2 Energy Oxymorons 1. Energy Independence 2. Energy Security
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TWO ENERGY OXYMORONS: 1. ENERGY INDEPENDENCE 2. ENERGY SECURITY
Oklahoma State University Energy Symposium Tulsa, Oklahoma May 19, 2009 By: Matthew R. Simmons, Chairman Simmons & Company International
We Live In An Insecure Energy World ■ USA is largest member of energy insecurity club. ■ We are a country of energy hogs. ■ Only a few states provide energy to others.
■ Texas is an energy parasite. ■ Oklahoma is an energy parasite, too.
The World Is “Energy Insecure” ■ Only handful of nations produce exportable energy. ■ These nations straddle the poverty line.
■ If these countries ever created a middle-class, their energy exports would end. ■ All prosperous countries (except Norway) are importing energy “hogs.” ■ This applies to all fossil fuels and nuclear power, too.
America Is Biggest Energy Glutton ■ We have 5% of the world‟s population. ■ We use 25% of world‟s energy. ■ U.S. daily energy use: – Train car of coal every second (86,400 train cars/day) – 10,000 gallons of oil every second (864 million gallons/day) – 60 billion cubic feet of natural gas (to moon and back 25 times)
■ This will not stop as USA population will “soon” be 350 million.
Gluttony Is Also Global Problem ■ 85% of world (i.e. ≈5.7 billion people) barely use energy. ■ Take U.S. energy consumption and multiply it by 4 to get the world‟s current use.
■ Think how enormous demand would be if 6 billion people used even 25% of the oil we consume!
Gluttony Problem Will Worsen Each Decade ■ Absent pandemic, global famine or WWIII, world‟s population headed far higher than models assume: – – – –
In 1960, population was 3 billion By 1990, population was 5 billion By 2000, population was 6 billion Current population is nearing 7 billion
■ Public policy planners assume world will have over 9 billion people by 2050. ■ “They woz wrong!” ■ Real number could reach 15 – 25 billion!
All Energy Models Assume Strong Growth In Energy Demand ■ No presumed shift in fuel mix. ■ Natural gas grows fastest.
■ Alternatives/renewables soar, but still only a sliver. ■ Coal remains “King.” ■ Oil still transports people and “things” forever. Source: IEA World Energy Outlook 2008
It Is Hard To Stop Energy Demand Growth ■ Volumes too high. ■ There are no energy dikes. ■ We cannot stop population growth. ■ We cannot ban quest to escape poverty. ■ The rich also get richer. ■ Problem for U.S. is same as global problem. ■ You cannot turn back “the clock.”
Energy Independence Is “Odd” Concept
■ Virtually every town, county, state in USA is dependent on someone else for its energy use.
■ Every big country needs someone else‟s energy. ■ Parasites cannot exist independently.
“No Man Is An Island” – A truism in 2009.
Snapshot Of Various States‟ Energy Needs
USA Energy Security Morphed Into Energy Insecurity ■ “Blood and Oil” documentary details how USA foreign policy anchored by need to insure oil supply since FDR‟s days. ■ When USA oil production peaked in 1970 and gas in 1973, energy security turned into energy insecurity.
U.S. Oil Imports (YTD 2008) „000 B/D
■ America now more vulnerable than Japan and China to flow restrictions of oil, gas, coal and uranium.
Source: EIA-DOE
“Sooner State” Is Perfect Example Of Crisis ■ The Sooner state (aka “Indian Territories”) was one of USA‟s oldest energy providers. ■ Oil first found in 1890s.
■ Oil production peaked in 1967 @ 630,000 B/D. ■ Natural gas production peaked in 1990 @ 2,258 MMCF/D. ■ Sooner state oil now anchored by stripper wells producing tiny oil flows.
