Carpe Diem

Energy milestone: US oil output increased by 2M barrels per day in just 2 years, completely reversing a 20-year decline

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The Department of Energy reported today that US oil production for the week ending July 19 reached 7.555 million barrels per day (bpd), which is the highest weekly output of crude oil in the US since the last week of December 1990, more than 23 years ago (see chart above). US oil production during the third week of July was higher than a year ago by 18.7%.

In just the last two years, oil production in “Saudi America” has increased by more than 2 million bpd (and by 37%), from 5.52 million bpd in July 2011 to 7.55 million bpd last week, and has completely reversed a multi-decade decline in US oil output (see chart). Amazingly, it took more than 20 years for US oil output to decline by 2 million bpd between 1989 and 2011, and then only 24 months to completely reverse that decline with a 2 million bpd increase in oil output since the summer of 2011.

Further, to put a two million bpd increase in US oil production into perspective, that would be like adding the entire oil output of the country of Brazil to the US oil supply. It would also be the equivalent of adding three new oil fields the size of the Bakken in North Dakota to America’s oil supply.

Bottom Line: A two million bpd increase in US oil output in only 24 months, almost exclusively from the dramatic increases in shale oil production made possible by revolutionary drilling technologies, is an important energy milestone and has to be one of the most remarkable success stories in the history of US energy production.

Welcome to America’s shale energy revolution, which continues to be one of the strongest reasons to be optimistic about the US economy.

20 thoughts on “Energy milestone: US oil output increased by 2M barrels per day in just 2 years, completely reversing a 20-year decline

  1. Oil production in the U.S. had generally been in decline since the early 1970′s. The Department of Energy was made a cabinet level agency in 1977 because of our production decline. Since then it has spent hundreds of billions of dollars to help boost energy production. Oil and gas production have been revolutionized due to fracking. My understanding is that the DOE had little (or nothing) to do with this technology. Tell me again why we have a Department of Energy.

    • Just to be clear some of the pioneering work on fracking was supported by FERC thru the gas research institute. When it proved successful, then the industry ran with it. (Earlier attempts had failed big time as the first tries were in 1948). Now for the future we have seen a back to the future way of supporting research, give prizes for accomplishments, such as ARPA does.

  2. The U.S. should be trading high-tech goods (e.g. with market power) for Saudi oil.

    Unfortunately, the Saudis are running low.

    • You can, Peak. At anytime you can load up on high-tech goods and trade them for Saudi oil. Let me know how that turns out for you.

      The U.S. should

      You must be very impressive to know what every single American should be trading. You must be one of the richest men in the world, then, since you know all this stuff.

  3. The U.S. should be trading high-tech goods (e.g. with market power) for Saudi oil.

    They already are. Those little green certificates are IOUs for high tech goods – or whatever else the Saudies want to exchange them for.

    It’s a beautiful concept: Money.

  4. Vangel: I am disappointed not to see you doomy voice here.

    BTW, when I asked which SEC docs I should read, I meant which company filings. What company filings have you read that indicate that shale oil will not pan out as an investment?

    Are there some SEC docs that indicate some companies are in fact profitable around $90-100 a barrel?

    This is quite a boom, and we have new fields coming to the fore, such as the Cline field.

    • Take a look at your favourite shale producers. Pick any name from the list and look at the 10-Ks. (If the producers have other operations that are not in the shale space you have to do a lot of work to back out the contributions so you are better off sticking with primary shale producers.) Look at the balance sheets and cash flow statements. Look at the number of years that the company has been in the shale space. Since half the production from a well comes in the first three years as the highest production rates come first you have to ask why it is that supposedly profitable wells that pay for themselves quickly cannot make operations self-financing. And while you are at it I would take a look at the depreciation rates. Are they in line with the production data or is the company using overstated EURs? For an idea of what I have been saying for the past five years or so you might want to look at the link below. Christopher Joye covers some of the same points that I have been arguing for quite some time.

      “Continental says their average Bakken well will yield 600,000 barrels of oil. Yet the US Geological Survey says lifetime production of a Bakken well is between 64,000 and 241,000 barrels. That’s the difference between a revolution and a scam.”

      • Vangel, you’ve been swallowing too much environmental lobby kool-aid. “Fracking is new and dangerous!” say the environmentalists. No, hydraulic fracturing has been around since the forties and claim after claim of fracking dangers have been debunked. “There aren’t really any significant reserves in those formations!” No, shale reservoirs are proving to be enormous, and the production rates confirm it. “These wells aren’t really economical, it’s a sham!” Sure, that’s why dozens and dozens of companies are committing billions in capital to shale exploration and development. Do you really think they all want to throw money away? Average well production and reserves have been climbing steadily in all the shale plays as the industry has better learned how to identify the best locations and to drill them more optimally.

