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I work in surface production facilities (rather than reservoir) but I think this article misses the point by a long margin. For the vast majority of oil reserv

I work in surface production facilities (rather than reservoir) but I think this article misses the point by a long margin. For the vast majority of oil reservoirs, shutting in is good for production. The reason is fairly intuitive - you drill into the oil-bearing part of the reservoir which is in the middle (beneath the gas but above the water). When you suck on the oil, you pull water and gas through with it ("coning") but when you stop, it all settles down again. When you restart production you get more oil (valuable) and less gas (far less value, possibly worthless) and less water (worthless). Lifting costs vary a great deal but for my high-cost-of-living part of the world, we still don't spend more than about $20 a barrel to produce the oil. Most of the world would be far less. I think for the vast majority of the oil industry, we still make a small profit on low oil prices. The economics of oil production is really that you spend a shitload up front (CAPEX) and then your continuing costs (OPEX) are an order of magnitude smaller. And as our CEO said recently, when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today. Also what they mentioned about waxy pipelines doesn't affect most facilities. Usually we would do a shock biocide dose for preservation, which is not a particularly high cost. And if you've got a waxy crude, you're probably going to get your wax issue within 12-24 hours anyway as soon as you cool to ambient, so a long shut-in and a short shut-in would be dealt with similarly.

Roritharr 6y ago
Thank you for the great comment. It is astonishing to me how professional people from the oil industry generally were in my previous interactions. Such a nice change of pace compared to many others.
- lobotryas 6y ago
  Why would they be unprofessional? Because media demonizes the industry as destroying the Earth and raping the environment? Petroleum engineering/science is very hard; people don’t make it through that by the seat of their pants.
  - thrwaway96 6y ago
    Perhaps it's possible to destroy the earth and still be nice on the Internet? The two aren't mutually exclusive..
    - godzillabrennus 6y ago
      No one is “destroying the earth”. The earth will be here long after we have pumped enough carbon in the air to change the climate and kill ourselves. We are just killing ourselves slowly. Kind of like running a car in an enclosed garage but at a massive scale. We can build carbon extraction plants to reverse this. We just need to wake up as a species to the issue at hand and stop saying the world is ending.
      - samatman 6y ago
        If someone is pissing on my floor, I might tell them to stop destroying my house. If they drunkenly retort that, at most, they're slowly destroying the floorboards, and that the frame and roof will happily go on without them... I'm still kicking them out.
        irishcoffee 6y ago
        And then they move on..., and then you move on..., and the earth keeps spinning. Humans will never destroy the earth, just ourselves.
        ramblerman 6y ago
        At best this is like a teenager trying to be deep. At worst it's just nihilistic. We get your point, but for those of us not assuming the destruction of humanity, there are still choices we can make.
    - lobotryas 6y ago
      Why did you create a throwaway for such an innocuous comment? Are you very afraid of downvotes?
moralestapia 6y ago
Your input is great but it begs the question: why, then, isn't production being shut down during this time?
- ethelward 6y ago
  If I understand correctly: > we still make a small profit on low oil prices. and > when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today. So basically, a bird in the hand is worth two in the bush.
- deleted 6y ago
  [deleted]
- simonh 6y ago
  If I've got this straight, the $20 per barrel cost of production includes the up-front CAPEX costs. However those costs have already been paid. The marginal cost of production per barrel is lower, so right now ignoring sunk costs $20 per barrel oil is still economical to pump for many producers. Is that right?
  - arcticfox 6y ago
    My understanding as well, does anyone have a breakdown of estimates on marginal cost of production for various oil extraction regions? Very interesting..
    - nogabebop23 6y ago
      So capital costs range something in the neighbourhood of 55% to 30% depending on region, and (again regional) total costs looks something like ~$52 a barrel (highest cost regions - like north sea) to < $10 (middle east). But once you've paid all that capital (and something like shale oil in the west has some of the highest relative capital costs) you're better to keep producing at anything north of opex, so maybe as low as $15-20 for a shale producer, or $5 for S.A. This is all very estimated, but you start to see why they keep pumping. Next add in things like transport and storage constraints, refinery capacity , etc and volumes range from zero to infinite regardless of prices. source: we build modeling software for evaluation of these scenarios.
loufe 6y ago
What I think the article did a poor job of highlighting was they were talking mostly about losses from shutdowns in shale-oil wells. They don't talk about conventional surface wells, only offshore and even then they mention a minimal loss - which does not preclude gains from well settling time that you bring up.
carapace 6y ago
> about $20 a barrel to produce the oil The ten most profitable companies in the world are nine oil companies and Apple. No wonder!
- gimmeThaBeet 6y ago
  What year is that? That would make sense for revenue, but while oil and gas bring in a whole lot of money, it's not a stunningly high margin industry. Aramco is probably #1 overall, but the rest of the top 10 should is like, Apple Samsung, and a mix of American and Chinese banks. Then after that you have energy mixed with the rest of the tech players.
  - carapace 6y ago
    IIRC, I read that in a listicle in Economist magazine about three years ago.
    - majewsky 6y ago
      Some short poking around a search engine turns up this 2019 article: https://www.visualcapitalist.com/the-worlds-20-most-profitable-companies/ https://www.visualcapitalist.com/the-worlds-20-most-profitab... Aramco is the only oil company on the top 10. We have Aramco at 1, Apple at 2, Samsung at 4, Alphabet at 7, and the rest is banks, mostly Chinese banks. Places 11-20 are a bit more varied with 3 oil corps, 3 banks, 3 tech companies and Toyota.
hinkley 6y ago
Is it also true that the flow rate from the well also affects total recovery (probably for similar physics reasons to what you already illustrated)? I remember when people used to write articles about how they suspected the Saudis were 'damaging' their oilfields by drawing them down at too high a rate. But I've been hearing that for 20 years and I would have expected the facade would begin to slip if they pundits were correct.
jjallen 6y ago
Can you suggest reading material for those that would like to learn a lot more about this topic? Specifically US unconventional?
MR4D 6y ago
Shutting in a well increases the possibility of damaging the reservoir as well as the need for a workover. The change in pressure often damages the wall and casing, which increases costs. With a fracked well, all of this is multiplied. Shutting in a well is a case by case operation from a reservoir perspective. Based on the analysis [0] of the experts I talk with, much of the Permian Basin could be damaged not just at the well level, but the reservoir too. (Note that re-fracking is not the same as fracking a virgin field due to the new faults that were created. ) [0] - this is proprietary. Sorry for that, but this is analysis of particular plays, and that is guarded extremely tightly.