Sooner State Problems Not For Lack Of Trying ■ Tulsa was oil capital of world through 1968. ■ Oklahoma City pioneered offshore drilling and deep vertical well drilling. ■ 1947: KMG drilled first offshore well. ■ 1972: Mobil drilled deepest vertical well. ■ Activity so high that Penn Square Bank failure took out many major banks (SeaFirst, Continental Illinois, etc., etc.) ■ Sooner state‟s oil schools still among the best-of-the-best: – Oklahoma State University – Oklahoma University – University of Tulsa
Still pioneers in hydrocarbon learning
“Trail of Tears” Followed USA And Oklahoma‟s Oil And Gas Peak ■ Once oil and gas peaked, conventional supplies went into irreversible decline, no matter how fast the industry drilled. ■ The increased drilling sucked out more oil and gas, accelerating the decline. ■ The lack of ability to add more rigs by 1981 peak boom made problem worse. ■ And then came the 1982 “collapse.”
“Trail Of Tears Turns Into “Flood Of Red Ink” ■ No part of oil and gas system spared as oilfield depression hit in 1982. ■ But, “epicenter/ground zero” was Sooner state. ■ Junk yards stacked with rigs became legendary.
■ 30 drilling fluid companies in one Oklahoma City building all went bust. ■ And decline of America‟s oil and gas accelerated.
Sooner State Had Many Great Energy Pioneers ■ Sooner pioneers weathered all the hard times. ■ Their names were “legends in their own time”: – – – – – – – – – – –
Dean McGee Senator Bob Kerr T. Boone Pickens Ardmore‟s Noble family Hefner family Halliburton Philips Petroleum Conoco Parker Drilling and Helmerich & Payne Tulsa‟s four supply house giants To name but a few…..
Technology Boom Created New Hope ■ Oil service industry/drilling contractors began experimenting with technological revolution in 1970s: – Ability to drill ultra-deep vertical wells – Moving into blue water offshore oil and gas supplies – Enhanced oil recovery methods in mature basins – Horizontal drilling – Hydraulic fracing and deep acidizing – Multi-lateral well completions – 3 and 4 dimensional seismic
■ All these were invented in the 1970s.
The Inventions All Worked ■ By end of 1980s, invention successes kept best-in-class service companies and drilling alive in worst industryspecific depression of 20th century. ■ Simmons & Company played key role in helping many great service company technology leaders survive. ■ Austin Chalk Play began first intense use of cracking tight rock oil and gas formations. ■ This technique soon spread all the way to Saudi Arabia.
“We Are Now In Foot Race Between Technology And Depletion” (Bill White, Deputy Energy Secretary, 1993)
■ Technological advances created monster decline rates. ■ Hydraulic fracing and acidizing created artificial permeability. ■ High initial flow rates caught everyone‟s enthusiastic support.
■ But, the high flow rates barely lasted long enough to measure.
Observed declines “Natural declines”
Source: IEA World Energy Outlook 2008
■ But, few operators took time to measure “flow rates” and instead went to reserve booking frenzy.
Kerr-McGee‟s Initiation To Offshore Drilling Was Remarkable “Next Act” ■ 1947: First well drilled beyond site of land. ■ By 1990s, this evolved into “deepwater exploration.” ■ TransWorld (once a KMG subsidiary) became deep drilling leader. ■ Noble Drilling became world‟s largest offshore drilling fleet. ■ By 2000, deepwater drilling seemed to “save the day” and prolonged time before world‟s oil production peaked.
Deepwater Oil And Gas Projects Also Failed To Stop Supply Hemorrhage ■ Number of deepwater projects soared. Gulf of Mexico was epicenter of boom.
■ Few projects even hit peak design capacity. ■ All of these had astonishing peaks and plummeting production declines.
Gulf Of Mexico Now Bifurcated USA‟s Oil Supply And Plunging Gas Flow ■ 1.4 MMB/D of oil still flows from the Gulf of Mexico: – 31% from 2 deepwater fields – 19% from another ≈ 20 fields – ≈50% from ± 600 tiny fields (many were once large)
■ Gulf of Mexico natural gas flows fell by 70% within last 5 years. ■ Abandonment liability now probably exceeds value of ≈50% remaining oil and gas fields.
