Sadad al-Husseini on Middle East OPEC oil fields

"In the Arabian Gulf we have serious problems of maturity in many of these fields" Sadad al Husseini, ASPO USA interview, Denver CO, 12 October 2009

Steve Andrews, co-founder of ASPO USA travelled to London (on his own time and dime) to interview Sadad al-Husseini. The interview has been shown as a series of clips at the ASPO International conference in Denver this week. Sadad al-Husseini is a geologist and reservoir engineer who worked for Saudi Aramco reaching the position of vice president.

Exerpts from the interview are available on the ASPO USA web site. The single quote above was the comment that caught my attention the most.

The comment is particularly interesting in the context of how OECD governments are planning their energy futures based on IEA forecasts such as this:

Ramping Saudi production linearly to 15.6 million barrels per day by 2030 has this outcome on a Hubbert linearisation. The absence of any peak points to near-infinite reserves - in a country where there are serious issues of maturity in the reservoirs.

[Note the chart is lifted from another post discussing UK government energy strategy which for various reasons I decided not to post.]

There is also a recent editorial by al-Husseini available from SPE:

He has specific recommendations for going forward. Given his views expressed here and elsewhere, it is clear to me that his retirement from Saudi Aramco was not voluntary. He was probably pushing for more transparency and was not sufficiently bullish about the Saudi oil reserve and capacity situation.

The reference to Arabian Gulf fields is interesting because it is clear as to whose fields he is referring to. The editorial has this:

Major ongoing efforts to sustain capacity or reverse capacity declines, such as widespread pressure maintenance or artificial-lift programs, must also be monitored and incorporated in such a report. Field maturities and historical decline rates must be documented and used where appropriate to moderate existing and future project supply capability estimates.

Besides the Manifa field development, there have been two major Saudi offshore projects of recent note:

1) Maintain Production Potential program, centered on Safaniya, Zuluf, and Marjan

2) North Safaniya Artificial Lift program, which involves electric submersible pumps

And which NOC do you think he is referring to here?

In some national oil companies (NOCs) and the Former Soviet Union, undeveloped probable and potential reserves are sometimes incorporated within proven reserves estimates on the assumption that the long-term energy economics and technology developments will eventually allow their conversion into truly proven reserves.

For perspective: On February 24, 2004, the Center for Strategic and International Studies sponsored a debate between Matt Simmons and Saudi Aramco about the state of the later's oil fields. The Power Point slides for the Saudi side of the debate are at:

In the Saudi slides, slide 23 and 24 show that if the Saudi's maintained a Maximum Sustainable Output rate of 10 MBPD they could sustain that rate until 2042. If they ramped up the rate to 12MBPD, they could sustain that rate until 2033. In the debate, they mentioned that they could output about 16 MBPD in a crisis situation.

Now, we see a **sustained** rate close to that crisis level of 15 MBPD. What have they found/developed that would allow them to do so?

I noticed a couple of other comments from the ASPO summary of the interview, indicating reasons why he thinks that new projects are not likely to make up for declines.

I’ve been tracking the number of projects, globally, for a long time both in the Middle East and elsewhere—Russia, Brazil, west coast of Africa, and others. A lot of this information is in the public domain, so there is no mystery there. The International Energy Agency recently reported on the same numbers. The bottom line is that there are not enough projects. There is not enough new capacity coming on line, within say the next five to six years, to make up for global declines. And that’s assuming a very moderate level of declines—6% to 6.5% for non-OPEC, perhaps a 3.5% to 4% decline rate for OPEC.

Even at these modest decline rates, we are basically going to see a shortage of capacity within two to three years. We’re being lulled by this current excess capacity, which has more to do with lower demand than anything to do with supply. So we do have a problem in the near term. In the longer term it’s even worse because in the longer term the lead time to discover, develop and put on line production runs into 10 years. And there isn’t enough being done in the long term as well. So it’s both a short and a long-term problem.

And about Tupi, off Brazil:

If the Tupi discovery, which happened a couple of years ago, is going to take until 2017 or 2018 to be online, that’s a long time to wait. What’s the target? A million barrels a day. Declines will have overcome that rate a long time earlier, certainly in Brazil itself. So we’re basically staying even.

It looks as if a few bricks are falling off the facade of the cornucopians house.

More like all that is left is the facade and the house behind it has completely collapsed.

Gail. I'm a rookie at this, and I'm sure there are others just like me. So are you guys saying unless there is a certain amount of Oil discovered, and by that I mean real Oil that can come on to the market. That we have to find has much Oil has were declining right now. Now that's just to keep up with the worlds present usage. so I guess the argument is the GOV say's that its no problem to keep up. And TOD say's LOL. Looking at it from the outside.the questions are these.

1. Can't KSA Russia Mex Brazil Iran pump more.
2. why does the Gov tell us where ok, when our very existence has a country depends on Oil
3. Since PO has been shouted out many different times, what does Joe six pack do to find relevant info.

PS I love the web sight, and the cast of characters.

west Texas
Now a new one Po!! LOL.

pocampo -- though as 'rookie" I suspect you have a fair grasp of the general idea. As to specific answers:

1)As a very general statement the produciton rate from any field can be increased at any time for a limited time. But here's the problems: a) the cost to do so might not be justified. Remember putting more oil on the market can tend to cause a price decrease. That doesn't help the return on investment. b) depending on the reservoir the rate at which you produce will determine the ultimate recovery. Excessive production rates can decrease the amount of oil/NG produced. For years I've heard from expats that worked in the KSA that there have been times when high production rates clearly caused a loss of future oil production. If Ghawar et al are on a downward depletion trend the worse response would be to pump faster. Might get a short term boost but eventually it could cause an even faster decline rate and loss of more reserves.

2)It's simplistic but true IMHO: everyone has an agenda: the gov't, TOD, the Sierra Club, ExxonMobil, me, etc. Unfortunately today with all the "facts" being tossed around it's up to each of us to judge validity with an eye on motives.

3)Warning: a harsh and mean statement to follow. Joe Six Pack doesn't care about relevant facts IMO. He's more concerned about the outcome of the last football game. Certainly there is a smaller segment of our society trying to get their hands around the subject. But they are then hit with all the different "facts" as discussed in #2 above. Unfortunately the vast majority of folks don't have the time to dig too deep even if they are motivated to do so. They have to trust the MSM for the most part to educate them. And that, for most here at TOD I think, is a very sad state of affairs.

Thanks for you reply Rock. Your right Joe 6 pack does not care!! We can never under estimate the apathy of Americans. However when Joe has to pay 5 bucks a gal to fill up his truck he will at least start asking some questions. TOD is a great way to get info, unless you can't figure out acronyms. From the sidelines I can see when oil producing country's start to need all the Oil for there own domestic needs, this can cause a lot of bad things. (When exporters turn into consumers of there own product) So I guess this sight is trying to give a honest evaluation when that will take place.What gets me is we are so vulnerably to the wimms of country's that don't even like us. From what I see a Oil crises can take place in hours not just in years regardless of how much Oil anybody produces. I'm a optimistic guy but Rock I just hope I have the wisdom to survive it. The big thing I see we have nothing that even comes close that scales in proportion of the quantity of Energy That gives us the ability to be Joe Sixpack.

Even worse, old Joe won't ask questions, he'll be looking for someone to blame.

Certainly there is a smaller segment of our society trying to get their hands around the subject. But they are then hit with all the different "facts" as discussed in #2 above.

There are 2 real facts: most countries are past peak production and peak discovery was more than 40 years ago. The first fact says that big problems cannot be far away.
The second says the same. Peak production about 40 years after peak discovery is 'normal', generally speaking.

True Han. But the other "fact" Joe hears is that there's a gazillion bbls of oil in the XYZ formation. We can distinguish which facts are reasonable. Joe can't. And each off us will walk away bitter after we fail to convince Joe of the real facts.

I work in the oil patch. I've had such chats with the blue collar Joes I've worked with. They are truly clueless for the most part. And they think they understand oil/NG exploration/production because they draw a paycheck from an oil company.

pocampo - Good to have you aboard. Welcome to your journey.

The two critical issues with oil supply are these: 1. flows - it is all about flows, or production. Reserves (other than for the fact they must be there) are irrelevant. If anytime someone says the word "reserves" it is likely they do not know what they are talking about. Note that flows are from the well bottom to the point of use; and there are a lot of players involved, a huge amount of (ageing) infrastructure and immense politics, not to mention one or two wars. All impact production and all are connected. The second factor is net energy. Oil is oil. Oil contributes energy measured in joules (or BTU's in the US) to society at a ratio of around 8:1 currently. That means 1 joule of energy expended delivers 8 joules of useful energy to society. The tar sands of Canada produce synthetic oil, but the embodied energy is actually from natural gas mostly. The net energy is around 3. Do a search on Euan Mearns Net Energy Cliff on this site. Net Energy of around 7-8 is the inflection point for big problems in society.

With flows production is essentially a race against production declines from existing capacity. New projects (measured in barrels/day - i.e. a flow) must match or exceed declines in production (flows) otherwise overall production declines. This site is all about trying to assess when that event occurred/occurs, what the impacts will be; and trying to inform people. It is an excellent site with information produced by very intelligent people to an extremely high standard. I have been PO aware since 2005. I think PO happened in the 2004-2008 timeframe (picking a particular month is pointless and anyway the data isn't good enough) and that we are in the initial shallow decline phase with our politicians desperately doing anything they can to prop things up. The decline rate will likely get steeper and the "recession" will get worse.

Good Luck

Welcome aboard Po:

Something that never seems to get mentioned enough is effect of high technology on the so called Hubbert curve. A particular field has a fixed amount of crude oil in the strata. The older methods could get an X% amount of crude out of the strata at a rather Hubbert curve rate. The new technology can get a bit more crude oil out of the strata and quite a bit faster. The field looks like it is delivering extraordinarily well and then it goes into a steeper decline than would be expected. Mexico’s Cantrell field is an example; after just a few years it is in rapid decline though during its life it delivered amazingly well.

Consider water injection to keep the pressure up is a rather old technology and with a vertical well the water percentage continues to rise until the well is unprofitable. This rather follows the Hubbert curve. But with horizontal wells, the well casing is along the top of the crude strata and the water injection is keeping the well pressure up but the water level in the strata is rising. This is all fine till the water level reaches the horizontal well and then the well is pumping water with just an oil slick on top. So now the Neo-Hubbert curve is more like a sharks fin and the drop-off is very rapid. Most of the computations and reports are based on the old proven technology curves that are no longer applicable.

Some of the new technology is very expensive like drilling 35000 feet in deep ocean places to get some crude but at what price is it worth the expense? Rockman will beat this drum since he is in the industry. It must make a profit or no company will do it. So even if the crude is there and the price is high, it still may not be worth it. Shale oil in the Western US is an example that there is lots of bitumen there but it is in shale rock. The Canadian bitumen is there and it is in sand which is somewhat easier to extract but even that is getting deeper and deeper with greater overburden to remove to get to the oil sand.

Of course these are generalizations that paint with a broad brush the various problems that are not mentioned in the MSM. The devil is in the details and there are several here that can get into the details as far as you want to go. We are fortunate to have many such people on this site in many different fields broadly associated with peak oil, public awareness, climate change, agriculture, finance, etc.

Again: Welcome aboard.

Thank you, all you guys. If we were together I would buy you all a Buttermilk. For the last two years I've been on my ranch here in Colorado licking my wounds. I lost millions in real estate, mostly my money as well as some other investors. It hurts bad, it wasn't I didn't have customers, it was that the Banks would not loan them the money to buy my product. Its my fault for being in the business. But one day the banks were loaning money the next day they weren't. They gave me no wind-down time. Even today its almost impossible to get a Jumbo loan on a nonconforming product. I remember the Fed Chairman looking in the TV saying the problem is contained to Subprime. Meanwhile, I could not even get close to getting a loan done to sell my Mini Ranches. I learned a big lesson - the Government will lie to us. So now I find myself drawn to the subject of Energy.

Now I'm trying to see get my mind wrapped around all this Info. I probably have just enough info to be dangerous. I've always had connections in the churches even though I don't believe a lot stuff they stand for. I'm thinking about bringing the info to some of the Churches in the 'middle of the week' type of platform. Just educating them on the easier stuff and making getting deeper as I feel they can handle. (I speak a lot better than I write, LOL.) Obviously, I will stay away from the PO Argument and just give them the facts and let them figure it out themselves. I subscribe to the theory a little is a lot. If I can just plant the seeds the rest will take care of itself. I'm not into convincing people I'm into making the presentation relevant to their lives. So this is just a summery of what Im going to do the first quarter of next year.

On another note, I made 300 percent on DXO. I did not make a lot of money but it gave me a start, and this web site had a lot to do with it :)

pocampo -- A thought: you might want to read "The Black Swan". The title refers to the inability to predict very impactful events in our future. But it really delves into predicting trends in general. I'm re-reading as I'm not very good at absorbing such matters. One point that's really beginning to sink in: we might not be able to predict Black Swans such as the meltdown of the real estate biz but that doesn't mean you can't adjust your positions to lesson the impact when one hits. Maybe you pass on a few good looking deals. maybe cut your margin a little. Maybe your comtemporaries might look down on your "pessimism" but consider how you might be looking down on them today had you been in a better protected position. It's a heavy and challenging read but well worth it IMO.

Thanks Rock, I'm familiar with this concept, I saw Taleb in a Interview from Newport Beach last year. I meant to get it.I will now for sure. They did the first interview with him, then next interview was a guy from Pimco Bill Gross. Bill Gross is a expert on every subject. LOL. In the past I thought I was hedged, boy was I wrong. In my teaching I will just talk about how much we all use and depend on petroleum products everyday and how vital they are to our way of life. Then build from there on stuff they can verify on there own. I also find it funny the term Black Swan and the word predict in the same Paragraph.

pocampo -- When you read Taleb's full context you discover he is the embodiment of anti-prediction. Not that he thinks valued predictions can't be made but that few understand the process. It's easy for me to empathetic with your predicament. I was lucky in that when my career started in 1975 an oil boom was just beginning. Like many unaware of Black Swans I could not see the possibility of a bust and thus never prepared. And then came $10 oil. Driving a taxi and delivering produce to restaurants taught me to never take such high times for granted again. I hear that same resolution in your voice. Good luck buddy.

Petrobras is saying they can start getting oil from Tupi by the end of 2010. When they can ramp up to full production? I don't know.

I just read the report and I saw no mention of Peak Oil and declining production. Rather, he emphasizes that without immediate capital investment, the suppliers would be strained and the plateau would be prolonged, with prices rising again.

Would someone please tell me if Mr Husseini has anything to say about Peak Oil.

That's the nature of journalism. Your subject will say what he wants to no matter how skilled the questioner is. I agree there was no direct question about PO, but give him credit for snagging an interview.

I appreciate that Steve Andrews has done all this work pro bono. That is what it will take since no one else (in the industry, academia, or media) seems to dig into the topic.

We also have to understand what else Hubbert Linearization of the logistic can tell us. The classic derivation of the Logistic puts us in a bind since it shows absolutely no flexibility, and further it gives us no additional insight. It essentially requires that exponential search continue unabated at exactly the same compounded acceleration from day one. Why should we believe this?

Indeed, the chart on the SA HL shows a flattening. What else can this mean? I think it actually has to do with a furious pace of exploration and extraction, likely even greater than exponential. The following figure is what happens to the HL curve when an accelerated pace is added to the Dispersive Discovery model.

As you can see, a similar flattening does occur, but it cannot be sustained for any period of time. Of course this is in terms of discovery, but the general idea remains for production as production is essentially a response filter on discoveries.

So the question remains, is the Wicks scenario a realignment of the logistic curve and the underlying URR, or is it a signal to indicate that a brief frenzied activity is taking place? Unless the data is completely made up, I would bet on the latter.

Another possibility is that the entire SA discovery production cycle is very erratic and it goes through acceleration fits and starts and possibly other laws such as power-law acceleration apply. This behavior is not covered by conventional HL, but is amenable to analysis via Dispersive Discovery.

Ultimately, we need more info on the Wicks extrapolation since it looks very strange.

It's not true to say that nobody else in the media has reported his words. Peter Maass, who spoke at ASPO, flew to Dhahran and interviewed al-Husseini. He wrote about this in his book Crude World. In fact, Steve Andrews credits Maass with paving the way for his interview. And last year, Neil King of the Wall Street Journal had a good article contrasting al_Husseini's views with those of Nansen Saleri.

Independent journalism is a bit different than the regular media, and so Maass fits in with Andrews.

I was just trying to give them kudos. But now that you mention it, journalists have limited skill in doing anything truly analytical as they essentially relate stories from different perspectives and try to find contradictions or reconcile the views. They don't actually take a theory and try to verify it as a mathematician or analyst would. So the next step is pretty obvious. The journalists really have to start referencing the analyses on TOD, since this stuff is generally newsworthy, even though it won't always reference a Saudi prince. Don't hold your breath though as it will likely take a while, and would really take some guts.

If you really want to see some crappy journalism, watch how the next Freakonomics book -- SuperFreakonomics -- takes off. The tandem of guys who write the series and also have a blog on NY Times consist of a math-oriented economist and a science journalist. That should be a good combination, but they fail on epic terms IMO. They apparently bash climate change in the new book, uh oh. But before that they got the topic Peak Oil completely wrong. They do not understand the fundamentals at all, which ultimately surprises me since oil depletion analysis is nothing more than probability and statistics, which they purport to be authorities on. I myself consider it no more difficult than bean-counting.

This is what they have said in the past:

So why do I compare peak oil to shark attacks? It is because shark attacks mostly stay about constant, but fear of them goes up sharply when the media decides to report on them. The same thing, I bet, will now happen with peak oil. I expect tons of copycat journalism stoking the fears of consumers about oil induced catastrophe, even though nothing fundamental has changed in the oil outlook in the last decade.

That was in 2005. At one time I almost bought their approach, I thought Freakonomics was all about looking at the statistics and basic math underlying a premise and trying to debunk or support that premise. They have often been able to do this by demonstrating how that almost certain correlations between cause and effect were simply anomalies that could not overcome the null hypothesis. But here they say “I don’t know much about world oil reserves.” So, with that, how can they predict anything, one way or another, on how things will turn out?

And this is a case of journalism that purports to do some original analysis. There is really nothing out there that has any degree of rigor and formality. The real go-to people would be someone like Laherrere who actually has studied this in depth and cranked the numbers in original ways. (likely on his own dime as well) He definitely doesn't fall into any of the categories I mention. And that is who we will really have to depend on.

Hey, they're economists. That's about all you need to know about them. Very few economists are willing to even consider that there are real limits in the world, whether on the resources side or on the pollution sinks side.

