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Subprime oil: Deflation of the USA shale oil bubble

News Peak Cheap Energy and Oil Price Slump Recommended Links Energy Bookshelf Secular Stagnation Energy returned on energy invested (ERoEI) A note of ERoEI decline
MSM propagated myth about Saudis defending this market share Deflation of the USA shale oil bubble Oil glut fallacy Why Peak Oil Threatens the Casino Capitalism Energy and the Economy Bakken Reality Check Shale Well Economics and cost of production estimates
Energy Geopolitics Ukraine: From EuroMaidan to EuroAnschluss Russian Ukrainian Gas wars The fiasco of suburbia Fiat money, gold and petrodollar The Great Stagnation Big Fukushima Debate
Casino Capitalism Inflation, Deflation and Confiscation All wars are bankers wars Why Peak Oil Threatens the International Monetary System Financial Quotes Financial Humor Etc

In recent years Americans have been hearing that the United States is poised to regain its role as the world’s premier oil and natural gas producer, thanks to the widespread use of horizontal drilling and hydraulic fracturing (“fracking”). This “shale revolution,” we’re told, will fundamentally change the U.S. energy picture for decades to come—leading to energy independence, a rebirth of U.S. manufacturing, and a surplus supply of both oil and natural gas that can be exported to allies around the world. This promise of oil and natural gas abundance is influencing climate policy, foreign policy, and investments in alternative energy sources.

The term "shale bubble" is about the idea that the United States is poised to regain "energy independence"  becoming again net exporter instead of major importer of oil and natural gas. The primary driver of the propaganda campaign was the U.S. Department of Energy’s Energy Information Administration (EIA). The key technologies that were enabler of shell boom were:

This fake promise of oil and natural gas abundance affected both domestic government priorities and foreign policy. Domestically it slowed down rising of private car fleet efficiency d as well as  investments in alternative energy sources. The implications of this are profound. If the “shale revolution” is nothing more than a temporary respite from the inevitable decline in US oil and gas production (not a revolution but a retirement party), then why are there is such a rush to rewrite our domestic and foreign policy as if we’re going to be “Saudi America” for the rest of the century?

In 2015 U.S. shale oil production has peaked, productivity gains have flatlined and the cheap money has all but disappeared. Has the U.S. shale game finally blown over? (Alberta Oil Magazine, Jan 7, 2016):

To summarize the damage: output has peaked, the cheap money and easy private equity are gone, the gains in per-rig productivity have slowed and the 20 to 30 per cent break that E&P companies were getting from contractors for labor costs won’t go on much longer. By all metrics, the shale party is nearly over. The question now is whether the 2015 production peak will forever be the high-water mark for this uniquely North American industry.

There are three major sources of   "subprime" oil: tight oil, shale oil and tar sands.

The term oil shale generally refers to any sedimentary rock that contains solid bituminous materials (called kerogen) that are released as petroleum-like liquids when the rock is heated in the chemical process of pyrolysis. Oil shale was formed millions of years ago by deposition of silt and organic debris on lake beds and sea bottoms. Over long periods of time, heat and pressure transformed the materials into oil shale in a process similar to the process that forms oil; however, the heat and pressure were not as great. Oil shale generally contains enough oil that it will burn without any additional processing, and it is known as "the rock that burns".

Oil shale can be mined and processed to generate oil similar to oil pumped from conventional oil wells; however, extracting oil from oil shale is more complex than conventional oil recovery and currently is more expensive. The oil substances in oil shale are solid and cannot be pumped directly out of the ground. The oil shale must first be mined and then heated to a high temperature (a process called retorting); the resultant liquid must then be separated and collected. An alternative but currently experimental process referred to as in situ retorting involves heating the oil shale while it is still underground, and then pumping the resulting liquid to the surface.

What bother many observers is the amount of  unprofitable (supported by junk bonds) shale oil that come to the market in the relatively short period of time.

Rodster  August 14, 2014 at 4:43 pm

“CONDITION RED: Fracking Shale Is Destroying Oil & Gas Companies Balance Sheets”

http://srsroccoreport.com/condition-red-fracking-is-destroying-oil-gas-companies-balance-sheets/condition-red-fracking-is-destroying-oil-gas-companies-balance-sheets/

“There is this huge myth propagated by the MSM as well as several of the well-known names in the alternative analyst community about the wonders of SHALE ENERGY. I can’t tell you how many readers send me articles from some of these analysts stating how the United States will become energy independent while pumping some of these shale energy stocks. Nothing has changed in America….. there’s always another sucker born every minute.

It is extremely frustrating to see the continued GARBAGE called analysis on the SHALE ENERGY INDUSTRY. I have written several articles listing the energy analysts that I believe truly understand what is taking place in U.S. energy industry. They are, Art Berman, Bill Powers, David Hughes, Jeffrey Brown and Rune Likvern.”

While this conversion of junk bonds into oil has features of classic bubble (excessive greed) but it was also different in some major aspects. We know that bankers like bubbles because they always make money on swings, either going up or down. We can accept that that is how things work on this planet under neoliberalism but that does not turn them less crazy. 

At the beginning this was about shale gas, only later it became about shale and tight oil production. But shale oil production did has major elements of a bubble. And greed was present in large qualities. Special financial instruments like ETN were created to exploit this greed. MSM staged a compaign of how the wonders of technology, specifically horizontal drilling and hydraulic fracturing, have unleashed a new era for energy supplies. Without mentioning that for each dollar shale industry recovered 1.5 dollar of junk bonds was created.

If we think about it in bubble terms that the key selling point of this bubble was that it will lead to America’s energy independence, a manufacturing renaissance, and will lower gas bills for everyone. The estimates (based on past reservoir dynamics) were grossly over represented. The factor that is present is bubbles is that they create excess production that at some point far outpace the demand.

North American crude oil producers are not cash flow positive, and they haven’t been since the beginning of the shale boom. Capital expenses of shale companies has consistently exceeded cash flow even at $100 per barrel oil price. So essentially this was a risky gamble that oil will go higher, and this gamble failed. At least for now.

Most experts and analysts agree that, at current oil prices, the shale oil sector will need to dramatically reduce per-barrel costs in order to make the vast majority of North American plays viable. “The minimum price I’ve seen [to make production worthwhile] is $50 a barrel in the very best possible scenarios and with the very best technology,” says Farouq Ali, a chemical and petroleum engineer at the University of Calgary. “But most of the time they need $65 oil. So the 5.5 million shale barrels we see right now will all decline, but they will decline over time because there are still thousands of wells. Even if oil prices go to $60 they will still decline because that’s just not enough profit to operate.”

