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Linn Energy, LLC Message Board

  • rlp2451 rlp2451 Nov 20, 2012 8:20 AM Flag

    The effect of (just) a 60% decline rate

    The shale oil and gas developments are more than a tool to improve US energy independence. It is more than improving the economy through helping cut US reliance on oil and gas imports. Hydraulic fracturing requires a high rate of drilling activity to keep production growing, or even to keep it flat. Well decline rates are very high. A well can decline from the initial flow rate by as much as 60% in the first year. This means that six new wells are required the following year just to replace production losses from ten such high decline rate wells drilled the previous year. The need to keep this high rate of drilling may be bad news for the long-term viability of the industry, and for the country’s domestic energy production prospects, but it is good news for those looking for work and willing to move to find it. It is also good news for suppliers of equipment to the exploitation companies and those looking for a job in manufacturing those products.

    Sustainable Economics, Nov. 15, 2012

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    • The qualifier in this economics equation is price. With a higher rate of depletion, at what price does oil have to trade for the shale industry to be profitable. The free market will set the price and development will continue. Shale oil will just require higher oil prices to be sustainable. And I think we're already there with oil in the $85-$95/barrel range.

      • 4 Replies to gpd8252
      • You are correct in that the free market sets the price of oil, but external forces weigh heavily mostly driven by fear mongers. Threats of Iran closing the Straight of Hormuz, Nigerian rebels stopping the flow of oil from there, Middle East tensions, etc. does more to drive the price higher than economics, at least for the time being.

        There was a time when Saudi Arabia had a lot of spare capacity because they weren’t producing all that they’re capable of producing so that they could increase their output, flood the market and that would bring prices down, or alternatively they could shut down some of their production and that would boost prices. But in fact, most countries now with prices as high as they are, including Saudi Arabia, are producing as much as they can to benefit from high prices. So the notion that Saudi Arabia and OPEC can do anything to influence prices is a thing of the past, and act more like a shock absorber, increaing or decreasing supply to maintain pricing rather than controlling it.

        OPEC' latest annual report cut its medium-term and long-term global oil demand forecast. Meanwhile, the organization also lowered its forecast for global oil demand in 2013 in a monthly report last Friday. The global economic weakness, together with the European debt crises and slowdown in China's economy are reducing the world oil demand expectation, OPEC said in its latest report.

        Weaker economics, increasing supply will lead overall to lower prices, as most analysts have forecast for 2013. EIA projects the price of Brent crude oil will average $112 per barrel in 2012 and $103 per barrel in 2013, EIA expects the WTI price to average $89 per barrel in the fourth quarter of 2012, about $4 lower than last month's Outlook and to mostly remain at this level throughout the forecast period averaging $88 per barrel in 2013. After increasing to $22 per barrel in October of this year, the WTI crude oil spot price discount to the Brent crude oil spot price will average $20 per barrel in the fourth quarter of 2012 before falling to $11 per barrel by the end of 2013, according to EIA.

        Last month, Goldman slashed it's forecasts for 2013. Wall Street giant Goldman Sachs , one of the biggest banks in commodity trading, slashed its oil price forecast following years of super-bullish recommendations as it said oil output was soaring in the United States and Canada.

        Goldman, which up until now had the highest oil price prediction among major forecasters, said on Thursday it cut its 2013 Brent crude oil price forecast to $110 a barrel from the previous $130 per barrel.

        Like anything else, supply will be a factor of price. If WTI falls much below $70, production will slow across the US from Bakken and other basins. Producers will be forced to continue production from wells already drilled and fracked, but new wells would be curtailed until the price rises. Wells returning an IRR of 50% at $95 oil don't seen so attractive at $75 oil, but companies with high debt loads (KOG, for instance) will have to continue producing just to pay down the debt, and forecast of returing to positive cash flow in 2013 would be pushed down the road. Again, as long as oil stays where it is, no issue.

      • NO one actually knows the marginal cost of natural gas production in America. But the highest estimates are around $7mcf or * 5.6 or $40 oil.
        Even if we make the absurd claim oil and gas companies can control the price, all the taxes, royalties and jobs would remain here in America.
        Not to mention the 40% reduction in co2 for every barrel of imported oil eliminated.
        In short there is no rational or ethical reason not to responsibly develop our vast and economic viable energy resources. Inclusive of the Global Warming messianic fade religion which is clearly completely out of control.
        They do not even want natural gas eliminating imported oil for the 40% reduction in co2.
        That is by definition flat earth primitive religion and not science.

      • GDP,

        If you are trying to reason or just talk with this goofball norris. Forget it. All he wants to do is slander everything that you say because he is always right. He wlli use flat earth people pagens and other assorted verbage to irritate you. Best to ignore this kind of person and mind. he is a bit looney to be nice about it.

      • OIl is not a market price but one set by a cartel.

        Looks like the 10,000 year supply of hydrates can be developed at about $7mfc or $40 oil. In a free market the marginal cost of production determines price of a commodity. Scarcity for natural gas is a political illusion of the flat earth pagan Progressive faith. Hydrates offer thousands of year supply around the world.

        Counter productive efficiency laws like millage standards lower the cost per mile and resulted in ever more miles driven until Obama crashed our living standards.

        Natural gas is a source competition. Between our vast oil and natural gas reserves we could put OPEC out of control in 10 years.

        But we elected President the man who does not want this result for America and Americans.

    • Alex Evans, Head of the Resource Scarcity, Climate Change and Multilateralism Program at New York University,

      Jim Balsillie, Founder of the Centre for International Governance Innovation (CIGI),

      These people are all clowns awarding each other degrees.

      "The need to keep this high rate of drilling may be bad news for the long-term viability of the industry"

      Americans like Mr. Hamm not only knew resources like the Bakken could be profitably developed but that the technology would be constantly improve and cost would come down. This virtuous cycle is what the free market economy of America does better than any other peoples.

      We must to keep these clowns out of builders way.

      • 2 Replies to norrishappy
      • "Alex Evans, Head of the Resource Scarcity, Climate Change and Multilateralism Program at New York University, "

        Interesting voting on a Natural Gas board with the solution for America's energy cost, security and 'pollution' reduction objectives.

        How could these Ivory Tower clowns know more about domestic energy development than our entrepreneurs? Answer is they do not but their hubris deludes them into believing they see the 'bigger picture'. They do not.

        The development of our hydrate resources is going very well. The current technology is going into final scale testing. This mean America has 5,000 of natural gas on shore. Making all this sustainability prattle the laments of flat earth believers left behind by the world.

      • wow.

        I kinda wonder what he is thinking?

        Lindeman Steven W who is Vice Pres, Engineering & Tech at Cabot Oil & Gas Corporation (NYSE: COG), sold 3,400 shares at $47.47 per share for a total value of $161,398.

    • Where did I say what you say that I said?

      "Then you made another specious claim about the profiltablity of their Bakken purchases , and I asked you to prove that.

      Then you tell me to listen to the Linn CC or go to to their presentations. I didn't make the claim - you did. YOU prove it."

      I do not remember saying anything about the profitability of the 3 Linn Bakken purchases.

      Cut and paste & post the exact language of what you think that I said that is this above........

      Show us.