I'm in a Statistic class now. One thing I've noticed is that "math people" see the world conforming to math when in reality is exactly the opposite. Math is an attempt to understand the universe through numbers. In my experience, the universe is going to do all kinds of crazy things; you can describe them with math but that doesn't mean your description is what's happening.

Maybe I'm just bitter because I had to listen to my prof. go on a 45 minute tangent about "two different sizes of infinity". The whole time I'm sitting there wondering what difference it makes? These people spend to much time trying to stuff the world into their formulas and not enough time trying to learn from the world.

Edit: I just want to make sure you know this isn't pointed at any of the modelers here. I thoroughly enjoy your posts and am taking the stats class so I can better understand what you guys are talking about.

In my experience, the universe is going to do all kinds of crazy things; you can describe them with math but that doesn't mean your description is what's happening.

You have that absolutely right. The Verhulst equation leading to the Logistic and Hubbert Linearization is a perfect example of that perversion. The Verhulst as applied to oil depletion is what is called a pure heuristic that explains absolutely nothing from a fundamental point-of-view. Yet it is placed on Wikipedia as "the truth". Not to say that the Logistic does not match the empirical observations, it just doesn't explain mathematically what is happening. You will often see this under the category of mathematical degeneracies, see In some ways using the Verhulst is akin to flipping a two-headed coin. It is simply a mathematical identity that does not tell you anything. It only tells you that it comes up heads, because it comes up heads. In other words, it won't make sense to you no matter how hard you try, because it wasn't put there to make sense, only because it fits the data .. occasionally. Does that make sense?

You will go far if you continue to question what you are taught, as that leads one down the road of enlightenment.


Verhulst's equation is a totally straightfoward first order differential equation. The equation is based on a linerally reduced k. You can see that at t=0 when cummulative production is 0 k=K but at URR K is 0 and at URR/2 k=K/2.

diff(x,t)/x = k*(1-x/URR). Where diff(x,t)=the production rate and x, the integral of diff(x,t) is the cummulative production. It is wholly DETERMINISTIC. Solution is of the form x = 1/(1+exp(-kt))
and the differential diff(x,t) is production = k*exp(-k*x)/(1+exp(-k*x))^2.

If you get rid of the reduced K and use a constant k=K
diff(x,t)/x = k the solution is exp(k*x), the simple exponential growth function and the production (diff(x(t)) would be k*exp(k*x).

Do yourself a favor(I'm not very good at solving diffeqs).
Buy an old version of Maple, Matlab or Mathematica on Ebay and you can solve and graph all the equations to your heart's content.

Verhulst is a non-linear differential equation. It has no resemblance to 1st order linear differential equations. You completely misinterpreted my comment about it being degenerate. It has nothing to do with determinism, but everything to do with it just being a curious mathematical identity that we continue to misuse.

Check out Project Tuva:|0||6b89dded-3eb8-4fa4-bbcd-7c69fe78ed0c||

Richard Feynman: The Relation of Mathematics and Physics

For Saudi Arabia its fairly safe to assume productive search is well in the past.

I agree with this paper and in my opinion Saudi URR is in the realm of 160-180 gb.

So we have dispersive discovery probably slowed dramatically vs production they found the largest field in the world and many giants. The distribution is warped when 50% of your production comes from a single field.

Next they are probably simply lying about production which is one reason for the hump in the HL curve. I assume the Saudi's can perform similar URR estimate and can tailor their reported production to reflect their reported reserves.

And last but not least even with this they would have been pumping like mad to keep production up even if they are inflating the numbers so a quite frenzy is also part of the equation. They repeatedly employ the most advanced extraction technology and indeed lead the world in their investments.

Last but not least I also think their internal consumption numbers are fudged on the high side to hide some production loss but even with this a linear increase in internal consumption still results in a very large and reasonable increase.

So if the above is correct the Saudi exports should be tanking right now.
My best guess is a 15-20% decline rate in exports depending on what the real factors are.
I'd be surprised if its less than 15% if the above rough guess are valid.

A similar argument applies to many of the OPEC producers in the gulf region all of them are in my opinion playing variants of the same game with the possible exception of Iran which has not made the investment in infrastructure and Iraq which probably damaged its fields under Saddam. Iran should be the only one of the group exhibiting a steady decline rate in production but it also has the largest internal demand.

So you have decelerated search with aggresive extraction actually pulling a lot lower real URR up to be overstated using HL. On top of this you have inflated production numbers making it look even larger.

And last but not least I think Saudi oil production was understated by 50% for almost a decade during the late 1980's so when they where reporting 3-4 mbd they where really pumping closer to 6mbd with the additional oil revenue going entirely to the royal family.
So the total production numbers are actually not that far off just the oil was really produced decades ago.

Using the paper I linked and the above correction for hot oil production then the final number for 2009 is probably not all that far off its just the oil was not produced when they say it was.

So given from the paper a culmative of 123 and a URR of 180 puts them at about 68-70% depleted. I've used 70% depletion as what would happen if a region was following a shark fin production profile. Oil production starts declining rapidly at the 70% or greater number then falls to a very low production rate for the remainder of the oil.

This is of course a situation thats impossible to hide for long so no sense in arguing if its correct or not if its right then Saudi production is crashing now and the effects will soon be obvious if not then any other model has them remaining fairly close to their peak rate for several more years and their announced cutbacks are fairly real and KSA should have at least 2mbd of spare capacity for sure at the moment. And of course the flip side of the sharkfin production profile is if until now production was actually following a smooth symmetric decline then extraordinary effort should boost it to at least cause some asymmetric production around the top thus again its tough to see how KSA can decline much if at all over the next several years.

One can assume if OPEC has substantial spare production they will at least open the taps some as oil climbs into the 100 dollar range therefore the time scales can readily be pulled of the futures market once we see 100 again on the futures curve you simply have to watch and wait until it meets the front month. At the moment despite the sharp rebound in oil prices the day of reckoning is nowhere in sight.

The the conjecture that KSA is crashing is correct you should see 100 not only appear on the horizon soon on the futures curve but rapidly move down it towards the front month on steepening contango. If this starts to happen then the "moment of truth" is coming.

They may very well have what they claim however this time around only KSA opening the taps for real will prevent another serious spike in oil prices.

Now with all this said if they really are in bad shape they also know the day of reckoning is approaching so I suspect that they are actually holding some real reserve capacity of at least 500kbd with say 30 days at 1mbd or so something like that so I think they will actually show a decent real surge but it will be short lived and fall off fairly quickly. Basically they will show the world some increased production then claim a much higher production level but under the covers start pulsing production. So they will surge a bit leading to a slight moderation in oil prices then cut back below their old production levels quickly oil prices start going up and they pulse again with another real surge but this time only reaching the pre orginal surge levels and again and again.

More that likely claiming ever higher production numbers after each surge. At some point they then start pointing finger heavily at other producers and say they need help and of course blame the lack of investment back when prices fell etc.

So although it won't really help much on the price front I don't see them going down without a fight. And as I said in another post the world economy and esp the US is in such poor position financially all the Saudi's need to do is last long enough for the world to start falling apart at that point they can do whatever they want. Its a fairly safe bet that even as the world comes unhinged disruptions will hit oil producers as much as consumer nations and overall oil prices will remain high and of course a very good chance that a petroleum backed currency of some form will play a big role in whatever the next monetary game will be.

Its the story of two people chased by a bear where one says we can't outrun the bear and the other replies true but I only have to outrun you.

Thus if Saudi Arabia plays its cards just right it should be able to bluff long enough to allow them to survive very well even if oil exports fall to say 2mbd or so. And of course if the world gets crazy enough you could well see Saudi Arabia itself become a bit of a local military power and seize some of its neighbors if esp if they collapse politically.
I could easily see them considering taking over parts of Iraq and say Kuwait or other gulf countries to "restore peace" later on. So in a shattered world if they do keep things together they their are longer term options that may well open up that allow them to bolster their dwindling production. One can expect many will be willing to bargain with them and allow just about anything to transpire to get the oil flowing again.

Note given the situation with the US if the US fails to corral Iran obviously an agreement between Saudi Arabia and Russia to split Iran would work very well esp if the Chinese are payed off. This fits very well with Saudi Arabia hoping if not planning on eventually being effectively the only major oil producer in the Middle East. A interesting side deal with Israel is even possible. Underling this seems to be a sort of conviction on the part of Saudi Arabia that the US is doomed. Now of course if their own production is crashing and they know the rest of the world is going down fast whats really interesting is this move with Russia to curtail Iran is not a head fake they know the US is going to go down.

"Now with all this said if they really are in bad shape they also know the day of reckoning is approaching so I suspect that they are actually holding some real reserve capacity of at least 500kbd with say 30 days at 1mbd or so something like that so I think they will actually show a decent real surge but it will be short lived and fall off fairly quickly. Basically they will show the world some increased production then claim a much higher production level but under the covers start pulsing production. So they will surge a bit leading to a slight moderation in oil prices then cut back below their old production levels quickly oil prices start going up and they pulse again with another real surge but this time only reaching the pre orginal surge levels and again and again.

More that likely claiming ever higher production numbers after each surge. At some point they then start pointing finger heavily at other producers and say they need help and of course blame the lack of investment back when prices fell etc."

This sounds like a plan to me. They have to keep the confidence of the importing nations. The party must keep going at all costs.

If dispersive discovery proceeds with an exponentially accelerated search over a spatially dispersed volume then we see the classic Hubbert curve -- a Logistic sigmoid for cumulative growth. Applying the technique of Hubbert Linearization to that formulation, we plot a straight line, as in the figure I showed (plotting cumulative production U against fractional production P/U). Shift discovery into a production to maintain the general shape.

What happens if at some point in the accelerating search we apply an even more aggressive search policy? Say that we super-accelerate by applying a Gompertz-like growth term exp(kt2) instead of the linear exponential in the constrained Logistic. The previously straight line develops a bulge that initially looks like a shallower HL slope but which eventually slopes downward to the URR cumulative intersection U0. Note that the URR gets normalized to 1 in the figure and amounts to a geological limit.

Conversely, what happens if the accelerating search stabilizes and transforms into a steady, linear growth? In this case, the HL linearization plummets before asymptotically approaches the same URR.

Whether this deviation has happened already, don't know as noise can obscure the effect. In terms of the deviation direction, it could always go either way. An aggressive search acceleration would come about if the operators had confidence that they could apply a huge, albeit transient, investment into their infrastructure. On the other hand, the deceleration would obviously come about if the industry started to give up and thus either reduce their search effort or resort to maintaining their previous rate.

Information also found here in a post called "Deviations from Hubbert Linearization":

The math behind this is ridiculously easy.

Hmm well if you except the URR estimates from when the US was running things and I see no intrinsic reason why they are wrong plus some small additions from later search activity and the critical fact that most of the oil in KSA is concentrated in a small region that was easily searched then you get all the above as and answer.

The physical size of the oil rich quadrant of Saudi Arabia is so much smaller than Russia or the US that the search portion could have easily ended quickly. Not that Saudi Arabia has not searched in other areas and found some oil and its a big country its just that nature both blessed them with a immensely rich region and it seems not much else.

Geology is geology and if the above is correct then fruitful search ended very early not only for Saudi Arabia but for a good bit of the Middle East. If you simply look at the size of the worlds best oil producing regions vs the overall search area they actually are not a large precentage of the total. I don't know the exact number but its very small probably close to say 1-2% of the worlds surface has basins producing more than 1mbd.

Realistically outside of the arctic regions we probably found most of the worlds oil a long time ago esp in the Middle East.

If you split oil discovery at say 1980 and look at discoveries before 1980 vis after 1980 ignoring completely reserve additions its very clear that by 1980 actual true large new bona fide king size large oil discoveries had dropped of substantially. I'm actually not aware of a single giant or super giant field discovered after 1980 although I'm sure a few might make the cut say maybe in Russia this would be a field producing over 500kbd or so.
Even if reserve growth is true its not a new discovery simply a revaluation of and existing discovery and very different from finding a Ghawar despite the large amount of incremental reserve additions from reserve growth.

I'd argue that basic search and discovery and the bringing online of new basins and then new oilfields was fairly complete by 1980. After this lots of things happened but finding lots of new virgin basins and fields was not one of them. I don't question the dispersive search model however if you follow the strict definition i.e a true new discovery and a true search of a region then we passed it a long time ago and for the most part with a few exceptions time shifting this true search and discovery forward does not explain current production levels you must bring in backdated reserve growth.

Now with that said time shifting of these real discoveries does and excellent job of explaining oil production up through the 1980's and maybe as late as 1990 even depending on how you do it. However as you enter the later 1980's reserve growth makes a ever larger contribution to in effect rationalizing the production levels.

Now the discovery date of most of the worlds production is so far in the past that the actual sizes of the fields as they have been produced over the decades determines the worlds production levels. In this I include the identification of small fields in well developed basins like the Gulf of Mexico even into some of the deep water plays if they are following geologic formations that have already been heavily developed. Finding a new small field in the shallow water off Texas is basically infield drilling into a fragmented field its tough to treat this as equal to when the basin was orignally developed.

I know this is a fairly strict way of looking at things but the difference between pre 1980 discovery and post 1980 is striking indeed even as early as 1975 you can do this sort of division and the differences are obvious.

Using this approach you can see that discovery was very successful and the point at which the various regions was well searched is fairly abrupt it seems to have obviously finished. After this sure there was a lot of mopping up to do if you will and refining and exploiting the discoveries but we really did find most of the worlds oil for all intents and purposes. Thus true dispersive search is in my opinion well in the past whatever the additional oil found after this is who knows for sure yet ...
However it was found operating under a very different set of conditions from the original dispersive discovery period and its far from clear that applying dispersion to later developments is correct.

The math of this is not even math just a good look at historical finds and the trends are obvious

I think this graph is probably the clearest.

This shows the growing gap between discovery and consumption as we move from surplus to deficit. The yellow curve shows exploration drilling. Note that the level of activity barely affects the discovery trend. It destroys the flat earth economists' claim that discovery is driven by market forces.

But in year 2000, we did have an exceptional discovery spike from two large finds in the Caspian and Iran, which had hitherto been areas closed to the industry. These exceptions apart, underlying general trend is down to about 6 Gb, with perhaps as much again coming from new deepwater discovery, here treated as Non-conventional. The new deepwater areas are yielding an early crop of giant fields, as is to be expected, but discovery there is set to decline too.

After 1980 simply is not the same as before its very clear to me that meaningful or fruitful search was simply over by 1980.

Maybe I'm the only one that sees this damned if I know but I think its the right way to treat true dispersive discovery and I think everyone should agree at least until 1980 dispersive discovery and time shifted production was the absolute driving force in oil production the model is perfect. Afterwards ...

I see this (UK?) analyst Wicks supplying a future rather optimistic scenario in the context of HL.
Euan says that he doesn't want to discuss it right now -- that is fair since he is also probably working this stuff out on his own dime and time.

I just want to point out that HL as currently understood is based on a rather shaky premise, that of assuming a non-linear chaotic differential equation completely governs the oil production cycle. This equation is so constrained that it only allows one solution, and it forces people to look at the implications of the results in a very narrow focus. This I believe is dangerous as it leads to a likely unwarranted interpretation leading to an extrapolation for URR that may prove ultimately incorrect. It is clear that we have never seen a HL that works over the entire range of cumulative production. Granted it might work in historical cases over a range of cumulative (such as the USA) but this is in spite of itself, as we clearly don't understand the premise from which it arises, or perhaps rather, we don't want to. So I ask the question: How do we argue with Mr. Wicks unless we have a solid foundation to argue from?

Good post, memmel.
I always enjoy reading what you have to say.
But don't hold your breath waiting for the resumption of stability in the region if Saudi Arabia gets involved with its neighbors militarily. I recommend, "The Siege of Mecca". In spite of all the fancy weaponry the Saudis have purchased from the West, the Saudi military is basically completely incompetent.

I noticed that you commented on the difficulty you have with your coworkers, who are largely geologists, in trying to convince them of the peak oil issue. I am curious how you would even attempt to explain the conflict that SA presents in respect to justifying your own argument. In the field I am in, demonstrating weakness from a mathematical or statistical footing and I would be skinned alive in presenting an argument. I couldn't get away with pure rhetoric or hypothetical premises.

Perhaps that is what your colleagues are having issues with? Just curious.

I'm more of an historian.
I don't mean to be rhetorical, certainly not hyperbolic.
But the book I recommended is a good historical account of what actually happened when the Saudi military was given a military problem to solve. The results were not encouraging.

Indeed - if I recall the incident correctly they had to call on westerners to fly helicopters for air support purposes.

Another telling incident is the Persian Gulf crisis in 1990/91 - Saudis were completely incapable of protecting themselves from Saddam Hussein.

It's important to understand that the Saudi military and security apparatus is, much like in many authoritarian countries around the world, primarily a system designed to keep the existing rulers in place and secure from INTERNAL opposition. The external protection role, though ostensibly the reason for the Saudi military/national guard, is really a Potemkin one. The real purpose is to ensure the regime against internal rebellion or coup by a faction of the royal family. This is why they are so incompetent on real battlefields - they aren't staffed with professional soldiers but with loyalist yes-men.

Yes, exakaticly.
The likelihood (under any circumstances) of autonomous Saudi military operations outside the Kingdom's borders I think can be safely placed at zero.

Well to date the Kingdom has for obvious reasons not developed a strong military despite its prodigious purchase of equipment. Now either its been buying equipment as show toys or it buys it for a reason.

As far as the military personnel go well a coup is a problem for KSA without a real war to fight I see them as being smart enough not to build up a big military. Instead of manpower they would focus on the technical side i.e basically a lot of equipment and people trained to take care of it.

I'd class the current Saudi military as equipment maintenance staff. However its never wise to look to shallowly at history culturally and historically the Arabian peninsula has produced some of the best fighting forces in the world you can't dismiss the original Moslem expansion and this same culture is responsible for some the best "freedom fighters" or terrorists on the planet depending on your point of view.

Next they now have a huge population problem with the demographics favoring support for a large military.

If Saudi Arabia felt it could keep a large military engaged in patriotic war I suspect you could see things change rapidly.

If anything in my studies of Saudi Arabia I've gained a considerable amount of respect for the ability of the Royal family to do the right thing at the right time sure they make a few mistakes but overall despite the obvious trappings of wealth its a true old style royal family with cold hard steel hiding beneath the wealthy exterior.

If I'm even reasonably close to right its clear your dealing with a country that has steadily followed a roadmap through the last decades that was centered on ensuring Saudi Arabia would grow to be a powerful force in the world especially after peak oil.

One thing that seems to be seldom considered on the oildrum is a simple what if.

What if Saudi Arabia was very aware of its true URR and true situation and fully aware of the nature of peak oil and its implications for the world economy and Saudi Arabia in particular ?

This is a variant of the quote from Dubai.

