In this post I present an update to my previous posts over at The Oil Drum (The Red Queen series) on developments in tight oil production from the Bakken formation in North Dakota with some additional estimates, mainly presented in charts. The expansion is much about the differences between wells capable of producing, actual producing wells and idle wells (here defined as the difference between the number of wells capable of producing and the number of actual producing wells).
There is still noticeable growth in tight oil production from an accelerated additions of producing wells.
- For October 2013 North Dakota Industrial Commission (NDIC) reported a production of 877 kb/d from Bakken/Three Forks.
- In October 2013YTD production from Bakken/Three Forks (ND) was 775 kb/d.
(It is now expected that average daily production for all 2013 from Bakken (ND) will become around 800 kb/d.
- The cash flow analysis now suggests less use of debt for manufacturing wells for 2013.
Major funding for new wells now appears to come mainly from from net cash flows.
kb; kilo barrels = 1,000 barrels
In this post I present some hard data from the Norwegian economy, which in the recent decades show high correlations between total debt growth and the oil price. Presently the total debt growth from some sectors runs at an annual rate above 8% of GDP.
I also present my thoughts and observations about historical developments and what may lie ahead.
The economic undertows now suggest for a sharp downturn in the Norwegian economy. A deep look into the public data from Statistics Norway (SSB) reveals that it was the growth in debt, primarily acquired by the Norwegian households, that was and still continues to be a major and less acknowledged contributor to the recent growth success of the Norwegian economy.
The primer for the strong nominal growth in debt was likely the growth in the oil price starting back in 2004. The oil price has remained at a structurally higher level at around $100/bbl.
Developments in the Norwegian economy have been tightly linked to movements of the oil price and the value of petroleum exports.
- It is widely recognized that the growth in the oil price spurred more investments for exploration and developments for petroleum from the North Sea.
- With the increased Norwegian North Sea petroleum activities followed an acceleration in households, non financial and municipalities debt growth.
As the data on imports are not broken down by sectors, there is good reason to believe that a major portion of the import growth originates from purchases of goods and services for the petroleum industry.
The value of Norwegian petroleum exports is now expected to decline in the near term with the decline in production, primarily of crude oil and by the end of this decade also natural gas.
Anyhow the data were whipped around for confessions, it turned out the Norwegian economy now appear to approach a major turn around.
This post which is based on results from earlier research and analytic work posted on The Oil Drum, Fractional Flow and not least in recent (private) discussions with other international acknowledged experts present some facts and observations about developments of tight oil (which to some extent also applies to oil sands) versus small deep water discoveries*.
*Small deep water discoveries are here meant discoveries with Estimated Ultimate Recovery (EUR) below 100 Million Barrels of Oil Equivalents (MBOE).One big takeaway from the chart above is that both developed small deep water discoveries and tight oil wells have steep decline rates and short high flow life cycles. These are now the major sources that offset declines from the bigger, heavily depleted legacy fields (with long productive life cycles) and provide any growth in global oil supplies.
In this post I present a closer look at 4 developed discoveries (of a total of 10) that started to flow as from 2012 and their production as of September 2013 as these have been reported by the Norwegian Petroleum Directorate (NPD).
A common feature for several of the recent developments offshore Norway is that they have estimated recoverable reserves ranging from 10 – 100 Million Barrels of Oil Equivalents (MBOE) and are expensive to develop and generally developed with sub sea completed wells flowing back to an existing (host) installation for processing. The host installation normally provides for essential services for the operations of these sub sea installations. These discoveries typically annual flow are 15 – 25% of estimated recoverable reserves at some kind of plateau and enter into steep declines as they become 50 – 60% depleted. Normally these developments reach expected plateau a few months after they start to flow.
Several of the recent smaller developments* on the Norwegian Continental Shelf (NCS) have so far under-performed with regard to expected production. So far these have resulted that some companies have taken some write downs, and others will have to accept considerably lower returns on their investments.
The presented 4 developments were now expected to flow a total of 90 – 100,000 BOE/d. Actual data from NPD show that these 4 developments had an average total flow of 13,000 BOE/d for August and September 2013.
*) By smaller developments are here meant discoveries with estimated recoverable reserves below 100 Million Barrels Oil Equivalents (MBOE).
This is worrisome for several reasons:
- Write downs and lowered returns impact the companies’ financial abilities to develop future capacities and to carry through planned exploration activities.
- Write downs destroy shareholder value.
- If there is a general trend with weakened profitability and/or losses from smaller developed discoveries (which for some time has been dominant on NCS), this may lead to future revisions of the criteria the companies use for commercialization of these. In other words more experiences confirming the uncertainties surrounding smaller discoveries could push the commercial break even price lower, thus deferring developments of such discoveries that already are within the companies’ portfolios.
This may fly under the radar coverage with the euphemism “targeting financial performance”.
- To finance these developments, the companies took advantage of their debt carrying capacities and took on more debt. The companies thus bet their future on households and sovereigns (already overstretching their debt carrying capacities) being able to continue to take on more debt to pay for more expensive oil and natural gas so that the companies can retire their debts as these mature.