Of course, those returns aren’t just diminishing on the production side, but in the pocketbooks of investors, too. Wunderlich Securities senior vice-president Jason Wangler describes the rise of U.S. shales as a “perfect storm” of cheap money, seemingly limitless production potential and rapidly advancing technologies. “Now the money is hard to come by,” Wangler says over the phone from the firm’s Houston office. “With oil at $90 or $100 it was pretty hard not to be economic.” But that old high-price environment, he says, caused significant overinvestment in shale assets, including in risky bets on barely marginal plays like the Tuscaloosa Marine Shale formation that spans parts of Louisiana and Mississippi. “But if you look at the last year or so, you’ve seen a lot of folks really focus on the Permian and on the Niobrara,” Wangler says. “Meanwhile you’ve seen the Bakken really fall off very, very hard, as well as the Eagle Ford and the mid-continent area.”

The decreasing viability of the Bakken region is especially significant. Houston-based shale expert and petroleum geologist Arthur Berman estimates that with West Texas oil trading at $46, a mere one per cent of the massive Bakken shale play is profitable. At those prices, just four per cent of the horizontal wells that have been drilled in the Bakken since 2000 would recover their costs for drilling, completion and operations, according to Berman. Add to that the competition from Western Canadian crude oil, which continues to travel down through the U.S. Midwest via rail and pipeline, and one can assume that a lot of Bakken production will remain economically underwater without a significant price correction or some breakthrough in cost savings. “In the Bakken, you’ve got a long way to transport to get that oil to market,” Wangler says. “Obviously you’re fighting with all that Canadian crude coming down, which makes the price more difficult. It’s also expensive to [transport oil out of] North Dakota, whether you’re going to the Gulf Coast or you’re going east or west.”

Due to the dramatic drop of oil prices shale bubble start deflation. Several bankruptcies occurred in 2015. More expected in 2016 if the price not recover.

Some critics to argue the business model of shale production is fundamentally unsustainable. Before the oil rice collapse, which started at mid 2014, immediately after signing Iran deal (strange coincidence)   it was expected that producers would have positive returns for the first time in 2015”

sunnnv, 11/06/2015 at 12:52 am

Thanks for that post by Art Berman, Matt. The fuller post in now up on Forbes, and is way more detailed and interesting than the preview.

http://www.forbes.com/sites/arthurberman/2015/11/03/only-1-of-the-bakken-play-breaks-even-at-current-oil-prices/

note it goes on for 6 pages…

From About Oil Shale

Oil Shale Resources

   

While oil shale is found in many places worldwide, by far the largest deposits in the world are found in the United States in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Estimates of the oil resource in place within the Green River Formation range from 1.2 to 1.8 trillion barrels. Not all resources in place are recoverable; however, even a moderate estimate of 800 billion barrels of recoverable oil from oil shale in the Green River Formation is three times greater than the proven oil reserves of Saudi Arabia. Present U.S. demand for petroleum products is about 20 million barrels per day. If oil shale could be used to meet a quarter of that demand, the estimated 800 billion barrels of recoverable oil from the Green River Formation would last for more than 400 years1.

More than 70% of the total oil shale acreage in the Green River Formation, including the richest and thickest oil shale deposits, is under federally owned and managed lands. Thus, the federal government directly controls access to the most commercially attractive portions of the oil shale resource base.

See the Maps page for additional maps of oil shale resources in the Green River Formation.

The Oil Shale Industry

While oil shale has been used as fuel and as a source of oil in small quantities for many years, few countries currently produce oil from oil shale on a significant commercial level. Many countries do not have significant oil shale resources, but in those countries that do have significant oil shale resources, the oil shale industry has not developed because historically, the cost of oil derived from oil shale has been significantly higher than conventional pumped oil. The lack of commercial viability of oil shale-derived oil has in turn inhibited the development of better technologies that might reduce its cost.

Relatively high prices for conventional oil in the 1970s and 1980s stimulated interest and some development of better oil shale technology, but oil prices eventually fell, and major research and development activities largely ceased. More recently, prices for crude oil have again risen to levels that may make oil shale-based oil production commercially viable, and both governments and industry are interested in pursuing the development of oil shale as an alternative to conventional oil.

Oil Shale Mining and Processing

Oil shale can be mined using one of two methods: underground mining using the room-and-pillar method or surface mining. After mining, the oil shale is transported to a facility for retorting, a heating process that separates the oil fractions of oil shale from the mineral fraction.. The vessel in which retorting takes place is known as a retort. After retorting, the oil must be upgraded by further processing before it can be sent to a refinery, and the spent shale must be disposed of. Spent shale may be disposed of in surface impoundments, or as fill in graded areas; it may also be disposed of in previously mined areas. Eventually, the mined land is reclaimed. Both mining and processing of oil shale involve a variety of environmental impacts, such as global warming and greenhouse gas emissions, disturbance of mined land, disposal of spent shale, use of water resources, and impacts on air and water quality. The development of a commercial oil shale industry in the United States would also have significant social and economic impacts on local communities. Other impediments to development of the oil shale industry in the United States include the relatively high cost of producing oil from oil shale (currently greater than $60 per barrel), and the lack of regulations to lease oil shale.

   
  Major Process Steps in Mining and Surface Retorting  
   

Surface Retorting

While current technologies are adequate for oil shale mining, the technology for surface retorting has not been successfully applied at a commercially viable level in the United States, although technical viability has been demonstrated. Further development and testing of surface retorting technology is needed before the method is likely to succeed on a commercial scale.

In Situ Retorting

Shell Oil is currently developing an in situ conversion process (ICP). The process involves heating underground oil shale, using electric heaters placed in deep vertical holes drilled through a section of oil shale. The volume of oil shale is heated over a period of two to three years, until it reaches 650–700 °F, at which point oil is released from the shale. The released product is gathered in collection wells positioned within the heated zone.

