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Shale Oil and Shale Gas in the United States July 13, 2013

Posted by hslu in Congress, Economics, Energy, Global Affair, Oil.
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Shale Oil and Shale Gas in the United States

頁岩油 and 頁岩氣

 There is no doubt that hydraulic fracture in shale oil and shale gas formations has unlocked a tremendous energy boom (graph) in the United States. It has already helped U.S. importing less foreign oil from countries that are hostile to America. It also has the potential to push oil production in the U. S. to levels above those from Russia and Saudi Arabia. News media tripped over each other to report that shale oil looks like the next best thing since sliced bread. They showed the sky-rocketing production curves from Bakken. They showed thousands of new jobs created in North Dakota and shortage of housing and public services in and around Bakken. They touted the fact that American’s oil import has dropped below what America produces because of shale oil. Some politicians even proclaim on national TV that a new energy revolution is taking shape as if the government or the politicians have something to do with it.


This is the good news. But, as the saying goes, the devil is in the details. And news media conveniently ignore the inconvenient truth all together.

There are several key facts about shale oil/gas that many people do not know from watching their favorite TV programs, reading various articles in their beloved newspapers or hearing from their favor politicians. This is because the media and politicians, in reporting the hype, almost always never mention the pitfalls and obstacles because they do not fit the narrative of the day.

The crucial difference between a traditional oil well and a hydraulically fracked horizontal well is their production characteristics. I will discuss them below for your review. I will focus my discussion on shale oil production for now. Data and graphs presented in this report are related more to the Bakken field because it represents majority (63%) of the total shale oil production in the United States. Eagle Ford in Texas, the second largest in the U.S. has 27%. Shale gas production will be briefly addressed in this article too.

Shale oil wells declines much faster

This, to me, will be the Achilles’ heel of shale oil. Typical oil production from a regular well in a traditional oil reservoir, such as Prudhoe Bay in Alaska, usually declines at around 6% per year after maintaining certain levels of plateau production for a number of years. Poorly managed fields, such as Mexico’s Cantarell field, one of its largest in GOM, have seen production decline at as much as 14% per year recently; a crisis in the oil business. That being said, oil production from a fracked horizontal well, many of them extends 2 miles long into shale formations, can decline at an astonishing rate; anywhere from 40% to 60% per year (graph.) Some wells in marginal fields could decline much faster than that.


Another major difference is their production rates. Here the contrast has been equally alarming for almost all Bakken wells. The fact of matter is Bakken wells are just not that productive even after massive fracture operations along the lateral of the horizontal section because of exceedingly low permeability in these shale oil formations.

This unique production characteristics of shale oil wells significantly limit the amount of oil they can produce in their life time. And they are as different as day and night when compared to productions from wells in Prudhoe Bay and Saudi Arabia; the largest oil field in the U.S. and the world, respectively:

Life Time Oil Productions

Typical Bakken well                            ~500,000 barrels

Average well in Prudhoe Bay           ~10 million barrels

Average well in Saudi Arabia            ~13 million barrels

The life of a Bakken well can be as short as a few years (5 – 6 years) after achieving peak production immediately after fracking. Wells in Prudhoe Bay, on the other hand, can continue its production after 30 or even 50 years if tertiary recovery techniques are successfully applied. Many wells in Texas are still productive, albeit at one or two barrels per day, after several decades of production. They will remain productive for as long as they are economically viable. At $100 per barrel now, many of these shallow wells will last a long time. That will not be the case for shale oil wells.

To offset the extremely fast decline in oil productions and to maintain a meaningful overall production level in Bakken, oil companies, mostly junior independents, have to drill one horizontal well after another while moving from one area of the field to the next. This almost non-stop drilling activity will eventually end when they reach the boundary of the field or when economics is no longer favorable. They are in it to make money and to make money when oil prices remain high.

There have been thousands of horizontal wells drilled in the Bakken field since 2008 or so. Many of these wells extend several thousand feet into the formation separated by less than 100 feet horizontally. Here is a brief summary of shale oil activity in the Bakken field:

Horizontal well drilled in Bakken             9,000+

Horizontal laterals                                     many as long as two miles

Wells producing 800 b/d or more           14

Average oil production rate                     52 b/d

Oil companies activity in Bakken               EOG, KOG, CLR, COP, XOM, MRO

For comparison:

Production rate from a good GOM well   ~40,000 b/d

As you can see, oil companies in shale oil business have no option but to continuously drill at a frantic pace: be it in Bakken in North Dakota or Eagle Ford in Texas.

