Friday, February 8, 2013

How Fast Does Bakken Shale Oil Wells Decline

Arthur Berman is not the only shale gas skeptism. I am probably the most outspoken critic Shale Gas among all people who wrote on Seeking Alpha. They have now imposed worse censorship on me because I spoke out on the truth of shale gas. Not only they banned me from writting any article or instablog on Seeking Alpha. They banned me from making any comment or even communicate privately with any Seeking Alpha readers. In communist countries at least people are free to communicate privately.



This tells you that they feared people to hear the truth on shale gas. I intend to complaint to SEC about Seeking Alpha's blatant market manipulation by supressing truthful information. Some vested interest group played a dirty hand in getting me, Mark Anthony, completely banned on Seeking Alpha. My previous articles are still there. But I bet they will ultimately remove all traces of them eventually.



Now, Arthur Berman first got my attention to the potential scam in the US shale gas industry. But unlike most people, I do not take Arthur Berman's words on face value. I dig out data myself and do my own data analysis.



Here is what I find out by studying data from several thousand Bakken wells. Bakken is a good study candicate thanks for excellent public data release by North Dakota Department of Mineral Resources. They have month by month production statistics of ALL Bakken shale wells. So you can track each well and see how the production declines.



My study shows that Bakken well declines MUCH FASTER than even Arthur Berman claimed. For example I summed up production from 3062 Bakken wells that has been continuously producing in all the months from May to Nov 2012, including 128 wells that only started in May 2012. That's the entirety of all wells I can find that has been producing continuously, but excluding a few that produced for a while and then shut down.



In May 2012, those existing wells produced at average of 506869 Barrels per day (BOE), with gas and oil production lumped together as Barrel of Oil Equivalence (BOE).



In Nov 2012, only six months later, these same 3062 wells produced at 353040 BOE/day. That's a drop of -30.35% in merely six months. That's averaging at -0.2% drop per day, or -5.9% drop per month, or -51.5% drop per year.



That's how fast the collective group of existing wells drop, with newest and oldest wells all included. That's losing slightly more than half of production rate in a year.



Identifying only the newest 128 wells which only started in May 2012. These 128 wells dropped from 62067.67 BOE/day to 27950.77 BOE/day, or losing -55.0% in six months. That's a -0.436% drop per day, or -12.5% loss per month, or losing 80% in a year. Here are just some of the well numbers in this group:



21104,21088,21324,21796,18797,20170,20421,21399,

21400,21582,21434,21587,21588,19416,19265,18939,

21662,21627,20617,21640,21730,21731,21477,19456



Now looking at the oldest wells within this group. There are 1244 Bakken wells that has been producing continuously since Dec., 2009. These wells produced at 111911 BOE/day in Dec. 2009. They dropped to 54539 BOE/day in May 2012 and further dropped to 50234 BOE/day in Nov 2012. So these vintage wells more than three years old were dropping at -7.9% every half year, or losing -15.2% per year. These wells show that even after more than three years, the well decline is still very steep.



Singling out wells first started in Jan. 2010, no early and no later. There are 31 of them:

17181,18141,17880,16323,16568,18193,17625,18023,

18138,9253,7503,18115,17943,18260,18134,18223,

17026,18061,17478,18230,17502,16877,18077,18109,

9108,18163,17910,18251,18135,18172,17764



These wells that started in Jan 2010 produced at 8052.68 BOE/day in that month, dropped to 2433.77 BOE in May 2012 and then to 2007.77 in Dec. 2012. So these three year old wells dropped at losing -17.5% in half a year, or losing -32% per year, or losing 0.1% per day.



At such steep decline, even Bakken shale, perceived as most profitable due to its high content of oil and high oil price, is NOT profitable currently. They need $20 or $30/barrel higher oil price to break even.





The US shale gas industry has created a Ponzi Scheme from over a trillion dollars of investor money. This is a bubble that will burst soon. What do they get after spending over a trillion dollars and accumulated half a trillion dollars of debts? They drilled roughly 36000 shale wells and produced roughly 23 TCF of shale gas. And they are left with shale wells that produce gas at 27 BCF/day and decline at roughly losing -0.2% per day.   If they stop spending money and stop bringing any new wells onto production, the existing wells, producing at 27 BCF/day and continue to decline at losing 0.2% per day, will produce another 13.5 TCF of gas before they are exhausted.   So that means the entire shale gas adventure so far, which counted the industry one trillion dollars, brings in 23 TCF pas production and 13.5 TCF future production, total 36.5 TCF of gas. At today's gas price of roughly $3.5/mmBtu that would be worth $128B of revenue. The shale gas industry is losing their collective arses and their collective minds.

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