   
  Major Process Steps in in-situ conversion process (ICP)  
   
   
  The Shell In-Situ Conversion Process  
   

Shell's current plan involves use of ground-freezing technology to establish an underground barrier called a "freeze wall" around the perimeter of the extraction zone. The freeze wall is created by pumping refrigerated fluid through a series of wells drilled around the extraction zone. The freeze wall prevents groundwater from entering the extraction zone, and keeps hydrocarbons and other products generated by the in-situ retorting from leaving the project perimeter.

Shell's process is currently unproven at a commercial scale, but is regarded by the U.S. Department of Energy as a very promising technology. Confirmation of the technical feasibility of the concept, however, hinges on the resolution of two major technical issues: controlling groundwater during production and preventing subsurface environmental problems, including groundwater impacts.1

Both mining and processing of oil shale involve a variety of environmental impacts, such as global warming and greenhouse gas emissions, disturbance of mined land; impacts on wildlife and air and water quality. The development of a commercial oil shale industry in the U.S. would also have significant social and economic impacts on local communities. Of special concern in the relatively arid western United States is the large amount of water required for oil shale processing; currently, oil shale extraction and processing require several barrels of water for each barrel of oil produced, though some of the water can be recycled.

1 RAND Corporation Oil Shale Development in the United States Prospects and Policy Issues. J. T. Bartis, T. LaTourrette, L. Dixon, D.J. Peterson, and G. Cecchine, MG-414-NETL, 2005.

For More Information

Additional information on oil shale is available through the Web. Visit the Links page to access sites with more information.


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[May 16, 2020] "A Seller's Market for Bankruptcy Talent:" The Beginning of the End of Methane-Producing Fracking? by Juan Cole

Mar 17, 2020 | www.truthdig.com
On Monday, the price of West Texas Intermediate petroleum fell below $30 a barrel for the first time in four years. Elliot Smith at CNBC reports that BP CFO Brian Gilvary is braced for petroleum demand actually to contract in 2020.

This prediction is very bad news for US fracking firms, most of which need a price point of from $40 to $60 a barrel to make their hydraulic fracturing method of oil production profitable.

In the Democratic primary debate on Sunday, Bernie Sanders pledged to ban fracking entirely, and even Joe Biden said no new fracking would be allowed. Fracking may be moribund anyway by November, and if a Democrat wins the presidency, the industry may never recover.

Not only is petroleum likely headed way below that profitability floor, but many energy firms involved with fracking are deeply in debt, and had taken out the debts with their petroleum fields as collateral. Since their collateral is worth only half what it used to be, the banks will call in their loans. Other energy firms involved in fracking have held significant assets in their own stocks, the price of which just zoomed to earth like a crashing meteor.

Reuters observed,

Fracking has been banned by countries such as France, and by states such as New York because it is highly polluting, leaving behind ponds of toxic water. Moreover, research has demonstrated that the process of fracking, which involves pumping water under high pressure underground to break up rocks and release oil or natural gas, causes gargantuan methane emissions that had earlier been underestimated as much as 45% . The methane in the atmosphere is burgeoning, and scientists had puzzled over why. But scientists have fingered the culprit: fracking. Methane is 80 times as potent a heat-trapping gas as carbon dioxide over two decades, and carbon dioxide is no slouch. A quarter of the global heating effect of greenhouse gas emissions put out by humans burning fossil fuels is owing to methane emissions. Rapid heating is melting the North and South Poles, causing sea level rise that will soon be calamitous.

Given that the world population is increasing and that developing countries such as China and India and Indonesia are seeing more and more people abandoning their bicycles or bus rides for mopeds or automobile ownership, for the world to want less petroleum this year than it did last is extremely unusual.

We are getting a preview courtesy COVID-19 of what will happen through the next decade and a half as electric vehicles take off, significantly reducing demand.

The world produces about $100 million barrels of petroleum a day, and given the Saudi determination to expand production starting on April 1, it could be producing 102 million barrels a day later this spring. The world may only want 90 mn. barrels a day this spring. What with the novel coronavirus pandemic, fewer trucks and cars will be on the road. Petroleum is largely used for transportation fuel.

Do you know what happens if demand falls and production increases? The price falls. In fact, it doesn't just fall. It collapses. It takes a deep dive. It falls off a cliff. It craters deep beneath the earth's crust.

How steep the fall is depends in part on whether Saudi Arabia and Russia keep playing chicken. Saudi Arabia wants to discipline Moscow, which rejected OPEC + production quotas aimed at reducing supply and supporting a $60 per barrel price. So Riyadh is opening the spigots, upping its production by two million barrels a day. Saudi Aramco says it is comfortable with a price point of $30 a barrel. But unfortunately for Aramco, the price may not have stopped falling.

Andreas de Vries at Oilspot.com believes the price could fall to as little as $10 a barrel later this spring. In 2019 the price tended to be around $60 a barrel.

The fossil fuel companies that lack deep pockets could well just fail this year. Brenda Sapino Jeffreys quotes Jason Cohen, an attorney at Bracewell in Houston, as saying of the oil industry, "There is, I'd say, a sellers market for bankruptcy talent." His observation gave me my title.

This steep decline in stock prices and oil prices comes on top of a 5-year run in which the market has destroyed 90% of the value of US investor stocks in oil services. That is, we could this year be entering an oil market crisis as severe as the Asian banking crash of 1997-1998 .

The difference is that by the time fossil fuels come out of their economic doldrums, renewables will have stolen a further march on them. From here on in, hydrocarbons are beginning their death spiral. Friends don't let friends invest in petroleum companies, and nobody should have those stocks in their retirement accounts– if they want ever to retire.

[May 05, 2020] The oil business in America is going to take a very long time to recover.

May 05, 2020 | turcopolier.typepad.com

Oilman2 , 04 May 2020 at 01:54 PM

Colonel, you are NOT wrong. The oil business in America is going to take a very long time to recover. There are complete shutterings of businesses, bankruptcies and more - all while we were in the middle of a downturn. Personally, I just folded up my tent because my my active client list went from 21 to zero over this last month (and that includes intl clients).

As the number one buyer of US steel, the oilpatch represents much more than people realize. We have also been the number one buyer of many other items - where sales have disappeared as company quietly and reluctantly face the reality of the current induced glut.

I'm being forced to change livelihoods - interesting for me, as I am short of the age to get my SS check and too old to employ by most corporate masters....