One of the more successful rulers in the Middle East, Sheikh Rashid was responsible for the transformation of Dubai into a modern port city and commercial hub. His famous line, "My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel." reflects his concern that Dubai's oil will run out in a decade or two. Thus he worked to build up an economy in Dubai that could survive the end of Dubai's oil boom.

Peak oil awareness is so pervasive in the ME that a peak oil saying is cultural lore in the region.

I've come away impressed with what Saudi Arabia has accomplished and with a healthy respect for what they may do in the future. I'm not at all complacent and dismissive.
And last but not least the Saudi Royal family is quite capable of implementing plans that take decades and even generations to mature I think we are blinded but our own experiences with variable popular governments and miss the truth behind royal rule and how it works simply because its uncommon today. Sure its ruthless at its heart but on the same hand the country itself is the source of power so the national needs are the royal family needs. Think of a farmer willing to do what it can to maximize his own wealth but also working to ensure his farm remains productive for as long as possible. Buried inside a royalty based government is nationalism that surpasses anything seen in the 20th century.

"Buried inside a royalty based government is nationalism that surpasses anything seen in the twentieth century."

Memmel, I've got to hand it to you-sometimes you come up with a single sentence that says more than most of us can say in a whole essay.

The simple fact that the house of Saud is still in power after three generations says a lot, considering the situation in that part of the world.

They are probably two or three moves ahead of almost everybody else in the chess game of survival.

But my impression is that they are sitting on a powder keg-which is not a good place to be especially when you consider the old saying about keeping your powder dry.

And last but not least even with this they would have been pumping like mad to keep production up even if they are inflating the numbers...

Last but not least I also think their internal consumption numbers are fudged on the high side to hide some production loss but...

And last but not least I think Saudi oil production was understated by 50% for almost a decade during the late 1980's so when they where reporting 3-4 mbd they where really pumping closer to 6mbd with the additional oil revenue going entirely to the royal family...

Memmel, in a court of law the judge would tell us that he is not interested in what we think but only what we know. However given that Saudi is so secretive about everything we can know virtually nothing about the internal workings of ARAMCO. Nevertheless that does not mean that we are left with only wild speculation about anything that concerns Saudi ARAMCO. So what do we have?

We have what we can legitimately glean from the reports and data we do have. We have the interview with Sadad al Husseini, we have the actual production data collected from many sources, we have reports from the Society of Petroleum Engineers, we have reports from Petroleum Intelligence Weekly quoting Aramco Senior Vice President Abdullah Saif stating that the decline rates in Saudi's giant fields are running from 5 to 12 percent and from time to time we get reports from people who have actually worked fro ARAMCO. And of course we also have very good reasons to believe that Saudi, along with other OPEC nations, inflate their reserve numbers in order to increase their OPEC quota. These are things we do have!

Wild and crazy speculation about Saudi underestimating production in the past so the Royal Family could pocket the difference or speculation that they are currently overestimating internal consumption to hide actual decline in production and other such imaginative speculation adds nothing to our actual knowledge about Saudi Arabia nor does it do anything for the credibility of The Oil Drum.

Ron P.

P.S. I apologize for being such a bitch this morning but I really think we should avoid wild speculation comes only from the seat of our pants.


How much do you suppose the other major oil companies know about the Saudis that they aren't telling?

I will hazard a guess that employees at all levels from common laborer to head engineers move around a lot around and can be easily convinced to tell what they have seen -are in fact usually eager to talk.

Then various govt agencies from all major govts are in the habit of buying information.

I would further guess that a person who buys a lotof oil field equipment can find out a lot just from the friendly salesmen of oil field equipment and the shippers who haul it around all over the world.

So while we peons don't know the score, maybe the big boys do.

I continue to be interested in the Saudi stock market chart, a rather odd looking chart for a country with a "1,000 Gb of Resources," especially as oil prices went from an annual price of $56 in 2005 to $100 in 2008.

The sharp decline in early 2006 may be related to a lot of things, but it also correlates with the ongoing annual decline in Saudi oil production, relative to 2005. This was the time period in which the Saudi oil minister complained that they could not find buyers for all of their oil, "Even their light, sweet oil."

Richard Heinberg's August, 2006 observations & comment:

Even worse news, potentially, comes from Saudi Arabia, where oil flows have shrunk by some 400,000 barrels per day over the past few months, despite astronomic prices. No one knows for sure what is going on. The Saudis themselves say the production cuts are due to lack of demand, but this hardly seems plausible, unless the kingdom is only able to deliver unwanted heavy, sour crude to market—but even in that case, one would expect flows to increase, with a price discount factored in for resource quality.

At the same time, the Saudis are hiring just about every spare drilling rig in the world, resulting in a dramatically falling rig count in the Gulf of Mexico—a place that would otherwise be seeing an increasing count, given the fact that Mexico’s giant Cantarell field is in now in steep decline, with dire implications for the nation’s economy.

Matthew Simmons (Twilight in the Desert) has been insisting for the past few years that Saudi production is close to peak and that Ghawar, the world’s biggest field, may be in decline. Now many others are speculating that this is the real reason for the falling production figures.

What happens next? It depends on the real condition of Ghawar. Perhaps a heroic drilling campaign could result in a temporary bloom in production, lasting perhaps three years, followed by a swift, terminal collapse. On the other hand, it is possible that the field has been so thoroughly exploited already that we are seeing the irreversible, rapid decline.

At the ASPO conference a well-connected industry insider who wishes not to be directly quoted told me that his own sources inside Saudi Arabia insist that production from Ghawar is now down to less than three million barrels per day, and that the Saudis are maintaining total production at only slowly dwindling levels by producing other fields at maximum rates. This, if true, would be a bombshell: most estimates give production from Ghawar at 5.5 Mb/d.

Its a striking chart that can be found here:

Note the 10 fold uplift in 6 years (00 to 06), I imagine the crash is related to that.

How much an oilfield decreases is often estimated by the water consumption needed to be pumped into the wells. It has been reported that Ghawar increased water consumption during 2008. Same goes for using NG to pressurize the capillaries in the rock.

...Ghawar is now down to less than three million barrels per day...

I don't believe this quote from Richard Heinberg for one minute simply because I don't see how the other fields could possibly close the gap between 3mbd from Ghawar and overall Saudi production. Sounds like a product of the rumor mill to me.

I'm still bullish on Ghawar. It has a hump down the middle where you would normally put the producer wells. The water injection wells at the perimeter would then have to mobilize all the oil in the field but it's too wide for that. So it is being produced from the sides towards the middle. The outer ring are water injection wells. The next ring in are producer wells. A lot of water cut is accepted in order to flush out as much oil as possible. I don't think there would be any water cut it the opened the crown. Hence I believe recovery is much better than normal. Just my WAG.

Well, that was then...

Pre-2000 wells in the left image, red and blue placemarks indicate locations of oil and water wells respectively. 2000-2006 wells in the right image, green circles denote recent well locations and diamonds indicate drilling rigs in 2006.

The "outer ring" of producer wells only describes the lower third of Haradh (Haradh III). Elsewhere, they've long since had to drill everywhere -- and then redrill with horizontals/MRC wells -- as the water moved in.

I don't know if WT was referring to Richard Heinberg in this case or not. When was first reported as saying this, KSA had not yet brought many big ticket items online. With these, it is now possible that Ghawar is producing less (or much less) and they could fill in the blanks. They have in fact stated that with Khurais coming online, they would rest Ghawar. That can be read different ways, of course.

Ghawar has been turning on the spit for awhile on TOD. See:

or my work here:

Money buys a lot of silence. If you want work or purchases from Saudi Aramco, it's best to clam up.

The Saudis still perform beheadings on a regular basis, for capital offences. Strangely, everyone 'questioned' about serious offences ends up signing detailed confessions. They rarely get time to recant.

Mac, you are correct in that what you know depends on who you are. The publication "Petroleum Intelligence Weekly", and a few other publications, know a lot but they are subscription only. However occasionally someone leaks what they publish, like here:

One challenge for the Saudis in achieving this objective is that their existing fields sustain 5 percent-12 percent annual "decline rates," (according to Aramco Senior Vice President Abdullah Saif, as reported in Petroleum Intelligence Weekly and the International Oil Daily) meaning that the country needs around 500,000-1 million bbl/d in new capacity each year just to compensate.
Country Analysis Briefs: Saudi Arabia

Or here:

Sheikh Ali also confirmed to Al-Wasat newspaper that the state's proven oil reserves have fallen to 48 billion barrels, as reported last year by Petroleum Intelligence Weekly, down from an announced 100 billion barrels.
Kuwait plans big shake-up in oil sector

I have several pages of saved URLs that point to such information. Bottom line, what we do have is plenty of very good information. We don't need to make up stuff of which we have no source other than our own imagination. Not that there is anything wrong with speculation, but speculation can occasionally just get wild and crazy, like accusing Saudi of producing a lot more than they stated and the Royal Family is pocketing the difference. After all, even then we did have tanker counters and reports from other nations as to what they imported from Saudi Arabia.

It would be very difficult to over report or under report what you are producing. As an example Venezuela is trying to do that today. They claim they are producing over half a million barrels per day more than even OPEC reports in their Oil Market Report. Venezuela makes production claims that cannot be verified therefore everyone goes with what can be verefied. The same would be true for Saudi Arabia or anyone else.

Ron P.

Thanks,your reply jibes with the impression I have formed over the last several months following TOD and reading the energy related books often mentioned here.

I believe there may be,more likely IS, a strong parallel bewtwen the energy intelligence situation world wide today and the military intelligence situation situation just prior to the outbreak of many wars-the essential data were there and plain to be seen , but tptb higher up in the chain of command often as not discounted it to near zero value simply because it did not jibe with thier own preconcieved notions and biases.

In this case tptb are congress critters and cabinet secretaries rather than generals.It sure would be interesting to be a fly on the golf cart when the biggest of the banksters talk among themselves.
Apparently they must believe that the US will survive the coming secondary peak/price spikes and the associated crash and that they will still be in the catbird seat.

As I see it, there will be nowhere safe to run to if and when tshtf world wide-thier fiat money won't buy any thing.And the deals they have cut with the local ptb in other places probably won't be worth much either-even a low ranking officer in charge of just a hundred well armed and trained men can probably take out any sort of multi millioniares personal security force in a few hours with very little effort.

A few weeks ago I listened in on a conversation between a moderately wealthy woman and the owner of a second hand book store where I am a regular.Her husband spent his career with the World Bank or some such organization and they traveled a lot.

They went in with friends and bought a ranch somewhere in Central America as an investment and as refuge-I will give them credit for seeing the need!She was talking seriously about troubles here in the states and moving down there.

After she left the owner asked why I had to go off into a back corner to keep from laughing at her to her face-she seems to think that the locals are fond of her and her husband, and that they ill be grateful for the opportunity to wait on her hand and foot if tshtf.

The giy who runs the store is not a reader and I had to explain to him that her property would be confiscated within less than a year for sure in the event of any sort of major international upheaval and that she would be very lucky to retain as much as a marked grave out of her investment.

mac -- I'll offer a speculation. I doubt the majors know agreat deal more. Not that they couldn't if they really tried but I don't think it's critical to them. OTOH if, let's say, the CIA wanted to get a good handle they could hustle together all the expats who have, and continue to work, in the KSA and generate a picture. Much of both the high and low end engineering is done by those folks. I haven't bumped into one in a quit a while but 20 years ago there was a lot of scuttlebutt from them about excessive production rates damaging Ghawar's ult recovery.

It would be nice to think of the CIA being on par with James Bond. But I don't.

Rockman, I don't believe much of that James Bond type stuff-what I envision as the reality is a couple of guys with pocket protectors eating cheetos sitting in a stuffy office going thru various data bases and pulling out names of people who might have once had some access of one sort or another-as an engineer, truck driver, salesman, or technician-especially keeping an eye out for bean counter types who might be short of money and recently retired or forced out for some reason.

Then they send somebody to talk to these people-maybe offer some money if they're broke, or a little help with a visa, etc.

These guys could work for military intelligence, a multinational oil company ,somebody like Simmons,or the CIA or nearly outfit with tons of money-such as gold in sacks.A good inside source able to throw some light on the situation would be a real feather in the cap of a manager in any one of these organizations.

I know in the past some really great spy work has been done. There was a book out some years ago titled, I think, "East Minus West Equals Zero". In it the authors described how the US had set up an office in Israel and interviewed Jews emigrating from the USSR. They got a wealth of information from them for nearly nothing. The issue that made the emigrants so valuable was the Soviet universal conscription. Virtually every male interviewed had spent time in the Soviet military.

So it's possible, by interviewing a large number of ARAMCO expats you could get a really good idea of what's going on there.

But I think that the barrier is that the entire US govt apparatus is so sweet on the Saudis and the certainty that something ("the invisible hand") is going to produce whatever energy we need that it simply doesn't occur to them that it is important to look into Saudi reserve numbers.

edited for clarity

Mac -- I would like to think your scenario exists out in the hinterland. This is an old anecdote so it may not fit well today. About 30 years ago I met a geologist who actually worked for the CIA. A friend of a friend. Sort of a light interview. I'll skip many details of our conversation and just suffice to say this guy couldn't find an oil spot in his driveway. And he had at least 20 yrs experience. And the fact that he thought I might be a useful asset also speaks volumes: I only had a few years experience and was just barely getting my hand around my craft. Georgetown did look like a nice place to live but I finally decided there were just too many Yankees up there.

Nothing personal, Yankees.

One of the problems that the Peak Oil movement/community/sect suffers from is the public assumption that it doesn't have the facts and doesn't account for such and such and are amateurs in oil. Al-Husseini's concerns expose the (Saudi , at least) cornucopian argument for what it is: a bias toward believing that all problems regarding the production of difficult petro accumulations will be solved in due course. He knows the cards that Saudi Aramco is holding and, while not saying exactly what they are, is saying they are bluffing. I agree that wild speculation beyond that isn't necessary.

Well is it all wild speculation ?

From 1982 to 1985, OPEC attempted to set production quotas low enough to stabilize prices. These attempts met with repeated failure as various members of OPEC produced beyond their quotas. During most of this period Saudi Arabia acted as the swing producer cutting its production in an attempt to stem the free fall in prices. In August of 1985, the Saudis tired of this role. They linked their oil price to the spot market for crude and by early 1986 increased production from 2 MMBPD to 5 MMBPD. Crude oil prices plummeted below $10 per barrel by mid-1986. Despite the fall in prices Saudi revenue remained about the same with higher volumes compensating for lower prices.


And plenty more about the economic situation during that period.

Now the claim was a 3mbd increase in crude production tanked the price of oil in 1986.

Lets see if it passed the sniff test.

1.) US economy weak extensive globalization undercutting job growth high unemployment. Claims the recession has ended.
If it sounds a awful lot like 2009 then your on track to understanding the economy during that time period.

Now looking at prices.

And look here remember there is a FLOOD of oil entering the market right 3mbd.

So 3mbd *365 days = 1 billion barrels of oil.

Show me the data that accounts for this billion barrels of oil and I'll agree I'm speculating wildly.

If you actually LOOK at the data its nowhere to be found.

So 1 billion barrels and not a trace of them ...

Find them and I'll withdraw my "wild" speculation.

And of course the next issue is how much excess oil is required to drop oil prices significantly prices are set on the margin it does not take a lot of excess oil flooding the market to have a strong impact on prices esp if the world economy is weak when it happens. Looking at it from a supply demand angle anything from 500kbd to 1mbd is more than enough excess oil to significantly effect prices depending on the demand side a 50% drop in prices is reasonable. We saw a dramatic change in oil prices by at least 50% in the second half of 2008 with a slight change in the rate of decline of demand etc.

Next the paper I linked claimed that Saudi Revenue remained constant during 1986 offseting the drop in oil prices.

There is zero evidence of this.

Plenty exists to show that the Saudi's finally decided to change direction and deal with internal problems that where becoming serious at this point.

By late 1985, responding to domestic concerns, Saudi Arabia sharply boosted oil output in an attempt to regain its market share and to impose production discipline on other OPEC members. This policy led directly to the oil price crash of 1986.

This should read that by 1985 it became obvious that blatantly stealing the oil revenues and pocketing the money was going to lead to internal revolt. Under the cover of increasing production by 1mbd and claiming 3mbd the Saudi's skillfully managed to to hide the end of of the the largest graft operations in history. One can suspect that the devaluation of the US dollar played a large role in Saudi Arabia ending the flow of illicit oil into the large US market. We effectively did not pay for it.

The fact is was primarily a book keeping revision can be seen in the fact that this flood of oil is very difficult to find in practice. Not that oil production was not increased just the truth seems to be far less than the claims.

However prior to this a immense amount of wealth was generated and for the most part flowed directly to the pockets of the elite. The US via prostituting its large consumption of oil was able to operate the biggest money laundering game in history dwarfing the illicit drug trade.

This massive direct injection of wealth from the oil trade radically and fundamentally changed the global economy indeed as the new ultra wealthy class reinvested its illict gains it sparked the rapid growth of globalization. As large scale infusion of funds from the illict oil trade dried up the ultra wealthy increasingly looked for other means to expand wealth and increasingly impoverished the consumer class as its oil addiction became distinctly less profitable.

Whats interesting is that this game was repeated again following the collapse of the Soviet Union resulting in the creation of the Russian oligarchs as the new Russia opened up a similar trade.

Similar smaller scale examples exist in Nigeria and Venezuela for example.
Ironically Chavez's attempts to assert Venezuela's real oil production levels are met with skepticism if his claims are even reasonably true what happened to all the oil produced before he took power as certainly production capacity declined after he took over.

Call me a lunatic if you will but I've had no choice but to finally conclude that what really happened during the oil age is far less pleasant than we believe.

The US has been dramatically corrupted by money and power as it turned the liability of a massive oil addiction into the greatest source of wealth ever seen in the world.

I don't think you are a lunatic. Rather, I think you are a prophet. The only thing missing is the goat-skin clothing and sandals.

I agree that it is all less pleasant than we believe (read Peter Maass' book), but there is enough stuff to be concerned about without going over the edge. I don't believe everything SA says, but I don't disbelieve it all either.


Thanks !

Seriously it means a lot.

However to repeat a bit from what I just posted really underlying every thing is this sort of natural outcome of technology its a generalization of Moore's law or observation which itself can't really be proven.

What happens if you look at practically any field is once we start applying the scientific method and resulting engineering is that we rapidly take the area to the extreme. The green revolution to genetic modified crops. Kitty Hawk to spaceflight. Same for oil technology. However in many ways its not clear for a very long time if this extreme was helpful or harmful or all the possible secondary effects. Generally it feels good and looks good at the time its only when you wake up the next day that the truth is clear.

This extremism embedded in a technological civilization naturally in my opinion takes the entire system to a sort of threshold or edge or envelope. And this by its very nature can cause wildly divergent views about the nature of the envelop or edge when you begin to hit it. Its clear to most people that we have hit a sort of boundary however the problem I think most people miss is this boundary is not embedded in the system thats being refined it can be one or many external factors.