Roritharr 6y ago

Thank you for the great comment. It is astonishing to me how professional people from the oil industry generally were in my previous interactions. Such a nice change of pace compared to many others.

lobotryas 6y ago
Why would they be unprofessional? Because media demonizes the industry as destroying the Earth and raping the environment? Petroleum engineering/science is very hard; people don’t make it through that by the seat of their pants.
- thrwaway96 6y ago
  Perhaps it's possible to destroy the earth and still be nice on the Internet? The two aren't mutually exclusive..
  - godzillabrennus 6y ago
    No one is “destroying the earth”. The earth will be here long after we have pumped enough carbon in the air to change the climate and kill ourselves. We are just killing ourselves slowly. Kind of like running a car in an enclosed garage but at a massive scale. We can build carbon extraction plants to reverse this. We just need to wake up as a species to the issue at hand and stop saying the world is ending.
    - samatman 6y ago
      If someone is pissing on my floor, I might tell them to stop destroying my house. If they drunkenly retort that, at most, they're slowly destroying the floorboards, and that the frame and roof will happily go on without them... I'm still kicking them out.
      - irishcoffee 6y ago
        And then they move on..., and then you move on..., and the earth keeps spinning. Humans will never destroy the earth, just ourselves.
        ramblerman 6y ago
        At best this is like a teenager trying to be deep. At worst it's just nihilistic. We get your point, but for those of us not assuming the destruction of humanity, there are still choices we can make.
  - lobotryas 6y ago
    Why did you create a throwaway for such an innocuous comment? Are you very afraid of downvotes?