[Apr 21, 2020] 20 April 2020 at 05:20 PM

Apr 21, 2020 | turcopolier.typepad.com
div This (oil + the virus) is looking like an economic Pearl Harbor for shale oil industry This (oil + the virus) is looking like an economic Pearl Harbor. I think BRICS is playing a far better game of chess so far and will win if we don't replace The Swamp with dedicated people with vision and smarts and who put country above cronyism and self-enrichment.

JJackson , 20 April 2020 at 05:33 PM

What has the fluctuating price of oil got to do with peak oil? One is reflection of demand, plus manipulation of the price by producers, and the other has to do with the long term rates of extraction relative to the creation of new reserves by deposition of marine micro-organism and there decay under pressure and temperature conditions only geological time scales. the two are as similar as the price of fish and oranges.
Jack , 20 April 2020 at 07:00 PM
Sir

You were spot on about Peak Oil. US shale will not die. While shareholders and bond holders will take a haircut today, the extraction technology will continue to improve and their costs of production will decline. As oil prices improve shale production will return. The US is in a strong position as it doesn't have to be concerned about oil at least for the next several decades.

From a supply/demand perspective, oil density in the west will continue to decline as our economies become more efficient and as solar and nuclear becomes more cost competitive for electricity generation.

An investment maxim is to buy when there's blood in the streets. We will continue to use oil for at least another couple generations IMO.

The big issue in the short term is going to be the drastic impacts for those economies entirely dependent on crude revenues. The last time crude prices were lower for a sustained period the Soviet Union collapsed. MbS is running massive budget deficits as he keeps his population from revolting against the monarchy. One possible good outcome is there's going to be less funding for the jihadists in the short term.

Jack , 20 April 2020 at 08:21 PM
BTW, huge opportunity for Trump administration. Buy paper futures for May delivery at negative prices and then accept delivery of physical.

This is the real Art of the Deal.

srw , 20 April 2020 at 08:36 PM
There is oil out there and there will be for a long, long, time. The only determining factor is the price to get it out of the ground. Here in North America fracking has opened the spigot but the price is $40+ a barrel to get it out of the ground.

What I can't fathom is why Canada is pushing through with the Keystone XL pipeline taking tar sands oil from Alberta to Nebraska and eventually to the gulf coast.

Obama put the stop to it but the Trumpster reversed his executive order and they started building again this month, although a federal judge just stopped it due to environmental review.

Several years ago I read that tar sands oil costs $70+/barrel and that doesn't include shipping cost. Does Canada know something about the future price of oil or are they just subsiding their oil companies/workers? I sure wouldn't invest in it.

[Apr 17, 2020] Oil price probably depends on whether the USA can deliver or will deliver: Scott Ritter thinks it can't.

Apr 17, 2020 | turcopolier.typepad.com

OIL WARS. After a lot of phonecalls – especially between Putin, Trump and Riyadh , OPEC plus Russia plus USA have agreed to a production cut. How long will the agreement last? Your guess – it probably depends on whether the USA can deliver or will deliver: Scott Ritter thinks it can't . On the other hand, Washington has had a chance to learn its lesson – shale oil needs price about twice what it is today back down to about $20/bbl ; one producer has already gone bust . COVID has so greatly reduced demand that the cuts may have little effect anyway .

[Apr 11, 2020] Exclusive U.S. banks prepare to seize energy assets as shale boom goes bust by David French and Imani Moise

Notable quotes:
"... JPMorgan Chase & Co, Wells Fargo & Co, Bank of America Corp and Citigroup Inc are each in the process of setting up independent companies to own oil and gas assets, said three people who were not authorized to discuss the matter publicly. The banks are also looking to hire executives with relevant expertise to manage them, the sources said. ..."
"... U.S. oil and gas producers have increasingly relied on banks for cash over the past year, as debt or equity options dried up. Lenders have been conservative in valuing hydrocarbons used as collateral, but recent restructurings have left them spooked. ..."
Apr 11, 2020 | finance.yahoo.com

NEW YORK (Reuters) - Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters.

JPMorgan Chase & Co, Wells Fargo & Co, Bank of America Corp and Citigroup Inc are each in the process of setting up independent companies to own oil and gas assets, said three people who were not authorized to discuss the matter publicly. The banks are also looking to hire executives with relevant expertise to manage them, the sources said.

The banks did not provide comment in time for publication.

Energy companies are suffering through a plunge in oil prices caused by the coronavirus pandemic and a supply glut, with crude prices down more than 60% this year.

Although oil prices may gain support from a potential agreement Thursday between Saudi Arabia and Russia to cut production, few believe the curtailment can offset a 30% drop in global fuel demand, as the coronavirus has grounded aircraft, reduced vehicle use and curbed economic activity more broadly.

Oil and gas companies working in shale basins from Texas to Wyoming are saddled with debt.

The industry is estimated to owe more than $200 billion to lenders through loans backed by oil and gas reserves. As revenue has plummeted and assets have declined in value, some companies are saying they may be unable to repay.

Whiting Petroleum Corp became the first producer to file for Chapter 11 bankruptcy on April 1. Others, including Chesapeake Energy Corp, Denbury Resources Inc and Callon Petroleum Co, have also hired debt advisers.

If banks do not retain bankrupt assets, they might be forced to sell them for pennies on the dollar at current prices. The companies they are setting up could manage oil and gas assets until conditions improve enough to sell at a meaningful value.

Big banks will need to get regulatory waivers to execute their plans, because of limitations on their involvement with physical commodities, sources said.

Banks are hoping their planned ownership time frame of a year or so will pass a Federal Reserve requirement that they do not plan to hold assets for a long time. Because lenders would be stepping in to support part of the economy that is important to any potential rebound, and which has not gotten direct bailouts from the federal government, that might help applications, too.

For now, the banks are establishing holding companies that can sit above limited liability companies (LLCs) containing seized assets. The LLCs would be owned proportionally by banks participating in the original secured loan.

To run the oil-and-gas operations, banks might hire former industry executives or specialty firms that have done so for private equity, sources said. Houston-based EnerVest Operating LLC would be among the most likely operators, sources said.

"We regularly look for opportunities to operate on behalf of other entities, that is no different in this market," said EnerVest Operating's chief executive, Alex Zazzi.


GETTING ASSERTIVE

U.S. banks have not done anything like this since the late-1980s, when another oil-price rout bankrupted a bunch of energy companies. More recently, they have relied on restructuring processes that prioritize them as secured creditors and leave bondholders to seek control in lieu of payment.