As and example for computer chips heat has increasingly turned out to be a serious issue along with clock timings and electro static discharge. For a long time these external forces where considered problems to be overcome but its becoming increasingly clear that they represent a real wall or envelope constraining further improvements in traditional chip design. Thats by no means saying we can't figure out a way around these problems but now development is increasingly focused on finding if routes exist around this barrier.

With airplanes the barrier is of course very real and its the speed of sound and friction heating at supersonic speeds and fuel use. Can we build faster planes certainly do they make sense outside of a very small number of military applications well history seems to say no.

In the medical field we increasingly see tremendously expensive treatments which often do little to enhance either quality of life or longevity. I'd have to find the stat but I saw a number that said that 80% of medical expenses occur during the least two years of a persons life on average. A tremendous expense for little real gain.

Of course you can find similar examples across practically every advanced area.

Of course your technical expert will claim this is rubbish and its just a matter of money and all these problems can be solved but thats not the point I want to argue. Its not if these boundaries are temporary or serious it that technology intrinsically approaches what ever the limiting boundary is.

With oil I believe we have hit the boundary and that it seems we either did one of two things that are effectively mutually exclusive either we have greatly increased our ability to extract oil or our recovery rates and also found significantly more oil than we though existed and its simply a matter that oil will be slightly more expensive going forward or we actually simply managed to extract the amount that was discovered during the primary wave of discovery at a furious pace.
One or the other of these two things have happened. It can't be both since then oil production would have continued to increase exponentially as oil reserves expanded.
At best production capacity is then limited by slow financial growth and as demand grows oil production will readily grow to reach it.

The both viewpoint or pure cornucopian view seems to be easy to dismiss living the a or b choices.

Now this problem is simply the same exact problem we see everywhere else and its the oil variant of the technology problem. The argument remains across the board in all cases that the system as it hits the wall also clarifies what its real choices where and what was really optimized regardless of what people thought they where doing.

In the case of medicine it seems clear that the taking of money from the elderly is what the US medical establishment has optimized itself for this is closely linked to the aging baby boomer population.

In another case agriculture the green revolution has optimized unwittingly rampant extraction of groundwater and destructive fertilizer and pesticide usage. Its simply optimized the use of these inputs to maximize output.

So if you buy the argument then one has to wonder what the Oil industry has really done.
The two above examples I use argue the truth is dramatically different from what most in the industry would claim was done in fact almost all participants in these industries are blind to the truth often only outside observers seem capable of pointing out the obvious.

I of course don't know for sure what we have done but I'm very comfortable in saying look people we have done in oil what we have done in almost every single other area that been technically optimized we have hit the wall and only then does the real situation and truth become obvious.

Almost across the board in a wide range of industries once you look in my opinion the truth turns out to both be very unpleasant and offers a bleak future. Sometimes its not really bleak like with airplanes it really seems they are what they are certain sizes work and sure the engines can be made more efficient and refinement continue but I'd be surprised if normal airplanes ever fly a lot faster than they do today for quite some time if ever. Its not all doom and gloom but this is more and exception than rule.

So thanks !

And so there is a strong logical process underlying this refinement to a set of choices it could well be wrong but I don't think so it seems to be to general to be seen as trivially wrong.

He knows the cards that Saudi Aramco is holding and, while not saying exactly what they are, is saying they are bluffing.

Yes, and for the first time I heard Matt Simmons say that when he visited Al-Husseini just before the publication of Twilight In the Desert, Al-Husseini told Matt that he had the SPE papers published so that someone could assemble the clues.

And don't forget that SA accounts for only 20% so the errors on getting this absolutely correct amounts to an unbiased 20% error on global extrapolations. And this is likely a worst case, so that if we are only off SA by 50%, then the global error is just 10%.

I haven't racked my brains over SA because the data isn't there and I essentially treat it as a statistical hole, much like you don't have to count every vote in an election to get a good handle on what the final election outcome is. It's what most people would call statistical sampling or stochastic modeling. That is what Dispersive Discovery is all about.

Thats funny thats the sort of error range I get with my convoluted witchcraft tea leave reading approach :)

Even though I'm assuming different numbers and a whacked model the error term seems really tenacious. The slop if you will is itself interesting.

For the cumulative production the error seems to be as large as the entire oil production for the United States. You can drive a truck through it or damn near make any model work for a very long time.

External factors or shocks are critical to elimination of alternative models.

Even now all I can really tell is that either the shock model is correct i.e its done all the right things or its missed some large shocks that are really really hard to quantify.

Despite everything I'm deeply impressed with the model its right on.

Maybe a fairly esotric example will help I'm learning machining right now.

If you have a long thin rod in a lathe and you want to machine it down to a perfect cylinder is very hard as obviously the rod flexes in the middle. There are special follows and other tools to handle this flex but there is also a neat trick.

Instead of trying to cut the rod to size using a tool you simply use a file with very light pressure to true the rod.

A practical end run around a really narly problem. For me at least the shock model and dispersive discovery is like a lath or mill capable of really solving complex problems.

However every now and then you have to cheat and break the rules and figure out a practical solution to a really hard problem.

I'm absolutely at a loss on how to calculate the magnitude of complex shocks that may be large but depend on economic factors and technical factors.

I'm certain that there is a not small number thats really important and just as certain I have no clue on how to solve for it.

So screw it where is my file :)

So if the above is correct the Saudi exports should be tanking right now.
My best guess is a 15-20% decline rate in exports depending on what the real factors are.
I'd be surprised if its less than 15% if the above rough guess are valid.

memmel, you just placed a bomb with some of your numbers and percentages.

Awesome Mike.

Thanks for your thoughts on this.

I decided when oil was tanking into the 30s that I was going to hold all my long positions - I cashed out a lot in July 08, but left a whole bunch on the table.

As it is now, it's becoming more like "wait till you see the whites of their eyes." As oil creeps up, my portfolio numbers shoot up, and every day it gets harder not to pull the trigger.

But I have decided, no matter how tempting the alternative is, I'm holding my fire until I see a number I like.

Your posts, in part, have helped me gird myself mentally.


Be careful !

Absolutely no telling whats going to happen going forward. If I'm even close to correct and if you consider the current state of the world financial system we are sitting on the edge of an literal unknown. Its impossible to predict whats going to happen.

My conclusion has always been that a intentional collapse of the system is the only real way out if the underlying oil situation is degrading rapidly. One could readily argue that the actions of the Feds in pulling the plug on Lehman and Bear Stearns was and attempt to do this sort of controlled collapse in my opinion it did not turn out quite as expected.

I think the US is still capable of adjusting demand downward or attempting to. I fully expect the US to be forced to increase interest rates in the near future shocking many and putting the kebosh to housing. This could readily send oil prices tumbling again. At some point of course the US will have no choice but the kill suburbia and pull the plug.

Although talk is growing about the end of the dollar i.e its certainly increasingly in sight in many circles way way way to many financial assets are held in dollar denominated accounts today. Its death may be on the horizon but the olde dollar still has a lot of life left in it. This suggests that at some point the US will step in and defend the dollar.

Also of course if you think about peak oil up till now exporting countries have worked hard to devalue their currencies as the price paid in consumer nations was the driving factor however as the price of critical commodities such as oil increases a weak currency approach starts to fail and you need to appreciate your currency against others to offset the cost of raw materials esp oil. And if your a food importer food.

So all kinds of currency situations that have held for decades are changing now and will change faster in the future esp as countries are increasingly struggling to simply keep their internal economies afloat much less export.

At any point in time this massive financial volatility could easily spill over into oil esp if a major economy such as say Britain or Italy or Spain collapses.

Plenty of ways exist for a situation to develop which again results in a temporary oil glut certainly the scenarios are more extreme then what we have seen to date but volatility is the key word.

Now with that said as far as I can tell it seems that from now on out all the financial drama will play out against a back drop of ever spiraling oil prices and this will be coupled with the dollar pretty much steadily falling in value against oil in particular and most currencies in general so the trend should be oil becoming increasingly expensive in all currencies and the dollar falling against all of them as other countries change tactics and adopt stronger currency policies to offset rising commodity prices.

So at its basis it seems to be a world almost 180 degrees opposite from the way it used to work.

Now as far as speculating in oil goes I can tell you nothing I own oil options myself but my attitude with them is if the world does go to shit but lasts long enough for me to cash in then it could make a big difference in my ability to live post peak. Its not big money but I think you can see that any money is big money these days.

And if by some chance of fate things manage to turn out a lot better then I expect it was a insurance policy and my future earnings from a stable economy would more than cover the loss in a few years. So if you have the money to throw away its a sensible hedge.
But your trying to hedge in one of the most volatile markets imaginable which is right before they self destruct. And regardless of the outcome the dollar is dead it won't last a decade. This alone is going to cause serious changes even if we end up on the "good" road. The best outcome for the world today is effective default and a move to a new global currency. Esp assuming constrained oil supplies not even a collapse.
Probably holding physical gold is not a bad idea however I'd not buy it now if you bought in the past just hold it as a hedge until you can convert it to a good post peak asset such as productive land. If not golds not oil and the CB's have plenty of gold they can and will smack gold down at some point in the future so there will be buying opportunities. Gold is a rather obvious safe haven and you can be certain that periodically attempts will be made to shut off a flight to gold and silver.

I don't trade metals I'm working on buying machine tools for a machine shop as my physical hedge. And given time I'll convert them to run on compressed air. So thats my physical hedge :) Smaller home machine mills and lathes are not that bulky compared to their industrial counterparts can I think learning to use them is a good future skill.

With that said as a chemist I've always felt platinum was the best buy and hold metal around. If civilization falls to the point platinum has no value its doubtful any other symbolic store of value will be all that useful simple barter is more important.
But it is treated as both a valuable industrial metal and as a ornamental metal. And its far less common than silver or gold.

Looking at the five year chart I'd argue that platinum is as good a candidate for buy and hold as anything else.

If you have the land and a reasonable place to store it or hide it copper and brass and nickel could potentially be surprisingly good long term plays. Dunno about aluminum and I'd not bet on steel. But a bit of a metal hoard in a secure locked shed could well turn out to be a good move. One has to figure a lot of cars will be junked in the future and most of them have a lot of aluminum not to mention steel so its not clear at all if aluminum will retain value over the short run.

This is by no means investment advice I'm not a investor at all I'm fascinated by complexity and I did do what I felt where reasonable hedges for the future within my abilities esp to take a loss. I literally unable to give investment advice so please understand that. I did buy a few oil options a while back that expire in 2010 and 2011 but I purposely did not buy any after those dates as even several years ago I was doubtful we would make it much past 2011. I think my doubts where justified now this does not mean they will pay out who knows but I had a chance to hedge and I believe what I write so I certainly did my best to use a bit of money to maybe help me in the future.

Smart traders can certainly do a lot better but on the same hand you could easily get burned and so could I. Hell the US could readily have a bank holiday dang near any day of the week from now on out this will rattle the financial world.

So the only thing thats certain now is the future is very uncertain the best I can say is from what I can tell this uncertainty should clear fairly rapidly during the first half of 2010. Either the world goes to crap fast with spiraling oil prices and collapsing currencies soon or it somehow manages to muddle through and the oil supply is sufficient for us to belatedly move of oil in a reasonably orderly fashion even with the demise of the dollar.

I am convinced we are right now at the fork that will determine our future. History will either suggest that oil was ridiculously and stupidly under-priced by a global market that did not comprehend its real situation or that oil prices where inflated slightly buy a sort of echo bubble or dead cat bounce as growth ceased and the economy slowly hobbled forward decently supplied with oil but constrained. Regardless the two outcomes have dramatically different underlying supporting views and so far despite serious effort I've found nothing compelling to dispute the theory we are on the road to fast collapse.
The only real argument against it is and almost religious trust in reserve growth that seems to have no firm basis in fact. Once you seriously question what reserve growth means and consider the case it may be fiction your forced into a variant of the model I predict. Thats the critical point of departure and its really a very black and white affair there is surprisingly little gray. High tech has either saved us our doomed us.
What I don't see is a middle ground because of the nature of technological advance which takes situations to the extreme and refines to the physical limits. So by its intrinsic nature its taken us down one of these two roads and even a simple look around should convince you we are at the decision point. At this moment its sensible to try and make balanced decisions that work with both outcomes if you have a decision thats critical then if at all possible wait until the situation clarifies. If you can't wait i.e your trying to make a market play then your gambling not only that a theory that can't be proven until after the fact is correct but also that I got my timing correct.

Even if you know a cliff is imminent its really hard to tell where it is. In my theory we are like a boat adrift heading towards Niagara falls you can hear and even see the spray from the falls but the exact time we actually go over and the route we take is impossible to say. We do know there are a lot of rapids before you hit the big one and we know a small pool of relatively calm water existed but thats about it. One thing thats really important using this analogy looking backward down the river as you approach the falls not only tells you nothing its a deadly mistake.

Thanks for your further thoughts.

I bought into calls back in 06-07. Sold about a third out in 08, just about at peak. I bought in with over six figures of money that I had gotten by selling my house in a large city at the peak of the housing bubble.

Last summer, when I sold a third, I was still clinging to a bit of the old world, and I wanted enough money to fund expensive college educations for my remaining kids.

Within 6 months, however, I had decided to change my life in a major way. Part of that was giving up on the college tuition notion. As I sit here, I'm not sure college will even be an option in 5 years.

Knowing what I know now about my life and how I'm managing it (not about oil prices), I'd have cashed out everything and been happy.

I also had a "government number" in my head last summer. That number was 200. That was the number at which I thought the U.S. govt. would step in and change the rules of the oil trading game.

Now that number is 150, but that's only if oil gets to that number quickly - say from 80 to 150 within 4 or 5 months.

Having had last summer as a pre-run, the big players (airlines, auto, etc.) are a bit more organized and will move quickly to ask for the gov. to step in.

So my current plan, depending on timing, is to get half out if oil gets to 100 before spring (my calls are late 2010 and 2011 as well), and hang on to the rest to see if oil gets back to the 130 and higher range.

I actually am in the lucky position where I really don't need the money. If oil went to 10 tomorrow and stayed there, my day to day life would not change. The money I got from the housing bubble was really a windfall.

My main problem with bullion is that the gov will eventually force citizens to exchange their bullion for fiat - it's very simple and easy to do - FDR did it well - cite bullion holders as "hoarders," pass a ridiculously punitive law for folks who don't turn in the bullion, and exchange paper for gold. Simple and effective manner of exchanging government promises for hard assets.

I have based much of my current position on future oil production on the world's inability (or decision not) to produce more oil when oil spiked to 145. It's basic human common sense that any country with a capacity to pump more would have. They did not.

I think that is stronger evidence that we approach the precipice than anything else I have read or heard.

Says Simple Simon to the Pieman, "let me taste your ware."
Says the Pieman to Simple Simon, "show me first your penny."
Says Simple Simon to the Pieman - "Indeed! I have not any."

It's like that. I'm the Pieman. KSA is Simple Simon. Show me the oil, or you are presumed not to have it.

Sounds like you have made all the prudent moves :)

On the individual level not much more to do take care of your health get serious about at least gardening and work on some other skill thats implementable with a reasonable tool set.
Open heart surgery is probably not reasonable :) Other than that practically anything goes.
One thing I though of is light planes or wooden boats. The ability to build a light plane from wood and canvas is not often though of as a survival skill but assuming a decent technical level I'd argue that a light plane with reasonable payload capacity may be invaluable. Esp if you can say get it to run of SVO or even better steam.
And yes for a brief time in history steam powered planes did exist.

Or I could be wrong in my speculation :)

Regardless as our civilization changes from one driven by endless growth and oil technologies and concepts that were dropped or even never thought of as the problem domain changed are all still possible and open to refinement. Its easy to consider radically different technologies that are viable in a world without oil.

Only one thing cannot be easily changed and thats population. I think its easy enough to consider ways to enjoy a very good lifestyle without oil but all of them tend to work best in a world with a fairly low population or maybe better tend to work for just a few in a world with minimal resources and a lot of people. My example of a wooden airplane depends on the availability of the right types of spruces, engineering talent etc its not cheap and certainly not something that could be made readily available in a world with our current population. I went and saw the spruce goose and no doubt in my mind that wood laminate planes could not give our current aircraft excellent competition. We could have taken that route its very viable.

On the same note I have a wild idea about a ultrasonic ceramic fuel cell jet engine.
Basically the thermal shock wave is allowed to run very high across/through a ceramic fuel cell and the electricity used to develop a voltage ionised exhaust. So a combo ion propulsion fuel cell jet engine. I'd imagine only operable at the edge of the atmosphere :)

Its a wild idea but not one thats obviously impossible at first glance. My point is again lots and lots of stuff is still doable it may become rare or even both rare and exotic i.e without the constraint of a mass transit aerospace industry we could well develop new methods for a smaller number of wealthier people that eventually lead to a solution that works for a lot more people and is better than what we have today.

Thus by abandoning our current approaches and effectively restarting the refinement of technology we stand a very good chance of eventually taking things much further than our current methods would have reached.

The middle ages restart was grounded in the remaining knowledge from Rome but they applied it under a new set of conditions and took it much further then the Romans did.

Sorry for the ramble but to me this is the sort of attitude required to look at the post peak world outside of the obvious and horrible population problem that we are simply going to have to accept and solve as best we can nothing else seems to be a real problem for me at least I see opportunities.

I guess we both expect rapid changes.

No doubt we are a major point of inflection in the history of humans. Probably as important as the first time agricultural was applied on a permanent basis to a single tract of land.

I am a true guns and ammo doomer. As I allude to above, I believe that one of my strongest assets is my ability to gauge what people will do, as individuals or as a group.

I often conduct business based on my gut feeling after a long conversation. It's been a long, long time since I got screwed on a deal.

I bought a piece of heavy equipment from a local guy I didn't have a positive gut feeling on - so I wrote up a very long and detailed contract. Guy looks at me when I present it to him and, quite backwardly says, "you must've gotten screwed over badly at some point in the past." Hah!

Anyway, I think that the social chaos that is going to ensue in the next decade will prevent meaningful development of technology.

I see nothing but black.

Worse, of all the permutations I can imagine - even the somewhat fanciful ones - not one leads to a lessening of the black.

As for skills - I'm on a doomstead - we just butchered a hog, we heat with wood . . . I'm as ready as I'm a gunnuh be . . . for what I can't predict the details of that I know is coming.

The Devil is in the details, eh?

We all know the scat is going to hit the fan, but where to stand?

