In my two previous blog posts here and here I talked of a new extended flow oil fracking technique coming on-line that resulted in a lot of drilled uncompleted wells (DUC) and the population of such wells (~5,000). In the comment section of one of those columns I speculated that we have a top end on oil prices where “turn on a dime fracking” will cut in at a price point of $50 a barrel
We now have a “flaming datum” for that speculation, oil having just bumped -HARD- into the $50 a barrel roof for world oil prices. The 5,000 DUC Frack-log is being activated with — I strongly suspect — the new extended play oil fracking technique.
It is being reported in various places that the US rig count jumped from NINE RIGS in mid-May to 325 last week and there was no change from 325 rigs this week. That is a 36 fold increase in rig count in a week!!
Based on figures I’ve gotten from those in the industry, the range of production you can expect from those wells, depending on the geology, length of the laterals (6,000 to 8,000 feet) and the number of fracking stages (200′, 300′ or 400′) will result in initial barrel per day production of between 400 and 800 barrels a day per fracked well (with a very, very rare 1,300 barrel a day play from time to time). So we are looking at between 130,000 to 260,000 barrels a day of American oil fracking production arriving in the next few months.
Compared to Saudi production, 130,000 to 260,000 barrels of oil a day represents between 1.3% and 2.5% of the Saudis’ daily oil flow. The number of DUCs activated to provide that production amount to 6.5% of the frack-log. And all that for what amounts to Zero “CAPEX” (capital expenditure), plus the operating expenses of worker wages, the rental price for existing, out of service, oil fracking rigs, and oil tanker trucks to move product to rail heads or oil pipelines.
Now you know why the Saudis didn’t agree with OPEC oil production cutbacks this week. The Saudis maxing out their oil production is no longer about stopping American oil frackers. The Saudis’ long term regime survival strategy amounts to being the “Last Petro-State Standing.”
The Saudis — like everyone else inside the Big Oil economic paradigm — simply cannot compete with that sort of rapid to market, low cost & low risk oil. The Saudis’ highest priority now is to keep their customers as long as they can, because if they lose them they may never get them back.
Another FYI, American oil production was down 500,000 barrels a day in 2016 from the highs in early 2015 due to the decay of old technology fracked oil plays.
Even assuming the high end of 260,000 barrels a day from these new wells, American oil production in 2016 will be down compared to 2015.
However, these new wells will last twice as long (four years vice two) at higher oil production levels.
We are now in a range of oil prices between $30 and $50 a barrel for the next 5-to-10 years with an increasing fraction of the oil coming from stable nation-states.
Here’s who Saudi Arabia wants as the next US president because they’ve paid her tens of millions of dollars already and expect a suitable return on their investment. Furthermore, Hillary has an agent in the Fed prepared to make it happen who just said today,
The rise in the dollar and decline in foreign growth reduced demand for American exports, as well as profits and investment at U.S. firms, which were also adversely affected by declines in the price of oil… Although the most recent indicators suggest that weakness in investment and net exports has persisted into the current quarter, if the easing in financial conditions since mid-February and the recent firmness in oil prices were to continue, along with stabilization of the dollar, business investment and exporters would benefit.
For Fed-speak this is surprisingly concise. The mandate now is to keep oil prices high in order to boost foreign growth, i.e. Clinton foundation donors. The Saudis have given their orders, and they want a return to $100+ oil.
I sent this link, along with the last one, to a friend’s son who has finished his BS in Petroleum Engineering at U of Arizona and has decided to get a Masters while waiting for oil to pick up hiring.
Grurray,
The Saudi’s have thrown a lot of lobbiest money and have bought Democrats to include Hillary.
They have not bought all the state governments nor the Federal courts.
Additionally, they have not bought Trump, who is increasingly looking like our next President.
Finally, American oil men know how to rent politicians too.
It’s actually closer to 300,000 barrels a day for both the Saudis and the Russians now. The US production, and it’s ability to scale well should keep the US in the game at $50 for quite a while, although the US production has limits that will be reached sooner at higher rates.
The Russians now produce more than the Saudis, I guess they can live with $50 oil as well. ;)
Trent,
Excellent post!
One point of information, though.
A DUC is a Drilled but Uncompleted well not Drilled but Uncapped.
The latter would present serious fire hazard potential and would be illegal if left in that condition.
The Russians now produce more than the Saudis, I guess they can live with $50 oil as well.
No they cannot, not for very much longer. Russian production costs are high and getting worse as Putin’s thugs and cronies loot the oil industry and skimp on maintenance.
PV van der Byl,
>FACE PALM<
Fixed.