But banks are becoming more assertive because of the coronavirus recession and balance sheet vulnerabilities that have developed in recent years.

U.S. oil and gas producers have increasingly relied on banks for cash over the past year, as debt or equity options dried up. Lenders have been conservative in valuing hydrocarbons used as collateral, but recent restructurings have left them spooked.

Alta Mesa Resources' bankruptcy will likely provide banks with less than two-thirds of their money, while Sanchez Energy's could leave them with nothing.

The structures banks are setting up will take a few months to establish, sources said. That gives producers until the fall - the next time banks will evaluate the collateral behind energy loans - to get their houses in order.

After several years of on-and-off issues with energy borrowers, lenders have little choice but to take more dramatic steps, said Buddy Clark, a restructuring partner at law firm Haynes and Boone.

"Banks can now believably wield the threat that they will foreclose on the company and its properties if they don't pay their loan back," he said.

(Reporting by David French and Imani Moise in New York; Additional Reporting by Elizabeth Dilts Marshall; Editing by Leslie Adler; Editing by Lauren Tara LaCapra)

[Apr 01, 2020] Trump, Putin Will Discuss The End Of U.S. Shale Oil

Apr 01, 2020 | www.moonofalabama.org

Jackrabbit , Mar 30 2020 18:14 utc | 6

Trump announced that he would use the cheap prices to fill the U.S. strategic oil reserve. But the spare room in the reserve storage at that time was only some 150 million barrels. As it can only be filled at a rate of 2 million barrels per day the topping off of the reserve is insignificant in the current market.

The oil producers at first pumped their oil into storage tanks to be sold later. When those filled up they rented supertankers to store the oil at sea. But empty supertankers are now also getting rare and the price for them is increasing :

The CEO of the world's largest tanker owner, Frontline Ltd., said on Friday that he'd never known such demand to hire ships for long-term storage. Traders could book ships to put 100 million barrels at sea this week alone, he estimated, but even that could accounts for less than a week's oversupply.

The only solution will be a shut down of the more expensive oil fields. Canada and Brazil are already doing it. U.S. shale producers who are bleeding cash will now have to follow.

That is clearly what Russia wants :

As soon as U.S. shale leaves the market, prices will rebound and could reach $60 a barrel, Rosneft's Igor Sechin said recently. As fate would have it, in what many would have until recently considered an impossible scenario, a lot of U.S. shale might do just that.

Breakeven prices for U.S. shale basins range between $39 and $48 a barrel, according to data compiled by Reuters. Meanwhile, West Texas Intermediate (WTI) is trading below $25 a barrel and has been for over a week now.

The Trump administration has asked the Saudis to produce less oil but as the Saudi tourist industry is currently also dead the Saudi clown prince needs every dollar he can get. The Saudis will continue to pump and they will sell their oil at any price.

The White House is now concerned that it will completely lose its beloved shale oil industry and all the jobs connected to it.

Russia of cause knows this and a few days ago it made an interesting offer :

A new OPEC+ deal to balance oil markets might be possible if other countries join in, Kirill Dmitriev, head of Russia's sovereign wealth fund said, adding that countries should also cooperate to cushion the economic fallout from coronavirus.
...
"Joint actions by countries are needed to restore the(global) economy... They (joint actions) are also possible in OPEC+ deal's framework," Dmitriev, head of the Russian Direct Investment Fund (RDIF), told Reuters in a phone interview.
...
"We are in contact with Saudi Arabia and a number of other countries. Based on these contacts we see that if the number of OPEC+ members will increase and other countries will join there is a possibility of a joint agreement to balance oil markets."

Dmitriev declined to say who the new deal's members should or could be. U.S. President Donald Trump said last week he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time.

A logical new member of an expanded crude oil cartel would be one of the biggest global producer that so far was not a member of that club - the U.S. of A.

We now learn that Trump is ready to talk about that or other concepts:

As Ria reports (in Russian) the topics of upcoming phone call [between Putin and Trump] will be Covid-19, trade (???) and, you guessed it, oil prices.

Trump, who sanctioned the Russian-German Nord-Stream II pipeline while telling Germany to buy U.S. shale gas, is now in a quite bad negotiation position. Russia does not need a new OPEC deal right now. It has many financial reserves and can live with low oil prices for much longer than the Saudis and other oil producing countries. Trump would have to make a strategic offer that Russia could not resist to get some cooperation on oil prices.

But what strategic offer could Trump make that would move Putin to agree to some new deal?

Ukraine? Russia is not interested in that unrulable , bankrupt and fascist infested entity.

Syria? The Zionist billionaires would stop their donations to Trump if he were to give up on destroying it.

Joining an OPEC++ deal and limit U.S. oil production? That would be an anti-American intervention in free markets and Congress would never agree to it.

And what reason has Russia to believe that Trump or his successor would stick to any deal? As the U.S. is non-agreement-capable it has none.

The outcome of the phone call will therefore likely be nothing.

The carnage in the oil markets will continue and will ravage those producer countries that need every penny while the corona virus is ravaging their people. Meanwhile the U.S. shale market will go bust . US financial companies had a big exposure to the Shale Oil frackers.

Good thing trillions of dollars of 'liquidity' has been shoveled their way.

<> <> <> <> <>

Lender of last resort: the unborn.

!!


Thomas Minnehan , Mar 30 2020 18:15 utc | 7

FWIW:
One aspect of the crude complete collapse is to keep an eye on futures and the serious contango at the moment: contango=prices on future contracts are higher than current contract.

e.g. May 2020 CL contract=~$20, May 2021 =~$35.50.

Someone or someones are betting that the crude market will improve, i.e. they are storing crude in very large crude carriers (VLCC) @>$200k per day lease cost. That is a serious commitment/bet on future price/mkt improvement.

karlof1 , Mar 30 2020 18:32 utc | 9
Unmentioned is the connection between Fracking Fraud and the Bond Market Bubble with Congress actively intervening/abetting the Fraud by providing more money to the Ponzi Scheme.
vk , Mar 30 2020 19:18 utc | 22
It was time. The shale industry already was a huge bubble even when oil prices were at USD 60.00 (because it had to borrow a lot to invest, and the more wells drilled, the lower was the oil output per USD invested), which insiders in Wall Street were already discussing how to burst it.

And this is a 100% intentional by the Russians. If American shale really go down, then it would be ironic, since it was the oil crisis of 1975 that effectively ended the Soviet Union.