This is the quintessential “Drill, baby Drill” mantra.

There is no doubt that billions of dollars have been spent by oil companies to get shale oil to the ground. As such, billions of dollar have been made by oil companies, service companies, oil workers, land owners, trucking companies, railroad companies, pipeline companies and of course governments in additional taxes.

The buzzing activities in North Dakota now are not that dissimilar to California Gold Rush from 1848 to 1855. Like the gold rush in California, shale oil boom will one day end with ghost towns all over the landscape in North Dakota after oil runs out. And oil will run out probably sooner than many people anticipated.

Just how much oil is there in Shale Oil Reservoirs?

To put the potential of shale oil in prospective, let’s first bring up production data from Prudhoe Bay in Alaska because it was the largest oil field ever discovered in the U.S. It had about 25 billion barrels of oil in place originally; more than double the amount in the next largest oil field in the U.S: East Texas oil field. Currently, about 12.8 billion barrels of that 25 billion have been produced. The field was discovered in 1968 by Arco and Exxon. Production commenced in 1977. Peak oil production of about 1.5 million barrels per day was reached in 1979. Development work continued to this date with waterflooding and tertiary recovery in many parts of the field. Keep these figures in mind because it represents realistic production potential of a super giant oil field in the world.

U.S. DoE on June 11, 2013 reported that the world has 345 billion barrels of technically recoverable shale oil in 42 countries (table.) This number was revised up recently to reflect advances in drilling and fracking techniques. Further revision is also possible as more countries participate in the hunt of shale oil.

The key words in DoE’s announcement are “technically recoverable” which is extremely important in our estimation of the role shale oil can play in the broad energy space going forward. This will be addressed later.

Shale Oil Resources by Country

Russia                    75 Billion barrels

U.S.                        58 B bbls, early estimate was 32 B bbls

China                     32 B bbls

Argentina              27 B bbls

Libya                      26 B bbls

According to DoE data, the amount of “technically” recoverable shale oil can satisfy world demand for about 10 years; currently running at about 90 million barrels per day. Please note that as economy recovers around the world, oil demand will increase which, prior to 2008 financial crisis, has been running at roughly 2 to 2.5% per year. As you can see, even though the amount of oil in shale formations is impressive, it is not large enough to be a game changer by any stretch of imagination.

For the U.S., the amount of “technically” recoverable shale oil is good for about 8.5 years at current consumption rate. Currently, the U.S. uses about 19 million barrels of oil per day.

Not that impressive as originally reported by all the TV programs, isn’t it?

TV programs and news reporting have the habit of dramatizing the story to grab audience’s attention in order to sell commercials. More often than not these reporters got caught up in the frenzy of the news and the dollar signs around the edges which always colored their reporting. If it is not dishonest reporting on purpose, it is for sure a disservice to its viewers.

Politicians are even worse. They take every opportunity on TV to make 10-second sound bites when announcing the potential of shale oil and shale gas for the future of the United States. They usually exaggerate or worse, lie, about what they say because reporters are not going to challenge their assertions. It has been abundantly clear that the main street media is in the back pocket of Democrats and the current White House. The media has been doing all it can to pop up a Democrat president. By not reporting the entire story to its viewers, the media is not doing its jobs. And sadly the viewers suffer. Well, I digress. But I am assuming that informed viewers know the difference.

If they don’t, they should.

Another key point needs to be made here. DoE data does not provide enough information to estimate just how much of that “technically” recoverable amount is “economically recoverable at current price of crude. It is critically important to get a good handle on this figure because we all know that only insane oil companies will produce oil or gas, shale not, at a loss. If we assume that 80% of those 345 billion barrels can be recovered economically at current oil price of ~$100/barrel, the U.S. has roughly 45 billion of shale oil reserve; about 6.5 years of current U.S. demand.

If we assume that the shale oil reserve in the U.S. is about 45 billion barrels, not quite two times that of Prudhoe Bay, we can estimate the impact of these additional oil resources on American’s long-term oil production trend. Here we want to know just how big an energy revolution shale oil will make for the U.S. We also want to know whether U.S. will ever become independent in crude oil. If it can achieve that goal, how long will that goal be made by shale oil.

The following graph gives you a perspective of Prudhoe Bay’s impact on American’s oil production. Although the addition of 12.8 billion barrels over the last 30+ years temporarily arrested the decline of U.S. domestic oil production for a few years, a reservoir as big as Prudhoe Bay was unfortunately not large enough to reverse the long term decline of oil production in the U.S. Likewise, shale oil production will peak in a few years as companies rushed to bring projects after projects online to take advantage of the current high oil prices.


