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Debating the accuracy of the EIA’s predictions

U.S. Energy Information Administration

Todd Bennington | Kingdom Exploration Media
kingdomexploration.com

OPEC production cuts and per-barrel prices that recently went as high $65 are being counterbalanced by the U.S. Energy Information Administration’s prediction that U.S. crude production for the upcoming year will be record-setting. [1]

The agency is not without its detractors, however, who say it is overestimating things like the ability of technological developments to continue at a pace that enables increased production [2] while underestimating a turn by shale companies to the more disciplined approach of taking advantage of higher prices to pay down debt rather than expanding drilling operations. [3]

In a recent article at Seeking Alpha, Richard Zeits defends the EIA, saying that its critics need to better demonstrate where the agency’s calculations are allegedly breaking down and present their own detailed quantitative analysis as a basis for comparison. He goes on to say that criticism of the agency would ideally be part of a constructive discourse that helps it improve is forecasting process.

Zeits also notes that it’s the “least protected” category of investors who are most likely to be harmed by listening to possibly unsubstantiated claims made on blogs and in major media.

[1] https://www.reuters.com/article/us-usa-oil-eia-outlook/eia-raises-2018-u-s-oil-output-forecast-to-highest-on-record-idUSKBN1E62IP
[2] https://oilprice.com/Energy/Crude-Oil/Is-The-EIA-Overestimating-The-US-Shale-Boom.html
[3] http://www.pantagraph.com/business/investment/markets-and-stocks/this-oil-tycoon-thinks-the-u-s-government-s-oil/article_156fa0f7-a062-5ed3-8922-f15f1632675c.html
[4] https://seekingalpha.com/article/4131270-crude-oil-eia-bashers-check-numbers?source=all_articles_title

Extension of oil production cuts may mean higher prices in 2018

OPEC

Todd Bennington | Kingdom Exploration Media
http://kingdomexploration.com

OPEC and non-OPEC producers agreed last Thursday to extend oil production cuts that were set to expire in March until the end of next year. A meeting to review the agreement with an eye toward making any necessary adjustments has been scheduled for June.

Citing also the uncertainty surrounding social and political changes occurring in Saudi Arabia, at least one analyst predicts this could mean oil could reach $80 per barrel next year. [1]

Other factors potentially affecting oil prices include how the political situations in places like Libya, Nigeria, Venezuela, and Iraqi Kurdistan stabilize or deteriorate – as well as how U.S. producers react to price increases.

“If producers in the U.S. increase their rig count over the next few months due to higher prices then I expect another price collapse by the end of 2018,” an executive with one of the Permian Basin’s largest producers is quoted by Reuters as saying. “I hope that all U.S. shale companies will maintain their current rig counts and use all excess cash flow to increase dividends back to their shareholders.”[2]

[1] https://www.cnbc.com/2017/11/27/brent-crude-oil-may-hit-80-in-the-next-year-says-jim-oneill.html

[2] https://www.reuters.com/article/us-opec-meeting/opec-russia-agree-oil-cut-extension-to-end-of-2018-idUSKBN1DU0WW?il=0

Saudi leader’s recklessness could drive up oil prices

Skyline of Saudi capital Riyadh

Todd Bennington | Kingdom Exploration Media

Dr. Cyril Widdershoven writes in a recent article at Oilprice.com that the liberalizing reforms and anti-corruption push of Saudi Crown Prince Mohammed bin Salman (MBS), as well as potential Arab conflict with Iran and its proxies such as Hezbollah, may very well cause a dramatic and sustained increase in oil prices. That is certainly true, but at what cost?

Widdershoven is dismissive of investors around the world who have expressed fears that MBS has “overplayed his hand, causing instability in the country and the region” through his arrest of various prominent Saudi royals and businessmen. Widdershoven goes on to laud MBS for “being unafraid to make dramatic changes to outdated social structures within the kingdom.”

It seems more likely that investors’ fears are well-founded. MBS has made far more enemies than friends among the Saudi establishment through his brash moves. Neither is it clear that Saudi society is destined to keep moving along a trajectory of Western-style reform without significant pushback.

MBS also represents a serious potential liability for the United States. With U.S. support first given by the Obama administration, the Saudis are currently presiding over a blockade of the impoverished country of Yemen in an effort to punish the Houthi rebels who have taken control of much of that country. But, of course, it’s children, the elderly, and the infirm who are bearing the brunt of the imposed shortage of food and medical supplies, and the situation is developing into a politically embarrassing humanitarian disaster.

Likewise, with less than half the population of Iran, the Saudis would likely need U.S. backing to prevail in any prolonged military engagement. After Afghanistan, Iraq, and Syria, it’s questionable whether at this juncture that’s something that the U.S. would be willing to commit itself to.

