Signs of rapidly depleting oil supplies are starting to make investors nervous, but a new study is out to prove that this is far from the case…
The news has been disconcerting to say the least.
Abdalla Salem el-Badri, OPEC’s secretary general, said at a conference last fall that US shale producers are “running out of sweet spots” and that output will peak in 2018.
That may be a bit biased on the part of OPEC to downplay the might of North American energy, but there are also dire warnings coming from our people as well.
Canadian geoscientist and president of Global Sustainability Research, David Hughes agrees that oil companies here have already tapped the best spots — predicting that production will peak in 2017 and fall back to 2012 levels two years later.
A number of case studies in the past decade have further helped to fuel this ominous prediction.
Chesapeake Energy’s (NYSE:CHK) Serenity 1-3H well near Oklahoma City was pumping out more than 1,200 bpd when it began operating in 2009. At present, the well produces less than 100 barrels.
Then there was Continental Resources (NYSE:CLR) and its famous Robert Heuer 1-17R well that went live in May 2004. The 2,358 bpd gusher unofficially kicked off the Bakken oil rush…but saw output decline a whopping 69% within the first year.
Hughes calls it the Red Queen syndrome, where more drilling must happen just to keep pace with current production levels.
“The Red Queen syndrome just gets worse and worse and worse,” he says. “The higher production goes, the more wells you need to offset the decline.”
Are we really going to see this energy boom die just as quickly as it started?
Back in the seventies, experts predicted that oil production would plateau by the mid 1990s to 2000…
Then came the eighties and nineties, and the experts then pushed their predictions to the year 2010 and onwards.
By the time the 2000s rolled around, a number of these same experts revised their estimates again to sometime after 2020. Coincidentally, this happened as the country began unlocking huge amounts of new oil and gas supplies through new drilling techniques such as fracking.
With it now being 2014, forecasters are at it again with their guessing game.
The truth is, no one knows with any certainty when true peak oil will occur.
Although well decline rates could be an indication that supply is running out soon, the industry has proven over the decades that there’s still quite a bit of black gold left in the ground.
In fact, according to Ernst & Young’s annual US oil and gas reserves study, reserves of both spiked by 9% in 2013.
Oil reserves are now up to 25.4 billion barrels, while gas reserves have reached a staggering 178.7 Tcf.
Much of the growth in oil reserves can be attributed to extensions, higher recovery rates, estimate revisions, and new discoveries in key oil-rich plays like the Permian Basin, Eagle Ford, and of course the Bakken.
Both Pioneer Natural Resources (NYSE:PXD) and EOG Resources (NYSE:EOG) are examples of drillers that raised their oil reserves considerably last year.
Pioneer added proved reserves of 141 million boe in 2013, while EOG saw its reserves climb from 1 billion boe in 2010 to 3.2 billion boe in 2013.
Natural gas has grown in much the same way, with the Marcellus shale leading the charge. It was helped further by elevated natural gas prices which boosted the economics for gas recovery and shifted more gas reserves to recoverable status.
The big story was with Southwestern Energy (NYSE:SWN), a company that registered some 7.0 Tcf worth of proved gas reserves at the end of 2013 — 74% more than in 2012, thanks to a lucrative run in the Marcellus.
Whether you believe in peak oil or not, oil and gas producers have proven once more that through technological innovation, reserves have continued to grow.
The US is pumping out more oil than it has in the last 25 years, and has the potential to overtake Saudi Arabia as the world’s largest producer by 2020.
Of course, the critics aren’t likely to stop pondering just how long producers can keep it up before they can finally declare “we told you so!”
Perhaps before that day ever comes, the world would have already shifted its energy needs to other alternative sources…leaving the question to go unanswered altogether.
In the meantime, energy companies are content with raking in the dough while letting the experts continue on with their guessing game.
Stay long oil and gas.
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