Chris caught petroleum geologist Art Berman right before he went on stage to deliver a presentation on the limitations of shale oil (his excellent slides can be found here).
Every week in our Off The Cuff Series, we interview expert minds on the premium side of PeakProsperity.com. These discussions are unscripted and informal, where my partner Chris Martenson and his guest react to recent macro developments and predict the likeliest repercussions.
Every once in while, when we have an exceptionally timely conversation, we’ll make it available to the public. And we’re doing that this week.
Chris caught petroleum geologist Art Berman right before he went on stage to deliver a presentation on the limitations of shale oil (his excellent slides can be found here). The world is finally starting to realize that the profit-making potential of this space was drastically over-hyped.
But more important, warns Art, is that the souring sentiment on shale oil is a reflection on the bigger challenge ahead of us: How we will power the world in a future of declining net energy?
When we reflect upon the material progress of humankind over the hundred and fifty years, it seems very clear to me that much, if not most, of it happened because humankind moved basically from wood to coal(NYSEARCA:KOL) to oil/natural gas. (NYSEARCA:USO)/(NYSEARCA:UNG)To increasingly more dense sources of energy.
And the result is that we get a whole lot more work out of whatever energy we expend. Less and less of that is done by manual labor.
Everything works to live. Look at the African savanna: it’s all about energy. The animals spend all day long getting food one way or another. That’s the way life on earth works.
But not so much for us,because we’re fortunate — we humans have all this fossil energy at our disposal. You and I can sit and chat on Skype here without having to do very much.
But underneath it all is surplus energy — which, unfortunately, we’re running out of. That’s why we’re scraping the barrel with tight oil and shale gas, and oil sands, and heavy oil. And we’re fortunate to still have those options.
But our grandchildren, what are they going to do? I mean, this surplus energy isn’t going to last until they’re our age, I promise you that. I hope I’m wrong. But when I say ‘I promise’, I’m pretty sure I’m right.
Chris Martenson: Welcome, everyone, to this Off the Cuff. Of course, I’m your host, Chris Martenson. It is Friday, November 22, 2019. We’re coming up on Thanksgiving week here in the United States.
And we’re going to be talking today with Art Berman, and he’s got a really excellent presentation that he just sent me the slides for. And I’ll see if we can attach those to the bottom of this podcast so you can review them because it’s a really nice, logical, organized, wonderful view of the shale industry. But with the backdrop, the necessary backdrop that I love – and I know you love too – which is “hey, what’s the role of energy in our society?,” and let’s have that larger context before we drill in and say what’s here, what’s remaining, what is our future going to look like.
So, Art, welcome back to the program.
Art Berman: Oh, thanks for having me, Chris. It’s always a pleasure to talk with you.
Chris Martenson: Likewise. Likewise.
And I’m really intrigued by this presentation you gave here. Let me scroll back up because I’m all the way down to the conclusion slides. It looks like you gave this at Louisiana State University on November 22nd.
Art Berman: I will give it in two hours and fifteen minutes, so Peak Prosperity is getting a sneak preview.
Chris Martenson: Fantastic. If we could just talk through this, this would be wonderful. The title here is Tight Oil and the Willing Suspension of Disbelief. I think my readers and listeners are going to know there’s some financial disbelief that has to be suspended and all of that.
But you start with a quote from Nate Hagens on that first page, “Energy is and always will be the currency of life.” Who are you giving this talk to, and why did you start there?
Art Berman: Well, I’m giving it to a bunch of I believe ecologists for the most part. There will be oil and gas people here. Obviously, Louisiana is one of the top oil and gas producing states in the country. But my host and sponsor is a professor named John Day who is a coastal ecologist, and he’s been extremely involved with energy and net energy and all the kinds of things that you and I like to chat about offline for a long, long time.
I tried to tailor the talk to a group that was concerned about the environment, about climate. I mean, obviously, the south Louisiana wetlands have been super affected by things like the BP oil spill, not to mention 50 years of offshore drilling.
So the idea was let’s try to give an overview of where we’re at in the big picture. Where does the U.S. and it’s tight energy, title oil, fit into that, and what’s the future look like, and what are some realistic expectations about things like rebuildable or renewable energy as a solution to our current problems.