A Picture Is Worth A Thousand Words 16 14 12 10 8 6 4 2 0
50 40 30 20 10 0
35 30 25 20 15 10 5 0
Amberjack
Hoover
Nansen (EB 602)
100 80 60 40 20 0
100 80 60 40 20 0
30 25 20 15 10 5 0
60 50 40 30 20 10 0
Auger
Baldpate
40 30 20
Horn Mtn/King
Neptune (VK 825)
Llano (GB 387)
10 0
30 25 20 15 10 5 0
Phoenix
60 50 40 30 20 10 0
Brutus
60 50 40 30 20 10 0
Lobster/Oyster
60 50 40 30 20 10 0
Pompano
10 8 6 4 2 0
300 250 200 150 100 50 0
50 45 40 35 30 25 20 15 10 5 0
Cognac
Mars-Ursa
Ram-Powell (VK 956)
Deep Vertical Gas Wells Were Next Great Hope ■ By mid-1990s, ultra-deep vertical wells in south Texas ushered in new hope for growth in USA‟s gas flows. ■ 20 – 22,000 foot vertical wells produced from every formation once they were hydrocarbon fraced. ■ Initial flow rates hit 80 – 100,000 MMCF/D, but production plunged rapidly thereafter.
■ Within four years, south Texas boom was sucked “dry.” ■ But, some smart operators made a great deal of money while the boom lasted.
Then We Fell In Love With Unconventional Natural Gas to Replace Fallen Base
■ But, deepwater gas declines fast.
■ Conventional declines fast. ■ Tight rocks decline super fast.
How Fast Does USA Natural Gas Now Decline? ■ Over last decade, most conventional and all non-conventional gas wells created monster decline rates. Type of Well
Typical 1st Yr. Declines Initial Production Flow %
Conventional GOM Shelf Deep GOM Shelf GOM Deepwater Cotton Valley Piceance Uintah Basin Green River Basin Pinedale Barnett Shale Fayetteville Shale Woodford Shale
80 20 33 70 70 67 60 67 70 75 67
(MMCF/D)
9.0 10.0 250.0 1.2 1.2 1.2 2.5 6.0 2.3 2.0 3.0
Source of U.S. Natural Gas Production And Drilling Rig Activity ■ Six states and GOM make up 83% of total U.S. gas supply. ■ Conventional gas production in all 7 areas in decline. ■ Other areas primarily contain “unconventional gas plays.” ■ “Other areas” have very few drilling rigs.
Why Do Tight Gas Wells Decline So Fast?
■ Rock is not permeable.
■ Without horizontal wells, no flow. ■ With hydraulic fracing, flows come too fast.
A Picture Is Worth A Thousand Words Unconventional Oil Drilling Increases vs. Production Declines
These Steep First Year Declines Created Gigantic Treadmill America can only rely on unconventional gas plays to keep supply flat IF… ■ Lease plays continue to move into new shale sweet spots… ■ Abundant rigs, pumping service trucks, vacuum trucks, etc. were limitless… ■ Water use remains “free”… ■ Gas prices stay high…
Non-Conventional Oil And Gas Recovery Techniques Are Real ■ Industry conquered ability to turn “unconventional” into “useable”: – – – – – –
Oil sands Tar sands Orinoco Oil Shale gas Bakken Shale Oil But not Utah/Colorado Kerogen Shale, yet.
■ Key participants took risks and reaped great rewards:
– George Mitchell earned medal for cracking Barnett Shale – Suncor, Shell Canada earned medal for Canadian Oil Sands
But “Gold Medals” Do Not Create Sustainable Energy Supplies ■ Any new energy source using vast quantities of useable water has embedded risks. ■ Any new energy source requiring massive equipment and manpower to create flows has embedded risks. ■ Any new energy source with high initial flows that soon plunge is not sustainable play – at any cost.
