Todd Bennington, Kingdom Exploration Media
Arthur Berman is a geological consultant with almost 40 years of experience in the petroleum sector. Berman takes what he says is a realistic, as opposed to pessimistic, view of the future of tight oil plays, saying that the popular narrative in which they represent the answer to all the world’s energy problems constitutes a kind of magical thinking rooted in a desire for wish fulfilment rather than rational observation.
“The narrative is that we’re just tearing it up, particularly here in the United States with all these shale plays and yet the preponderance of evidence says we’re not finding new reserves, return on capital employed is at historic lows, and overall the performance of the companies that are engaged in these activities is just not too hot,” Berman recently told an interviewer.
According to Berman’s reading of International Energy Agency data, a further glut of oil supplies will be seen in 2018 and oil isn’t likely to remain much over $50 a barrel for the next several years. However, eventually current supplies and reserves will become exhausted, says Berman, causing oil to spike dramatically in price and remain high, with no immediate solution to the crisis to be found in technological innovation.
Some of the interesting points Berman makes in the course of stating his argument include the following:
- Oil companies tend to continue operations even when it is not profitable to do so in order to maintain cash flow, service debt, and keep shareholders happy.
- Capital markets, central bank policies, and credit markets are all oriented toward maintaining more energy production.
- Oil reserve discoveries have been declining since the 1960’s or 1970’s and 2016 discoveries represent the lowest level of reserve replacement since 1947. This is partly due to a lack of investment in exploration.
- Shale plays do not represent exploration. Instead, they are field development and represent a finite source. According to the U.S. Energy Information Administration, tight oil reserves represents 18 billion barrels of oil. Yet the U.S. alone uses 5 billion barrels a year and therefore tight oil plays are unlikely to provide the United States with energy for decades.
- Shale plays are popular in part because they cost less than new exploration which demands considerable capital investment before extraction can begin.
- Unconventional oil plays, such as tight oil or deep sea, make up 60 percent or more of U.S. oil production and there’s no going back to more conventional development in the U.S. on a widespread basis.
- Faith that future technological advancements will resolve the energy crisis in the short term is unrealistic, according to Berman.
- Lastly, of the three major U.S. shale plays, Berman says he believes the Bakken and Eagle Ford are essentially done in terms of growth, though they will continue to produce for some time. The Permian therefore holds the burden for growth but has the problem of high water production. This is important because disposing of water is expensive and indicates a loss of reservoir energy in the form of dissolved gases that facilitate extraction. Berman predicts that by 2020 it will be obvious that the Permian can’t make up for the declines in the Bakken and Eagle Ford, and prices will begin to spike as a result. This will be bad for the global economy but represents an opportunity for investors.
More information can be found at artberman.com.
Those looking for alternatives to investment in the U.S. shale plays may wish to learn more about Kingdom Exploration’s project currently being developed in British Columbia, Canada. Visit http://www.kingdomexploration.com/canada/ and contact Kingdom Exploration President Sean Pruitt at sean.pruitt@kingdomexploration.com.
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