Not an hypothesis at all Nate. It's a fact that has been beaten into the staff of every public oil for at least the last 15 years. And it has been due, in part, to the industry recognition of PO. We've never called it PO...it has always been the reserve replacement issue. Since at least the early 90's most established companies have acknowledged, at least internally, that they would have great difficulty in the future replacing reserves via the drill bit. I spent much of my efforts during the 90's working production acquisitions. Very quickly a company's valuation was based upon y-o-y growth almost to the exclusion of profitability. I assisted in the acquisition of many fields which were bought at or close to their net value. It often mattered little if the property eventually yielded a positive rate of return or not. Y-o-y growth was the sole motive. In an odd way, financing of acquisitions during this time took on an aroma similar to the sub prime mortgage fiasco we’ve just witnessed. It was even worse at times: one client acquired another public oil I valued at $16 million for a total cost of $43 million (cash, stock and debt). The client was a micro-cap and needed the acquisition (any acquisition) in order to supply its market maker with sizzle to sell the public. The effort worked so well that the company became a target of a successful hostile take over by a very well know Wall Street raider. It was like watching two men fight over the right to captain the Titanic. Within 2 years the aggressor lost his butt as the true value of the acquisition became obvious. Such efforts played no small part in my personal decision to slide from such work towards the operations side of the business. Sort of like the old joke about how watching sausage being made can cause you to loose your appetite for it.

This growth at the cost of profitability has continued up to and including the price spike last summer. Chesapeake, Petrohawk, et al did major acquisitions at premium prices (thanks to the ultimate bullish oil market). Now those companies are struggling to maintain viability. They did achieve the primary goal: increase booked asset VOLUMES. Booked asset VALUE has, of course, tanked. But companies are generally given a free pass to some degree since they cannot control pricing. An interesting change to valuation is about to take place though. I don’t have the details at hand, but I’ve seen reports re: changes in SEC rules. Normally oil/NG is valued based upon the closing price on 31 Dec of each year. Not a pretty number last year. But now companies will be required to use a yearly average number (calculation method unknown by me). Even more significant for the unconventional NG players: proved reserves can now be booked based upon “analogous wells” as opposed to standard volumetric analysis. Unconventional NG reservoirs cannot really be analyzed with such standard approaches. That’s one reason they are called “unconventional’. It’s virtually impossible to calculate the inplace reserves because they are invisible to our standard tools. But once such a well has established its production decline it’s rather simple to project its ultimate recovery. But now an operator can take proven success from offset wells and apply them to an undrilled location. Depending upon the distance reach of such analysis the UNG players could see a huge increase in “proven” NG volumes. If these new rules are effective for 2009, though many operators may see a significant decline in drilling activity combined with the continued hyperbolic decline of existing production, they may actually show significant increases in y-o-y proven volume increases. And that still is, as far as I can tell, the primary goal of virtually all public companies.

since the late 1990s. In the 1970s and 1980s companies would go out and do their best on their leases, properties, reserves, etc.

Which is what ROCKMAN is suggesting his company returns to:

Though we have a good credit line the plan is to drill from cash flow only.

Ultimately, that leads to public companies going private, doesn't it? It implies a change of scale and a change of management prioritites and practices that doesn't fit the current 'stock market'. Patient capital. The institutional investors are going to have to start looking at performance of companies, not the performance of stocks.

It fits into what I've been thinking about "pay it forward". A move to cash flow and savings to finance investment. We alive now pay for investments, not generations to come. I wonder if eliminating long term credit and debt might not be an important part of getting to sustainability.

cfm in Gray, ME

That would be my rough guess too Paleo. Over my 30+ years these cycles seem to keep getting shorter. The problem with pin pointing the timing is the continued demand destruction (especially commercial NG usage) vs. the future production declines. I can hope matters swing back to increased activity by 1Q 2010 but that's as much wishful thinking as a calculted guess. On a personal level, I'm glad I'll be swinging back to Deep Water GOM projects this spring. The DW takes much longer to respond in the slow down cycles. But if low prices persist for a couple of years+ then we'll start slowing up significantly out in the water too.

"Energy gain is the driver of social democracy." Excellent, yes, but in order to gain energy, two things must increase: flow rate, and infrastructure to handle the flow rate. The energy grows and the physical infrastructure grows.