■ Any energy source that needs exponential use of “rigs and trucks” uses too much energy and rigs/trucks will be scarce.
Steep Initial Production Declines Do Not Create Sustainable Growth ■ Treadmill envisioned by Bill White materialized. ■ With even higher prices and steady increases in rigs, pump trucks, etc., supply could grow. ■ But, if the music ever stopped…“Katie Bar the Door.” ■ We created world of musical chairs. ■ And then…The music stopped!
Light, Sweet Oil And Sweet Dry Gas Supply Waning ■ World will never run out of hydrocarbons. ■ We are now approaching end of having high flows of sweet, dry gas and light, sweet oil. ■ Replacing these flows are more sour, heavier and more toxic sources. ■ And vast amount of remaining supply is unconventional.”
■ Unconventional oil and gas is sadly “unconventional”: – Hard to extract in high sustained flows – Energy and water intensive to produce – Useable flows often need heavy “treating”
Industry‟s Workforce And Supply Chain Infrastructure Got Old And Too Rusty ■ Twin cancers to sustainable hydro-carbon flows: Aging workforce and rust. ■ People issue will take decades to solve.
■ Rust issue will only be solved by rebuilding the asset base supply chain. ■ Cost of rebuilding will be massive. ■ We have no blueprint yet on how to solve either problem.
Meanwhile, Global Oil And Gas Flows Probably Past Peak ■ Data proving global oil passing peak is “enough to convict.” ■ It happened in 2005. ■ Key field production audit would convict and execute. ■ Why world has not demanded such an audit is foolish. ■ Poor natural gas data is far worse than oil. ■ But, too many giant fields have past peak flows. ■ Too many global new fields too sour and never properly explored.
Industry Needs New “Blue Print” ■ We need to know more about actual flows for all super giant/giant oil and gas fields. ■ We need solid, transparent, decline rate data. ■ We need some idea of long-term rig/truck, manpower needs. ■ We need plan on how to build them while replacing “clunkers.” ■ We need to understand water scarcity consequences of meeting oil and gas demands. ■ We need to grasp “rust” issue and plan to rebuild ASAP! Hydrocarbon‟s future does not look sustainable!
We Need A Wake-Up Call To End Sleepwalking ■ We need “call to arms” to prepare for post-peak flow of oil and gas. ■ Time frame for adjustment: 5 – 7 years. ■ Delays will make crisis worse. ■ Most alternate energy sources take too long/or too energy intensive.
Time…..Is Not On Our Side
■ TIME to act is NOW. ■ TIME is our only asset. ■ TIME is running out.
■ Twilight era is fast approaching.
Perils Of Pauline: Walking A Tightrope Across A Chasm ■ Industry now tightly balanced between soaring decline rates in oil and natural gas. ■ 12 months ago, drilling and service costs deemed “too high.” ■ Manpower shortages induced labor wars. ■ Supply did not grow.
■ Now, we have laid down U.S. rigs, fired manpower, stalled major international projects.
This is like slicing the tightrope!
“We” Created A Prisoner‟s Dilemma (Damned If You Do…..Damned If You Don‟t) ■ Consumers got/get mad at high energy prices. ■ Oil companies got furious with high service costs. ■ Oil and gas companies were livid as equipment shortages worsened. ■ Service companies got mad when customers hired their people. ■ Then prices collapsed. ■ Then drilling collapsed. ■ Then firings began.
EVERYONE WILL LOSE NOW!
Energy Industry Needs “Sharp” U-Turn ■ Oil and gas prices must rise fast and stay high. ■ Drilling needs to ramp up and stay up. ■ Audits needed on all key supply sources to begin accurate decline models. ■ Blueprint of manpower needs and recruitment drive a must! ■ Rebuilding of industry‟s rusty assets must start ASAP. ■ Oil and gas consumers need to plan on how to use less ASAP!
SIMMONS & COMPANY INTERNATIONAL
Investment to the
Bankers
Energy Industry
For information and/or copies regarding this presentation, please contact us at (713) 236-9999 or [email protected]. This presentation will also be available on our website www.simmonsco-intl.com within seven business days.