Chris Martenson: That opening slide where you say money is a call on work and people. I think it’s just so hard when you’re a fish in water to really understand water. To me, energy is the water is that analogy because it just views everything. It makes our lives so easy.
You can chose if you want to: build a house in the woods, you know, a thousand up from the nearest shopping center, which is something people would not have done 200 years ago, if you had to navigate that same thousand feet of elevation gain using a horse or something like that.
But the punchline in there, I think if you could meditate on one thing, like the Buddhist can meditate on a single flower and unravel the entire mystery of life, it’s this. It’s that bullet point you have which says, “One barrel of oil contains about four and a half years of human manual labor.”
Now, if I had to buy four and a half years of manual human labor in the United States, I don’t know how many hundreds of thousands that would cost me. But a barrel of oil of is $50 bucks. So it’s just an astonishing thing when you begin to unravel that one bullet point.
Art Berman: Well, it is. And, of course, that calculation can be done in all sorts of ways. If you just do a raw calculation, it works out to be about eleven years. But figuring in the fact that most American’s don’t work 100 percent of the time and you have holidays and things like that, four and a half years is actually quite a reasonable and conservative estimate.
So I think when we reflect upon the progress, the material progress, of humankind over the last hundred, hundred and fifty years, it seems very clear to me that much, if not most, of that is because humankind moved basically from wood to coal to oil and natural gas, increasingly more dense sources of energy. And the result is that we get a whole lot more work out of whatever energy we expend and less and less of that is done by manual labor.
I want to come here to Baton Rouge, Louisiana, it’d take me a long time to walk or ride a horse. And we can count the calories, or I hop on a plane and be here in 35 minutes. And we just take all that for granted.
So, you know, you’re right, Chris. That is the punchline. But I think the point for me is also this notion of having a surplus of energy which allows you to do things like, hey, I don’t want to walk or ride a horse to Shreveport-Baton Rouge. So I can pay United Airlines a couple hundred bucks, and that’s worth it to me. That also wasn’t an option that was available to people 200 years ago. We just think all this stuff is given, and it’s not.
So as I say in one of those bullet points, I mean, everything works to live. I mean, that photo on slide one, I didn’t take it, but I could have because I was just in South Africa and Zimbabwe, and spent most of the time in various game reserves and I saw hyenas and antelopes and leopards that are all shown there. And you get out there on the savanna and it’s all about energy. I mean, these animals spend all day long getting food one way or another.
And that’s the way life on earth works. And because we’re fortunate as humans – we’ve got all this fossil energy at our disposal. We can sit around and basically chat on Skype here without having to do very much.
But underneath it all is that surplus energy which, unfortunately, we’re kind off running out of, and that’s why we’re scraping the barrel with things like tight oil and shale gas and oil sands and heavy oil. And that’s a good thing. I mean, it’s a good thing that we still have those options.
But, you know, we were chatting before the call, and visiting my grandchildren, and geez, what are those guys going to do? I mean, it isn’t going to last. It isn’t going to last until they’re our age, I promise you that. I hope I’m wrong. But when I say promise I’m pretty sure I’m right. So that is a concern that I have, and I think the people I’m going to talk to in a couple hours here as ecologists and such are particularly concerned about that.
Chris Martenson: Well good, and they really should be. And, of course, you and I, we talk about this all the time, Art, which is the lack of concern around this. The extent to which the so-called leadership, the political and even monetary leadership – and I think the Federal Reserve has the intellectual chops to sort of grok that, you know, infinite and exponential growth is not possible on a finite planet. They waive their hands and say that’s not their place of concern, but it really is because they’re the ones fostering this idea that we’re just going to grow, grow, grow.
Listen, I’m not – I don’t care if we grow or not. But in once sense because as long as we’re growing in the right direction, right. So Bill Rees, who I know – he’s an ecologist, and he put out a really nice piece recently where he said, hey, I’d like to be as optimistic as anybody, but here are the numbers behind alternative energy.
And if you just do the numbers and you say, well, what’s actually involved? Like how many wind towers would we have to built or how many solar plants would have to go up in order to really make a transition? That’s a type of growth, if we were doing that in an organized fashion, I’d be like, okay, let’s grow that – let’s use our current fossil fuel energy to see what’s involved in building towards that.
Most people I think are under the mistaken impression that’s happening because they go oh, my gosh, look how cheap solar is now. Or here’s how many gigawatts were instilled last year, and we’re on our way.
