Gregor Macdonald's Tight Oil Tweetstorm

Every once in awhile I think it's useful to preserve the times where people drop tons of great knowledge on Twitter before it's lost forever in the Twitter void, as I did before with a David Roberts flurry on climate change and a Chris Nelder tweetstorm on Peak Oil. This time it's for Gregor Macdonald who produced a series of 21 tweets on tight oil and the vastly under-appreciated issue of well age. 

Check out all of the tweets below. And notice that he also references another must read article: John Kemp's recent Reuters column, "U.S. oil production will be falling by end of 2015"

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1/ Over the past year, I have explained to readers of http://t.co/IEBbdc5dW0 the inexorable forces at play in US tight-oil production.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

2/ Namely, what was once a large population of young wells in plays like the Bakken would eventually become a large population of old wells.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

3/ I've been surprised, at several investor conferences this year, that only a handful of people fully comprehend well-age, in tight oil.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

4/ I have used the demographers term, Age Dependency Ratio, to describe the unique and pretty important dynamic of old vs young wells.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

5/ In conventional production initial investment is key. But in tight oil, it's the next $ of investment that's disproportionately crucial.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

6/ So what exactly is an old well, in US tight oil production? A well that is 2 or more years old. After 24 months, decline already severe.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

7/ So what began to happen in the Bakken this year, is that the population of old wells finally surged, and began to overwhelm the young.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

8/ This was nothing more than the result of frenzied drilling in the past 48 months, and the result: the young became the old, quickly.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

9/ Think it was @pkedrosky who once quipped to me "hey, put enough asymptotically declining gushers together, and presto, aggregate growth!"

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

10/ And that's exactly right. Bakken production thrives on a constant recruiting of new wells to gush for 24 months, even as they decline.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

11/ But now, as I turn to my Bakken spreadsheet I find this: during summer, the Bakken tipped, and now 56% of all wells are old wells.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

12/ These tight-oil dynamics, the age dependency ratio if you will, are well known in energy analysis circles. But rarely covered in media.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

13/ So it was especially encouraging to see @JKempEnergy bring some explanatory journalism to bear. It's a must read: http://t.co/ihPX8ftL19

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

14/ Accordingly, any slowdown in the *rate* at which new wells are brought online in the Bakken will have an enormous impact.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

15/ in 2013, 2000 new wells was "enough" in the Bakken. But it appears that in 2014, 2000-2200 was barely enough. And what about 2015?

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

16/ So you see, the supply response to oil's price fall in North America won't come from the flowing barrel. It's all about the new wells.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

17/ Obviously, if the rate of new well addition in US tight oil slows, then the population of old wells will overwhelm the mix, faster.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

18/ Why this matters to the oil price: Global oil production ex-USA is flat, YOY, 2014 vs 2013, and is actually down 700 kbpd 2014 vs 2012.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

19/ How quickly people forget; it was already acknowledged by Q1 2014 that $100 oil was *not enough* to bring on new supply in many regions.

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

20/ Some open questions: If global crude oil production ex-USA was flat to falling the past 24 mos with $100 oil, what now, for ex-USA oil?

— Gregor Macdonald (@GregorMacdonald) January 10, 2015

21/ When does the oil futures market start discounting this line of demarcation: USA and ex-USA oil supply and the supply we *had* at $100?

— Gregor Macdonald (@GregorMacdonald) January 10, 2015