Oklahoma State University Energy Symposium Tulsa, Oklahoma May 19, 2009 By: Matthew R. Simmons, Chairman Simmons & Company International
We Live In An Insecure Energy World ■ USA is largest member of energy insecurity club. ■ We are a country of energy hogs. ■ Only a few states provide energy to others.
■ Texas is an energy parasite. ■ Oklahoma is an energy parasite, too.
The World Is “Energy Insecure” ■ Only handful of nations produce exportable energy. ■ These nations straddle the poverty line.
■ If these countries ever created a middle-class, their energy exports would end. ■ All prosperous countries (except Norway) are importing energy “hogs.” ■ This applies to all fossil fuels and nuclear power, too.
America Is Biggest Energy Glutton ■ We have 5% of the world‟s population. ■ We use 25% of world‟s energy. ■ U.S. daily energy use: – Train car of coal every second (86,400 train cars/day) – 10,000 gallons of oil every second (864 million gallons/day) – 60 billion cubic feet of natural gas (to moon and back 25 times)
■ This will not stop as USA population will “soon” be 350 million.
Gluttony Is Also Global Problem ■ 85% of world (i.e. ≈5.7 billion people) barely use energy. ■ Take U.S. energy consumption and multiply it by 4 to get the world‟s current use.
■ Think how enormous demand would be if 6 billion people used even 25% of the oil we consume!
Gluttony Problem Will Worsen Each Decade ■ Absent pandemic, global famine or WWIII, world‟s population headed far higher than models assume: – – – –
In 1960, population was 3 billion By 1990, population was 5 billion By 2000, population was 6 billion Current population is nearing 7 billion
■ Public policy planners assume world will have over 9 billion people by 2050. ■ “They woz wrong!” ■ Real number could reach 15 – 25 billion!
All Energy Models Assume Strong Growth In Energy Demand ■ No presumed shift in fuel mix. ■ Natural gas grows fastest.
■ Alternatives/renewables soar, but still only a sliver. ■ Coal remains “King.” ■ Oil still transports people and “things” forever. Source: IEA World Energy Outlook 2008
It Is Hard To Stop Energy Demand Growth ■ Volumes too high. ■ There are no energy dikes. ■ We cannot stop population growth. ■ We cannot ban quest to escape poverty. ■ The rich also get richer. ■ Problem for U.S. is same as global problem. ■ You cannot turn back “the clock.”
Energy Independence Is “Odd” Concept
■ Virtually every town, county, state in USA is dependent on someone else for its energy use.
■ Every big country needs someone else‟s energy. ■ Parasites cannot exist independently.
“No Man Is An Island” – A truism in 2009.
Snapshot Of Various States‟ Energy Needs
USA Energy Security Morphed Into Energy Insecurity ■ “Blood and Oil” documentary details how USA foreign policy anchored by need to insure oil supply since FDR‟s days. ■ When USA oil production peaked in 1970 and gas in 1973, energy security turned into energy insecurity.
U.S. Oil Imports (YTD 2008) „000 B/D
■ America now more vulnerable than Japan and China to flow restrictions of oil, gas, coal and uranium.
Source: EIA-DOE
“Sooner State” Is Perfect Example Of Crisis ■ The Sooner state (aka “Indian Territories”) was one of USA‟s oldest energy providers. ■ Oil first found in 1890s.
■ Oil production peaked in 1967 @ 630,000 B/D. ■ Natural gas production peaked in 1990 @ 2,258 MMCF/D. ■ Sooner state oil now anchored by stripper wells producing tiny oil flows.