Widdershoven’s article can be found at: https://oilprice.com/Geopolitics/International/Saudi-Corruption-Crackdown-Could-Permanently-Boost-Oil-Prices.html

Oilprice.com editor says IEA wrong on shale

Permian Basin oil rigs

Todd Bennington | Kingdom Exploration Media
kingdomexploration.com

The International Energy Agency is overly optimistic about the potential for shale production growth over the next decade, writes Oilprice.com editor James Stafford in an article published on Nov. 16.

Stafford cites a handful of reasons why shale may very well not live up to expectations, first noting the steep decline rates seen with shale as opposed to conventional wells.

“(Shale) drilling is like running on a treadmill—more and more wells need to be drilled just to keep production flat,” Stafford writes. “The extraordinary rate of drilling over the past few years means that the industry not only needs to keep going at that frenzied pace, but it needs to expand its rate of drilling to add more barrels.”

Other reasons shale may underperform, according to Stafford, include the fact that prime locations are given drilling priority, meaning it will be less desirable spots that will be left to drill as time goes on. Shale is also considerably less profitable than generally thought, regardless of where oil prices are at, Stafford claims, adding that the industry is being largely driven by what he calls “loose credit” and investors with unrealistic expectations.

In further support of his argument, Stafford goes on to cite skepticism on shale expressed by investment firm Morgan Stanley and an apparent trend seen among some petroleum companies to scale back drilling in favor of paying down debt, which will have a further negative effect on production growth.

The full article is available at: https://oilprice.com/Energy/Oil-Prices/The-IEA-Is-Grossly-Overestimating-Shale-Growth.html

Oil prices could go to $70 a barrel in 2018, analyst says

Arthur Berman
Art Berman

Todd Bennington, Kingdom Exploration Media

In a recent article published at oilprice.com, petroleum geologist Art Berman modifies his prior conservative stance on the likelihood of continued significant oil prices increases, writing that West Texas Intermediate (WTI) prices between $60 and $70 per barrel are almost certain early next year and could very well rise above $70.

Some of the important takeaways from Berman’s article include the following:

• U.S. inventory oversupply is ending due to a combination of increased exports of crude oil and increased domestic consumption.

• Increased oil exportation is the result of an increased price spread between Brent and WTI, allowing U.S. exports to be sold abroad at prices lower than international averages but higher than what they can be sold for domestically. Also, U.S. refineries tend to prefer heavier crudes over WTI.

• Increased consumption primarily from vehicle usage has contributed to the draw down in inventory. It is questionable whether such consumption can continue in the long run as increasing gas prices will discourage consumption by drivers. According to Berman, WTI at $70 a barrel would result in gasoline costing an extra $1 per gallon.

• Higher oil prices are good for oil companies but bad for consumers and can stifle general economic growth both globally and domestically.

• Berman suggests that tight oil plays do not have sufficient reserve potential to meet global supply needs and that will mean more reliance on deep-water projects, which are expensive and have longer development timelines.

Read Berman’s article at https://oilprice.com/Energy/Oil-Prices/Can-WTI-Hit-70-In-2018.html.

The establishment media and shale myth-making

Counties of the Permian Basin
Area of Texas and New Mexico that makes up the Permian Basin

Todd Bennington, Kingdom Exploration Media

In the below uncritical account recently posted at foxnews.com, the Permian Basin is presented as a panacea for the nation’s energy needs and as the place where, with a little hard work and determination, billionaires are made every day:

http://www.foxnews.com/us/2017/10/20/texas-shale-oil-boom-yields-rags-to-riches-tales-by-barrel.html

“Like so many of the dreamer-turned-tycoon stories the area churns out,” writes the piece’s author, Barnini Chakraborty, “success at Permian wasn’t a given. It was born out of grit, determination and hard work. Making it big meant going all in on an area that was a relative latecomer to the shale revolution.”

Scarcely is any space given in the article to the actual complexities of the oil and gas industry, and tight oil in particular, or to competing views, save for a brief acknowledgement that such views do exist while glibly dismissing them:

“Despite some skeptical analysts, the shale industry in the Permian Basin – a 300-mile stretch of open land from West Texas to southeast New Mexico – isn’t showing signs of slowing down,” Chakraborty continues.

This stands in marked contrast to geological consultant Art Berman’s keynote address at the West Texas Geological Society’s annual fall symposium this past September. There, Berman characterized the Permian as providing marginal profitability when all costs are considered and as dependent on a steady stream of outside investment capital.

“That’s not enough to make the economics work, particularly with the very high acquisition prices people have been paying,” Berman is quoted as saying in the below piece by the Midland Reporter-Telegram:

http://www.mrt.com/business/oil/article/Consultant-Permian-plays-are-marginally-12235743.php

Who is right? Perhaps it’s worth recalling here the old adage that if it looks too good to be true, it probably is.

For discerning oil and gas investors, Kingdom Exploration has opportunities available in British Columbia, Canada that come without the high cost of hydraulic fracturing and which are situated adjacent proven and currently producing wells. Contact Kingdom Exploration President Sean Pruitt at sean.pruitt@kingdomexploration.com today for more information or fill out and submit the online form at the following link: http://kingdomexploration.com/?page=contact.