Recent predictions by the International Energy Agency that U.S. oil production will rise by 3.3 million barrels per day over the next five years to 11.4 million bpd, making the U.S. the biggest oil producer in the world around 2017, met with strong disbelief by two oil company executives.
EOG Resources and Marathon Oil are both top producers in the country’s two strongest tight oil plays; in fact, EOG was a leader in U.S. shale gas and then tight oil well design and development. IEA shows tight oil as driving the increase in U.S. oil production.
Although EOG Chairman and Chief Executive Officer Mark Papa did not specifically mention IEA in a Nov. 28 presentation, he did explain his own company’s projections of an increase of just 2 million barrels of oil a day from new U.S. tight and shale oil production by 2015, which the U.S. Energy Information Administration forecast in June as a high case scenario.
Marathon Oil’s Executive Vice President and COO David Roberts called IEA’s outlook as “stunningly strong” relative to what the “physics of this industry suggests.”
“The IEA, they’re very bright people,” Roberts said, “but I don’t see it. Some of the stuff that they put out in terms of this country matching Saudi Arabia ... I mean I don’t see it, and I’m in most of these basins across the United States.”
EOG numbers based on EIA data
“Our projection is over the four-year period from 2011 to 2015,” Papa said, pointing to a chart containing actual U.S. daily oil production from 1920 through January 2012 that came from the EIA.
“U.S. oil volumes are going to grow by 2 million barrels a day from shale oil and we stand by that. There are some other outfits that are predicting much higher numbers but as kind of proof that we are on the right track take a look at that center yellow box,” which he said contained EIA oil production data.
“This is government data. … January through August, total U.S. oil growth. … (It’s) essentially zero,” Papa said. “Let me repeat that. January through August, this year, the EIA has reported total U.S. oil growth was essentially zero,” with January oil production at 6.119 million barrels a day and August output at 6.147 million barrels a day.
“Now think: Every E&P company in the entire industry is saying, ‘we’re growing oil volumes in the U.S.’ … Everybody is saying that. And the net result … for the first eight months of this year has been zero growth,” Papa said.
er to energy security in this country than we’ve ever been before,” although he said he worries about words like “energy independence.”
“Because I think that suggests something that’s a little bit harder to reach.”
Bakken, Eagle Ford produce 85%
So, “where’s the growth coming from over this four-year period?” he asked, pointing to the next chart, U.S. Horizontal Crude Growth 2005-2012.
“It’s coming from only two plays, and it’s two plays EOG found, and two plays that EOG has major positions in,” Papa said.
“One is the Eagle Ford, which is the red. We’re the dominant player (there) … and the second one is the Bakken, which is more of a mature play. We’re not the biggest player in the Bakken but we are a very big player; that’s the blue one.”
He described the rest of the plays on the chart as “contributory … but negligible.”
“The third play,” he said was “the Permian — that’s the Wolfcamp, the Leonard and everything else,” noting there had “been lots of press” about the Permian Basin, “lots of ink, but it’s not that big in size.”
Some of the other plays have had lots of “sell-side ink,” he said citing as an “example” the Mississippian Lime.
“The Mississippian is the second one from the bottom. You need a magnifying glass to see it on that chart. The Woodford is another that you need a magnifying glass to see. But think of how many companies are saying the future of their oil growth is those kinds of plays,” Papa said. “Well, on a national basis they are insignificant. They are not going to take off and go up to the right based on our assessments. There’s a whole lot of talk about a whole lot plays that basically have zero significance, in our opinion. It’s a lot of PR is what it is.”
The plays that make a difference, the Bakken and Eagle Ford, are the black oil not the combo plays, he said, reminding the audience that EOG is “the industry leader in horizontal oil plays by a 2 to 1 margin.” (Marathon is one of EOG’s peers in horizontal well plays.)
Saudi Arabia would ‘throw back’ our best well
When asked whether he thought IEA’s predictions were “way off,” Roberts seemed reluctant to further criticize the Paris-based agency which advises 28 countries on energy.
“Let’s be serious,” he replied. “Saudi Arabia and Iraq have the best geology in the world. We focus on a 6,000 barrel a day well and think it’s the best well in the world. They’d probably throw that one back.”
Roberts thinks there is “a lot of work” the two Middle Eastern countries can do to maintain and grow their production rates.
“I think the U.S. basins are very good but ... let’s use the Bakken as an example. It’s a basin that today produces 700,000 barrels a day, and there are a lot of people that speculate that that number could be 2 million or better over time;” something Roberts finds “really hard … to imagine … because I know how this business works.”
In tight oil plays, he said, typically the best wells are drilled first.
“We have a lot of intensity around these plays, drive production really strongly, and so what we’re seeing is a lot of the areas are going to be weaker. In down-spacing you typically don’t get the response that you get from the initial wells,” Roberts said.
“I hope they’re right,” Roberts said of the IEA. “And I do think we are clos