Sooner State Problems Not For Lack Of Trying ■ Tulsa was oil capital of world through 1968. ■ Oklahoma City pioneered offshore drilling and deep vertical well drilling. ■ 1947: KMG drilled first offshore well. ■ 1972: Mobil drilled deepest vertical well. ■ Activity so high that Penn Square Bank failure took out many major banks (SeaFirst, Continental Illinois, etc., etc.) ■ Sooner state‟s oil schools still among the best-of-the-best: – Oklahoma State University – Oklahoma University – University of Tulsa
Still pioneers in hydrocarbon learning
“Trail of Tears” Followed USA And Oklahoma‟s Oil And Gas Peak ■ Once oil and gas peaked, conventional supplies went into irreversible decline, no matter how fast the industry drilled. ■ The increased drilling sucked out more oil and gas, accelerating the decline. ■ The lack of ability to add more rigs by 1981 peak boom made problem worse. ■ And then came the 1982 “collapse.”
“Trail Of Tears Turns Into “Flood Of Red Ink” ■ No part of oil and gas system spared as oilfield depression hit in 1982. ■ But, “epicenter/ground zero” was Sooner state. ■ Junk yards stacked with rigs became legendary.
■ 30 drilling fluid companies in one Oklahoma City building all went bust. ■ And decline of America‟s oil and gas accelerated.
Sooner State Had Many Great Energy Pioneers ■ Sooner pioneers weathered all the hard times. ■ Their names were “legends in their own time”: – – – – – – – – – – –
Dean McGee Senator Bob Kerr T. Boone Pickens Ardmore‟s Noble family Hefner family Halliburton Philips Petroleum Conoco Parker Drilling and Helmerich & Payne Tulsa‟s four supply house giants To name but a few…..
Technology Boom Created New Hope ■ Oil service industry/drilling contractors began experimenting with technological revolution in 1970s: – Ability to drill ultra-deep vertical wells – Moving into blue water offshore oil and gas supplies – Enhanced oil recovery methods in mature basins – Horizontal drilling – Hydraulic fracing and deep acidizing – Multi-lateral well completions – 3 and 4 dimensional seismic
■ All these were invented in the 1970s.
The Inventions All Worked ■ By end of 1980s, invention successes kept best-in-class service companies and drilling alive in worst industryspecific depression of 20th century. ■ Simmons & Company played key role in helping many great service company technology leaders survive. ■ Austin Chalk Play began first intense use of cracking tight rock oil and gas formations. ■ This technique soon spread all the way to Saudi Arabia.
“We Are Now In Foot Race Between Technology And Depletion” (Bill White, Deputy Energy Secretary, 1993)
■ Technological advances created monster decline rates. ■ Hydraulic fracing and acidizing created artificial permeability. ■ High initial flow rates caught everyone‟s enthusiastic support.
■ But, the high flow rates barely lasted long enough to measure.
Observed declines “Natural declines”
Source: IEA World Energy Outlook 2008
■ But, few operators took time to measure “flow rates” and instead went to reserve booking frenzy.
Kerr-McGee‟s Initiation To Offshore Drilling Was Remarkable “Next Act” ■ 1947: First well drilled beyond site of land. ■ By 1990s, this evolved into “deepwater exploration.” ■ TransWorld (once a KMG subsidiary) became deep drilling leader. ■ Noble Drilling became world‟s largest offshore drilling fleet. ■ By 2000, deepwater drilling seemed to “save the day” and prolonged time before world‟s oil production peaked.
Deepwater Oil And Gas Projects Also Failed To Stop Supply Hemorrhage ■ Number of deepwater projects soared. Gulf of Mexico was epicenter of boom.
■ Few projects even hit peak design capacity. ■ All of these had astonishing peaks and plummeting production declines.
Gulf Of Mexico Now Bifurcated USA‟s Oil Supply And Plunging Gas Flow ■ 1.4 MMB/D of oil still flows from the Gulf of Mexico: – 31% from 2 deepwater fields – 19% from another ≈ 20 fields – ≈50% from ± 600 tiny fields (many were once large)
■ Gulf of Mexico natural gas flows fell by 70% within last 5 years. ■ Abandonment liability now probably exceeds value of ≈50% remaining oil and gas fields.