Dear WebHubbleTelescope... Thanks for the most intriguing dialogue you provide here. May I respectfully submit at the risk of suffering under the cat as a denier that searching for oil has only just this past decade improved to the point that more reliable searches have been conducted. By this I mean to say that false targets are dug out of the noise. Furthermore and to emphasis my point I am suggesting that searching for oil has only just begun in earnest. I would love to see some posts on the technical aspects of basin and field searches. Maybe that would allow me the opportunity to exit the denier camp with grace after a good re-education.
May I also submit that use of HL of the logistic simply shows cumulative discovery in retrospect and provides zero backside help. It is not accelerated searches as you imply but perhaps it is improved technology and application of such things as dispersive discovery that have only recently made the difference or not.... Perhaps you are implying that improved modeling and signal processing is represented in the HL of the Logistic?
The notion of searching is really starting to interest me regarding my own peak backsliding. Is search methodology all that advanced? I have a decent background in radar and laugh at my ignorance with regard to the long wavelength stuff. My suspicion is that compared to radar it is really hard to get right and find the formations that contain economically viable oil. I really need to expand my learning in this area as it pertains to the problem of peak oil.

Regards TG80 sends

It is not accelerated searches as you imply but perhaps it is improved technology and application of such things as dispersive discovery that have only recently made the difference or not.... Perhaps you are implying that improved modeling and signal processing is represented in the HL of the Logistic?

Accelerated search in dispersive discovery is nothing but improved technology (ala Moore's law) along with progressively more people and resources involved in the search. The dispersion of the search over a set of volumes will give a characteristic search envelope that rises slowly, then quickly until it reaches a peak and then declines. This cannot really be argued as it describes the real physical process, and will describe the logistic precisely under the exponentially accelerating search conditions. Some people prefer to explain it as a birth/death or predator/prey struggle but this is a rather contrived argument based on non-physical and non-causal arguments.

I don't know what "zero-backside" help is; as it stands I use the maximum entropy principle to assume that the distribution of accelerated searches has the greatest spread in variance subject to the average. This is the least-biased estimator possible. If you are talking about reserve growth, there is the process of construction and maturation delays that prevent a newly discovered area to reach its maximum flow; that will go into the shock model formulation, and any reserve growth updates feeds the historical discovery curves via a backdating process. Of course the principle of Bayes, being a facet of maximum entropy allows continual updates to historical data to afford us progressively better estimates of how much has historically been discovered.

You will not find a more formal and rigorous description of the process anywhere. Search for "dispersive discovery" on TOD and elsewhere. The mathematics is very simple but very novel in terms of applicability; I have found in the past week that it works exceedingly well to explain the rather anomalous situation of the "bathtub curve" observed in product failure distributions with time.
This by itself is a rather remarkable discovery as people have long sought a simple explanation and have previously resorted to a set of 3 piece-wise approximations to the bathtub curve.

TG -- A very nice framing of your position. With regards to oil/NG exploration you are correct in one aspect. I'll repeat one of the few emphatic statements I've ever made on TOD. And one that some have had an immediate negative reaction. In my 34 years oil and NG has never been easier to explore for. It's almost on the order of comparing an hand held calculator to a modern PC. Improvements in seismic have been a very big factor. In trends 30 years ago I might have had a 25% success rate. In the same trend today I would have an 80%+ success rate with 3d seismic data. More importantly, I might not have discovered half of these fields owing to a lack of such data. Drilling and completion technologies have advanced significantly also. When I started working drilling a well bore more the 40 degrees from the vertical was cutting edge. Now drilling 90 degrees + from the vertical is common place. In 1975 drilling off of a platform in 600' of water was extreme. Now drilling and producing in 5000'+ water is taken for granted.

Again, in big bold print: DISCOVERING COMMERCIAL QUANTITIES OF OIL/NG HAS NEVER HAD AS HIGH A SUCCESS RATE AS WE SEE TODAY. Now the bad news: most of the spots on the globe where one would hunt have already been heavily developed. Yes, new areas like Deep Water Brazil have popped up. It would have been heavily developed 40 years ago had the play been onshore. It was the water depth holding folks back. And there may well be other new big plays to develop. But it's a scalability problem. One has to appreciate how much oil/NG my geologic forefathers found using the most simplistic tools. The question isn't: are there big oil reserves left to be found? Yes, there are. But are there undiscovered reserves on par with what we've found in the last 100 years? I've yet to hear even the most ardent cornucopian make that claim. And for good reason. In a few weeks I'll start drilling a well in S La. targeting a valid potential of 20 million bbls of oil and 100 billion cf of NG. The well will drill to 17,000'. Certainly a significant and exciting opportunity. But now compare that to a field I've done remedial work on a few years ago. Since it was discovered (in 1948) it has produced over 150 million bo from 5000'. And other fields on trend have recovered over 1.4 billion bbls of oil. And this is just one of hundreds of similar fields developed in Texas over the last 100 years. The new La. prospect is significant but may be only one of a hand few with such potential drilled this year in the U.S. It would take thousands of such discoveries to match the past. Add that fact to the time lag of bringing DW fields into production, their relatively short lives and the huge capital costs and it's impossible for the global industry, IMHO, to match the output of the oil industry just in Texas in the 1940's and 50's. We are a long way from running out of oil. Ghawar will be producing oil 100 years from today...I promise you. But that's not the important question. Will the oil patch be able to deliver oil/NG at rates an expanding global economy will demand in the next 5 to 15 years. IMHO, no freaking way. Just one geologist's view.

Dear Rockman and WebHubbleTelescope. Thankyou for the patient response. I really am an ardent peak-oiler but I know we must be able to present our arguments in a cogent manner if they are to be accepted. Please allow me to engage concerning the issue of searching as it pertains to dispersive discovery. I have been following the issue since you first posited your treatis in 07. I commented then as well. I am not fully understanding the implications as applied to search and the response by Rockman buttresses that ignorance. Elaboration follows: What does time have to do with a search for static elements? Either the oil bearing structure is there or it is not. Time does not change this. Maybe time is the reflection of technology? But in this case presented by Rockman the search perameters triple the search area in depth...5000' to 17000'... Changing the volume of the search area (three dimensionally) does that infer a similar rise in the volume of oil projected such as URR?? I concur in the notion that the Dispersive discovery model can be used in failure analysis but unless the other search perameters are elucidated I will remain at a loss. Does one derive total volumes recovered to peak in the case of a given field? IF so, then the needle in the haystack must be in the haystack as it were. I agree Dispersive discovery modeling can give a clue as to the total volume recoverable oil from a certain specific area but the area must be defined by area or distance from a known point or point of reference. If the elephant is here then the queen must be here and the accompanying smaller fields etc. Or I know the needle is here. I just need glasses to find it. (better resolution or signal processing) Maybe Dispersive discovery tells us that all the oil within a given search area is already accounted for narrowing the search to other areas by ruling out those with large deposits.
How I love this website.
With great respect...
TG80 sends regards

Time is a parameter. Think of it in these terms: Do you expect an interest-bearing bank account to pay back immediately? Of course you wouldn't. A compounding interest works over time, just as an increasing effort to explore all of the earth's oil bearing regions operates over time as well. Another good example is Moore's Law which says that speed doubles every 2 years as device density doubles.

In my opinion, ROCKMAN stated things perfectly and I would use it as a persuasive argument for creating a math model such as dispersive discovery. The tripling in search depth I actually covered in a previous post on TOD:



The detailed questions that you pose concerning Dispersive Discovery shows that you have a good handle on the spatial characteristics. I treat the aggregate of the volumes as a set of varying volumes with either a set value or a range of values governed by a mean with a maximum entropy variance. The latter is known as the maximum entropy principle and it usually works when you don't know the extent of the variance, just like in failure analysis. I treat the distinction between working in 1, 2, or 3 spatial dimensions as an insignificant detail that doesn't really change the argument.

The next step is important, as you don't really have to worry about the size of a reservoir. Some fraction of the volume will contain reservoirs and the rest won't. The sizes are temporally mixed. Sam Foucher constructed a great plot showing that size is not the discriminator. So all you have to do is generate a mix of reservoir sizes as you go through the volume.

The last ingredient which I think you might be missing is that the average search rate accelerates, yet the range in the search rates also shows a maximum entropy in dispersion. That is why we have these long tails, as the slow searches in inhospitable environments such as deep water are finally reaching the meat of the accelerating parts of the subvolumes.

Everything fits together mathematically and you can generate a logistic curve with a specific set of assumptions (such as a dispersed volume and exponential acceleration).

What is interesting about this derivation is that it is very similar to what a statistical physicist would do if he were dealing a large ensemble of particles in some volume. You essentially look for symmetry and try to maximize disorder. Entropy is a very powerful "force" and it works to our benefit as it smears all the detailed and specific geological information into a probability distribution. Geologists may not understand this concept because they were not necessarily trained to think this way. That's not their fault as the Dispersive Discovery theory does NOT help in any way to find a potentially productive region. It doesn't help them do their job if their job is to maximize profit for their employers. It simply sets the bounds for the trajectory of discoveries that an ensemble of prospectors of various skills would encounter. In other words, at best it is a depletion management tool, something that is critical as we move forward.

does Dispersive Discovery apply to people? Why are same old people who discovered Peak Oil/Peak Credit long ago still the main commenters here? One would think there would be new, equally-but-differently intelligent folks sharing content/data/thoughts..


Nate -- What are you trying to do: steal my self-annointed crown of resident smart *ss? Still, very clever.

Many of the principles behind the Pareto Law and Zipf's Law can be explained by dispersion. In the classic example, the Pareto Law empirically describes the huge income disparity one usually sees, the old 80/20 or 90/10 rule. As Krugman and some other economists have shown, this is not necessarily an equilibrium argument but it could have to do with the kinetics of how wealth is accumulated. The dispersion is in how fast certain people can accumulate wealth and how slow other people accumulate wealth. Through a quirk in the mathematics, even though you have a finite variance in the velocity of income or wealth accumulation rates, the ultimate variance in the accumulated wealth is unbounded, e.g. wealth can be accumulated across generations. It is fundamentally explained by slow rates lead to very long times, and fast rates lead to short times but not as short as one would think. This leads to the Pareto Law or Zipf's Law which contains these fat tails. (there are also multipliers involved that can make the problem worse, i.e. think stock market, but that is a separate issue)

The case of dispersion for Zipf's law in city growth is described here: I analyzed it here

And that is also why we have those long tails in the oil depletion Hubbert profile and these huge variations in the sizes of oil reservoirs. It is all dispersion folks, the maximization of entropy at work, plus a quirk in how rates transform into times.

This is kind of depressing in terms of income equality because it says that we have little chance of reducing the spread in incomes as that would involve incentives to clamp down on knowledge accumulation, or OTOH forcing people to get smart. Dispersion is the invisible hand at work that no one seems to comprehend.

As to answer your question of this blog in particular and the lack of fresh blood, that falls under the statistics of rare events, adequately described by Poisson statistics. Rare it will be that someone will come on and even try to challenge these models. You see that we have the sunk-cost effect and not-invented-here syndrome at work as well.

TOD doesn't find people, people find TOD. Most of those with interest in this field found TOD years ago. It is unfortunate but unavoidable that we get some repetition from those still commenting.

Another factor is that we have seen oil at this price before, so the shock of high prices is not driving the few remaining curious ones to look for answers.

Maybe this play is played out and there's not much more to discover? We don't, for example, see new algebra created, do we?

Or, perhaps they're the ones who have said, "Go toward analyzing and discussing solutions, young men and women!"

Part of the issue undoubtedly has to do with the quite simple observations that discoveries peaked a hell of a long time ago, most oil provinces are in decline, there is evidence SA has *just* finished building out the infrastructure to supply 12.5mb/d, but will likely not even ever do that since demand has faltered and the economy will be down long enough for decline rates in production to catch decline rates in demand.

It really isn't hard to understand. The contortions done by some folks to elucidate these facts have certainly been valuable, but once you plot discovery, production, price and population on a single curve, well, there really isn't anything else to say that's going to change one's perception much.

The value of continuing to plot the curves is to help us understand just how deep the doo-doo is getting. It, to be repetitious, doesn't do much for understanding the overall situation.

So, what would new geniuses even talk about?

The question is, what the hell we gonna do about what the old geniuses found?


OK, if this discussion is getting a bit repetitious, interested parties can always catch up on what I am thinking at my blog

What TOD actually needs is another Miss Anne Elk to start pontificating. Not.

I think the same people comment here because the work isn't done. As depletion accelerates, it won't be possible to hide that oil production is faltering. Or it won't be if people are doing things like counting oil wells on satellite photos and historical comparisons of oil production levels. There are numbers to be crunched, graphs to be drawn, and motives to be guessed at. And there are going to be for decades. Just because the theory is proving itself out and nothing changes (so far) doesn't mean that you all just give up and go home.

As for the lack of new main posters, remember that this blog has only been around for 5 years. Many of the posters here seem to have decades of experience that has either been directly relevant or repurposed from another field. Their replacements are still getting their experience. Or, like me, writing comments that don't get sent because some old hand has just sent in a pithier and better-considered response making a similar point. Both the staff and the posters here set a high standard. Maybe nobody moves up until somebody dies.


Here's an abstract analogy for "a starter for 10"

May be TOD behaves the same way as an oil field and the addition of members follows a bell curve, viz;

there is a given quantity of PO aware folks that has built up over a long period time but no TOD and therefore no consumption of "peak oilers"

TOD starts up and discovers the endowment of PO aware folk ready to be "consumed" and become commenters.

Once half the peak oil community have been consumed (signed up), the rate of joining members slows down. In a similar way to oil, the quantity of PO aware folk is essentially a fixed resourse when compared to the TOD's consumption rate of contributers.

A small trickle of new commentators will be discovered, as is the case for oil, so they will never be totally exhausted.

I think the PO community are a very small minority of "nutters" who are tuned into a very simple concept that most people cannot comprehend or don't want to. I am a "Natural peak oiler" and whilst I did not know the term "peak oil" I was somehow inately aware that all was not rosy in the energy patch. I think the oil drum should carry on, even if the message is loud and clear to the current clan of contributers. It is a site with contributors of generally good numeracy and literacy skills, a rare quality.

I know members sometimes enter "slanging matches" but there are some wise people contribute here and it has a secondary benefit of enabling people the opportunity to improve debating language.

Long may TOD continue.

The theory of blogs and other forums is pretty simple. The discussion reaches a peak when there are too many posts for most people to keep up with and then it reaches some sort of equilibrium, the so-called "carrying capacity" of a blog. The carrying capacity is larger when all that is bandied about is trivia, gossip, and creative insults. If the discussion is technically detailed, then the capacity is smaller since it is even harder for people to keep up and most people won't contribute unless someone reads it. To overcome the carrying capacity problems, what usually happens is the admins decide to splinter the forums into smaller groups. We may or may not have reached some stable equilibrium on TOD.

This can be summed up by what Yogi Berra once said: "No one ever goes there anymore, it's too crowded."

That said, I don't think this holds any relationship to the way that the dynamics of Peak Oil plays out. There is no such thing as a "carrying capacity" for oil. Our appetite for oil is basically unbounded and that is controlled by greed among other things. The faster we get away from the carrying capacity view of things (i.e. the Verhulst equation) the better off we will be. Would Yogi ever say "No one ever looks for oil, there are too many people looking" ????
In other words, this is a sunk cost model we must dispose of.

I still appreciate you bringing this up because it is a good anti-analogy to keep in mind.


Thanks for your dressing down. My comment was actually meant as a bit of a joke and I naively thought it would be treated as such. Your reply may have also been intentional jocularity I suppose.

I assumed there where not adequate peak oilers to saturate the blog to its carrying capacity by stating peak oilers are a minority of nutters (paraphrase). The joke was that TOD was effectively "mining" peak oilers from a fixed commiunity that had built up over the previous decades and was therefore essentially a fixed quantity of people in the time TOD has been operational.

I await your reply!

I don't think we are mining a "fixed" community. For example, what would happen if we offered everyone $50 to post a comment?

That is really closer to how peak oil works, no matter how crowded, greed will force the situation, not competition for resources.

TG80 -- Again, excellent perceptions. I'll let Hub respond to the modeling aspect as I abhor such approaches and condemn all who embrace these false gods. (just teasing Web).

What does time have to do with a search for static elements? If I understand you it's not time per se but the advances not only in the technology but also geologic base knowledge. The earliest fields discovered in Texas were also some of the largest ever discovered in the state at any time. And they were often found by direct evidence of seeping oil. Mike Halbouty, a highly recognized geologist in Houston, once wrote about how his first boss (back in the 1930) would show him off to other wildcatters. Mike was one of the first geologists employed in an old industry that had been busy drilling for more than 25 years. A geologist working for an oil company was a novel experiment for that time. As the science of petroleum geology developed so did the technology. In time this allowed exploration in deep layers. But this brings us to a physical limiting factor. Only certain areas of the earth have the physical conditions that lead to the generation of oil/NG. With respect to oil exploration here is a depth limit to that haystack. But it's not really depth but temperature. Too hot and oil breaks down. Thus oil is limited not only spatially but also by depth related temperature. But mother does surprise us from time to time. Twenty years ago no one would have believed in the possible existence of oil at 34,000' in the GOM. But Mother has a temperature gradient in the GOM Deep Water much lower than we would have ever imagined. An additional problem with expecting a linear increase in oil potential as increased depths are explored is another little trick Mother plays on us: due to compression and chemical reactions as rocks are buried deep the volume of space that oil/NG might occupy is diminished. Mom just loves to mess with us.

Thus even though we think we've well defined that haystack we are forced to modify that volume over time. But now we're back to the scalability problem. The volume of petroliferous rocks known is huge. While new discoveries like DW GOM and Brazil generate those big headlines these newly added volumes are relatively small compared to the very mature regions such as the Gulf of Mexico. Exploration technology advances of the future won't open of new areas. The tools we have now are sufficient to search all known (and unknown) provinces. It's been the engineering advances that allowed the DW plays to jump into the headlines.

Modeling does have its merits. But you must have a volume of unexplored rocks to apply those models to. One can model the Arctic Basin using the very well established Gulf of Mexico model. Unfortunately the eventual drilling of the Artic Basin may show that model is completely invalid. Or not. Not worth arguing about. Drill it and find out. As far as more elephants existing it's certainly possible. But when you've pulled back the covers on 80% of all the elephant's favorite hiding places it tough to expect to find too many more. And that would include those hiding places you haven't thought of yet.

I agree with everything ROCKMAN has said and in particular the last paragraph. As I said in the parallel comment, the model for dispersive discovery does not help someone like ROCK find the oil, it just places bounds on what the expectations are taken as an aggregate. IOW, it doesn't help make money. You still have to treat each place individually and drill to find out if there is oil there. Its similar to weather versus climate, to find the weather you have to stick your hand out the window, but climate does obey some general statistical characteristics (did you know that Miami has only once experienced a 100F day?)

The only caveat is that some of the principles can be used to evaluate reserve growth and provide a depletion management tool. This may help to understand how long a region will last. So it doesn't tell you how to make money, instead, and at best, just how not to lose any more money. Politicians please take note.

