The upward revision for Permian resources is still pretty amazing. Yes, they are classed as “undiscovered, technically recoverable”. Sure, people may lose their shirts. Favourable economics are not guaranteed. But like with the oil price slump in 2014, someone else may step in and take the spoils if the initial drillers go to the wall. The industry as a whole proved more resilient than expected, even if individual operators didn’t.
Like in the last cycle, the number of DUCs (drilled uncompleted wells) is soaring again. In the last five years it has gone from 600 to 4,000 just in the Permian. Production has gone from 1.4 mbpd to 3.8 mbpd. There’s no doubt the resources exist to support huge expansion. Oil price and pipeline capacity could keep a lid on it in the short term, and current investors could get burned. In the long run the US, which has already edged out Russia for world’s second biggest producer, could even overtake the Saudis if the Permian turns out to be bigger than the mighty Ghawar field.
It is a reserve after you drill and get an estimate of recoverables
But then a shale well declines very fast and some are reduced to a useless trickle of oil within 4 years of first recovery and the well goes OPEX negative. The Permian is not the worst shale, you get near enough $1m of oil (at say $50 BBL) per hole there, other shale formations return a lot less than that.
Against that the new resource is quite far west, much in New Mexico rather than Texas, and the temptation for drillers is to ‘complete’ a couple of very sweet spots and claim that all their drilled/incomplete wells will be equally good resources once complete…and they won’t be complete in a hurry I can guarantee you.
Utter hogwash but the US drilling industry have plenty of previous in inflating massive bubbles.
I well remember the insane Gas bubble that exploded in Oklahoma in 1982 and if you only ever read one book on bubbles then you should read this classic on that notorious fiasco which boiled down to someone saying the deeper you drilled (deeper than anyone had ever drilled in fact) the higher the pressure would be and surely the more gas was down there…around 6 or 7 miles down it was.
Then people started to believe in this nonsense. The bubble collapse brought down one of the 10 largest banks in the US then and severely damaged 3 of the remaining top 20 banks at the time.
The shale bubble has sucked in $0.3TR of which $0.25TR needs full refinancing within five years and this for an industry that pays out 20% of its turnover last year (over $50 a barrel time) just to service the existing loans they have.
In the US you can lend to these clowns at a blended 7% or so or go risk free Fed Bonds for 10 years at 3%
I missed this letter from Colin Campbell which was published online last year. The first time I heard him give a public talk about peak oil he had already turned 70. Now in his late 80s he still anticipates a near term peak, and blames many problems from the GFC to immigration on it. I’m pretty sure that’s been thoroughly debunked. Nevertheless, as always, one day he will inevitably be right.