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Could Kurdish Independence Spark An Oil War?

Kudish Oil Well Platform
Oil drilling in Kurdish oil field

Below are links to a couple of interesting pieces on a potential Kurdish state’s likely effect on regional stability and oil prices. Our national interests may call for caution.

Writes political commentator Pat Buchanan:

“For though the Kurds, 30 million in number, are probably the largest ethnic group on earth without a nation-state of their own, creating a Kurdish homeland could ignite a Middle East war the Kurds could lose as badly as did the Confederate States.

“Why? Because, the dissolution of the Ottoman Empire at the Paris Peace Conference of 1919-20 not only left millions of Kurds in Iraq, it left most of them in Turkey, Iran and Syria.

“A free and independent Kurdistan carved out of Iraq could prove a magnet for the 25 million Kurds in Iran, Turkey and Syria, and a sanctuary for Kurd rebels, causing those nations to join together to annihilate the new country.

“Then, there is Kirkuk, seized by the Kurds after the Iraqi army fled from an invading ISIS. The city sits on some of the richest oil deposits in Iraq.

“Yesterday, Massoud Barzani, president of Iraqi Kurdistan, told the BBC that if the Kurds vote for independence and Baghdad refuses to accept it, they will forcibly resist any Iraqi attempt to retake the city.”

http://buchanan.org/blog/tribalism-marches-on-127639

http://oilprice.com/…/Could-Kurdish-Independence-Spark-An-O…

Could sustained high oil prices make a resurgence?

Could $100 oil make a comeback?
Some investors are betting that high oil prices will make a comeback within the next year.

Todd Bennington, Kingdom Exploration Media

Some very optimistic investors are betting that oil prices will rise out of the current $50-per-barrel doldrums, with interest in $100 call options for December 2018 having tripled this past week. [1] [2] But is such an increase at all a possibility, much less realistic, when we’ve seen so much talk about peak demand and oil prices being likely to remain stagnant for as far as is foreseeable? Here’s what a few industry analysts and pundits who expect significantly higher future prices have to say on the matter.

Richard Robinson, manager of Ashburton Investments energy fund:
“We are extremely confident the oil space will be a good place for investors to be over the next three to five years. Historically, a poor period featuring a lack of spending, as we have witnessed over the past five to eight years, has been followed by an equally long period of outperformance.
“The lack of spending always comes home to roost. With inventories soon to balance, the psyche of the market should move and the questions posed by investors will also change. With the dynamics currently in place, we expect to witness significant opportunities as the oil price moves higher.” [2]

Pierre Andurand, hedge fund manager
“In 2014, after four years at being around $110 a barrel, most analysts were saying we’d never see prices go back below $100 … Now everyone is arguing we’re never going back there, but I don’t really buy that the cost of production has gone down structurally or that electric cars will have a big enough impact on demand.” [2]

Energy Aspects, consultancy firm:
“If demand does not slow, the world will need far more oil than the (shale) oil sector can offer at $50. We are not saying that there is too little oil. There is plenty. Our point is there is not enough oil at $50. We don’t deny that demand growth can slow materially from around 2026 … But legacy projects peak this decade, well before demand is likely to, setting up for an imbalance.” [2]

Nick Cunningham, energy analyst:
“But demand continues to rise—the IEA just upgraded its demand growth estimate for 2017 to 1.6 million barrels per day (mb/d). If that level of demand growth continues for a few years, it will more than devour the excess supply on the market. Even a more tempered growth rate would strain supplies toward the end of the decade, absent a corresponding uptick in production. [3]

Neil Atkinson, head of the International Energy Agency’s oil markets and industry division:
“There are still not enough signs of investment beginning to return, and that raises the risk of tightening of the market in the next five years and a risk to the stability of oil prices. There is at least a possibility of going back to the situation we had 10 years ago where oil prices were very, very high at a time when demand was growing.” [3]

Jodie Gunzberg, head of commodity and real asset indics at S&P Dow Jones Indices:
“When we look at the index data, we can see the price could move even as high as $80 to $85 (a barrel).” [4]

Some other factors potentially contributing to higher prices:
• Planned cuts by OPEC and non-OPEC producers of 1.8 million bpd through March of next year.
• Continuing political instability in producer countries such as Venezuela, Libya, and Nigeria.
• The Kurdish independence movement and potential retaliation from Turkey, which could possibly take 500,000 bpd of Kurdish oil off the market, at least temporarily.
• Modest current production spare capacity (though there is a record level of oil in storage), as well as a current lack of industry investment in new sources of supply. [3]
• A 2020 price spike predicted by the IEA.