Thanks for the post ROCKMAN. I think its shows the differences between now and the past.
And also when you consider the huge differences in technology I'm nothing but impressed by the skills of petroleum geologists. Within the limits of extraction capabilities it seems you guys manage to find damn near all the oil that can be extracted with the technology of the time period.

Surprisingly I don't actually see the ability to discover oil to be the limiting factor. Not that it did not get better by leaps and bounds over the years but somehow your petroleum geologist seems to have such a good understanding of oil they can accomplish miracles with limited knowledge. If someones able to drill it they can find the oil if it exists.

I'm pretty sure that you guys could be turned loose in just about any part of the world with zero tools and if someone will drill a few holes for you you will find the oil :)

In reading the history of oil what I've found is often the wildcats that are dry holes are surprisingly close to productive wells I've actually not found a single example where wildcats where simply in the wrong area. I'm sure you know of some but still

The total number of wildcats drilled in 1940 was 3,038, and the footage drilled was 10,253,948, as contrasted with 2,589 holes and 8,624,602 feet, respectively, in 1939. The average depth of hole increased from 3,331 feet to 3,375 feet for all states, and from 4,145 feet to 4,284 feet in the southern states. More locations were based on technical advice than hitherto, and the percentage of successes increased from 10.4 to 12.0.

The interesting thing is that your self taught wildcatter had a success rate of 10.4%
Advanced geological training did not dramatically increase the success rate at the time.

The people that do this sort of thing are intrinsically good at it which is a point thats often overlooked. I think people don't really appreciate how good. Probably to our eventual detriment.

Thanks to you too, Memmel-and Rockman and WHT and Westexas and everybody elseincluding the site staff..

I will soon be able to describe myself as a well informed citizen in respect to energy at least as a result of following this site and asking you guys questions.

I don't know how many new followers the site has as a result of my talking it up bit I think there are three or four at least.

memmel -- And how close is close? An old geologist once said: "Oil is found in the minds of men". A tad sexist but it was from back in the day. Before we apply a technology we have to decide if there's cause. That's what he meant: can't find that needle if 1) you're not looking in the right spot and 2) can't find that needle if you can't convince management to look for it. I've seen many management teams fail over the last 30+ years. The vast majority didn't fail because they drilled dry holes. They failed because they didn't drill enough to find sufficient reserves. Fear of failure is a huge mental block for many.

Back to "close". About 30 years ago one of my best friends was drilling a very rank wildcat in S. La. Eventually he had no idea where he was in the geologic section. Drill a few hundred feet...log...see nothing… drill some more. Eventually they ran out of money and justification to drill deeper. The leases expired while Mike studied the situation. He thought he had the answer and was raising money to drill the well again but deeper. Before Mike could put the deal back together Exxon leased it and twinned the well he drilled. Less then 500' deeper then where Mike had stopped drilling they found $5 billion of NG/condensate and also opened up a brand new deep play. Mike had a 2% override royalty on the well and could have retired a millionaire before 30 yo. Even sadder then not making that big pay day he would have not been killed later in an accident while on an overseas gig.

And it’s not only old stories of just close enough. In a few weeks I’ll begin drilling another well in S. La. with a valid target of 20 million bbls of oil and 100 billion cf of NG. Even though the total depth is 17,000’ we'll just be drilling 1000’ below where another operator stopped drilling. Is our interpretation based upon some new high power tech? Nope. It’s based upon paleontology evidence…the same tool that’s been use in this region for over 50 years. If it works I wish I could claim credit for “finding it in my mind”. But, alas, it was generated by another geologist who we bought the idea from at a bargain basement price thanks to the down turn in the oil patch.

Some might think these anecdotes represent potential to avoid PO. As I said above it’s that scalability problem. There are great prospects to drill today. But not a sufficient volume to change the future course to any great degree IMHO. It's our success with such efforts that keep supplying the cornucopians with that kool-aid. Sorry about that but we have to make a living.

I've put it this way. The fact that oil companies can and will make money in post-peak regions does not mean that we can bring production back to peak levels.

Incidentally, Matt Simmons noted that the recent proposed acquisition by ExxonMobil of an interest in the oil field off Ghana would be an acquisition cost of $200,000 per bpd. Note that early this year, the total capital cost per bpd of new production in one of Shell's tar sands operations in Canada had risen to $137,000.

In any case, we drill stem tested a well at 88 BOPD during ASPO; so I noted that the world replacement cost for our oil well would be $17.6 million, based on the Ghana metric (and maybe more now; it's flowing oil on a 10/64ths inch choke, with 220# FTP, from a depth of about 3,500').

Interesting numbers WT. Before the bust I saw domestic production going for $100,000+ per bbl-day. I hope for the sake of the XOM shareholders they are getting a big chunk of undeveloped reserves. Does make you wonder what XOM's forward price platform looks like.

BTW --That nice little oil well of ours I was teasing you about: turns out we don't own the lease. Apparently the operator, who sub-leased the acreage, didn't do a very good due diligence job. Maybe we'll make more money suing this idiot then we would have made off the well.

ROCKMAN all I can say is you guys are freaken good hopefully you got the hint that 999% of the time its external factors that prevent the big strike.

And to a large extent this is a bit of a jab at WHT I don't think the ability factor is included correctly in dispersive discovery and its one of a fairly long list of factors that are large and unquantifiable. In some cases it could come down to feet or inches splitting the time a discovery is exploited over decades.

But when you step back and look at the big picture the differences between pre 1980 and post 1980 are striking !

Its like night and day esp looking at stuff from our vantage point late in the oil age with the only question left exactly how late.

Maybe think about filling a balloon with water and sticking it in the fridge almost none of the physical parameters are tied to the physical size of the balloon yet in the end the amount of ice is completely tied to the real size of the balloon. If your inside the balloon trying to figure it out a small error in guessing the circumference can lead to a large error in the actual size.

In another post either up or down thread WHT talks about the error but hopefully this example illustrates how wrong we can be yet be almost right. Same of course with drilling a well miss by a foot and just as well miss by a well however the reverse is true you and your compatriots tend to miss by feet not miles.

There is a "quality" shock that fooking huge for geologists of your ilk completely missing from the shock model. Impossible to quantitate but obviously not small.

We need to embrace uncertainty and start to value resiliency. I stole that line but the sentiment is apropos for what I am currently working on. I recently finished an analysis of the statistics leading to the infamous bathtub curve of failure analysis. This describes the likelihood of early failures and late failures in a component's life-cycle. The curve ends up shaped like a bathtub or a U. The one thing you can't truly control when you are trying to create a reliable component is when exactly that component can fail. Only through experience and usage can you judge an average failure rate, and you use that information to build up a Bayesian update to the population. The process of updating the dispersive discovery model for global URR estimation is essentially no different. You essentially use past data to update future estimates.

So, of course you have no idea what the size of the resource pool or total volume is, just as in the original failure analysis or in your frozen balloon example. Yet that doesn't mean that you can't start collecting statistics and use that to bootstrap future estimates, just as Bayes recommends. This has been the standard practice of dealing with uncertain information since people started applying probability and statistics. And of course you will probably end up with some sort of error, but if you knew the answer in the first place, why go through all the trouble?

The fact that we can abstract away the full 3-dimensions of the underlying model doesn't really matter; it is the general shape governed by entropy considerations that will matter. So for example, when you have a 3-dimensional component, you may not even have to use any dimensions to start collecting failure statistics. You get a bunch of samples and assume with confidence that will fit the rest of the population. It may sound like a post-mortem, and you are exactly right. Sure, dispersive discovery would not explain the extrapolated global curve if you only took data from say 1920 and before. But you know what? I don't care. We are in the right here and now, the discovery peak is behind us and we want to understand how much we might have left. The shape of the peak in our rear-view mirror is plenty good for doing the modeling. It is just as acceptable as any set of failure statistics that a company would collect for their new product.

It basically burns me that what is considered standard practice and the hallmark of a quality-centric company (that of doing failure analysis and estimating how long a "good" product will last) gets marginalized when essentially the equivalent mathematical model is applied for understanding how much "good" oil we have left.

And why does it get marginalized? Because of some absurd notion of not accounting for errors in the analysis caused by the uniqueness of certain nebulous aspects to the problem domain. Give me a break. That is a red-herring if I ever have heard one. This style of statistical analysis should be considered second-nature. Nobody in their right mind should avoid doing this because of perceived notions of having all aspects quantifiable (whatever that means). For most new products, you don't even have the first idea of the most prevalent failure mode until you start stress testing. It's really not enough to say "Impossible to quantitate but obviously not small."; you really have to do some heavy lifting kind of experimentation or at least put the pen to paper. Enough data is out there if you want to get busy.

It's really not enough to say "Impossible to quantitate but obviously not small."; you really have to do some heavy lifting kind of experimentation or at least put the pen to paper. Enough data is out there if you want to get busy.

So whats the value of skill ?
Whats the value of moving to a fractional reserve fiat currency and massive credit expansion ?

Whats the value of technology ?

And I do not believe the number I reject out of hand our current reserve estimates so regardless of what the industry claims the numbers are I believe they are wrong.

Thats what I want to prove that these numbers are badly inflated and are simply and artifact of bad accounting. The great reserve bubble if you will.

Today we claim reserves of at least the same size as what already been consumed.

Consider if we could take the technology we have today and transport ourselves back in time to 1970 i.e we had for what ever reason been more technically advanced at extracting oil faster.

What would the production levels be ?

Hard to guess but at least 2X higher if not more if we had produced the reserves we had in 1970 using todays technology.

If you agree with that then obviously there is no way we have the reserves we claim now.
Its not 1 trillion barrels of oil left more like 500 GB or even less.

Doing this sort of thought experiment and asking these sorts of what if questions makes it obvious to me that whats claimed today is certainly wrong absolutely no way can the current reserve estimates be correct.

Whats really happened is fairly simple modern discovery technology is really good at delineating the amount of OIP. Moder extraction technology is excellent at developing high flow rates. Actual URR is dependent on recovery factors which in general are a small precentage of the OIP say 30%. To make a big mistake one simply needs to have had overall OIP estimates increase as technology got better and have assumptions about recovery factors increase. Improved estimates of OIP become increased reserves and assumption about recovery factors become increased reserves. Modern extraction methods give production numbers consistent with these higher values.

Until they don't.

How do I quantify the inflation of OIP estimates? You treat it as reserve growth.
I'm saying its primarily a work of fiction and side effect of advanced imaging methods.
How do I prove that ?

Well we can see the oil bearing structures a lot better now thus we have a better estimate of their size where in the past you where dealing a lot more with well logs and rough estimates of OIP. These estimates where conservative. How do I prove that ?
Well dunno just no one had any real reason to inflate them dramatically back then as they where generally big numbers in the first place. The fields would be in production for decades even using a conservative estimate of OIP.

Next I argue that the "olde" methods where actually pretty dang good and gave a very good estimate of the amount of oil we would extract via primary and secondary recovery. Sure they missed the last bit that might or might not be extracted with enhanced recover methods but big deal.

All of this is a quality argument that in my opinion impossible to quantify as I'm arguing that the methods we use to actually get better quantification are simply resulting in over stating the final URR vs the old way of determining it.

The only argument I can make are variants of my transport back in time argument so if you timeshifted our modern methods back by a few decades it seems obvious that they blow the doors off the old methods. But this simply points the finger right back at modern reserve estimates and suggests they are probably overstated by a large margin.

I used reliability and failure analysis as an analogy. Well, I can extend this even further. There is a concept in reliability analysis called reliability growth. This says that as a product improves with time, the reliability characteristics can improve as well. Analysts frequently plot the reliability growth to get a handle of how much they can ultimately improve in their product. This is really no different than reserve growth of oil. Yet the reliability analyst will not throw out their initial reliability estimates because of some future improvement based on reliability growth. The initial reliability analysis is first-order and the reliability growth is second-order. You base an entire discipline of engineering analysis on this kind of progression. Sadly, I see no effort in most of the oil depletion analysis on bringing a similar sense of engineering rigor to the table.

You seem to suggest to throw out the baby with the bathwater. It really gets tiring to see all this posturing without seeing any hard evidence that you have actually generated some models or plotted some curves. Asserting data point numbers does not cut it in my book. Look, I understand that you are also analyzing this as a hobby but there is a basic mismatch we have here. This is not a peer-to-peer discussion and everything you say seems to be a juggling act in your head. Well, I use the models to do the juggling of balls for me. As I said, you have shown no evidence of yet having put pencil to paper, and it is all empty rhetoric as far as I am concerned.

Can you tell I am as pumped as Darwinian can get?

Fine Web the problem is I don't think your right I gave you a fairly simple example sure its a thought problem if you will but on the same hand its suggestive.

Another one drill Ghawar at its heyday say 1969 with multi branched laterals whats the production rate ?

Hard to say you may be talking about a 100,000 bpd well. A literal volcano of oil.

Christ here is a peer reviewed paper.

The evolution of giant oil field behavior has been investigated to better understand future behavior. One conclusion is that new technology and production methods have generally led to high depletion rates and rapid decline. The historical trend points towards high decline rates of fields currently on plateau production. The peak production generally occurs before half the ultimate reserves have been produced in giant oil fields. A strong correlation between depletion-at-peak and average decline rate is also found, verifying that high depletion rate leads to rapid decline. Our result also implies that depletion analysis can be used to rule out unrealistic production expectations from a known reserve, or to connect an estimated production level to a needed reserve base.

Now depletion rates for modern extraction can approach 20% or higher i.e the field is fully depleted within 5 years.

A absolute worst case assuming 30GB of production is 150 GB.

If you assume a 5% depletion rate then your talking about 600 GB.

If you have a really good guess at the depletion rate then URR at current production levels is a trivial calculation. Given that production seems to have maxed out for several years despite the rapid increase in prices its not a bad guess even though its a guess to assume the world has also reached its maximum depletion rate. A decent guess of that could be 10%. Certainly before it maxed out in production rate the depletion rate was probably climbing so one could assume several years before the production peak was reached that the depletion rate was close to the maximum. Again just guess assume the depletion rate was climbing from 5% to 10% from say 1995 to 2000.

Thus we get something around 300 GB of active reserves that last for about ten years or so however of course you have to discount this given that before we hit maximum depletion depletion was already fairly high. But this is a lot of guessing already so no biggie.
Also of course one has to imagine that the production rate would also fall and probably with it depletion rate near the end as other factors such as rising water cuts limited production. So even with this example its probably a bit optimistic in that our ability to have both a maximum depletion rate and associated maximum production rate probably change sooner than a simple 10% depletion rate at 30GB a year would suggest.

And of course new fields brought online during this time period would be added in and depending on their depletion rate would they would represent production that would continue afterwards. And as I said this is simply a concept of what happens around the peak if we really did attain such high depletion rates.

If we actually managed to do this and its reasonably within our technical ability then production crashes 10-15 years after the world depletion rate started really increasing.

I know of now simple way to prove this I'm simply extrapolating the technical capability and known depletion rates of a lot of fields that do have valid data i.e field production life times have fallen into the 5-10 year range. But by focusing on estimating a reasonable maximum depletion rate you avoid completely using reserve estimates and instead simply calculate the global production rate times the depletion rate.
This gives you a rough estimate of how long you can maintain a condition of maximized production and depletion rates. Now if the depletion rate continues to increase over time its just pulling in the time at which you would start to see production collapse.

As far as I know there is simply no reliable way to estimate depletion rates for the world. Your extrapolating the depletion rates of fields that are already in decline and your generally wanting to use the several years of high production to get a guess of what the depletion rate was once the field was mature or reached maximum production.

Of course with the giants this depletion rate has changed over the lifetime.

Now I don't know of a good way to get depletion rates thats not highly controversial in general your limited to the smaller fields that have been brought online produced and gone into decline since we maximized our depletion rate but these obviously give my 10% number as a rough estimate. I.e I could easily have simply cherry picked the data I don't see its defensible. On the flip side as far as I can tell there is simply no intrinsic reason why we have not hit something around 10% depletion rates for our fields it seems feasible technically. Only the reserve claims which I question in the first place seem to work is a counter argument. Which was the whole reason to focus on maximum depletion rates as apposed to reserve claims in the first place.

And last but not least it does not really matter as the correct answer is readily discerned by simply letting the experiment run a bit longer. Given a rough estimate of a maximum depletion rate and looking at the price movements for oil then we have already started to crash if we are going to crash. Given the rough prediction plus price data your done they are in good agreement and close enough to simply assert that if this concept is true then we are in the midst of crashing oil production right now in fact its already progressed for a while.

I'm not making predictions I don't need too the event I'm concerned about is in the past if it happened. At best the next question is well how steep is the cliff ? Obviously this very crude conjecture or wild ass guess does not tell you much but again since we are extrapolating the decline rates of small fields produced at high depletion rates we do have a good guess and thats 10-15% decline rate for global production using this model.
And of course for exports you need to include export land so anywhere for say 10 to 20% decline in exports on a annual basis or about 1mbd per month or so.

Next of course this simple model is way to rigid and even if its roughly correct we would have had a rounded decline period as we fell of the production plataue the world did not go from say a 2-5% to 15% in a day no way to tell for sure what this initial fall would look like but one can guess it probably took at least 12 months for the decline rate in production to accelerate if not a little bit more.

Just depending on where we where with production when the economy collapsed and depending on how all the variables changed the brief surplus we saw is very possible. It does not matter that much as the relentless increase in decline rate would wipe out any surplus despite the drop in demand. Again the truth depends on relative rates but your talking about 6-8 months or so at most before stored oil from the brief surplus should start draining down. US stocks started draining down in about May and I question these numbers also in any case the recent past seems plausible i.e until you know the exact details and have valid data nothing in the rough concept is invalidated so far.

But I'm no longer really predicting much of anything at this point if the concept is correct and we are declining at anything close to 1mbd which is what would happen with this simple model then TSHTF within the next six months or so.

Call it rubbish what ever I don't think it matters if the basic concept is right we will know withing the next six months or so its not something that can be hidden. The decline rate is so high there is no way to slow the economy fast enough to prevent another major price spike without collapsing it.

I'm quite comfortable with my rubbish theory if you will. I'm interested in understanding what went wrong if this is actually correct and of course if I'm wrong then nothing much happens in the next six months and I'm wrong not a problem. I would absolutely love to be wrong I don't like this approach and its implications if I thought there was a reasonable way to disprove it that did not include the reserve additions I'd drop it. But again at this point it does not really matter its and purely academic exercise as experimental proof is either happening right now or not.

