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Producer Articles

The Changing Face of U.S. Exploration

I recently heard a speech by the chairman of a large financial institution that provides funds to oil and gas companies drilling wells in the U.S.  The primary theme  of his talk was that “petroleum exploration is dead in the United States. We know  where all the oil is now, and the industry’s job is just to learn to get it out more  efficiently and profitably.” As a geologist who’s spent a long career exploring for oil and natural gas, his  statement struck me as naively shortsighted.  I’d never considered that all our  nation’s oil fields might already have been discovered, and that nothing is left for  oil and gas explorers to do but pack up the maps and retire to their basements. After all, within the last three years, two friends, Jim Musselman, president and  CEO of Caelus Energy in Dallas, and Bill Armstrong, president and CEO of Armstrong  Oil and Gas in Denver, have each discovered new oil fields that are the largest found  in the U.S. in 30 years.  Situated on Alaska’s North Slope, each of the fields is  expected to yield more than a billion barrels of oil, and both Jim and Bill say they  believe many more fields are waiting to be discovered in the state.  I’m certain  neither expect their new discoveries will be their last. Both new fields were found by “conventional” methods:  i.e. utilizing inferred  models of geological “traps” where oil could be contained, then drilling vertical  wells to test their ideas.  For more than a century, oilmen and women have  employed a variety of geological theories, methods and technologies to explore for,  find and produce oil from the now‐known fields around the world.   About a decade ago, the combined technologies of horizontal drilling and hydraulic  fracturing  (“fracing”)  made  possible  the  drilling  and  production  from  rock  formations previously known to contain hydrocarbons but thought to be too dense  or “tight” to yield them in commercial quantities.  Oil and natural gas produced  from this new resource base are known as the “unconventionals”. Consequences  of  the  “unconventional  revolution”  have  been  profound.  The  technologies have opened vast areas of the U.S. and around the world as new  targets for drilling.  For the U.S., 2009 ended an annual decline in oil production  that dated back to 1971.  Since then, a steady annual increase in daily production  will allow the U.S. to reach or exceed 1971’s peak this year.  In doing so, the industry  has employed thousands of new oilfield workers, decreased our reliance on foreign  and often adversarial countries to make up our petroleum shortfalls, decreased our  negative balance of trade deficits, and enhanced our nation’s security and influence  abroad. For the oil industry, the unconventional revolution is changing the nature of the  business ...

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All Good Things Must Come to an End

The Proposed Liquidation of Five States Consolidated I, II & III, Ltd. Investments in Five States Consolidated I, II & III, Ltd. (“Legacy Funds”) have been generating returns for investors for fifteen to thirty years. The average investor has received over three times his invested capital in distributions, for a weighted average Internal Rate...

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Déjà Vu All Over Again (Again)

Those who have read my articles over the last 25 years know my favorite Yogi Berra quote: “It’s déjà vu all over again.” This is such an apropos description of the oil business I can’t resist continuing to use it frequently.  In this article, I will discuss how the oil and gas industry went...

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Rules of the Road

This year begins the thirty-third year of business for Five States Energy Company. Some of our early investors have been participating with us almost as long, and continue to join us in new offerings of partnerships and funds. When Don Malouf, Arthur Budge, Jr. and I organized Five States in 1985, we agreed to...

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America’s Shale Oil and the Changing Geopolitical Landscape

Rarely do I read a book that is sufficiently interesting and provocative that I keep it on the shelf for further reference. One such book that has been so influential for me is The Clash of Civilizations and the Remaking of World Order, (1996) by Samuel P. Huntington, a political scientist at Harvard. His...

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Five States Legacy Fund

We have been attempting to wind-down and liquidate Five States Energy Capital Fund 1, LLC (“Fund 1”) this year. Until the last few weeks we thought we were on schedule to do so. However, for reasons discussed in this article, we do not expect to be able to do so until next year. We...

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Is the World Facing “Peak Demand” Rather Than “Peak Supply”?

For at least 100 years the world has been anticipating the “rapid exhaustion” of crude oil supplies. Will we continue to be as concerned in future years as we have in the past? “Peak Oil”, the idea that global oil production would soon reach a maximum and then begin to decline, attracted a significant...

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If You Don’t Have an Oil Well

When I was a boy growing up in West Texas in the 1960s, there was a frequent television commercial for the Western Company[1].  The ad concluded with a beautiful young woman in roughneck overalls and a hard hat hanging off the side of a drilling rig, speaking the famous tag line: “If you don’t...

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Changing Expectations

What a year! This time last year, I thought Mr. Trump was in the race to provide a media shill to allow the “real Republican candidates to debate the real issues.” After the primaries I thought a Republican victory over the Clinton machine was impossible. Equally surprising to me was the Republican dominance in...

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What a Difference a Year Makes!

2017 opened with a much brighter outlook for the petroleum industry and the future for America’s energy security than did 2016. At year-end 2015 the U.S. oil industry was in a funk. In the last seven months of 2015, oil prices declined 38 percent, from more than $60 per barrel in June to $37...

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Election Year Choices

On the threshold of the November elections, we are being assailed by both major presidential candidates with charges and counter-charges, uninformed rhetoric and strident babble. Neither candidate appears willing or able to discuss energy matters with reason, nor almost any other major issue. The creativity and ingenuity of American geoscientists and engineers have led...

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How We Purchase Oil and Gas Properties

Financial theory is based on the assumption that money has Time Value.  The idea is that a dollar available to you today is worth more than a dollar available to you later.  The mechanics are fairly simple: Borrowers will pay interest to get money now and repay it later. Lenders will be paid to...

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The Five Stages of Loss & Grief

In the last few issues of The Producer, I have discussed and illustrated the impact of the decline in oil prices on the value of producing properties. Also discussed was the fact that most producers who had what were previously considered “prime” debt levels drawn against their properties are now insolvent (their assets are...

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When Good Wells Go Bad

Like people, oil and natural gas wells have productive lives—they are born, decline over a period of time, then are put to rest. Also like people, the length of their lives can be affected by a variety of circumstances, both physical and economic. Ultimately, however, all wells reach their economic limit and can no...

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