Vengeance is dish best served cold indeed.

Krollchem , Mar 30 2020 19:28 utc | 26
Another factor going against the shale fracking pipe dream is that the Strategic Petroleum Reserve (SPR) is filled with real oil. Fracking produces light condensate (not oil) that does not meet this criteria, and thus the frackers will not benefit from filling the SPR (unless Trump changes the rules)

Besides, Exxon wants to crush the independent oil shale players and pick up the pieces at pennies on the dollar. Furthermore, former ExxonMobil head Lee Raymond once stated that "Exxon U.S. is not a "company and I don't make decisions based on what's good for the U.S."
https://www.desmogblog.com/2020/03/27/shale-bailout-trump-oil-exxon-strategic-petroleum-reserve

David , Mar 30 2020 19:35 utc | 28
A study by the Wall Street Journal concluded that in one ten year period, the shale oil companies' total costs had exceeded their revenues by two hundred and eighty billion dollars. They have stayed in business by issuing new stock and more debt to cover their losses. Their prime fields are seeing production declines. Their costs are rising as the price of is oil tanking. Collapse is imminent. It's going to have far-reaching consequences.
TG , Mar 30 2020 20:04 utc | 37
Yet another example of the utter intellectual bankruptcy of the US ruling class. They've been playing a rigged game for so long, they've forgotten how to think.

As others here have pointed out, not to worry, the US fracking industry will get bailed out.

The real thing the US might do, is not to join an expanded OPEC+, but to limit imports of foreign oil and protect the domestic industry. Contrary to current 'free trade' dogma, protectionism does work (example A: the United States from 1776 to 1970. Any questions?), but classically you want to limit imports of MANUFACTURED goods and keep the cost of raw materials low. Increasing the relative costs of raw materials in the US while still allowing mass importation of manufactured goods from low-wage nations is anti-Hamiltonian and will crush what remains of US domestic manufacturing..)

Krypton , Mar 30 2020 20:06 utc | 38
Meanwhile Western Canadian Select is now going for $5 a barrel - less than the price of a coffee and muffin at Starbucks.
Michael Droy , Mar 30 2020 20:11 utc | 40
Not sure the US shale market can "go bust" as such. The owners can go bankrupt, but that just means banks and bondholders become the new owners, and their debt investment suddenly turns into equity investment with zero gearing. Once that happens the US shale producers become solid companies financed with zero debt and no incentive to hold back on production. They pump and pump and pump until the pumps no longer work.
Sure, no new developments, but the existing infrastructure will last a few years yet.
Hal Duell , Mar 30 2020 20:15 utc | 41
I don't see a way out for the US fracking industry. Their product is too expensive in the current times, and those setting the rules in these times (Russia and Saud Arabia) have no good reason to help.
The social damage from a collapse in the US will be papered over with printed money. I don't know how that will play out.
One scenario is time being called on the US's forever-wars in the Middle East, but would they be replaced by an invasion of Venezuela? There is good stuff down there, as well as the heavy stuff they've been pulling out. And just across the border into Brazil there is some high ground that looks like a good spot to build a command post.
The US could cut its losses in the wider world, something that seems to be happening anyway, and return to America, north and south. I don't see it just quietly going down the gurgler, but the European Union might.
Stonebird , Mar 30 2020 20:35 utc | 46
Of course it is already a war. The question I ask is, who is fighting and against whom?
The tactical aim at the moment is the end of the petro-dollar. A secondary aim is finding a limit to US militarism. Which in turn depends on the pork.... soorry.... the grifting of large sums of unlimited largess. Third, is trade and domination of markets including sanctions and "treaties". Fourth, is the "domination" of population dissent and overriding Judicial systems.

So the US, China and Russia are at it "hammer and tongs" (old saying but apt). Covid is just one means to an end, regime change another. Who else is in the fight? I would suggest that the Oligarchy and the Termites, the Fed and the deep parallel financial pool, the uncontrolled but unified intelligence "agencies", all have their own agendas.

naiverealist , Mar 30 2020 20:40 utc | 48
Posted by: Laguerre | Mar 30 2020 19:14 utc | 21

"The slow collapse of the US position in Iraq means that the US is not going to hold those oil-fields for too long."

Remember where this oil is going to. During the previous presidential term, it was discovered that the oil was going into Turkey, aided and abetted by the profiteers Erdogan and his son, and then onto oil tankers that shipped it to Occupied Palestine. Current production is also going into Jordan, where it is being shipped by pipeline into the refinery in Eliat(?). I can only surmise the price to be extremely cheap.

So the inhabitants of Occupied Palestine will expect the US to maintain this flow as long as they can, come hell or dead GIs.

vk , Mar 30 2020 20:41 utc | 49
The problem with shale became clear right after the first wells were drilled.

If I understood the reports from the "shale bubble" website correctly, originally the magic over shale gas and oil came from the fact that Wall Street was involved since the beginning (so it was a "coastal elites/heartland rednecks alliance" from birth) and the expectation was that a horizontal well would perform the same way as the traditional vertical well.

A traditional vertical well follows are normal curve graphic, imitating a hill. It starts low, but keeps growing until reaching a peak, maintains this peak for a while (some decades) and then begin a suave fall, which also takes decades.

No wonder, then, the huge euphoria that started in Wall Street when those horizontal wells begun pumping out oil at absurd quantities - they imagine that was the output floor of such wells, and that productivity would only rise after the decades. Indeed, it was predicted at the time that the USA not only was firmly walking towards self-sufficiency - many also predicted it would become the world's greatest oil exporter (yes, above Saudi Arabia, Venezuela, Russia etc.).

But this euphoria was short-lived, as, some years later, productivity of the horizontal wells begun to suddenly fall. It was then realized, after further research, that those wells performed differently than the vertical wells: they begun directly with peak production, then immediately started to fall. Their output graphic looks like an upside-down, slightly inclined letter L.

Even after this discovery, the investors didn't immediately give up. They thought: let's just drill longer wells. And they did. It was then that another problem came out: it seems that, after 3-5 miles, those horizontal wells suddenly lose a lot of pressure necessary to pump the oil out of it. To make things worse, after this length, they begin to suck out pressure from the neighboring wells as well. Therefore, it is a self-defeating enterprise to extend the horizontal wells beyond 3 miles length. And the situation is even direr because shale reserves are usually concentrated in one specific area - it's not like you can drill one horizontal well in Ohio and another one in Florida and so on: the rule of thumb that the oil and gas "must be there" to be extracted in economically viable quantities still do apply to horizontal wells.

