconventional sources of oil, in all their variety, become a familiar part of the world's petroleum supply. They help to explain why the plateau continues to recede into the horizon—and why, on a global view, Hubbert's Peak is still not in sight.‹