And last but not least as far as reserve expansion fitting a curve outside the middle east no one is going to believe some rapid expansion so even if they are badly wrong they would have had to have been constructed using a plausible lie they fits a reasonable curve. Fraud generally has to use some sort of gradual extension of the truth if its going to be successful for any length of time. Heck Bernie Maddoff pulled off his scheme for years and it was almost pure fabrication. You refuse to even consider that the reserve expansions may be fradulent and I don't know of any way to show they are with your criteria. Unlike the housing bubble we don't have income or historical rental rates to provide a sort of obvious baseline for this fraud. In fact thats been a really fascinating part of the problem if they are fraudlent we don't seem to have and simply smoking gun to prove it and of course the best frauds are those that are hard to prove.

So far my number one baseline or smoking gun to prove this is sulfur prices. It seems to be the critical factor that cannot be hidden as world oil production falls sulfur production falls. Obviously sulfur use is strongly linked to the economy so now its probably going to become a lagging indicator instead of a leading to coincident indicator
I hit on it as being the "smoking gun" a bit late. In any case falling construction rate and automobile manufacturing hit the sulfur market a bit harder than the oil market was hit regardless given the model if it proves to be correct shortly after we have spiking oil prices we face industry crippling sulfur shortages to go along with it. In fact I now believe that lack of sulfur will be one of them most important factors in the actual destruction of our economy. We are not going to end in fire in brimstone but from the lack of fire and brimstone.

A nice but dated paper on horizontal drilling. 1996 so it not that old.

Some choice quotes.

This lack of reserve and economic information is partly due to operators wanting to retain a competitive advantage in their drilling. But it is also due to the difficulty in applying traditional reserve estimation methods to a situation which we do not fully understand

And I like this one

Volumetric analysis is complicated because of a lack of knowledge on extent of the fracture systems - there are documented cases of wells interfering as much as two miles away, and other cases where wells 1,500 ft apart show no interference. Pressure transient and reservoir simulation methods are made difficult by the same poor understanding of the reservoir character. Analogy has not been effective since there simply are none to this new technology.

That leaves performance analysis as a reserve estimating tool. And it is only recently that enough history is available to reliably examine the reserve potential of horizontal wells. So, let's take a look at what we have found from horizontal drilling.

That leaves performance analysis as a reserve estimating tool. ???

Well I'll be damned what I fine idea problem is of course as the paper notes you don't have a good handle until after the horizontal wells decline.
So what did this paper find ?

Results from horizontal drilling have been highly varied. Successes on a large scale have been limited to the Austin Chalk Trend. And even within this sizable trend there are areas which have been unable to realize sufficient reserves to make horizontal wells profitable. It is apparent that not all fractured reservoirs benefit economically by the application of this technology.

And of course a success story although I really liked the above paper as I said its dated.

Many of these sorts of success stories also appear in the literature and almost all of them that have enough data tend to indicate the well again having problems with 1-2 years.

And here we have a glimpse of the game that is played to fake reserves.
This is for a NG shale play but the books are cooked for oil using similar tricks.

If you read it you may even get a faint whiff of BS coming through your screen.

I don't see a easy way to collect this into any sort of analyzable total and I often have to use NG wells as proxies for oil well behavior which is itself dubious but the actually well technology is effectively the same for the most part along with the problems.

Of course we find another juicy little tidbit.

The SEC is
concerned that if producers book reserves for verticals
when, in fact, they intend to drill horizontals, then
those companies are not following their own develop-
ment plans but rather attempting to put reserves on
the books.

Oh really ?

Regardless reserve estimates since the advent of a significant amount of horizontal drilling have been a problematic topic. The general trend has been for rules to be increasingly loosened however almost every paper I read that looks at areas that have been under development using horizontal wells does not have glowing results.
Its a patchwork of information but it does suggest that current reserve estimates should be at least viewed with caution.

EDIT another nice article on page 5 or the above link.

And another zinger.

Working with mature, mostly
spent fields, the company technical
team masks the problem by accel-
erating production through infill
drilling. The team books and
monetizes gas reserves. In the end,
though, basic field economics
catches up. The company stumbles
and a new CEO is hired to clean up
the mess.

If you see the trend that the issues I'm concerned about are also concerns that are beginning to be voiced inside the industry then your correct. Typically these types of concerns happen after the horses have escaped the barn. But one of the nice things about business in money is eventually mistakes hit the bottom line and the right questions begin to get asked. Of course as Wall Street begins to get a full understanding of the situation one has to imagine that they will first work to extract themselves before the crap starts flying. But we should see financial flows into the oil/gas industry start to tighten considerably esp into the shale plays. Obviously Wall Street is starting to catch on to the game.

The total number of wildcats drilled in 1940 was 3,038, and the footage drilled was 10,253,948, as contrasted with 2,589 holes and 8,624,602 feet, respectively, in 1939. The average depth of hole increased from 3,331 feet to 3,375 feet for all states, and from 4,145 feet to 4,284 feet in the southern states. More locations were based on technical advice than hitherto, and the percentage of successes increased from 10.4 to 12.0.

The interesting thing is that your self taught wildcatter had a success rate of 10.4%
Advanced geological training did not dramatically increase the success rate at the time.

We know that huge advances occur over the span of decades. The fact that this data selects the difference between two successive years (in the midst of the depression years no less) and then claim that this is a trend? Something does not compute here.

Geez, it was warmer today than yesterday, I might as well throw out my winter clothes.

WebhubbleTelescope and Rockman: Thank you for the thoughtful and detailed responses. For as much time as I spend on this site in meaningful study some of the concepts are just plain tough! It is the constant work by guys like you that dispell the ignorance of many including myself.

Regards TG80 sends

WEB -- As you know my limited analytical skills will always prevent me from fully appreciating your work. But I've been plowing my way through the "Black Swan" for the last week. I'm sure you're familiar with the work. One proposition which has caught my eye with regards to hitting unpredictable home runs (Black Swan oil discoveries) is the idea that although one cannot predict the unpredictable you can arrange your efforts to take advantage of the possiblity. A short incomplete explanation: instead of targeting moderately sized (which are almost always overstated) exploration targets with moderate risks (which are almost always understated) one could blend the extremes. Drill a proportionally large number of low risk/lower return projects and a smaller number of very high risk/huge return projects. By doing so you develop, at worst, a modest but profitable return. At best you hit a Black Swan discovery whose return is well beyond anything one could target with any certainty. This does suit my non-quantitative view of exploration modeling. It reminds me of the stories of Babe Ruth. Great record of hitting home runs but many don't know that he was also often the strike out leader. Applying the above mentioned technique he would have him occasionally swing for the fences but most of the time would go for a higher probability single.

That's essentially how we've been targeting prospects in my latest gig: drill high probability wells (typical using 3d seismic with direct hydrocarbon indicators) with a limited number of home run efforts like the 20 mmbo + 100 bcf prospect I mentioned earlier. How does such an approach fit with your models?

That technique sounds a lot like the oil equivalent of "hedging".

I am afraid that does not fit in any way with my models. As I probably indicated before, if there was a way that one could make money with dispersive discovery or the oil shock model, I believe the models themselves would have been discovered long ago. Profit is a significant driving force.

About the only way that it could make sense is if say you speculated in terms of oil futures. For example, say that you were going to bet that an X number barrel of oils were going to be found in some region of the earth. Then somebody like AIG covers or insures that bet by using the -- essentially an actuarial algorithm -- of dispersive discovery. So they use their professed greater knowledge of what an aggregated region could contain to leverage the expected payouts to cover how much is actually found. The problem with this approach is that insurance companies are actually pretty stupid beasts and they would never be clever enough to think of such an approach. Or should I say, they are too smart. After all, all that AIG has to do is write the paperwork to cover any policy, and then let the US government bail them out when they get in too deep. Actually using science or math is way beneath their dignity.

Yet, there is no excuse for the government and policy wonks to not use these models to work the depletion management angle. The profit motive is out of the equation and simply crafting a policy to encourage a soft landing should be the highest priority for our political establishment. As an example, this would be useful as an adjunct to the stuff that Robert Hirsch has done.

WEB -- I suppose you could describe our biz plan as a form of hedging. Instead of buying futures we're buying in ground reserves via the drill bit. Two obvious components of success: at what price per bbl equivalent do we generate these reserves and will there be another price spike in the next 4 or 5 years. The first is within our control. The second isn't but seems like a good bet. But, as you allude, our potential success isn't controlled by actuarial models and dispersive discovery. One can still find a White (or even Black) Swan in a field where the probability of such a search is many standard deviations away from the center. Our successes won’t change the curve’s shape to the human eye. Our abilities, or lack there of, will make that determination. Unfortunately regardless of how successful we are it won't have any bearing on PO. Equally unfortunate is the public's inability to separate such successes as Deep Water Brazil etc from the dynamics of PO.

Even worse the efforts of you and the other folks at TOD is the equivalent of explaining a situation in a language your audience does not speak. And that’s on a good day. On a bad day you’re speaking French to a tree stump…. good luck with that.

On your last point, I fully commiserate. The actual language of financial hedging is much more complicated than I can even take. Thus we get stuff like the Black-Scholes model and Ito calculus to drop some names. To compound the problem, most of those models are also completely misguided as Nicholas "Black Swan" Taleb has shown in the past few years -- and which last year's financial meltdown confirms. The conventional finance models all lack fat-tails according to Taleb.

I still stand by my work as I don't do anything fancy like the financial quants have shown a propensity for (apart from my grammar perhaps) yet I account for fat-tailed Black Swans. I also don't try to second-guess human psychology, which I find incredible that anyone would attempt to extrapolate.

In other words, understanding is all relative.

WEB -- I'm steadily coming around to your view of fat-tails. As you say last year's financial meltdown was such an event. And I also buy one of Taleb's cornerstones: even though the nature/timing of Black Swan's, which by definition cannot be predicted, isn't known that doesn't mean you don't position yourself in a less vunerable position. Even though no banker could predict the timing/extent of the subprime meltdown, that didn't mean they couldn't adjust their exposure to minimize damage when/if the SHTF. Might had to give up some profits but those numbers are insignificant compared to the ultimate loses. In the context of TOD we discuss one potential PO nightmare or another. The timing, extent and public reactions are debated. OTOH, easy to dismiss the exersize as pointless since such a potential PO Black Swan isn't predictable. But that doesn't mean we shouldn't develop gov't policies to position ourselves as best as can be expected when/if it hits. Sadly all I hear is more lip service from our politicians over the such concerns and no meaning action.

I've actually given such advice to clients my entire career without previously hearing of Taleb's position. The client's typical question: is drilling this well too risky for me? Always answered this question with a question: if the effort is a complete failure will your operations be able to carry on? If the answer was no then my answer was simple: don't do it regardless of the upside.

When inspecting that 2030 IEA column (assuming it is correctly propagated)- it turns out that only 6 out of them 19 listed countries will produce less than in the Holly Year of 2008.... in sum we the world, will become drenched in oil by then. As I see it, our challenge will in fact be : where to put all that oil?

IEA is definitely having as severe attack of delirium - on top of their paranoia. I'm NOT impressed

The Saudis plainly say they will not produce more than 12.5 mbpd but the post says 15.6 mbpd by HL. The post indicates that the URR is 240 Gb but KSA claims +260 Gb of reserves left.

Also the URR doesn't include heavy oil which KSA will recover at Wafra (for example) by steam flood. Saudi heavy oil reserves could be maybe 100 Gb.
It would cost a lot but KSA certainly has the money to produce
5 or 6 mbpd of heavy oil for another 50 years; $50 billion over 10 years for new infrastructure? They can certainly afford it.

The 15.6 mmbpd is from the IEA. Saudi could maybe have hit that in 1980, but the IEA is looking for them to hit that in 2030, and for them to achieve this implies truly vast reserves which just don't exist.

Wafra is in the neutral zone, shared 50:50 with Kuwait and has been producing for years. Saudi heavy oil will flow without steam flood but the rates are low and recovery factors are low. They could eventually steam flood the offshore fields to boost recovery - but you know when they contemplate that, the game is up.

It's interesting to contrast the Saudi's claimed remaining reserves, 264 Gb (with "resources" of up to 1,000 Gb), versus Sam's best case for total post-2005 cumulative net oil exports from Saudi Arabia, Russia, Norway, Iran and the UAE--132 Gb. Of the 132 Gb, they have already shipped 25 Gb (19%) from 2006-2008 inclusive.

By the end of 2013, about four years from now, Sam's best case is that these five exporters' post-2005 cumulative net oil exports will be 52% depleted.

Isn't the "reserves" number posted for Canada actually a "resource" number?

BP say 28.6 Gbs for Canada - so god only knows what number that is the IEA have used, certainly more akin to resource than reserves.

BP say 28.6 Gbs for Canada - so god only knows what number that is the IEA have used, certainly more akin to resource than reserves.

BP may be suffering from a taste of sour grapes since they sold their Canadian oil operations some years ago, and if they wanted to buy them back today they'd have to pay considerably more money for them. Most of the other giant multinationals are in the Canadian oil sands with both feet.

Most of the Canadian reserves are oil sands. There is no geological uncertainty about oil sands, because they outcrop on the surface and companies have drilled tens of thousands of wells to delineate them, but BP only counts oil sands if someone actually builds an oil sands plant on it. This is different from conventional oil, where a lot of the reserves are based on some national oil company's wild guess of what might be under an unexplored patch of desert.

The IEA got its numbers from the Canadian National Energy Board, which got its numbers from the provincial government regulatory agencies. Most of it is from the Alberta Energy Resources Conservation Board, which got its estimates by analyzing the data from the core samples and well logs from a few hundred thousand wells. Any company which drills a well in Alberta is legally required to turn all its data over to the provincial government, so there's little uncertainly in the process.

If you don't believe them, they'll sell you all the data on CD ROM for a few thousand dollars, and you can do your own analysis. They do this in hopes you will discover an oil field that nobody else has realized is there, which happens from time to time. You will note that this is considerably different than getting raw data out of Saudi Arabia.

tks for the info RMG. But what about the cost ($&J) of developing the oil sands? According to this analysis by CERA, it s over $80 / bbl - and that is in my estimation close to what the global economy can bear. The world as we know it works on abundant low cost ($&J) energy.

CERA really doesn't know what it's talking about.

In doing an oil sands operation, making a profit is all about controlling costs, and the experienced oil sands operators are very good at controlling costs. At one point Syncrude and Suncor had reduced their operating costs to $12 per barrel, and at this point I doubt that it's over $40 per barrel. At $75 per barrel, profits are high enough to attract new investment into the oil sands. The Alberta estimate of 3 billion barrels per day by 2018 is based on prices being less than or equal to what they currently are.

As to what price the global economy can bear - it's whatever price supply matches demand. If supply goes down, price goes up. There are some sectors that can afford $200 per barrel, and if that is what the price is, that is what they will pay. The ones that can't afford it will go bankrupt. (If they haven't already).

IOW, don't buy a car with more than 4 cylinders, don't buy a house in the suburbs, and don't invest in automobile companies or American banks. It could get worse than it already is. Abundant low cost energy is a thing of the past.

Of course, the key metric is the capital cost of putting in new production facilities. At one point last year, if memory serves, some of the projects had capital costs on the order of $120,000 (US$) per bpd new production.

In any case, despite an average annual oil price of $100 last year, rising unconventional production could not offset the conventional decline, and production and net exports from Canada both fell in 2008, versus 2007.

Here is a $137,000 per bpd number from earlier this year:
Athabasca Oil Sands Expansion Costs Jump To $13.7 Billion
February 27, 2009

OTTAWA -(Dow Jones)- Project costs for a 100,000-barrel-a-day expansion at Royal Dutch Shell PLC’s (RDSA) Athabasca Oil Sands Project have climbed to $13.7 billion, partner Chevron Corp.(CVX) said in a filing with the SEC.

There are some sectors that can afford $200 per barrel, and if that is what the price is, that is what they will pay. The ones that can't afford it will go bankrupt. (If they haven't already).

...... and this leads to recession and a drop in energy consumption and price. That's where we are now. When the disposable income of the middle classes gets squeezed, energy consuming activities get squeezed.

Global GDP data from the USDA. Primary energy data and energy prices from the BP statistical reveiw of world energy 2009.

From a post I did a few months ago. Lots of imperfection that I am aware of, but the basic premise of an energy price ceiling for the middle classes is well illustrated.

The financial return on energy invested

Many years in the future higher price may be possible with adaptation and greatly improved energy efficiency.

And this from the SEC guidelines:

(a) Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions,

... so this all boils down to where the oil sands are economic in terms of $ and there I hope we agree that we likely do not know. I'd concede that CERA's estimate was made during a high price environment

Do you have a 2009 earnings estimate for Suncor to hand?

And this from Suncor:

Suncor Energy Inc. recorded a second quarter 2009 net loss of $51 million ($0.06 per common share), compared to net earnings of $829 million ($0.89 per common share) in the second quarter of 2008.

OK - so accounting practices are now so opaque that they are near impossible to understand - but at face value Suncor seem to need oil price higher than second quarter to turn a profit.

The heavy oil zone Wafra in the Kuwait-Saudi neutral zone has estimated resources of 25 GB.

The heavy oil resource of the Partitioned Zone (PZ), Saudi Arabia and Kuwait,
William Meddaugh, Chevron Energy Technology Company (United States)
David Barge, Saudi Arabian Chevron (United States), 2008:

If steam flooding heavy oil becomes the norm there may be 3 trillion barrels of it in Canada and Venezuela, more in Russia, and more elsewhere. Currently the forward cost of carbon credits might cripple efforts to steam flood and refine the heavy oils. IF strict carbon reduction laws are passed the cost of a carbon credit is expected to rise.

Ok,I guestimated 100 Gb of heavy oil and neutral zone(Kuwait/KSA split is nit-picking, most heavy oil is in the Western Hemisphere but the Saudi, etal have more to gain as the swing producer from an oil politics viewpoint by investing in heavy oil development).

Manifa(26 API)-11 Gb and Safaniya(27 API)-30 Gb are some other Saudi heavy oil fields. Those 3 total 66 Gb so I think I'm not that far off.
The ancient(1941) Duri of Sumatra (API 17-23) field was steam flooded from 64 kbd to 200 kbpd in the 1980s by Chevron. Steam recovery is well over 30-80% with steam versus 10% for cold production of heavy oils.

The steam to oil ratio for 17 API SAGD is 2.5 to 3 or ~200 m3/hr of 1500 psi steam will produce an average of around ~60 m3/day of oil over the project life. This works out to about 38 pound of high-high pressure steam (90000 btu of primary energy) for 1/7th barrel of bitumen(1/8 boe) which is 720000 btus. I would guess that lighter
grades of heavy oil would require less energy for recovery.

The price of steam flood is not excessive.

There is also more oil that can be recovered from CO2-EOR.

The carbon costs under Waxmann-Markey seem modest ($15 per ton CO2).
For a gallon of gas it would add to 12 cents. For syncrude it would add about $2.5 per barrel.