        • Vangel, you’ve been swallowing too much environmental lobby kool-aid. Etc., etc.

          Allen, that’s one of the most beautiful collections of straw men I’ve seen all week. Nice work.

        • Allen,

          I’m wondering what exactly you are responding to in Vangel’s comment. I don’t see anywhere in his post where he claims fracking is “new and dangerous”, do you? In fact, can you find a single comment on this site where Vangel has ever claimed fracking is “new” or “dangerous”? If not, WTF are you talking about?

          As for your comments about his economic claims, the same could be said of the most two recent bubbles (hi-tech and real estate). Vangel claims that the Bakken is a bubble. He may be right. He may not be. We’ll see.

          But most importantly, your comment addresses nothing he’s claimed, nor have you provided evidence to the contrary.

        • Vangel, you’ve been swallowing too much environmental lobby kool-aid. “Fracking is new and dangerous!” say the environmentalists.

          They may say that but I do not. Fracking does not create much more of an environmental problem than any other economic activity. The problem does not lie there but with the fact that fracking activity has been responsible for a great deal of capital destruction in the US. Early in the game it was pointed out how shale gas would create a boom for investors because the low porosity and permeability could be overcome by fracking and gas would easily migrate to the pipe. That was true; it is much easier for methane molecules, which are tiny, to get through the formation than for oil, which was made up of larger molecules that moved slower and needed a larger pressure differential. The problem was that once all the costs were accounted for the producers needed $7.50 or higher price IN THE CORE AREAS of the formations that were being drilled. Those are a tiny part of the overall shale resource and while profitable could not provide the volumes of gas that were being touted. To do that the drillers had to go to less productive parts of the formations where the costs needed to break even were higher. But as held for production drilling increased producers were forced to take huge losses and it is now clear that everyone is losing their shirt.

          The shale oil hype is simple misdirection because the same rules apply. Shale oil can be very profitable in some of the core areas even if prices were in the $70 range. But the trouble is that such wells are rare and even the core areas need higher prices than that to break even. The non-core areas are a disaster because they cannot produce enough oil to pay back all the costs to drill the wells and bring them to production. The ND data is very instructive. It shows an explosion in drilling activity but even though the number of wells have gone up by more than 40% in a year and new wells have high production rates the overall well production rate fell by 10% to 130 bpd. That stat alone explains why none of the primary producers are self financing.

        • Continental, Chesapeake, Kodiak. It does not matter. Look at any of the primary shale producers and you will see the same thing. The shale projects are not self financing and what we see is an increase in production that is financed by a huge increase in debt and shareholder dilution. This would not be a concern if there were evidence that the average well is economic but I see no such evidence.

          Those who have been paying attention to Mark Perry’s postings over the past few years know that my argument has remained the same. If horizontal drilling and fracking techniques were really what the promoters say that they were it would be correct to assume that the pioneers who got in early and found the best areas to drill could generate high cash returns. But when we looked at the SEC filings and went on the conference calls there was no evidence that this was true. After a while I was amazed to hear almost every CEO mention the funding gap issues and how the company was going to deal with them. Some even bragged about how they would generate much better returns by selling their leases than they could make from operating those leases. I don’t know about you but when I observe such events I get a bit worried and start to question the prevailing wisdom. The more I dug the worse things looked. A while ago an Australian money manager made exactly the same argument that I have been making for some time. When looking at Continental he noted, “Continental says their average Bakken well will yield 600,000 barrels of oil. Yet the US Geological Survey says lifetime production of a Bakken well is between 64,000 and 241,000 barrels. That’s the difference between a revolution and a scam.”

          Let me note one more thing. I had this same argument about shale gas with many of the same people. Some of them are still calling shale gas a success because they look at the production levels and ignore the billions in write-downs and the future adjustments to earning and balance sheet asset values in the sector. These people are now on the shale oil bandwagon even though some of the same concerns still remain. Before you talk about global markets and price let me note that was never the big problem for shale. The bigger problem came from the use of EURs that were way too optimistic and the decline of productivity as one moved away from core areas. Exactly the same problems remain for shale oil producers. The industry continues to use EURs that are much higher than the production data suggests are much more realistic. As such the cost of producing oil in the first few years is underestimated and eventually the auditors will demand that asset values and past income are restated. For shale wells you are looking at three or four years before reality has to be recognized. While that can be masked by greater drilling activity there is a point at which it is no longer possible to hide the problem. At best we are looking at 2015 or 2016 before the SHTF and investors are screaming about being misled. The irony is that all of the information needed to come up with a reasonable conclusion is already available to anyone who cares to look. The failure to spot reality has nothing to do with accounting or misleading statements from companies but with a desire to believe that things are getting better and better. I understand people like Mark because there are many Panglossians who are true believers in the Whig Theory of History and have a naive view of life that helps them make a good living even as they fool themselves and others. What I cannot understand is why investors who have already seen just how ignorant so-called experts can be can still remain so trusting of narratives that are not really supported by the appropriate facts.