And Bill put up a single chart in there which said the growth in electricity demand alone has exceeded the installation of solar by a wide margin every single year except 2009 where there was this dip in energy demand, electric demand.
So solar isn’t even keeping up with the growth in electricity demand, let alone the larger pie of energy uses which would include coal and oil and other things like that for other purpose besides electricity.
So I wouldn’t call it my skepticism, but sort of my realism is to say look, if we’re not even keeping up with growth and demand with alternatives, that means we’re not really seriously on the path yet to making a transition. Would you – what’s your take on that?
Art Berman: I fully agree. Bill Rees and I are in certainly weekly if not daily communication. I think the world of the work he does. He’s not the only one I’m in that communication with, people that are very much on the climate change and biophysics and bioecology side of things. And I don’t any of those people that are particularly optimistic about where we’re going.
The issue that I think is such a trap, and it’s a trap whatever your schtick is, you know, whatever you’re promoting is to confuse something like cost or volume or installed facilities with adoption. And last night I had a discussion with my host here over dinner, and I was not really complaining, I was just explaining that an awful lot of the people that I talk to or communicate with on Twitter or whatever are what I call what if and maybe people.
Which is to say they have this sort of infinite faith that technology that doesn’t yet exist is somehow going to solve all our problems. And I said, okay, let’s say they’re right, and let’s just imagine the most optimistic, possible scenario, whatever it is. Cold fusion, you name it, whatever is going to solve our energy problems.
Let’s say somebody could pilot it today, how long would it take before it could be upscaled? How long would it take for it to go from upscale to commercialization? How long would it take to go from commercialization to widespread adoption? And the answer is the most optimistic, wildly optimistic solution you can come up with, is like a decade or two.
And that’s so wildly – it’s ridiculous, actually, when you place it in the context of any other technological development, including fracking or things that are – computers, something that – we’re not talking about comparing it to the rate of adoption of coal in the UK in the 1800s. We’re talking about right now.
And so where I get to, and what we discussed last night, is I don’t think we’ve got decades certainly to sit around and wait for somebody to come up with something that we don’t already know about. We better figure out a way to make it through whatever we perceive to be the obstacles and barriers to future progress with what we got right now. And hey, it somebody comes up with it, I’m all for it, I really am. That’s where I’m at, Chris. I mean, that’s it.
Chris Martenson: Let me add one more wrinkle to that because I think that’s all perfectly true and rational. I worked in a manufacturing sort of environment for a while, which was on the pharma side. But when they went from hey, we have a couple of milligrams of this compound that we think is going to really good and we want to take it from pilot, plant, and then up to commercialization, there were all these failure states such that if you could make something in a test-tube, the chance of it being able to be commercially manufactured was about 12 percent.
Art Berman: That seems really high.
Chris Martenson: You know, something goes wrong at all these different steps, you know. And this is in a chemical environment where they can control everything to a tee. And so there was just – that was one – that wasn’t like the probability of a compound itself having utility. This was like we’ve already proven this thing – we just want to see if we can commercially produce it.
Anyway, huge problems and getting the appropriate mixtures, and it has to be the right percentage purity and oh, my gosh, big vats don’t mix properly. It was on and on. It’s just stuff. So I’m sort of it’s in my bones now to understand that scaling things up is not as easy as saying let’s just make more of them. Right.
Art Berman: Or saying it’s just cheap. That doesn’t get people to use it.
Chris Martenson: Exaclty. And so the other point I wanted to add onto yours is that even thought we know how to do things, and even though it can be proven to be cheaper over the long run – I’m thinking now of a long-time Peak Prosperity member, and his company does mega commercial sort of HVAC stuff.
So if you have a gas fired power plant, and you want the incoming air intake into the furnaces, into the turbines, to be like ten degrees cooler because you can get greater efficiency out of a cooler gas than a warmer gas – they do that kind of stuff. And he said to me, “Chris, look. One of the hardest sales we have is we know that 70 percent of the cost over the lifetime of any building is it’s heating and cooling.” Thirty percent is just the operating cost and the building costs, right. And with that, we can show definitively that we’re going to save you a ton of energy and actually save you money that’s going to make this investment in the upfront HVAC pay for itself many times over.