As indicated by the graph, the addition of shale oil production may one day push America domestic oil production above that of Russia (10.7 million barrels per day) or Saudi Arabia (~10 million barrels per day) in a few years as some TV programs have reported.

However, as sweet spots (good sections of the reservoirs) got drilled first, it will take even more wells in the remaining part of the field to sustain the production level as companies move to less productive sections of the field. The even faster decline rate of these marginal fields will make economics of developing these fields that much more challenging. By extension, it will be extremely difficult to maintain oil productions as well.

As such America may ascend to the top producer position in the world but the pole position may only last for a few years at best. The fad of shale oil will wilt away just like California Gold Rush did roughly 150 years ago. California gold rush lasted 9 years. Shale oil will enjoy its well deserved spot light under the sun for 10 to 15 years or so.

Will it or will it not?

The rapid rise of shale oil production in the U.S. in the past several years has definitely caught many people by surprise. A resurgence of domestic oil production has already made the United States importing less foreign crude in the past year or two. And this trend will likely continue in the near future! Some in the news media even talked about rebalance of the world energy power and declare OPEC will face stiff competition from shale oil supply from the U.S. Energy revolution became hot topics among politicians and a renewed sense of self-reliance became the fad of the day.

Despite all the hype from news media and the feel-good 10-second sound bites on TV from politicians, the question of the day is:

Will shale oil production make the U.S. independent of foreign crude?

The answer is a resounding:”no!”

Just take a look of the graphs below and you will quickly realize that America will continue to import large quantity of foreign oil for decades to come.




How low can it go?

Here I am talking about the price of crude traded on commodity exchanges in the world. The supply of crude oil on the world market is largely fungible and their prices are determined more or less by supply and demand in the world. Geopolitical and financial instabilities will cause oil price to spike. When the influences of these events dissipate, oil price will drift back to an equilibrium level largely supported by the supply and demand picture.

Here lies the potential pitfall which may affect the production of shale oil in the U.S.

United States has about 2% of the world oil reserve; about 23 billion barrels, prior to the advancement of hydraulic fracture technique which rendered oil production from tight shale oil formations economical. If we take DoE’s estimate, oil reserve in the United States could be as high as 70 billion barrels; not an insignificant amount. But it is nowhere close to oil reserves in countries such as Venezuela (296.5 billion barrels,) Saudi Arabia (265.4 billion barrels,) Canada (175 billion barrels,) Iran (251.2 billion barrels,) or Iraq (143.1 billion barrels.)

The increase in U.S. oil reserve is impressive indeed. But there is a catch.

It is reported that the production cost of Bakken shale oil ranges from $60 to $90 per barrel.

On the other hand, countries in Mideast and some parts of Africa can produce their oil for as little as $6 per barrel (Table; in 2008 dollar.) Specifically, Saudi Arabia’s crude is probably the cheapest to produce in the world. It is estimated that Saudi Arabia oil takes between $4 and $6 per barrel to produce even after capital expenditure is included in the calculation.

Oilfields /source                                  Estimated Production Costs ($ 2008)

Mideast/N. Africa oilfields              6 –  28

 Other conventional oilfields            6 –  39

 CO2 enhanced oil recovery            30 –  80

 Deep/ultra-deep-water oilfields    32 –  65

 Enhanced oil recovery                    32 –  82

 Arctic oilfields                                32 – 100

 Heavy oil/bitumen                          32 –  68

 Oil shales                                         52 – 113

 Gas to liquids                                  38 – 113

 Coal to liquids                                 60 – 113

 Source: International Energy Agency World Energy Outlook 2008

The dilemma for shale oil is this: as more and more shale oil is produced from these tight formations, it runs the risk of depressing the price of crude on the open market. As oil price drops, shale oil production becomes its own worst enemy because many shale oil fields will be the first to shut down as they begin to lose money. OPEC controls about 30 million barrels of oil production every day. If the cartel decides to flood the market with additional oil, shale oil production will be the first to go; not oil from Saudi, Iraq or Iran.

Since late June, 2013, oil has been trading at around $100 per barrel because of fresh concerns from unrests in Egypt and Libya as well as prolonged civil war in Syria. If geopolitical situation in the Mideast stabilizes, a war premium of $10 to $15 per barrel will be removed from the market. When it does, oil may trade in the $85 to $90 per barrel range which will make oil companies think twice before rushing into marginal fields with new drilling projects. If the price drops further, oil companies may shut down their marginal shale oil operations to save capital. When that happens, the shale oil fad will go away.