Kingdom Exploration LLC is ready to help put investors in appropriate position to take advantage of any potential dramatic increase in the value of oil. Contact Sean Pruitt, founder and president, at sean.pruitt@kingdomexploration.com.

[1] http://oilprice.com/…/Traders-Are-Betting-On-100-Oil-In-201…

[2]https://www.nytimes.com/…/busine…/29reuters-oil-options.html

[3] http://oilprice.com/…/E…/IEA-Price-Spike-Coming-in-2020.html

[4] http://oilprice.com/…/Oil-Prices-Steady-But-80-Oil-Is-Comin…

 

Advantages of Canadian oil investment opportunities versus U.S. shale

Kingdom Exploration VS Shale

Kingdom Exploration LLC offers northern alternative for forward-thinking investors

By Todd Bennington, Kingdom Exploration Media

Despite the fanfare with which advances in hydraulic fracturing technology were met with over the past several years, the fact is that today the profitability of the major U.S. shale plays is in sharp decline. Costs associated with drilling new wells and fracking in tight shale formations remain enormous despite improvements in efficiency. Simply put, U.S. shale projects tend to lack economic feasibility at today’s market prices, which are not expected to rebound substantially for the foreseeable future. Couple this with the steep decline curve in the amount of oil and gas produced by existing unconventional wells and the investment outlook for U.S. shale, perhaps a victim of its own success, doesn’t appear promising.

“Vast volumes of oil were squandered at low prices for the sake of cash flow to support unmanageable debt loads and to satisfy investors about production growth,” writes Forbes analyst Art Berman of the once-heralded Bakken play. “The clear message is that investors do not understand the uncertainties of tight oil and shale gas plays.” [1]

As for conventional plays in the United States, attractive investment opportunities have become hard to come by due to the effects of competition and regulation.

As an alternative, proactive investors may wish to consider available opportunities in Canada, where potential revenues relative to costs have a significantly better outlook. Kingdom Exploration is presently offering just such an opportunity to invest in its project in the Lagarde play in British Columbia. The project proposes ten or more wells utilizing horizontal drilling techniques and initially producing a potential 250 to 1,500 barrels of oil equivalent per day. Potential reserves are estimated at 10 million or more BOE.

With drilling costs at about $2 million per horizontal well, Kingdom Exploration’s Lagarde project compares very favorably with the U.S. shale plays, and the Lagarde area’s high porosity means expensive fracking costs are kept to a minimum. Consider, by comparison, the approximate costs of new wells in the following U.S. shale plays:

  • Eagle Ford (Southern Texas) $6.5-$7 million [2]        `
  • Marcellus (Appalachian Basin) $5.3 million [2]
  • Niobrara (South Dakota, Colorado, Nebraska, Wyoming) $4.5-$5 million [2]
  • Anadarko-Woodford (West-Central Oklahoma) $8.5 million [2]
  • Granite Wash (Texas, Oklahoma) $7.5-$8 million [2]
  • Permian (Texas, New Mexico) $2.2-$3.2 million [3]
  • Haynesville (Louisiana, Arkansas, Texas) $9.95 million [4]

Further, costs for new wells in the Bakken play were $5.9 million in 2015, down from $7.1 million in 2014, [5] and have run as high as $10 million in years previous [6].*

In terms of productivity, Kingdom Exploration’s initial Lagarde wellhead in partnership with Cardinal Energy Ltd – Mitsue 10-17 – produced a total of 5,679.18 BOE between February 9 and March 31 of this year for a daily production average of 113.58 BOE. Those figures are expected to rise considerably once certain minor technical difficulties are overcome to the 250 to 1,500 BOE figure cited above.