And we still can’t make the sale because the disintermediation. The person who’s funding it, the person who’s building it, and the person who’s leasing it, and the person who’s owning it are often different people, and none of them actually has an incentive to make that upfront investment because of money.
And so even when we know we can do things, we have the technology, Art, we got it, we’re still not going to use it maybe, depending on other variables.
Art Berman: Well, and along those lines, for all of our listeners, if you’re not familiar with the Acceptance and Diffusion of hybrid Z corn to Iowa communities by Ryan and Gross, google it. It’s available in pdf format. I mean, this is exactly what we’re talking about where the agronomy people at Iowa state invented absolutely the best seed corn known to man, better in every way than anything that had ever come before. This was in the 1920s.
And this guy Bryce Ryan was a PhD candidate at the time in the sociology and economics department, and he decided to follow okay, how do Iowa farmers react when we go around and give this stuff out for free. It was better. Nobody could dispute it. It took five years before they could get anybody to even think about planting it, and it took decades before it actually became the standard in these two counties is Iowa.
So I mean, this is human beings. You’re giving them something for free. There’s no doubt that it’s better, and they don’t want to use it. So, you know, that’s something good to study.
Chris Martenson: What a great story. I’m going to look into that one. I hadn’t heard of that, so I got to look into that, Ryan and Gross. That’s fascinating, and it really is what we’re talking about.
And I think the other side of this technology – I get in these online arguments, which are never useful, but it’s good to find out where people stand. And a lot of people have place, for example, a lot of faith in Elon Musk who might say “oh, look, you know, Elon understands this energy story, Chris, and he’s doing something about giving us electric cars.” And I said, well, I think if he really understood it he’d be making electric buses and electric trains, not electric cars. But that’s okay. Maybe that’s a first step.
But even still, I came across some data that said that for every single battery pack that’s in a Tesla, that battery pack has somewhere in the world five hundred thousand pounds of mining waste that’s sitting in a pile somewhere that had to be pulled out, extracted, and disposed of in order to get lithium for that battery pack.
And I’m thinking to myself, Chris, if these people had to move that five hundred thousand pounds with muscle labor, or they had to dispose of it in their own backyard, I think we’d have a different sense of what’s really involved in the technology. And it’s good, and it’s a step in the right directions, but it doesn’t magically fall off as ripe fruit off of a tree and this Tesla shows up and that’s the beginning and the end of the story.
There’s all this other accounting that’s sort of out of sight that goes on both on the upfront mining side and then I’m sure, too, on the disposal side afterwards that just – people don’t see that. They just see the car and how much it cost to plug it into the wall, and that’s the story to them. And I’m hoping you’re bringing that bigger story to these LSU students today.
Art Berman: Well, there are approximately 7,500 batteries in each Tesla, an average Tesla. Think about it.
Chris Martenson: Really double A batteries, right, that’s what we’re talking about.
Art Berman: No. Very expensive, costly things. And where do all those materials come from? It may change in the future, but for the foreseeable future, all the mining and extraction is done with diesel. All the shipping to manufacturing plants is done with diesel. All the manufacturing is done with coal and natural gas. All the shipping and distribution is done with diesel.
So when somebody tells you they’ve got a solar or renewable solution, I’m glad to hear it. I want to know, you know, just like all those piles of waste on a Tesla, what are the collateral fossil fuel requirements to do that? And I’m not trying to be difficult. It’s just we got to think integrated. We’re talking about complex earth and human systems, and you can’t just take, you know, the shiny piece of it that attracts you and say oh, that’s good, that’s what we like. No, it doesn’t work that way.
Again, I’m not trying to be pessimistic or skeptical. I’m just saying I’ve been doing this for a long time, and these are the kind of questions I ask. So there you go.
Chris Martenson: I know we’ve got limited time today. I need to get this tight oil part of this presentation because a lot hinges on it. And recently you tweeted something. I retweeted with a comment, and the tweet – I’ll paraphrase – along the lines of hey, a hundred percent of all the gains in U.S. output has been from tight oil. And my little addon to that was and also a hundred percent of the capital destruction in the oil business has come from tight oil. [Laughs]
I’m just looking at the 10 Qs and 10 Ks and adding things up and trying to figure out, and I can’t find anything but capital destruction in that business. I mean, I don’t see how $200 plus billion of debt gets paid back. I don’t understand where the equity players get paid back. And, of course, the equity destruction has been, for anybody with a chart to see, it’s been pretty magnificent.