Mentality of the America Oil Producers

Americans and American companies, in general, have a short-term focus mentality. They want instant gratification. Company CEO’s pay more attention to next quarter’s earnings than its long term prosperity. Americans are prone to not able to resist adding credit card debt so that they can have a summer and Christmas vacations or a large screen TV. The federal government via Congress and Senate is willing to pile up unsustainable high budget deficits year after year so that American people can sit at home and collect government subsidies week after week. The politicians use taxpayers’ money to buy votes for the next election so that they can grab power election after election.

The addition of so much shale oil in such a short period of time made politicians and commentators giddy. For instance, while shale oil was making headlines all over the nation, some in the news media suggested that U.S. should get rid of the strategic petroleum reserve. They argue that American’s new found oil wealth made strategic petroleum reserve unnecessary because U.S. no longer needs oil from the Mideast nations. They thought domestic shale oil can solve all the ills plaguing American’s crude oil situation.

America’s short-sightedness is also reflected in its lack of a comprehensive national energy policy. The 1973 oil embargo taught America exactly only one thing: U.S. had to do everything it can to make Saudi Arabia a friend. As such, American’s Mideast policy was hinged on keeping the royal family of Saudi Arabia in power so that Saudi Arabia can supply the world with cheap oil. American’s foreign policy became de facto American energy policy.

It has been 40 years since oil embargo. American’s domestic oil production rate continued to decline until shale oil burst into the lime light. With the addition of almost 50 billion barrels of new oil resources, there was absolutely no discussion on the national level of how to preserve the new resource for raining days. America acted like a “暴發戶” spending the new found riches like there is no tomorrow which is reflected in the rapid rise in oil production in recent years. Oil companies will drill as fast as they can get their hands on a rig and they will produce as much and as fast as they can from shale oil formations in order to enrich companies’ coffer. America will probably one day boast being the country with the largest oil production in the world. They will feel good for the title despite the fact that the pole position will last for only a year or two.

All the while, the federal government will sit tight on the sideline and watch the drama plays out in fast action. In my opinion, America should take this once in a generation opportunity to develop a national energy policy incorporating all domestic crude oil resources such as oil from traditional fields, shale oils, shale gas and oil resources to be found in Alaska and offshore off both coasts. Unfortunately, American people and the federal government will not act because the U.S. has plenty of shale oil to go around now. There is no need to worry what’s coming down in the future. Consequently, America will continue to face the uncertainty of finding out where their next barrel of oil will come from for a long, long time. After shale oil runs out in a decade or so, that is.

Well, what do I know? I guess it is not my business.

Shale Gas

Unlike shale oil where new U.S. productions had an immediate impact on U.S. foreign oil import, shale gas productions had the opposite effect on U.S. domestic gas market; it drove the natural gas price in the U.S. to historical low level (graph) forcing many companies to shut down their shale gas operations. In addition to market dynamics, shale gas wells face the same steep decline as those plaguing shale oil wells (graph.)



Prior to the discovery of abundance of natural gas in shale formations, America was facing a shortage of domestic natural gas. Several companies have obtained permissions from the federal government to build a number of coastal facilities in preparation for importing LNG from foreign sources such as Mideast or Australia. Shale gas productions shut them all down but there is talk to convert these facilities for gas export in the near future.

The discovery of ample supply of shale gas in the U.S. also stirred discussion of energy revolution for the U.S. in decades to come.

However, natural gas is difficult to transport unless pipeline is readily available nearby. To export natural gas to other parts of the world, such as Europe or Eastern Asia, it has to be liquefied first which adds to its cost base. Transportation across the ocean will push up the cost further. Since there is abundance of LNG from countries such as Qatar and Indonesia and there is plenty of natural gas from Russia, it is doubtful that American companies will face the possibilities of damaging domestic gas market in order to compete in the world LNG market. However, for countries such as Korea, Japan and Taiwan which rely heavily on LNG imports from Mideast or Indonesia, a separate and reliable source from the U.S. may be highly desirable even though there won’t be any price advantages to speak of. On the other hand, Mideast countries can easily manipulate LNG prices in the world and Russia can lower its gas export to European countries which could make exporting American shale gas that much more difficult. Although market dynamics is difficult to predict, it is likely that natural gas prices in the U.S. may remain at depressed level for years if not decades to come. No companies will rush to bring shale gas to the market because a flood of natural gas from shale formations will price shale gas out of the market completely.