As a basis for comparison, the U.S. Energy Information Administration provides the following initial production figures for some of the major U.S. shale plays for the months of February and March 2017:

New-well oil production per rig (barrels per day)

  • Permian (Western Texas) 660 BPD (February) and 668 BPD (March) [7]
  • Eagle Ford (Southern Texas) 1,428 and 1,438 [7]
  • Marcellus (Appalachian Basin) 69 and 70 [7]
  • Niobrara (South Dakota, Colorado, Nebraska, Wyoming) 1,285 and 1,305 [7]
  • Haynesville (Louisiana, Arkansas, Texas) 31 and 32 [7]
  • Bakken (Montana, North Dakota) 987 and 990 [7]
  • Utica (New York, Pennsylvania, Ohio, West Virginia) 110 and 102 [7]
  • Weighted average for the above: 699 and 713 [7]
  • Anadarko 370 and 372 [8]**

New-well gas production per rig (thousand cubic feet per day)

  • Permian 1,097 (February) and 1,107 (March) [7]
  • Eagle Ford 4,436 and 4,518 [7]
  • Marcellus 12,865 and 13,028 [7]
  • Niobrara 4,156 and 4,266 [7]
  • Haynesville 7,011 and 7,112 [7]
  • Bakken 1,424 and 1,455 [7]
  • Utica 10,371 and 10,472 [7]
  • Weighted average for the above: 3,500 and 3,509 [7]
  • Anadarko 2,507 and 2,512 [8]**

It’s important to note, however, that the above initial shale play production rates do not last. Unconventional wells produce very high initial rates before quickly declining to substantially more modest production levels, meaning revenues from these wells are highly front-loaded.

“High initial production rate and steep initial decline is characteristic of shale wells (and is a lot different than the slower decline in many conventional gas wells), meaning that most of a project’s revenues – sometimes as high as 80 percent of total lifetime well revenues – can accrue over the first five to seven years of the well’s producing life,” writes Seth Blumsack, Program Chair for Energy Business and Finance at Penn State’s Department of Energy and Mineral Engineering. [9]

Indeed, a recent Uppsala University thesis on the topic described the average Eagle Ford well as reaching peak production within a few months before declining 75 percent from its peak over the first year of operation, followed by an 87 percent decline from peak production in the second year. [10] The Eagle Ford formation accounts for about one-fourth of cumulative tight oil production, according to the U.S. Energy Information Administration. [11]

The bottom line: Kingdom Exploration’s Lagarde project proposes the operation of 10-plus wells, each producing a potential 250 to 1,500 BOE per day, with per-well development and drilling costs running to approximately $2 million. This combines production figures that are comparable to the major U.S. shale plays but with substantially more room for profit potential as they come at a fraction of the drilling and development costs and can be expected to be more consistently productive over time.

*These figures represent estimates at a fixed point in time. Well costs vary between companies and across time due to a variety of factors.

** Because EIA does not provide Anadarko’s figures for February and March, these are August and September 2017’s production figures.

Sources (links current as of October 2017):

[1] https://www.forbes.com/sites/arthurberman/2017/03/01/the-beginning-of-the-end-for-the-bakken-shale-play/#7c7652251487

[2] https://www.usasymposium.com/bakken/docs/Clover%20Global%20Solutions,LP%20-%20The%20Seven%20Major%20US%20Shale%20Plays.pdf

[3] http://oilprice.com/Energy/Crude-Oil/Permian-Drilling-Costs-Surge-Are-The-Days-Of-Cheap-Oilfield-Services-Over13256.html

[4] http://fuelfix.com/blog/2016/03/24/heres-what-it-costs-to-drill-a-shale-well-these-days/

[5] https://link.springer.com/article/10.1007/s11053-014-9229-9

[6] https://www.fool.com/investing/general/2013/05/15/10-incredible-numbers-from-the-bakken.aspx