A Picture Is Worth A Thousand Words 16 14 12 10 8 6 4 2 0
50 40 30 20 10 0
35 30 25 20 15 10 5 0
Amberjack
Hoover
Nansen (EB 602)
100 80 60 40 20 0
100 80 60 40 20 0
30 25 20 15 10 5 0
60 50 40 30 20 10 0
Auger
Baldpate
40 30 20
Horn Mtn/King
Neptune (VK 825)
Llano (GB 387)
10 0
30 25 20 15 10 5 0
Phoenix
60 50 40 30 20 10 0
Brutus
60 50 40 30 20 10 0
Lobster/Oyster
60 50 40 30 20 10 0
Pompano
10 8 6 4 2 0
300 250 200 150 100 50 0
50 45 40 35 30 25 20 15 10 5 0
Cognac
Mars-Ursa
Ram-Powell (VK 956)
Deep Vertical Gas Wells Were Next Great Hope ■ By mid-1990s, ultra-deep vertical wells in south Texas ushered in new hope for growth in USA‟s gas flows. ■ 20 – 22,000 foot vertical wells produced from every formation once they were hydrocarbon fraced. ■ Initial flow rates hit 80 – 100,000 MMCF/D, but production plunged rapidly thereafter.
■ Within four years, south Texas boom was sucked “dry.” ■ But, some smart operators made a great deal of money while the boom lasted.
Then We Fell In Love With Unconventional Natural Gas to Replace Fallen Base
■ But, deepwater gas declines fast.
■ Conventional declines fast. ■ Tight rocks decline super fast.
How Fast Does USA Natural Gas Now Decline? ■ Over last decade, most conventional and all non-conventional gas wells created monster decline rates. Type of Well
Typical 1st Yr. Declines Initial Production Flow %
Conventional GOM Shelf Deep GOM Shelf GOM Deepwater Cotton Valley Piceance Uintah Basin Green River Basin Pinedale Barnett Shale Fayetteville Shale Woodford Shale
80 20 33 70 70 67 60 67 70 75 67
(MMCF/D)
9.0 10.0 250.0 1.2 1.2 1.2 2.5 6.0 2.3 2.0 3.0
Source of U.S. Natural Gas Production And Drilling Rig Activity ■ Six states and GOM make up 83% of total U.S. gas supply. ■ Conventional gas production in all 7 areas in decline. ■ Other areas primarily contain “unconventional gas plays.” ■ “Other areas” have very few drilling rigs.
Why Do Tight Gas Wells Decline So Fast?
■ Rock is not permeable.
■ Without horizontal wells, no flow. ■ With hydraulic fracing, flows come too fast.
A Picture Is Worth A Thousand Words Unconventional Oil Drilling Increases vs. Production Declines
These Steep First Year Declines Created Gigantic Treadmill America can only rely on unconventional gas plays to keep supply flat IF… ■ Lease plays continue to move into new shale sweet spots… ■ Abundant rigs, pumping service trucks, vacuum trucks, etc. were limitless… ■ Water use remains “free”… ■ Gas prices stay high…
Non-Conventional Oil And Gas Recovery Techniques Are Real ■ Industry conquered ability to turn “unconventional” into “useable”: – – – – – –
Oil sands Tar sands Orinoco Oil Shale gas Bakken Shale Oil But not Utah/Colorado Kerogen Shale, yet.
■ Key participants took risks and reaped great rewards:
– George Mitchell earned medal for cracking Barnett Shale – Suncor, Shell Canada earned medal for Canadian Oil Sands
But “Gold Medals” Do Not Create Sustainable Energy Supplies ■ Any new energy source using vast quantities of useable water has embedded risks. ■ Any new energy source requiring massive equipment and manpower to create flows has embedded risks. ■ Any new energy source with high initial flows that soon plunge is not sustainable play – at any cost.
■ Any energy source that needs exponential use of “rigs and trucks” uses too much energy and rigs/trucks will be scarce.