moralestapia 6y ago

Your input is great but it begs the question: why, then, isn't production being shut down during this time?

ethelward 6y ago
If I understand correctly: > we still make a small profit on low oil prices. and > when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today. So basically, a bird in the hand is worth two in the bush.
deleted 6y ago
[deleted]
simonh 6y ago
If I've got this straight, the $20 per barrel cost of production includes the up-front CAPEX costs. However those costs have already been paid. The marginal cost of production per barrel is lower, so right now ignoring sunk costs $20 per barrel oil is still economical to pump for many producers. Is that right?
- arcticfox 6y ago
  My understanding as well, does anyone have a breakdown of estimates on marginal cost of production for various oil extraction regions? Very interesting..
  - nogabebop23 6y ago
    So capital costs range something in the neighbourhood of 55% to 30% depending on region, and (again regional) total costs looks something like ~$52 a barrel (highest cost regions - like north sea) to < $10 (middle east). But once you've paid all that capital (and something like shale oil in the west has some of the highest relative capital costs) you're better to keep producing at anything north of opex, so maybe as low as $15-20 for a shale producer, or $5 for S.A. This is all very estimated, but you start to see why they keep pumping. Next add in things like transport and storage constraints, refinery capacity , etc and volumes range from zero to infinite regardless of prices. source: we build modeling software for evaluation of these scenarios.

loufe 6y ago

What I think the article did a poor job of highlighting was they were talking mostly about losses from shutdowns in shale-oil wells. They don't talk about conventional surface wells, only offshore and even then they mention a minimal loss - which does not preclude gains from well settling time that you bring up.

carapace 6y ago

> about $20 a barrel to produce the oil The ten most profitable companies in the world are nine oil companies and Apple. No wonder!

gimmeThaBeet 6y ago
What year is that? That would make sense for revenue, but while oil and gas bring in a whole lot of money, it's not a stunningly high margin industry. Aramco is probably #1 overall, but the rest of the top 10 should is like, Apple Samsung, and a mix of American and Chinese banks. Then after that you have energy mixed with the rest of the tech players.
- carapace 6y ago
  IIRC, I read that in a listicle in Economist magazine about three years ago.
  - majewsky 6y ago
    Some short poking around a search engine turns up this 2019 article: https://www.visualcapitalist.com/the-worlds-20-most-profitable-companies/ https://www.visualcapitalist.com/the-worlds-20-most-profitab... Aramco is the only oil company on the top 10. We have Aramco at 1, Apple at 2, Samsung at 4, Alphabet at 7, and the rest is banks, mostly Chinese banks. Places 11-20 are a bit more varied with 3 oil corps, 3 banks, 3 tech companies and Toyota.

hinkley 6y ago

Is it also true that the flow rate from the well also affects total recovery (probably for similar physics reasons to what you already illustrated)? I remember when people used to write articles about how they suspected the Saudis were 'damaging' their oilfields by drawing them down at too high a rate. But I've been hearing that for 20 years and I would have expected the facade would begin to slip if they pundits were correct.

jjallen 6y ago

Can you suggest reading material for those that would like to learn a lot more about this topic? Specifically US unconventional?

MR4D 6y ago

Shutting in a well increases the possibility of damaging the reservoir as well as the need for a workover. The change in pressure often damages the wall and casing, which increases costs. With a fracked well, all of this is multiplied. Shutting in a well is a case by case operation from a reservoir perspective. Based on the analysis [0] of the experts I talk with, much of the Permian Basin could be damaged not just at the well level, but the reservoir too. (Note that re-fracking is not the same as fracking a virgin field due to the new faults that were created. ) [0] - this is proprietary. Sorry for that, but this is analysis of particular plays, and that is guarded extremely tightly.