          • Could it be that these companies are capital starved simply because they are trying to take advantage of a massive opportunity? I just don’t see dozens and dozens of companies all falling over themselves to jump off the same cliff (that’s an undeniable FACT that does support the popular narrative). They are drilling the wells. They are learning more about the geology and the best ways to optimize their drilling targets and techniques with each day. They are seeing the decline curves respond to different approaches (which of course exist for ALL wells, not just shale reservoirs). What the USGS conservatively observed 3 years ago may bear little resemblance to the reality today. For example, earlier shale wells were subject to greater decline curves because high pressure proppants had not yet been introduced. Well fissures created by hydraulic fracturing will collapse over time if the proppants utilized aren’t strong enough.

          • Could it be that these companies are capital starved simply because they are trying to take advantage of a massive opportunity?

            That would be the case if the average well were able to pay for all of the costs and leave a bit of profit. But that is not the case.

            I just don’t see dozens and dozens of companies all falling over themselves to jump off the same cliff (that’s an undeniable FACT that does support the popular narrative).

            I take it you don’t remember the time when companies borrowed heavily and raised capital to try to sell pet food and groceries on the internet.

            They are drilling the wells. They are learning more about the geology and the best ways to optimize their drilling targets and techniques with each day.

            Shale formations don’t have much uniformity. What you learn about drilling in one core area of one formation tells you nothing about another formation or the non-core areas. And the ‘learning’ is done on what should be the most profitable production. Once the better quality areas are drilled off the companies will be stuck with less productive wells that will not pay for themselves.

            They are seeing the decline curves respond to different approaches (which of course exist for ALL wells, not just shale reservoirs).

            All wells decline. But because of the low permeability and porosity shale wells have a particularly steep curve. The companies use models that overestimate ultimate recovery rates that allow the accountants to report small losses or even profits even though the cash flows remain negative and the funding gaps cannot be closed by better performance from production activities.

            What the USGS conservatively observed 3 years ago may bear little resemblance to the reality today. For example, earlier shale wells were subject to greater decline curves because high pressure proppants had not yet been introduced.

            It does not matter because what you gain from the introduction of some techniques is usually lost from the higher costs that come from those techniques. The use of these materials does not solve the permeability problems.

            Well fissures created by hydraulic fracturing will collapse over time if the proppants utilized aren’t strong enough.

            It does not matter because the oil has to come from somewhere. The pores in shale are closed and having open fractures will not get that oil out. You are eventually going to have to open up new fractures and that takes more money.

            It is time we stopped the what if approach and look at what is in the real world. The SEC filings and conference calls are clear. But only if we pay attention.

  5. Everyone in the environmental community decries fracking and oil production in general, but if you boil down their argument against modern technology to its core — they will not be satisfied until America returns to the horse as our only mode of transportation, and burning firewood as our only source of heat. Which, of course, will never happen, unless the world’s oil supplies do in fact get completely used up, but that will take centuries. So fracking is here to stay.

    But if the environmental community’s campaign to ban this technology is successful, it will only lead to increased drilling in the Gulf. But to this, it must be asked, what is going to be easier to deal with if there is an accident — capping blown wells thousands of feet underwater, or capping blown wells on land? Their efforts therefore MAKE NO SENSE AT ALL.

    • Ken, the primary objection to fracking seems to be the baseless claim that water supplies are being contaminated.

      It seems clear that capping wells on land would be much easier and quicker than wells thousands of feet underwater, although in the case of the Deepwater Horizon spill, the problem might have remained above the surface had it not been for fire suppression efforts that filled the platform with water until it sank to the bottom destroying the five thousands of feet of intact pipe that previously carried oil to the surface where it was burning.

      I’m no expert, but it seems to me that one burning oil well on the surface would have been much easier to deal with, and the damage it caused much less extensive than the 5 million barrels of oil that eventually flowed from a broken wellhead a mile below the surface.

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