Steep Initial Production Declines Do Not Create Sustainable Growth ■ Treadmill envisioned by Bill White materialized. ■ With even higher prices and steady increases in rigs, pump trucks, etc., supply could grow. ■ But, if the music ever stopped…“Katie Bar the Door.” ■ We created world of musical chairs. ■ And then…The music stopped!
Light, Sweet Oil And Sweet Dry Gas Supply Waning ■ World will never run out of hydrocarbons. ■ We are now approaching end of having high flows of sweet, dry gas and light, sweet oil. ■ Replacing these flows are more sour, heavier and more toxic sources. ■ And vast amount of remaining supply is unconventional.”
■ Unconventional oil and gas is sadly “unconventional”: – Hard to extract in high sustained flows – Energy and water intensive to produce – Useable flows often need heavy “treating”
Industry‟s Workforce And Supply Chain Infrastructure Got Old And Too Rusty ■ Twin cancers to sustainable hydro-carbon flows: Aging workforce and rust. ■ People issue will take decades to solve.
■ Rust issue will only be solved by rebuilding the asset base supply chain. ■ Cost of rebuilding will be massive. ■ We have no blueprint yet on how to solve either problem.
Meanwhile, Global Oil And Gas Flows Probably Past Peak ■ Data proving global oil passing peak is “enough to convict.” ■ It happened in 2005. ■ Key field production audit would convict and execute. ■ Why world has not demanded such an audit is foolish. ■ Poor natural gas data is far worse than oil. ■ But, too many giant fields have past peak flows. ■ Too many global new fields too sour and never properly explored.
Industry Needs New “Blue Print” ■ We need to know more about actual flows for all super giant/giant oil and gas fields. ■ We need solid, transparent, decline rate data. ■ We need some idea of long-term rig/truck, manpower needs. ■ We need plan on how to build them while replacing “clunkers.” ■ We need to understand water scarcity consequences of meeting oil and gas demands. ■ We need to grasp “rust” issue and plan to rebuild ASAP! Hydrocarbon‟s future does not look sustainable!
We Need A Wake-Up Call To End Sleepwalking ■ We need “call to arms” to prepare for post-peak flow of oil and gas. ■ Time frame for adjustment: 5 – 7 years. ■ Delays will make crisis worse. ■ Most alternate energy sources take too long/or too energy intensive.
Time…..Is Not On Our Side
■ TIME to act is NOW. ■ TIME is our only asset. ■ TIME is running out.
■ Twilight era is fast approaching.
Perils Of Pauline: Walking A Tightrope Across A Chasm ■ Industry now tightly balanced between soaring decline rates in oil and natural gas. ■ 12 months ago, drilling and service costs deemed “too high.” ■ Manpower shortages induced labor wars. ■ Supply did not grow.
■ Now, we have laid down U.S. rigs, fired manpower, stalled major international projects.
This is like slicing the tightrope!
“We” Created A Prisoner‟s Dilemma (Damned If You Do…..Damned If You Don‟t) ■ Consumers got/get mad at high energy prices. ■ Oil companies got furious with high service costs. ■ Oil and gas companies were livid as equipment shortages worsened. ■ Service companies got mad when customers hired their people. ■ Then prices collapsed. ■ Then drilling collapsed. ■ Then firings began.
EVERYONE WILL LOSE NOW!
Energy Industry Needs “Sharp” U-Turn ■ Oil and gas prices must rise fast and stay high. ■ Drilling needs to ramp up and stay up. ■ Audits needed on all key supply sources to begin accurate decline models. ■ Blueprint of manpower needs and recruitment drive a must! ■ Rebuilding of industry‟s rusty assets must start ASAP. ■ Oil and gas consumers need to plan on how to use less ASAP!
SIMMONS & COMPANY INTERNATIONAL
Investment to the
Bankers
Energy Industry
For information and/or copies regarding this presentation, please contact us at (713) 236-9999 or [email protected]. This presentation will also be available on our website www.simmonsco-intl.com within seven business days.