Postpeak oil supplies will not grow and rising energy inputs and
carbon taxes will make oil a bit more expensive but our need for oil
is much greater. There is no logic in putting off the investment in heavy and unconventional oil which will last for another century at probably half the production level of today.

I read about their second quarter loss, and rushed out to buy stock because like you many people don't read past the first line. There are a few accounting fiddles you need to consider such as:

Excluding unrealized foreign exchange gain ... accounting losses ... second quarter 2009 earnings were $185 million

So they really made $185 million, if you ignore the accounting adjustments. At this point in time they were moving to take over Petro-Canada (which they have since done), so my impression was that they were cleaning up some dirty laundry prior to the merger. (Makes things look better after the merger)

And then there's income taxes:

Cash Income Taxes
We estimate we will have cash income taxes of approximately $350 million to $450 million during 2009.

The tax man is not going to buy their claim that they are losing money. However this is an integrated oil company, so you should look at their oil sands operation separately:

Analysis of Segmented Earnings and Cash Flows
Oil Sands

Excluding the impact of mark-to-market accounting losses on commodity derivatives, and costs related to start-up or deferral of growth projects, earnings for the second quarter of 2009 were $334 million

So, oil sands were doing better than the rest of their businesses, many of which were losing money. However, the line in the statement relevant to this discussion is:

Oil sands cash operating costs averaged $31.30 per barrel in the second quarter of 2009, compared to $50.85 per barrel during the second quarter of 2008.

In other words, they've sharpened their pencils and pushed their operating costs down close to $31 per barrel. At an oil price of over $70 per barrel, that looks pretty good.

Well lets not forget about capex and debt service and the cost of getting the stuff to market. And I'm guessing the lowering of operating costs is due to the collapse of nat gas prices.

Running tar sands on shale gas would be an interesting exercise.

Did Suncor buy all Encana or just their tar sands operation?

Natural gas costs appear to be a relatively minor part of Suncor's cost structure ($1.65 per barrel of production). Suncor produces its own natural gas, so if NG prices goes down, it gains on the oil sands side and loses on the NG side.

Suncor has been in the oil sands business for 40+ years, so most of its capital costs are sunk costs. If prices go down, it only has to cover operating costs because most of its plant and equipment is already paid for. They can afford to wait out long periods of low prices (and already have.)

Running oil sands on shale gas is a possibility, but there are conventional gas fields underneath the oil sands, so they may source the gas locally from their own wells.

Suncor did not buy Encana, they bought all of Petro-Canada (formerly owned by the Canadian government). Their mutual interest is that PetroCan has a large refining and marketing operation, and a fledgling oil sands operation, while Suncor has a large, mature oil sands operation, and a relatively small refining and marketing one. Combine the two and you have a very large oil sands, refining and marketing operation. I think this makes them the biggest oil company in Canada, producing oil under the Suncor name and selling products under the Petro-Canada brand.

But the main reason is probably that the two combined companies can probably afford to build only one new oil sands facility at a time. It is a very expensive business to be in, but based on long-term trends in the international oil market, it may be a very good one.

Thanks for your input RMG and for keeping me straight.

I guess my position has not changed much, tar sands may continue to make a meaningful contribution to Canada's oil production, but not at rates consistent with a 179 Gb reserves base.

I personally prefer low cost producers.

Nate should have an interesting post on our ability to pay a high cost for energy some time soon.

The Canadian National Energy Board estimates that by 2030, about 85-90% of Canadian oil production will be from oil sands, as compared to a little less than 50% now. Conventional oil production is declining - at a lower rate than most producing countries, but it is slowly declining, and oil sands production is slowly but steadily rising.

Low cost producers are becoming increasingly rare. Even Saudi Arabia is drilling some very high-cost wells, and the only reason you can reasonably attribute that to is that they have run out of low-cost prospects.

I found some oil sands cost estimates on the NEB web site:

Oil sands mining and upgrading: CAPEX $80-$100K per barrel of daily production, economic threshold $60-$70/bbl including 10% profit.

In situ SAGD and CSS projects: CAPEX $30-$40K per barrel, economic threshold $55-$60 per barrel.

These are for new green-field projects, existing projects will be less.

Isn't the "reserves" number posted for Canada actually a "resource" number?

No, it's a reserves number, and actually it's quite conservative. The reserves are probably over 300 billion bbl according to the Canadian Association of Petroleum Producers, but the government numbers are official so they are the ones everyone uses.

It is 95% Alberta oil sands, and there is no geological risk in the oil sands - only economic risk. Everyone knows where the oil sands are and how big they are, the only real unknowns are how much money they will cost to produce and what the selling price will be. The main constraint on production is how fast they can build oil sands plants - which, realistically, is not very fast.

For a summary of Alberta's energy reserves, see the Alberta Energy Resources Conservation Board web site:

The Canadian production estimates shown on the chart are completely wrong. The Alberta government estimates that Alberta alone will be producing 3 million bpd by 2018. By 2030 Canadian production will probably be over 5 million bpd. On the other hand, all the other production numbers are ridiculous as well, but most are wrong in the other direction. The idea that the U.S. will still be producing 6.5 million bpd in 2030 is delusional.

By 2030 Canada will probably be about 5-6 million bpd, most of it from the oil sands, and the U.S. will probably be producing about 2-3 million bpd unless they get some major shale oil operations in production by that time - which seems unlikely given their current lack of direction.

A more likely scenario:

ELM kicks in in earnest (2012-2015?). Oil prices spike, despite ongoing depression conditions.

A federal government dominated by Quebec and Ontario politicians nationalizes oil sands production and begins emergency construction of a pipeline to send the production east.

By the time construction is complete, the awesome efficiency of government operation, combined with capital flight, and possibly even sabotage, has resulted in tar sands production actively declining.

As a final blow, the US, threatened by the loss of the only remaining secure exports available to it, invades Alberta. Destruction during the invasion and under occupation permanently limits production. The tar sands never produce more than 3 mbpd, and by 2030 are pretty much back to whatever accidentally leaks into the rivers.

I'd say that's as likely as ever seeing 6 mbpd from tar sands.

Sadad al Husseini included this table in his slide show at the 2007 Oil & Money conference

effectively crossing out 300 Gb of proved reserves and re-classifying them as resources. I include this graph in almost all of my papers here:

Peak Energy: Iraq’s oil and the future

In 1968 the decision was made to hold Iraq’s oil reserve figures secret, but during his time Dr al-Chalabi worked to have them openly accounted. He asserted that during the years that he was responsible for Iraq’s reserve figures there was not a single time that Saddam Hussein had ordered him to report these in any way to suit a political purpose.

Iraq Expected to Seek Increase in Its Oil Quota - The New York Times, September 5, 1989

Iraq's announcement in July of a new oil reserve figure of 280 billion barrels - nearly triple the previous year's level and higher even than Saudi Arabia's - was a calculated move, people in the oil business said. 'More Politics Than Geology'

''It's a game that's being played, which is more politics than geology,'' one source said. ''It may be true that the oil is there, but it may not be economically feasible to produce it.''

Dr al-Chalabi was "dismissed" from one of his many positions in the Iraqi oil industry in 1990, whether he was overseeing reserves estimates at the time isn't stated, so whether this figure was on the table during his tenure, or whether it was just, for instance, an over zealous bureracrat spouting off (e.g., Brazil last year) isn't known.

This took courage to present. Thanks for posting this, it is important.

I wonder how many people don't know/don't remember al Husseini said this at least as early as 2007? October '07. It has been the basis of my contention that the KSA can get up to 12.5, but will likely never exceed that while others keep saying the KSA is crashing. (Of course my reasons for them not exceeding that are additionally informed by the economic crisis, which I didn't full understand in 'Oct. '07.)

Courageous then, yes. But after all this time, I'm doubting he's feeling much heat. After all, the king told Bush to stick his request for more oil, essentially, less than six months later and has stated the KSA will not pump more than 12.5, ever.

I'm thinking he's done with looking over his shoulder.

Not meaning to poke you with a stick, just adding a little history.


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Can you give a reference (or a link) for Wick`s table and scenario?

In my view, Saudi Arabia has little incentives in producing more, we always forgot that they are not producing oil but petrodollars. The amount of oil income they are generating from their exports with the current price levels is the equivalent of exporting 20 mbpd at $30 a barrel!

The 123 page Wicks report is here:

I'm calling it a Wicks' scenario, but its really an IEA scenario. Wicks uses this in good faith with little clue as to the assumptions that need to be made for this alternate world to be true. The bottom line is we have no need to panic because even though our own oil is running out, other countries still have plenty left - of course Sadad might not agree with this.

Thanks for that link. With data from there and without reading long reports we can best judge for ourselves what the energy security situation in UK is:

As imports are flat since UK became a net oil importer these imports now grow while oil production declines

Their incentive is the fear that the rest of the world will choose elsewhere for its energy due to the high prices resulting from their underproduction. Their goal is to delay any transition and related investment until they have sold everything they have. But the new tactic is to convince the west that they should pay them not to produce oil, taking a page from US Ag policy.

Paying KSA some money to go to full-on Peak Outreach; to drastically reduce birthrates and quickly raise death rates, so that internal KSA consumption can decline makes sense to me, even though it is Not Politically Correct [PC]. But it could reduce the ELM effect somewhat so profitable exports can continue a little longer.

The same could apply to the US, or any country. Again Not PC, but full-on Peak Outreach here in the US would allow us to postPeak export grain much longer vs eating it all. Recall that KSA and some other MidEast countries do not grow their own foodstuffs, but import nearly all of it.

As stated before: We are evolved to sit in the nightly darkness, but we can't do starvation & dehydration.

Jay Hanson quotes:

"Stuck in obsolete belief systems, we will have no idea why everything falls into collapse."

"The best the poor can hope for is a quick and painless death."

Let's hope that the desire for the Circle of Life and Optimal Overshoot Decline can gain postPeak emphasis and political traction.

Consider what would happen if Morocco suddenly decided to export a mere fraction of their current production. Recall my prior posts on when Germany forbid potash exports to the US in 1916 as that could have led to agro-disaster if continued for very long. IMO, we were very fortunate to find the New Mexico mine.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

I thought of a simple way to explain my views.

At first I just could not believe it what I thought I was seeing was simply impossible.
And I've looked at this problem for years each time coming to the same ultimate conclusion.

However there is a way to explain it that mays sense how could all these crazy things happen ?

The parable of the elephant in the room comes to mind. What I'm saying is one very large elephant in the room how on earth can you hide something this big and bold ?

The answer is stunningly simple well if you need to hide a elephant in a room you simply fill the room with elephants.

I think its rather obvious that as the 1970's ended the room which is our economy was packed tightly with elephants. The fact that this allowed one or a few elephants to be hidden is easily lost when you look at the herd yet the presence of the herd is itself a signal that someone is hiding elephants.

Once you figure that out then it becomes fairly clear what happened the hidden elephants stand out in the crowd.

This doesn't get one too far. I am reminded of Anne Elk's infamous theory, which took quite a bit of prodding to coax out of her. When all was said and done the theory amounted to: "All brontosauruses are thin at one end, much, much thicker in the middle, and then thin again at the far end."

Kidding aside, I would really like to see the model formally specified.

I literally don't know how to be quantitative.

A parable on the battle between the logician and the mathematician.

I came up with yet another fascinating way to explain the problem.

My name is Foo and I'm violently opposed to the rule of Bar over the entire world.
So being a very smart Foo I create my own atomic bomb and plant it in central park.
Its set to explode when the tieme is eight am and the temperature greater than 60 degrees.
Each morning I watch the weather channel and many days it looks obvious that my parameters will be met so I go down to times square and proclaim the world is close to the end and this den of of sin will soon be wiped from the face of the earth.

However weather being what it is my programing fails repeatedly. So I say screw it I'm going to set the bomb to go off at 8 pm to hell with the temperature.

Logic obviously can rule physical measurement it can do anything it wishes.

Logic trumps all but the nature of logic is unsupported. I.e any logic works the bounds infinite in multiple dimensions thus using logic to contrain a problem will never ever ensure that the temperature is over 80 degrees at 8 am.

Mathematically speaking using matrix algebra I simply don't know how to create a inverse I have a solution thats not invertible.

The beauty of math is it tells you when it cannot perform a operation. NaN.

Why can I not answer your request well the intrinsic problem is the coordinate systems for generation of a scaler shock have torque they spin !

Its the exact same problem as with non invertable matricies.

Take a collection of rods connected via infinitively strong springs that are spinning at a variable rate and predict the final geometry when all forces reach equilibrium.
How on earth are you going to solve this problem.

In your own writing you acknowledge that strong shocks send waves through the system i.e a powerful shock has significant forward coupling.

I'll dig it out of your site if forced but shocks beget shocks. All I'm saying is they add a rotational or twist like force while your shock model as written is linear and actually dampens the shock on shock effect to zero !

Thus even though the model is perfectly correct these secondary forces are hard or impossible to quantify.

You literally are setting on and atomic bomb you programed your self but assumed to much to predict the actual time it will go off.

You built it and programmed it and know for a fact that when your logical conditions are reached the bomb will go off. Yet in this particular case the bomb is already exploding because your logical constrictions where too tight.

Loosen them and throw in all the non small but unquantifiable factor.

Fuck math use logic its far more powerful.

And we arrive at the exact same answer.

Much later we can eliminate the arbitrary power of logic that can make any thing happen with a simple if or boolean clause but the elimination or parametrization of logic itself is a tad larger problem.

One more comment on our lily white oil industry that never lies cheats or steals.
Some of these links are of course sensationalist yellow press but it was a quick review.

I'll stop but the point is significant amounts of fraud and corruption are known to exist in the oil industry. Maybe these are simply isolated incidents that all industries have to deal with but given the nature of many of the oil producing countries political systems we known corruption its not impossible that significant systematic corruption is possible.

I'll save this for last since its really over the top just to show that their are crazier nuts than me out there :)

However a more reasonable article paints almost as crazy a picture.

There are a lot of skeletons in the oil industry closet mixed in with all the human bones may well be a few elephants. If you read the official history of oil development in Iran I'm pretty sure the blatant greed will be obvious. Did all this just end when oil production was nationalized ? I doubt it.

And last but not least despite all of this as far as I can tell the maximum amount of illicit oil ever shipped in any given year was probably 4mbd or less a significant amount for sure and certainly important financially but I don't see evidence for it ever being much higher than this if this high. On average as far as I can tell you probably had closer to 1-2mbd of illicit oil transactions in any given year. As oil production has declined the amount of illicit oil sold has also certainly declined. If these estimates are reasonably correct and you consider potential political distortions on top of that our exact global oil production has and uncertainty on the order of 4mbd or so maye 5bmd.

Thats about the same as the entire US production to give you some perspective but given say 70mbd or so of oil production on average its only 5% of global production.

So sure some of the things I'm claiming are somewhat shocking and yes these are large sums of money but from the big picture of overall oil flows its really a fairly small percentage. The importance is not the actual amounts of oil but the fact that the funds go directly into the wealthiest portion of the population. Its very powerful money and represents billions that can be used for basically any purpose. Imagine what you could do with 10 billion dollars thats off balance sheet. Imagine 100 billion or maybe more.
I don't think you have to imagine simply look around you today and you can see the result.

How dare you memmel...I resemble that remark! But sadly I've dealt with more crooks/unethical characters in the oil patch then I care to recall. But perhaps no worse then other segments of industry/society. Really wouldn't expect us to be much different: we all come from the same gene pool. Many, many years ago, at an age where my ego and temper were out of control, I worked with the most corrupt company in my career. At one point I had so angered the crooks I carried a side arm (hidden of course) onto drill sites, especially at night. Nor would I let the two young geologists working for me venture into the field. Many millions of $’s being ripped off. And corruption/incompetence at the corporate level was worse. And I as doing this for just a paycheck! But really more a reflection of youthful arrogance and stubbornness and stupidity. But mostly arrogance... Don Quijote de la Mancha was alive and well in Texas. But I’m much better now. Now I just don’t get involved with such folks. But for a while I did feed my vengeful dark angel by being an expert witness against bad operators. Especially in matters of environmental naughtiness. But not anymore. A peaceful mind is a true blessing.

The Saudis seemed to have miscalculated their recoverable reserves in Ghawar. There were some articles written about Ain Dar being in its last gasps as an oil field years ago. There were gas caps forming near the crest of the dip closure. Shedgum would be next in line for depletion, then finally depletion of Uthmaniyah in the Northern Ghawar superpermiable zones. There would be no true bell shaped decline curve as they were using MRC wells and saltwater pumps.

It is like Cantarell. The field began producing in 1979. Peak production was reached c. 2004 some 25 years later. In a bell shaped decline it should produce for another 25 years. Wait, something is wrong here. Recent decline rates have been clocked at about 38% per annum. One with a high school mathematical background might extrapolate the result.

There is little transparency in the Kingdom. They were corrupted from within.

What types of energy are being tabulated in Table 3? The title indicates oil and gas but the heading of the first column is "oil." The U.S. production for 2008 is listed as 6,736 kB/d while the 2008 U.S. production of crude oil and condensates was about 5 Mb/d (Chart 116 of Oilwatch Monthly August 2009) and total liquid fuels production was ~7.5 Mb/d. If Table 3 is lumping crude oil, natural gas condensates and liquefied natural gas together by volume, then comparing its values to a Hubbert linearization of crude oil production is meaningless. For all the table shows, Saudi Arabia could be producing 10 Mb/d of natural gas and 5.6 Mb/d of crude oil plus condensates in 2030.

The reserves figures that are quoted are the same as / close to proved oil reserves as detailed in the 2009 BP stat review. So these figures are clearly for oil.

I found this very interesting link: . 1. According to this article the Saudis put some oil capacity to rest in Ghawar. I think, this "rested" capacity is gone forever. 2. The newborn Khurais fields need water injection from the first day of their lifes. For this purpose ARAMCO expanded the Qurayyah seawater treatment plant to 14 million barrels water per day. (Check Note: Ghawar was downsized and Qurayyah is being expanded. 3. According to the planned costs for Khurais are $ 9 Bln. On the Ali Baba website $10Bln are mentioned. Costs are exploding.

It only makes sense that the wells that were shut-in this year, especially in Saudi Arabia, were the high cost wells with high water cuts, but depletion marches on. And in a lot of cases many wells that were high water cut last year might be 99% water now, as the oil column above the shut-in high water cut wells was further depleted.

I remember a case history from the US. It's really not directly comparable to Middle East fields, but it does show the effects of depletion. In any case, it was a Woodbine Sandstone field (the pay zone in the East Texas Field) where some leases would go from 100% oil on January 1st of a given year to 99% water on December 31st, as the advancing Oil/Water contact moved across the lease.

You people seem to know a lot about SA. Question- do they ever think about the fact that they are sitting on a huge everlasting patch of brilliant sunlight?

(And we know how to turn it into whatever we want- like electricity or clean water)

And if they are thinking about it, what are they thinking?