The world has plenty of natural gases; as much as 250 years of demand, according to eia (graph.) The addition of shale gas in the US market made importing of natural gas unnecessary. To take advantages of the abundance of natural gas in the U.S., such as using gas for transportation purpose (graph,) more research and huge investment on infrastructural are needed. It is likely that no progress will be made in the near future unless government offers significant incentives to private businesses or even takes on an active leadership role in this area. Politicians will take the opportunity and make people believing that energy revolution is just around the corner.



However, judging by the difficult fiscal situation facing the federal government, the likelihood of any meaningful progress in this area is not expected in the short term. The closeness of the U.S. gas market and the dynamic nature of natural gas pricing structure act as impediment to the wide development of shale gas in the U.S. The fact that the U.S. relies on free market capitalism to develop shale gas, the pending energy revolution will have to wait.

July 13, 2013

BP: To sell or not to sell August 5, 2010

Posted by hslu in China, Energy, Global Affair, Obama, Politics.
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BP’s blowout well in  GoM is finally plugged and abandoned and the lives of BP engineers can now slowly go back to normal. But their 401(k)s still have a long way to go before reaching to the level before the accident. Even though the damage to the shore was much mild compared to what the media has let us believe, there are still thousands of lawsuits waiting to get a piece of pie from BP. The big question now is “Where is the oil?”

What BP management is working on right now is debating whether to sell the property to another company or continue with the relief well to develop the field. My guess is that BP will sell the property and China National Offshore Oil Corp  may be one of the companies interested in the property.

China needs the resource and has tons of cash. BP needs money to pay for the lawsuits and may want to get out of United States to repair its image.


“一个愿打; 一个愿挨。两者一拍即合”

“yi1 ge4 yuan4 da3, yi1 ge4 yuan4 ai1; liang3 ge4 yi1 pai1 ji2 he2”

They also don’t want Salazar constantly breaths down BP’s neck and are tired of hearing Salazar talking about what a  “catastrophic” disaster the spill has been. They for sure are sick of hearing Obama plugging another damn hole story.

Feel sorry for BP June 16, 2010

Posted by hslu in Economics, Energy, Global Affair, Obama, Politics.
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I feel sorry for BP’s engineers who have already lost 50% of the value of their 401(k) and their pension may be in danger. Their jobs may be in jeopardy if  BP decide to diversify its deepwater assets.

BP may have to spin off their GoM or US operation and sell it to someone who dare to pick it up. May be China National Oil Company can buy it on the cheap. They have boat (tankers) loads of money and they are anxious to get into the US market. You see about 1/4 of the world oil business is in the US. There is serious money to be made in the United States. Not in the downstream but the upstream!

I am also glad that ExxonMobil wasn’t responsible for the spill.  If it was, ExxonMobil USA may be nationalized by Obama on the day when “Top Kill” failed to “plug that damn hole.” ExxonMobil’s US assets will be liquidated to pay for the damages. All Exxon and Mobil gas stations will change their names to Obama Gas Stations.

Just a week ago Tuesday, I saw  a BP gas station in Vienna closed its door. Many BP gas stations nation wide have reported a 20+% drop in revenue. If this trend continues, many BP gas stations have to close their doors before the leak is stopped.

BP may have to cut its dividend soon, currently at 9.9%, to conserve operating capital. If the first relief well fails to “ply that damn hole” in mid-August, BP may have to declare bankruptcy because BP may run out of money to pay for it. (Sorry I just found out that BP has temporarily suspended the dividend til the end of this year.)

About 12 or 13 years ago when I was still working in the oil industry, I noticed then British Petroleum gradually changed company’s emphasis from technology to “putting on a glossy appearance.” They ran ads on major newspapers and TV to declare BP cared so much about the environment and changed its logo to show that they were a Green company. They down-played their oil business and highlight their involvement in solar energy and other forms of Green energy way before Obama came into the scene.

I commented this observation on BP’s Yahoo BB and voiced my concern on BP’s lack of emphasis on technology which was and still is the central focus of the oil industry. My comments got a lot of negative comments from BP employees.

In a way, I shouldn’t be surprised of this accident because BP has never been known for their technology in our business. In the interest of full disclosure, Mobil wasn’t known for its technology superiority either. That’s why Mobil got bought by Exxon which was and probably still is head and shoulder above everyone else in our business.

Good luck to all BP engineers on your next try to stop this leak.