And now we’re hearing about things getting tighter. Every headline from Bloomberg now seems to be, oh, things are a little tight. Banks aren’t making loans in the shale space, all that. So was that too cavalier of sort of a statement for me to make that all the losses have come from tight oil?
Art Berman: Yes and no. I mean, conventional oil is just as much of a losing proposition as tight oil. I mean, that’s the reality. So as I’ve published, tight oil is the best of a bad lot. But the truth is is that for all we hear about Saudi Aramco and most profitable company on earth, blah, blah, blah. If somebody shows me a portfolio of oil and gas prospects, and they show me a conventional vertical, they show me a title oil, they show me an oil sands, they show me a deep water, and you name it, I’m probably going to pick the tight oil because it is, in fact – it’s the most, or it approaches, the most economically viable.
Now, that’s a sad thing to say. But all the investor uproar these days about the lack of cashflow being the reason that they’re abandoning tight oil and energy in general, I think that’s just a bunch of crap. I mean, the oil business had negative cashflow every year for as far back as my records go, which is to say into the 1990s. That’s just the way it works. It’s a losing business in general.
And so tight oil is nothing new. Well, I mean it is, but it’s just the latest reincarnation of the same guys doing the same stuff. And for those who say well, you know, we need to go back to conventional, well great. You know, show me where there’s a big enough prospect to be worth an Exxon or a Conoco or a Total SA investment, much less a Concho or an Anadarko. I guess they don’t exist anymore – Oxy.
And the answer is there’s a reason why they’re choosing this stuff. they’re not stupid. And I don’t think that’s something that the average, education analyst really thinks about. We don’t really have a choice, I guess that’s what I’m saying, Chris.
Chris Martenson: Well, no, and we’re going to continue to scrape the bottom of the barrel. And my point that I’ve been trying make is I don’t think there’s a bottom below the bottom. You know, we’re already drilling the source rocks in this story; that’s the shale. And we may well find other shale basins, but there’s no there-there after shale in this story, right?
Art Berman: Basically not. And you can say oh, well, we’ve really only exploited the shale in the United States and a little bit in Canada and maybe a bit in Argentina and two other little – a few odds and ends.
And that’s true, but the geology says that for better or worse, and for reasons I don’t want to get into – I could, but we don’t have the time in this discussion – I mean, geology is not equal all over the world. And so these source rocks, as you say, they have to be marine shale. So you can eliminate 50 or 60 percent of all the shale in the world that isn’t marine, doesn’t have the organic material, the right kind. It has to be at a certain burial depth so that it’s cooked to the right temperature and pressure and not overcooked. And it has to be at some drillable depth with a certain kind of pressure.
You know, you start putting all these filters on it and what you find is sure, there’s more tight oil in the world than what we’ve exploited today in the United States and Canada and a few other places. But it isn’t overwhelming.
And then you factor in the population densities and the mineral ownership, which is not private anywhere else in the world except for basically North America, and you got a million problems that are the reason that it hasn’t been developed yet in other countries. I mean, other countries aren’t stupid, and it’s not like they don’t need the energy.
So there are a lot of people who just make these sweeping presumptions that oh, well, take the United States, and multiply by whatever factor you want, you know, a gazillion or a thousand, and we could keep doing this forever. And the question you got to ask is well, if we can, how come we haven’t? There are reasons. There are good reasons.
Chris Martenson: Yep. If your political institutions don’t support it – I think I understand what’s going – you know, the Vaca Muerta down in Argentina looks like a good play. It’s pretty thick pay zone. But you’ve got Argentina to deal with, so guess what? We’re not going to be sort of racing into that like it’s a new Eagle Ford no matter how tasty it is.
England has some really nice shale gas, but turns out it creates these micro tremors, you know. You couldn’t even feel them at the surface, but the seismographs can pick them up and the people have said “no.”
Art Berman: It does that here too. That’s a population density issue. If you do that out in the desert of west Texas or New Mexico, there’s nobody there to notice it. If you do it in the midlands, there’s a lot of people to notice it. So those are all important issues.