[7] https://www.eia.gov/petroleum/drilling/archive/2017/02/

[8] https://www.eia.gov/petroleum/drilling/archive/2017/08/

[9] https://www.e-education.psu.edu/eme801/node/521

[10] https://uu.diva-portal.org/smash/get/diva2:762320/FULLTEXT01.pdf

[11] https://www.eia.gov/outlooks/archive/aeo13/

Art Berman: ‘Shale gas magical thinking’

Todd Bennington, Kingdom Exploration Media

Arthur Berman is a geological consultant with almost 40 years of experience in the petroleum sector. Berman takes what he says is a realistic, as opposed to pessimistic, view of the future of tight oil plays, saying that the popular narrative in which they represent the answer to all the world’s energy problems constitutes a kind of magical thinking rooted in a desire for wish fulfilment rather than rational observation.

“The narrative is that we’re just tearing it up, particularly here in the United States with all these shale plays and yet the preponderance of evidence says we’re not finding new reserves, return on capital employed is at historic lows, and overall the performance of the companies that are engaged in these activities is just not too hot,” Berman recently told an interviewer.

According to Berman’s reading of International Energy Agency data, a further glut of oil supplies will be seen in 2018 and oil isn’t likely to remain much over $50 a barrel for the next several years. However, eventually current supplies and reserves will become exhausted, says Berman, causing oil to spike dramatically in price and remain high, with no immediate solution to the crisis to be found in technological innovation.

Some of the interesting points Berman makes in the course of stating his argument include the following:

  • Oil companies tend to continue operations even when it is not profitable to do so in order to maintain cash flow, service debt, and keep shareholders happy.

 

  • Capital markets, central bank policies, and credit markets are all oriented toward maintaining more energy production.

 

  • Oil reserve discoveries have been declining since the 1960’s or 1970’s and 2016 discoveries represent the lowest level of reserve replacement since 1947. This is partly due to a lack of investment in exploration.

 

  • Shale plays do not represent exploration. Instead, they are field development and represent a finite source. According to the U.S. Energy Information Administration, tight oil reserves represents 18 billion barrels of oil. Yet the U.S. alone uses 5 billion barrels a year and therefore tight oil plays are unlikely to provide the United States with energy for decades.

 

  • Shale plays are popular in part because they cost less than new exploration which demands considerable capital investment before extraction can begin.

 

  • Unconventional oil plays, such as tight oil or deep sea, make up 60 percent or more of U.S. oil production and there’s no going back to more conventional development in the U.S. on a widespread basis.

 

  • Faith that future technological advancements will resolve the energy crisis in the short term is unrealistic, according to Berman.

 

  • Lastly, of the three major U.S. shale plays, Berman says he believes the Bakken and Eagle Ford are essentially done in terms of growth, though they will continue to produce for some time. The Permian therefore holds the burden for growth but has the problem of high water production. This is important because disposing of water is expensive and indicates a loss of reservoir energy in the form of dissolved gases that facilitate extraction. Berman predicts that by 2020 it will be obvious that the Permian can’t make up for the declines in the Bakken and Eagle Ford, and prices will begin to spike as a result. This will be bad for the global economy but represents an opportunity for investors.

More information can be found at artberman.com.

Those looking for alternatives to investment in the U.S. shale plays may wish to learn more about Kingdom Exploration’s project currently being developed in British Columbia, Canada. Visit http://www.kingdomexploration.com/canada/ and contact Kingdom Exploration President Sean Pruitt at sean.pruitt@kingdomexploration.com.

Sources:

https://www.bing.com/videos/search?q=art+berman&&view=detail&mid=F94A508742827C1CEE7EF94A508742827C1CEE7E&FORM=VRDGAR

https://www.bing.com/videos/search?q=art+berman&&view=detail&mid=62333BA5B039EA8C286862333BA5B039EA8C2868&FORM=VRDGAR

https://www.bing.com/videos/search?q=art+berman&&view=detail&mid=28E8F5B1724FD9BEA5FC28E8F5B1724FD9BEA5FC&FORM=VRDGAR