Egypt, Japan discuss economic ties, preparations for TICAD conference    Real Estate Developers urge flexible land pricing, streamlined licensing, and dollar-based transactions    Madinet Masr in talks for three land plots in Riyadh as part of Saudi expansion    Egypt's PM tells Palestinian PM that Rafah crossing is working 24/7 for aid    Egypt's Sisi pledges full state support for telecoms, tech investment    EGP inches down vs. USD at Sunday's trading close    EGX launches 1st phone app    Escalation in Gaza, West Bank as Israeli strikes continue amid mounting international criticism    Egypt recovers collection of ancient artefacts from Netherlands    Egypt, UNDP discuss outcomes of joint projects, future environmental cooperation    Egypt harvests 315,000 cubic metres of rainwater in Sinai as part of flash flood protection measures    After Putin summit, Trump says peace deal is best way to end Ukraine war    Egypt, Namibia explore closer pharmaceutical cooperation    Jordan condemns Israeli PM remarks on 'Greater Israel'    Renowned Egyptian novelist Sonallah Ibrahim dies at 88    Egypt prepares to tackle seasonal air pollution in Nile Delta    Al-Sisi says any party thinking Egypt will neglect water rights is 'completely mistaken'    Egyptian, Ugandan Presidents open business forum to boost trade    Egypt's Sisi, Uganda's Museveni discuss boosting ties    Egypt's Sisi warns against unilateral Nile measures, reaffirms Egypt's water security stance    Egypt, Colombia discuss medical support for Palestinians injured in Gaza    Egypt, Huawei explore healthcare digital transformation cooperation    Egypt's Sisi, Sudan's Idris discuss strategic ties, stability    Egypt's govt. issues licensing controls for used cooking oil activities    Egypt to inaugurate Grand Egyptian Museum on 1 November    Egypt's Sisi: Egypt is gateway for aid to Gaza, not displacement    Greco-Roman rock-cut tombs unearthed in Egypt's Aswan    Egypt reveals heritage e-training portal    Sisi launches new support initiative for families of war, terrorism victims    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Millions of Barrels of Oil Are About to Vanish
Published in Amwal Al Ghad on 23 - 05 - 2015

Millions of barrels of untapped oil that U.S. shale drillers discovered during the boom years are about to disappear from their inventories.
Six years ago, the industry pushed the Securities and Exchange Commission to make it easier for companies to claim proved reserves for wells that wouldn't be drilled for years. Some prospects considered sure-things when crude was $95 a barrel are money losers at today's $60. When crude crashed in 2008, 44 U.S. companies wiped 630 million barrels from their books.
Now the stakes are higher. Of all the proved reserves of oil and natural gas liquids found by the 44 companies since 2008, more than half -- 5.4 billion barrels out of the 9.7 billion -- is attributed to wells that don't exist yet, according to data compiled by Bloomberg.
"We're going to see a lot of proved undeveloped reserves get vaporized," said Ed Hirs, a managing director at Houston-based Hillhouse Resources LLC, an independent energy company, who also teaches energy economics at the University of Houston. "It could easily be 10 or 20 years before some of these wells get drilled if prices stay at these levels."
The shale boom has pushed U.S. oil production to the highest in more than 40 years and slashed the country's reliance on imported fuel. The untapped resources are viewed by investors and lenders as a sign of a company's growth potential, and helped the industry attract more than $230 billion in bonds, loans and share sales since the end of 2008.
Growing Reserves
While undrilled prospects have always been part of oil companies' inventories, they've become a much larger share since the SEC changed the rules. Undeveloped properties account for 43 percent of proved reserves for the 44 companies, the data show, up from 26 percent at the end of 2008.
The SEC limits proved reserves to those resources that companies are reasonably certain can be profitably extracted with existing technology. The estimates are based on prices, geology, engineering and the historical performance of similar wells.
Fracking pioneers such as Devon Energy Corp. and Chesapeake Energy Corp., both based in Oklahoma City, were among the oil and natural gas producers that lobbied to make it easier to book undeveloped reserves. Before the rule changed, untapped wells typically needed to be close to a producing property.
Fracking Pioneers
Devon and Chesapeake were among the first companies to unlock oil and gas trapped in deep underground layers of shale using a combination of horizontal drilling and hydraulic fracturing, which frees hydrocarbons with a high-pressure blast of water, sand and chemicals. The oil industry argued that these techniques made shale formations predictable across wide expanses, and that the SEC should allow the untapped wells further from producing properties should still count as proved.
The regulator agreed, with a catch: To count the undrilled properties as proved reserves, the companies had to tap them within five years or erase them from their books.
"This was a big gift the SEC gave all the shale players," said Art Berman, a petroleum geologist who worked for Amoco for 20 years and is now an independent energy consultant in Houston. "Suddenly, you were able to book all these new reserves. It gave the industry a whole new lease on life in terms of being able to attract capital."
Judith Burns, an SEC spokeswoman, declined to comment. Representatives for Devon and Chesapeake also declined to comment.
Untapped Reserves
At EOG Resources Inc., the world's top shale oil producer, more than 69 percent of its U.S. oil and liquids reserves have yet to be drilled, compared with 22 percent at the end of 2008, the last year before the new rule went into effect, according to company filings. For Continental Resources Inc., founded and run by billionaire Harold Hamm, it's 61 percent, up from 24 percent.
K Leonard, a spokeswoman for Houston-based EOG, didn't return calls and e-mails seeking comment. Kristin Thomas, a spokeswoman for Continental in Oklahoma City, declined to comment.
The five-year clock is ticking on those undeveloped wells. Oil has fallen 45 percent since June, and companies have cut spending and slowed development. The SEC rules also prohibit booking proved reserves for money-losing wells. Profitability is determined by averaging the price on the first day of each month during the calendar year. In 2014, it was about $95 a barrel. So far this year, it's about $52.
West Texas Intermediate for July delivery lost 25 cents to $60.47 a barrel in electronic trading on the New York Mercantile Exchange at 10:11 a.m. London time Friday.
New Prospects
Some of those wells may never be drilled, while others may return to inventories if prices rise. A company's deletions may be offset by the addition of new prospects, purchased properties or an increase in the estimated amount of crude each well will produce.
Even though drilling costs are coming down, it may no longer be economical to tap all of the undeveloped wells, said Julie Hilt Hannink, head of energy research at CFRA, an accounting advisory firm in New York.
Drilling plans "could be predicated on $100 oil," and wells won't be developed unless prices rise, she said.
When crude plunged 77 percent to $34 a barrel in 2008, the 44 drillers deleted 7.8 percent from their proved oil and liquids reserves, according to data compiled by Bloomberg.
Natural Gas
The same thing happened again in 2012, when natural gas prices fell to the lowest in a decade, and the 44 producers revised their reserves of the fuel lower by 18 percent. The 44 companies are all U.S.-based members of the Bloomberg Intelligence North America Independent Explorers and Producers Index that have reserves information dating back to 2008.
Reserve reports for 2015 won't be published until early next year, and will be the first real test of how the undeveloped wells stand up to lower prices.
"The oil hasn't disappeared," said Hirs of Hillhouse Resources. "It's always been in the ground, but the company that booked the reserves may not be around anymore to drill it."
Source: Bloomberg


Clic here to read the story from its source.