Chris Martenson: So much of this story depends on this idea that we’re just going to have as much oil as we want forever. I love this – I jumped way ahead to slide seventeen here, and I’m looking at – you’re comparing the EIA – that’s the Energy Information Agency – their tight oil reference case – so this is kind of like midzone. They’re not shooting high; they’re not shooting low. They show this tight oil peaking at 10.28 million barrels out in 2031 and then very gently wobbling down to 8.38 million barrels by 2050.
I look at that and I’m like wow, nothing to think about until 2050. You mentioned grandchildren. You know, it’s like gosh, you know, that’s plenty to work with. And then you compare that to a different reference case called the BDAC. I wonder – take us through that.
Art Berman: Yeah, so, I mean, it’s the Berman Dumb Ass Case, and it’s called that because it’s not particularly – it’s not rigorous, let’s put it that way. But it is – what I’m doing there is I’m saying all right, I want to know if I believe 9.45 mbd by 2025, but given where we are today, close to 7.0 mbd or so, I’ll just give it to you; I’ll just give it to you.
And so all I’m doing there is saying well, how do things ordinarily decline in the world? Natural systems, oil fields, et cetera, barring some great new addition of reserves that we don’t know about, and that’s what I come up with.
And there is a slide right before that, number 16, is sort of a different version of the same calculation. And the problem, and I’m not criticizing EIA, by the way. I think they’re – if it weren’t for them I wouldn’t have anything to talk to you about. That’s a plug for EIA. But what this graph shows in slide 16 is this is the yellow, or the orange, or whatever the hell that color is, that’s EIAs production forecast.
And I’m saying hey, guys, wait a minute. I’m a geologist, and I look at things like reserves, and guess what? According to you guys, proved reserves are 20 billion barrels for tight oil, and depending of if you use the forecast that they published a year ago in January, you’re going to run out of proved reserves sometime in 2023. And based on the fact that we’re not producing as much as we thought we would – I put an adjusted cumulative on which I’m not saying is right – and that says okay, we run out of reserves in 2026.
And my point, Chris, is there’s got to be some constraint on this somewhere. I mean, you can’t just come up with fifty or sixty billion barrels of oil that nobody knows about yet. It’s like waiting for Elon Musk to come up with some technology that we don’t know about.
And I’m not saying it couldn’t be there. I’m saying I doubt it. But this is the United States. We’re saying that there’s something like five times more oil than we know about today. And there’s always a little bit more oil. I mean, the world has thought we’re going to run out of oil since the 1860s. But that notwithstanding, at some point we will.
But here, the issue is look – and our friend David Hughes – he’s dug into this in a lot more detail, and I’ll plug his latest work, which is his reality check on EIA, which is currently available online, and I’ll give you that link in just a minute. But he says that not only does this number, whether it’s 91 or 112 billion barrels exceed proved reserves, it also exceeds technically recoverable resources. I mean, we can’t even optimistically estimate that there’s that much oil going on the world.
It’s kind of tough to say I believe that. And that’s kind of where my Dumb Ass approach to things comes from
Chris Martenson: Well, and in support of that, I do think that the EIAs got some ‘splaning to do here at some point because what we’re hearing about this year too is the parent/child interference. We’re seeing that companies are already moving into tier two acreage, which had a forty percent-ish less tasty aspect to it compared to tier one.
So the idea that we’re already pushing into tier two, that we’ve already figured out we’ve drilled too close and had parent/child interreference tells me that we’re a little closer to the end of the game than the beginning, right. To me that sounds like mature sort of findings that you have. And I know there’s a lot of acreage you have to drill, but already it feels like we’re bumping into the edges of it. Is that true or not true?
Art Berman: To a large extent. Let me just give you that – it’s a postcard of institute, a Google postcard on .org. Dave’s latest publication. It’s free. Shale Reality Check 2019.
But to your question, we are there if we’re talking about the Balkan, the Eagle Ford, the Niobrara, the Anadarko. I mean, these are the tight oil plays that have been around for a million years. At least since 2008, ten years ago, and they were supposed to last for a bazillion years back then.
And so it’s really just the Permian that has the running room. And there’s a slide, it’s number 27, which says good and bad news about Permian production. So the good news, and what I’m showing there, is the Bone Spring Play, which is one of the three big plays in the Permian, and I’ve actually calculated the per-well average reserves and contoured what I believe to be the commercial limit which is the hot colors.