After that, all that kept the American shale industry alive was Wall Street and its rotten papers recycling machine.

El Cid , Mar 30 2020 20:44 utc | 50
The US unilateral economic siege on Venezuela and Iran has the affect of cutting world oil supply that benefits US shale and fracking industry.
karlof1 , Mar 30 2020 20:56 utc | 55
A friendly reminder to all barflies that fracking within the Outlaw US Empire also takes more energy to operate than the energy extracted. The business was bankrupt before it began, and nothing can change that fundamental fact.
Likklemore , Mar 30 2020 22:00 utc | 70
China will 'compel' Saudi Arabia to trade oil in yuan -- and that's going to affect the US dollar
from CNBC, Oct.2017
"I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it -- as the Chinese will compel them to do -- then the rest of the oil market will move along with them," Carl Weinberg, chief economist and managing director at High Frequency Economics, told CNBC

Also, recall the recent ARAMCO IPO, reportedly China took a 5 % stake. Hmmm. Was it with USTs?

occupatio , Mar 31 2020 0:16 utc | 89
The minute the Al Saud family begins accepting yuan for oil their days are numbered.
The US put them there, put the Saudi in Saudi Arabia. Any move to accept yuan will be seen as betrayal, and the Al Sauds will be removed, either replaced or simply obliterated.
Posted by: Realist | Mar 30 2020 23:21 utc | 86

+++

If Saudi Arabia shifts to the Yuan, it would have to diversify away from buying US arms. They might be the undisclosed buyer of high-end Chinese missiles, said to have an "urgent need" for them, as per Chinese media on 2020/3/29. This news might be functioning as diplomatic signalling.

Chinese high-end missile sees first export delivery despite pandemic
https://www.globaltimes.cn/content/1184117.shtml

It was the first time a third-generation anti-tank weapon system developed by the Chinese company has been exported, according to the statement.

As the client was in urgent need of the missiles, the successful delivery had significant meaning for establishing Norinco's (China North Industries Group Corporation) market position and further opening up the market, the company said.

Norinco did not disclose more details on the deal in the statement, including the name of the buyer, the quantity purchased and the value of the deal.

Likklemore , Mar 31 2020 0:37 utc | 91
The US put them there, put the Saudi in Saudi Arabia. Any move to accept yuan will be seen as betrayal, and the Al Sauds will be removed, either replaced or simply obliterated.

You hug that thought. Newsflash: The horses camels have already bolted. China is expanding its presence/influence in ME.

These 35 agreements with KSA,'centered around ways to align the Saudi Vision 2030 with the Chinese Belt and Road Initiative' will not be in USD - unless China is unloading USTs. There is nothing US can do except sell more arms to the kingdom. Reuters, WSJ reported the big signing and likely, CNN, Fox, ABC buried it.


"Saudi crown prince signs raft of cooperation agreements with China
Feb.22, 2019
BEIJING: Crown Prince Mohammed bin Salman on Friday met with Chinese Vice Premier Han Zheng to discuss ways of further developing relations between the Kingdom and China.

The meeting took place in the grand surroundings of the Great Hall of the People in the Chinese capital Beijing. After their talks, the crown prince headed the Saudi delegation at the third session of the China-Saudi Arabia High-Level Joint Committee which he co-chaired with Zheng.

Delegates at the meeting discussed moves to strengthen cooperation between the two countries on trade, investment, energy, culture and technology, as well as the coordination of political and security matters. The committee also reviewed plans for greater integration between China's Belt and Road development strategy and the Saudi Vision 2030 reform program.

After agreeing on the minutes of the meeting, the Saudi royal and Zheng took part in the signing of a range of agreements, memorandums of understanding (MoU), investment projects and bilateral cooperation accords between the Kingdom and China:[.]

MoU between the Kingdom's Ministry of Energy, Industry and Mineral Resources and the National Development and Reform Commission in China, signed by Saudi Energy Minister Khalid Al-Falih and Ning Jizhe, vice chairman of the National Development and Reform Commission.

MoU between the Chinese Ministry of Commerce and Saudi Ministry of Commerce and Investment to form a working group to facilitate trade, signed by Abdul Rahman Al-Harbi, the Kingdom's deputy minister of commerce and investment, and Qian Keming, Chinese vice minister of commerce.[.]

Piotr Berman , Mar 31 2020 1:46 utc | 99
Deciphering the mental processes of MBS is always speculative, but it is very hard for KSA to deliver on the threat to increase the deliveries by 2.5 mln bbl/day. As we can see, planes fly only a fraction of pre-virus level, people on quarantine drive much less, you can offer fuel for free and it will not sell more. Now, if you could offer some hand sanitizer and facial tissues with each "full tank", perhaps it could work... But stopping oil production is troublesome for some reasons, to the ignorant me it seems that if you interrupt flow dynamic of oil, it is troublesome to restart it, shale oil may suffer from something similar. Thus tanker ships are being filled up and used for storage as destination ports refuse to take cargoes invoking "higher power". Hapless KSA cannot find enough tankers, and when they find them, hard to find a port to accept them. So KSA combative threat could impact psychology of the traders, but the virus made a dent in demand of several times larger magnitude.

Nobody knows how long the demand will stay low, but as it does, storage will be bursting, renting tanker ships became expensive. so the glut it will take time to dissipate (folks renting the tanker ships will be pressed to get rid of the cargoes at the first opportunity), and with no coordination to cut the production, low prices may stay for a year or more. This seems necessary to cut shale oil and other high cost oil project down to size. Periodic down period of pricing does not change long term calculations, but long periods will drive a lot of small players out of business. This means so-called consolidation, creditors become owners and sell it to vultures (regular folks cannot own something that costs more to maintain than it brings revenue). And what do the vultures do? "Paring excess capacity". Happened to many industries in the past. And even brainless bankers will give it two thoughts before lending money for projects in high cost oil production.

BTW, Putin is doing a gently MBS-like manouver, with the assist from Trump. To wit, Russia started to tax repatriated profits -- no need to imprison the account holders in Ritz Carton. But why would they be motivated to repatriate the profits back to Mother Russia? A patriotic virus? Or pestering with account freezes that Trumpian robbers are so fond of doing?