There is a parallel to the increase in energy and resource flows involved as a child reaches adolescence or adulthood, and is no longer a recipient of authoritarian parental rule, but may now make rules her/himself.

But the energy and resource flow levels are relative to surrounding infrastructure needs as well. Think "Lord Of The Flies".

You'd probably like my essay on this subject:

I liked your other things but not that one.
I don’t write articles about oilfield tech or farming because I’m not particularly knowledgeable about them. Psychology seems to be exempt from this principle.
Jason’s “Neurobiology of mass delusion” makes no reference to either neurons or biology. Like so many semi-competent psychology ventures it confuses together several distinct factors and ways in which people fail to be realistic.

Some important dimensions of individual differences are involved. Firstly authoritarian mentality, which is a collection of innate mental tendencies which are biologically-advantageous but intellectually-disadvantageous. Autistics are lowest on this. Secondly neuroticism (N), which is the tendency/ability to unthink (doubt) one’s assumptions. Most people tend to get stuck with whatever ideas they first encounter and are unable to unthink them when presented with new conflicting information. Low-neuroticism persons are especially rigid in this way, and consequently tend to unwarranted confidence. As they get older they get increasingly derailed in their thinking, whereas high-N individuals have the capability of increasing wisdom with age (subject to the emotional problem below).

Factors in failure to grasp reality:

(1) Blind faith in “authoritative” claims (high in authoritarian mentality).
The presumed expert or leader tells us something, and we just trust it. The high-A individual judges and defines truth as what the expert reveals, and that’s that.

(2) Self-serving crooks (especially high-authoritarians)
Persons with low authoritarian mentality constantly ask “Is this true or is it false?”. High authoritarism persons wouldn’t know what the truth was if it hit them on the nose; instead they are preoccupied with “Is this to my advantage, or disadvantage?”. They believe whatever is convenient for them to believe. They don’t need to be insincere in this sliminess.
Two examples. Tony Blair’s case for invading Iraq. And a burglar who told me it was alright for him to commit burglaries because his victims had insurance anyway. At least the burglar wasn’t rationalising a war crime when not under duress.

(2B) Bloody liars. I published a theory of autism which remains entirely unchallenged. Distinguished “experts” on autism (with honourable exception of Bernard Rimland) would prefer not to have to acknowledge that mere me has upstaged them. So they write reviews of the literature which don’t even mention my published theory and instead tell the lie that autism remains a puzzling mystery. Yes Prof Simon Baron-Cohen that includes you.

(3) Low-N (neuroticism) individuals
A lot of people assertively declaim that on 9-11 the WTC towers and WTC7 were controlled-demolished by bombs. And that those who say otherwise are fools or liars. There’s ample evidence on the web to disprove their half-baked theses (for instance the screw loose change video), but they just carry on as if it did not exist. This may be partly due to authoritarian conformity (1 above) and or that they first took in the demolition theory and are thereafter unable to unthink it.

(4) High-N individuals
I tell my mother and brother that there is highly likely to be a major breakdown of the food supply system. And that it therefore makes sense to stock food. To which she always says can we talk about something nicer please. That’s not because she doesn’t understand or believe what I said. It’s because the implications are emotionally intolerable. She’s lived in her village for many decades, and even if she did stock a ton of food, she would still be in a village full of others who would be starving. And she and my brother would be too kind to say to them well we only have enough for ourselves.
This is high-N (neuroticism) people actively avoiding all attention to a distressing problem, not quite the same thing as the sort of denialists you encounter at the TOD site, who DO focus attention on an issue. (It is actually a form of neurotic (in this case phobic) behaviour.)

(5) Major paradigm-shifts.
When a massive unthinking-rethinking exercise is called for, it strains even the capacities of the majority of people, not just the low-N aforementioned. Most people are in my experience far too low-N anyway (especially males).

(6-7) "Delusion".
There's also wishfulthinking and there's also the paranoia and other delusions associated with psychosis. But this would only become "mass delusion" if there were some serious toxin poisoning them.

In any actual instance there is liable to be a combination of these different factors. The folk-psychology concept of “in denial” I find to be a fairly useless melange. It at best provides an ad hominem argument, in other words of little value!

That's not exactly true.

But it's a lot truer than you're assuming.

There have been tremendous advancements in many specialized fields: medicine, electronics (cell phones, computers, internet), software, etc.

And all those things were only made possible by a fossil-fueled industry and will almost entirely die after its collapse.