I’ve calculated and area, and I’ve said okay, great, how many existing wells are there? And the answer is – call it tier one, call it tier two, I don’t care because I don’t really know what those things mean. We’re at about 300 acres per well right now. And that says no, we’re not anywhere close to done with this play. I mean, I think it’s reasonable that we could get down to 90, 80 acres per well.
But the last time I did this about a year ago we were at 700 acres per well. So to your point, yeah, we’re getting closer than we were not very long ago, but are we there? Not yet in the Permian. But it won’t be long.
But the big point, the big calibration that I want to provide here – okay, I’m a geologist. I’m a technical guy, et cetera. It really isn’t geology that ultimately determines these upper limits; it’s capital supply. I mean, give somebody enough money, and you don’t care about the commercial results, and they can produce oil forever. I mean, ask any state oil company.
And the problem that we’re having right now is that the investment community, the capital markets of the world, have said uh-huh, we’re not going there. We’re not giving you anymore money. And the reason is, I think, bogus. Or at least the public narrative that oh, well you guys, you know, you’re not showing us the cashflow that we need. I think that’s a load of crap.
If you look at slide 23, that says it all. This slide I’m showing the – I’ve normalized everybody’s share prices and WTI, West Texas Intermediate, and I’m showing the darlings of tight oil. I won’t go into the details. Ask me later. And what this shows is that all of the enthusiasm for tight oil investment that we saw from 2016 until certainly the middle or the end of 2018 was because oil prices were low.
And it just doesn’t take a genius to say, you know what, I’ll bet you that share prices of an oil company correlate pretty damn well with oil price. I mean, duh. And so if you’re at $28 a barrel, as we were in February of 2016, it doesn’t take a genius to say, you know what, I think there’s only one way for oil price to go and it’s up. And if I buy shares of EOG or Pioneer or Concho or whatever, Exxon Mobil, I’ll bet you those shares are going to go for a really good ride.
And once they get to $65 or so dollars a barrel, it doesn’t take a genius to say, you know what, I don’t think there’s a lot more room to run here. This ride’s over. And that’s what’s happened. I mean, call it simplistic, but, you know, I’m a pretty basic guy, and to me this chart explains everything.
Why in the world would you buy an energy stock that doesn’t pay dividends and has billions of dollars in unpayable debt? Why would you do it if history tells you that oil price has got nowhere to go but sideways or down? Now, that may or may not be true, but that’s certainly what history since certainly October of last year, so we got over a year that says, you know, it ain’t getting there. It’s not getting to $70 or $80 or $90 bucks for a long time, or at least until we really start running short of oil.
So to me is that the cliché? Is that the elephant in the room? It sure is for me. I think all the public narratives – I don’t know what they’re based on, but they just don’t make any sense to me. Investors didn’t care about negative cashflow and debt in 2016, ’17 or ’18. You know, they woke up and said oh, now we care? Uh-huh. There just saying we can’t make any money off the stock play.
Chris Martenson: Because oil is not at a high enough price yet to support the investment in that space. And so if the Burman Dumb Ass Case comes true and it’s 2025, that’s sort of the peak, and the United States is now wobbling downwards forever after. That’s right around the time China’s just really staring to vacuum up more and more oil because their import numbers are just staggering.
So I don’t see how oil doesn’t either A, move up really high in price in order to support more exploration, discovery, drilling, and production, or there’s some sort of a conflict between the United States and China around who gets access to that oil because there’s actual structural shortfall.
Either way, I don’t know how the a world awash in just the magnificent amounts of debt we have survives either of those scenarios. So that’s really what keeps me up at night, as it were, is just worrying about how there doesn’t seem to be anybody really looking at that picture. And to me, 2025, Art, that sounded so far away last year, but now it feels like it’s going to be tomorrow. It’s so close.
Art Berman: It’s almost 2020. That’s right. And so what has to happen here is one of two things. Oil price goes up for the reason that you described, or the market suddenly realizes, as it did in 2005, ’06, ’07, ’08, gee, we need a higher price to stimulate more drilling because we can see a time not very far out in the future where we’re going to be out of this stuff. And that carried oil prices high through 2014.
And oh, by the way, people who say it’s all about interest rates and ZURP and all of that. Again, a very appealing and totally wrong narrative. I mean, that’s a piece of it, but I mean, all that – you know, higher prices were happening before the financial collapse. They were happening before – that’s just the market saying we need more oil. ZURP was a bonus. It certainly added to it.