- Apart from price, production flows have a considerable impact on companies cash flows and profitability. In the short to mid term it is more about the flows and less about the stocks.
- The developments of these smaller discoveries have so far reduced the decline in total production from the legacy installations on the NCS as can be seen in figure 1. For some time these smaller developments also hid the “The Red Queen” effect from NCS discoveries brought to flow since 2002, refer also figure 2.
- A more reserved attitude of the companies towards future developments of the discoveries made (and to be made) due to financial considerations, sets up the potential for a near term further acceleration of the decline in total NCS crude oil production.
This also illustrates that future developments now appear to be at the crossroads with what price the oil companies need for development of discoveries with what the consumers will continue to afford.
The new developments have now reduced the annualized total decline in crude oil production from NCS to just above 7%, refer also to figure 2. Discoveries/fields flowing prior to 2002 has seen a decline in their total crude oil production of more than 70% since 2002.
United Kingdom (UK) is widely associated with the industrial revolution which was a fossil fuel revolution.
Coal fueled the industrial revolution and UK also exported coal. The next cycle in UK’s energy history came with the discoveries and production from the oil and natural gas discoveries in the North Sea in the 1960’s which happened while UK’s indigenous coal production had been in general decline since the late 1920’s.
The oil and natural gas discoveries in the North Sea made UK again a net energy exporter for some years during the 1980’s and from the middle of the 1990’s through 2004, refer also figures 2, 3 and 4.
Beginning in 2005 UK again became a net importer of energy and as of 2012 UK imported around 42% of its primary energy consumption (primarily fossil fuels). The portion of imported energy for 2013 is expected to grow to 50% and beyond in the near future. Few countries have so rapidly transitioned from being self-sufficient and an energy exporter to develop such a high and growing dependency on imported energy.
The imports of expensive energy increasingly weigh heavier in the UK trade balance, refer also figure 7.
The UK has in recent years experienced a strong growth in energy production from renewables (light green area in figure 1). The recent years general decline in total energy consumption is likely primarily due to the ongoing financial crisis.
Coal’s portion within the UK energy mix declined as it was being replaced by a growing supply of oil and natural gas from the North Sea. The growing supplies from the North Sea may at the time have defined the UK government’s position during the coal miners strikes in 1984 – 1985.
The portion of fossil fuels in the UK’s energy mix has declined from 92% in 2008 to 87% in 2012, mainly due to lower oil and natural gas consumption following the financial crisis and persistent higher oil and natural gas prices.
In 2012 barely 5% of the UK’s energy consumption was from renewables which also includes hydroelectric.
Her følger noen utvalgte inntrykk fra BP Statistical Review 2013. BP sine årlige Statistical Review regnes som en av de mest autorative kildene for energidata og brukes mye som referanse.
Det globale energiforbruket viser fortsatt vekst også drevet av vekst i gjeld og nå primært fra fortsatt vekst i offentlig gjeld.
Energimarkedene er svært dynamiske der prisforskjeller mellom energikildene nå driver frem en raskere global vekst for kull blant de fossile energikildene.
I dette innlegget vil jeg dele noen av mine observasjoner av og refleksjoner for hva sannsynlig retning oljeprisen vil ta i nær fremtid.
Innenfor OECD blir nå et voksende antall forbrukere av økonomiske årsaker drevet til å redusere sitt forbruk av dyr olje. I noen tilfeller der substitusjon med andre og billigere energikilder er mulige, så skjer dette, ref også figur 10. Dette gir nå en svakere global etterspørselsvekst samtidig med at tilbudssiden bedres blant annet gjennom fortsatt vekst i utvinningen av skiferolje (tight oil) og oljesand og OPEC antas å ha noe reservekapasitet.
Figuren illustrerer også at den sterke gjeldsveksten (også) tillot vekst i oljeprisen og at gjeldsveksten nå er lavere. Samtidig har forbrukerne gradvis fått en svekket evne til å betale for dyr olje mens kostnadene for de marginale fatene er generelt voksende.
Bevegelsene i oljeprisen de siste årene kan også skape inntrykk av at oljeprisen har vært gjenstand for spekulativt press. De som tjener på en høyere oljepris er mange; oljeselskapene (både private og nasjonale) selvsagt, men også leverandører av varer og tjenester til oljeselskapene. Mindre fokus har det vært på at økte investeringer skapt av en høyere oljepris ofte resulterer i økt bruk av gjeld av oljeselskapene for å skape finansiell vekst. Leverandørene av gjeld/kreditt (banker/finansinstitusjoner) til oljeselskapene har dermed fått vekst i sitt inntektsgrunnlag til en svært lav risiko.
Selskapene bruker gjeldsvekst for å øke/holde oppe utvinningen av olje og gass og dermed det finansielle overskuddet. Veksten i de finansielle overskuddene for oljeselskapene som tillot vekst i investeringene for ny kapasitet var også drevet av privat og offentlig gjeldsvekst.
Gjeldsveksten har nå bremset og på et eller annet tidspunkt vil denne reverseres for å bringe gjeldsoverhenget ned, dette bør også ventes å få følger for oljeetterspørselen og dermed oljeprisen.