Shale: last act at retirement party – FT.com

Sir, Rather disturbingly for Mike Stoddart (Letters, August 21), my own engineering career started in British Petroleum, so I am well aware of how oil companies make their investment decisions. I am curious therefore to understand how exactly I was “wide of the mark”; to describe, as he does, a shale oil well depletion rate of some 40 per cent a year as merely “higher” than a 4 per cent rate for a conventional oil well is to rather miss the target entirely. Mount Everest is “higher” than Mount Snowden, most would say by an order of magnitude.

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The crippling problems of shale oil production remain, which are a depletion rate 10 times worse than a conventional well, to produce oil at a 10th of the rate, via wells that cost vastly more to drill than a conventional (land-based) well. Better perhaps than an offshore well, but with a desperate race to drill thousands of wells each year, every year to maintain present production levels.

A shale oil well, drilled in one of the few sweet spots of the North American shale oil deposits, may indeed yield a decent profit if it produces at higher than average rates over a long enough period (say 10 years), with lower than average development and maintenance costs. Unless it is one of an increasing number of duds that are appearing as the shale oil boom reaches its peak. The money lost on the dud wells has to come from somewhere, hence most shale oil companies are losing money and all the shale gas companies ($53bn lost to 2012). Incidentally the best estimate I can find for the expected peak in shale oil production is (optimistically) 2016.

Let’s face reality, shale oil is the last act at the oil industry’s retirement party.

via Shale: last act at retirement party – FT.com.