The other thing – higher prices will happen a whole lot sooner than most people think. Or the alternative is that the pessimism that we’re encountering right how is going to continue. Actually, the best thing in the world for investors to go back into oil, and tight oil in particular, is much lower prices just like they were in 2016. Kick those prices down to $45 bucks and man, the checkbooks are going to open up, and all this stuff about negative cashflow, never mind. It never was the problem to begin with. It’s what some analysts made up, and people believe that crap.
Chris Martenson: Yeah. Gosh, there’s so much more I have to talk to you about, but I know we’re running out of time. I want to jump to your conclusions real quick that you’re going to present to the LSU students later this morning.
I feel like you’ve led the horse to the water, but you’re not really pushing the horses face into the trough here. But one of the bullet points here says very, very, very gently, “A transition away from an oil weighted energy supply will be complex, costly and lengthy despite supporting arguments or preferences.” It’s kind of euphemistic. If you’re sort of going to strip the varnish off of that, what are you saying there?
Art Berman: I’m saying all of your ideas about a renewable future that allow us to just going on living the way they are, throw them in the garbage. That is so completely wrong and misleading and deceptive. It won’t happen. I’m sorry.
You know, I study this. This is my life. And I’m all for renewable energy. I belong to every environmental group there is. And I’m telling you honestly and objectively as an energy specialist that – there’s another bullet somewhere in here or maybe it’s in…
Humans have never gone from a higher density energy source to a lower energy density source in the last twenty thousand years, and that’s what you guys are proposing. You’re talking about going – you’re turning things around, and if you think you can do that – and I don’t mean you and I don’t mean any particular you – then you’re saying that we’re going to do something that has never been done before, and I’m going to say, what are the odds of that?
Now, does that mean that we cannot survive? No, I’m not saying that. Does that mean that you should be super pessimistic? I’m not saying that either. What I’m saying is that if you don’t trust the oil companies and you think that they’re misleading or lying to you, I got news for you. So are the renewable energy companies.
Everybody’s pitching their book, as they should. That’s what we do. We promote each other. I promote myself. You promote yourself. That’s how we survive. Open your eyes, people. They’re all lying tot you. The future, according to whomever you choose, is not the way they say it is. Use your brain. Look at a few slide from me or Dave Hughes or Bill Rees or Nate Hagens or Chris Martenson. Name your poison. Study it and come back and say what’s the probability that life is going to go on the way it is right now with a lower density source of energy? And the answer is zero.
That’s the unvarnished version of it. Again, I’m not saying a thing against renewable energy. I’m all for it. But let’s recognize its limitations. It has them.
Chris Martenson: Absolutely. And your final closing words were, “The best path forward is to find ways to live better with less.” And that’s what I really encourage my listeners to do. I think everybody really needs to take those words to heart. “Find ways to live better with less.”
And I think that’s a wholesale proposition of reorganization of a lot of our living arrangements in this country for a lot of folks. But if people can make that transition on their own terms earlier, I think they’re going to – that’s a really good strategy to be pursuing at this time.
Art Berman: And it goes beyond living arrangements, Chris. And we’ve talked about this offline. It has to do with emotional, psychological adjustment. Learning that I can be happy or gratified or satisfied without buying a new Tesla tomorrow. People have survived on this planet for hundreds of thousands of years at subsistence level and they led good lives, or at least they thought so.
I’m not suggesting that we should go back to hunter/gatherer, although there are some things that recommend that. But all I’m saying is this myth of continuous growth is possible, needs to be thrown away, and people have to take responsibility for their own happiness and satisfaction.
I’m not here to tell them how to do that. I’m a scientist. I’m not a psychologist. But happy to talk to anybody about it. I’ve done a lot of thinking about it.
Chris Martenson: Well, fantastic. Art, that was perfectly said. I know we’re up against your time limit, so I’m going to call it here. But thank you so much for your time. And can’t wait to hear how it went with the LSU students. Love to hear some feedback or anecdotes, whatever you gather from that.
Art Berman: I’ll get back to you on it. And as I said in the beginning, I always love to talk to you, Chris.
Chris Martenson:a Likewise. Thank you, Art.