Deep water drilling in GoM to stop for 6 months May 27, 2010

Posted by hslu in Energy, Global Affair.
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The white house just announced that all deep water drilling operations will have to shut down for at least 6 months. All operations at 33 deep-water rigs in GoM have to stop no matter of its operation status.

I expected this to happen in light of BP oil well explosion and it did. Many people in Louisiana will lose their jobs and incomes. They will be on the unemployment line until this ban is lifted. It will set back the progress of US deep water drilling for more than a year or two. Oil companies may pull their capitals away from the United States and seeking other nations for better returns and opportunities.

By that time, new regulations will be put into action which will further curtail oil productions from GoM.

That’s one of the reasons why all oil companies stocks have been under a lot of selling pressure.

The bottom line is this: the decline of US oil production will accelerate and import will have to rise to fill the widening gap. Oil prices will go up because of lower supply.

Saudis, Iraq, Iran and Venezuela are laughing all the way to their banks.

Global wealth transfer from countries such as U.S. to oil exporting countries will pick up pace and many Americans have no idea about this at all.

Just How Big is BP’s GoM Discovery? September 12, 2009

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Just How Big is BP’s GoM Discovery?

“BP Finds Giant Oil Field Deep in Gulf of Mexico“, reads New York Times headline on its September 2, 2009 issue.

But, is it really a giant in the scheme of oil and gas fields? Nowadays, to the United States, any thing larger than 500 million barrels of recoverable oil is a giant now.

Let’s put this in perspective, shall we?

  1. First of all, the 3 billion barrels figure reported in the news and on BP’s web site is the amount of oil in place. We call this the original oil in place or OOIP. It will be lucky if BP can produce 40 to 50% of OOIP. Granted, the field may contain as much as 4 to 6 billion barrels. If this is the case, the recoverable oil or reserves may be in the 2 billion barrels range. But it is too early to speculate at this time.
  2. Two billion barrels of reserve barely puts it on the list of top 50 “giant” oil fields in the world.
  3. The Tiber oil field is in Keathley Canyon block of GoM. The discovery well is about 250 miles south east of Houston. Water depth here is 4,132 feet and the reservoir is 35,055 feet below the sea floor. We are talking about drilling a hole about 8 – 10” in diameter and almost 7 miles long. And a large portion of that hole is not vertical and the portion in the reservoir will be nearly horizontal.
  4. The true potential of the field won’t be known until BP drill several appraisal wells to determine the extent of the field, its geological settings, properties of the reservoir, oil characteristics, platform location, layout of the wells, production potential and project economics. That will take at least 3 or 4 years to complete. There are only a few drilling rigs in the world that can handle this kind of operation and each well will take more than a year to drill and complete.
  5. The field, if the potential is proven, will require many production wells, both near vertical and horizontal, to produce. Maximum production may reach 200,000 to 300,000 b/d range. That oil won’t be on the market for another 10 years. When it reaches the market, it will be less than 2% of US daily oil requirement at that time. I estimate the daily oil demand in the US will be around 28 million barrels. Currently, the United States is consuming 21 – 22 MM barrels a day; down from 24 MM barrels before the recession.
  6. There are several technical and economic factors to consider before BP decides to develop this field, if ever:
    1. Hurricanes
    2. Depth of water challenges undersea mooring technology
    3. Pipeline to shore or to the near-by Kaskida field where BP discovered three years ago. The field contains as much as 3 billion barrels as well..
    4. The complexity of the reservoir. The reservoir, as well as that of the kaskida field, is in a deeper undeveloped geological formation of the Lower Tertiary play.
    5. Drilling and production Costs. Each well will take more than a year to drill and the day rate of deepwater rigs or drill ships could be as much as $500,000.
    6. Production facility in deepwater may cost as much $500 million to build.
    7. Fluctuation of oil price increases the project risk.

BP GOM Find - August 2009

The oil and gas industry is unlike other industries in the world in that it has to discover new fields to sustain the business. We can not manufacture oil or gas. We have to find it. And the process has become more difficult as older fields worldwide die at about 6% per year on average. Because of this, BP at some time in the future has no choice but to develop this field. Another reason is that BP’s exploration spending in the North sea area has dropped like a rock, about 70%, in 2009 compared to that in earlier years.

We’ll wait and see if BP can find more fields like this in GoM in the next few years. As of now, BP is the largest oil producer in GoM with daily production in the 400,000 barrels range. For your information, ExxonMobil’s presence in GoM is very small. Daily production form Gom is in the range of 50,000 b/d. The company, however, has acquired a large number of acreage in the Lower Tertiary play through government auctions in light of BP’s Kaskida discovery.

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