One mystery for me is why Canadians bother to produce oil with single-digit prices. Stopping tar oil production should be simple, just mothball the equipment.

One rumour in the oil patch is that USG will give them bail out. That could be a boon for green thinking idealists who are hostile to carbon energy production, because many deplorables do not like bailout (unless they are the beneficiaries). This could allow Trump to be defeated by a brain dead opponent.

daffyDuct , Mar 31 2020 2:28 utc | 101
"Bloomberg reports that Plains All American Pipeline asked its suppliers to scale back production,
and Plains and Enterprise Products Partners is requiring customers to prove they have a buyer or place to offload the crude they are shipping
The companies made the requests during the past week.

This is a clear sign that a growing glut of crude is overwhelming storage capacity. Pipeline companies are running out of storage space for oil. Coronavirus related lockdowns are resulting in plunging demand."

https://www.forexlive.com/news/!/pipeline-operators-asking-oil-producers-to-reduce-output-growing-glut-is-capacity-20200329

Bill , Mar 31 2020 15:34 utc | 137
@Vic

Hajj revenues poised to exceed $150bn by 2022: Experts

(the article refers to both Hajj and Umrah revenues)

https://www.arabnews.com/node/1151751/saudi-arabia

If that actually occurred it would exceed SA's 2019 $88bn oil revenue by a good margin

Canthama , Mar 31 2020 17:26 utc | 152
It is payback time for Russia no doubt, but Russia plays always the long game, any decision or concession will always be related to the long game. for Russia, which is the global leader in energy supplier (oil, gas & nuclear).
Russia got really mad with the Nordstream II delay, this is something Russia will not forget that easy, besides costing them a lot, it was some sort of global humiliation, that combination is pure fire. Even if the sanction are lifted now, Nordstream would start late 2020 and not late 2019....1 year delay anyway, so lifting sanctions won't matter here.
My first reaction is that Russia will not agree with the USA in anything, it will drive the shale market dry for a little longer, it must if it wants to cause long term problems for the players in the US, so no short term relieve for the shale players here, and if Russia does agree in the OPEC++ with the US and other export players then this will take time, and then US Gov can not intervene in the local production, more time...and no results, at the end the US will have to give up something, and I do not think lifting sanctions will be it, they may try it, bit it has no real value for Russia....only a global military retreat, something that will cost dearly, politically and in image will. serve Russia and its key strategic ally...China, mind you that cheap oil and gas helps China's recovery...March nbrs came in from China and it has already shown a better recovery than expected.
This is the only way I can see Russia playing the long game, together with China and a major strategic geopolitical defeat for the US.
JC , Mar 31 2020 17:46 utc | 154
Posted by: Canthama | Mar 31 2020 17:26 utc | 152

"This is the only way I can see Russia playing the long game, together with China and a major strategic geopolitical defeat for the US."

I like what you said, but Russia and China must continue supports one another. Both should also supports Iran and Venezuela too.

[Mar 24, 2020] The government will again bail out shale industry

Mar 24, 2020 | www.unz.com

Mr McKenna , says: Show Comment March 23, 2020 at 6:20 am GMT

@Kim

They're going to have to bail out/nationalize the shale oil industry.

Or "They" could just ignore it.

It has achieved these outcomes – despite steep decline rates and a constant need for huge numbers of new wells – through massive levels of junk debt forced into existence by almost zero interest rates and by having little to no profits since 2008.

Sounds like a really rotten business model. "steep decline rates and a constant need for huge numbers of new wells" describes an industry in eclipse, to put it kindly.

The break-even for shale oils wells varies, but $70 a barrel is a good average figure.

Even worse. This 'business' is essentially fake and should be shuttered. Every dollar thrown at it will be wasted. If everything in the world somehow reverses itself one day and shale oil is once again needed, we can restart it. Won't happen, though. Obsolete.

anachronism , says: Show Comment March 23, 2020 at 7:38 am GMT
@Kim One part of the New Deal, that seemed to work very well for all parties concerned, was the Department of Agriculture's willingness to buy up excess grain/dairy production in order to encourage an ample supply of grain/dairy and a sustainable price, so that farmers could get out of the boom/bust cycle. These excess stores were intended to provide supplies when weather or disasters disrupted the harvests. The AG Dept. also established guidelines for farmers on how much acreage should be allocated to which type of food product, based upon its own estimates of aggregate demand and needs for strategic reserves. It even paid farmers to keep acreage fallow at times.

The Department of Energy could do something similar (provided the Congress should legislate it). For this to work, the government must limit foreign sources from supplying the US markets to serve only as augmentation to US energy production whenever/wherever the US energy producers can't meet the demand at the price level that the Energy Department sets. If the price is determined on an average COST+ ROI basis, our energy producers would effectively become utilities.

Miro23 , says: Show Comment March 23, 2020 at 8:35 am GMT
@Kim

They're going to have to bail out/nationalize the shale oil industry.

Why? These were private failed investment decisions, so let the industry go bankrupt along with their shareholders and junk bond investors.

The world doesn't need oil supplied at $70 – And what has this got to do with the US public? They didn't make these shale oil investment decisions.

TBTF (Too Big To Fail) is another fake argument. If the investment banks had been allowed to fail in 2008, we would now have a smaller and more prudent banking sector. There are always some serious banks out there to pick up the pieces.

[Mar 10, 2020] The US shale sector is getting completely killed. A complete bloodbath. Billions of dollars in equity wiped out

Mar 10, 2020 | www.moonofalabama.org

karlof1 , Mar 9 2020 20:12 utc | 36

This bird tweets :

"The U.S. shale sector is getting completely killed. A complete bloodbath. Billions of dollars in equity wiped out.

"Occidental Petroleum is down 44%. EOG is down 35%. Continental Resources down 40%. Smaller players like Parsley down more than 50%."

I suggest this bird look at one of those corp's balance sheets since they had very little equity but lots of liabilities (Assets=Liabilities+Equity) as Assets and Liabilities where allowed to grow with the use of interest-free money to keep the Ponzi Scheme afloat. Also recall that CEOs often get paid in shares which get dividends. Often those dividends are paid using the zero interest loan money leaving the corp with a bigger, unstable pile of debt and the CEO with a purse fattened by the loan instead of actual company performance, ie, profits.

[Mar 08, 2020] Why "orphan" oil and gas wells are a growing problem for states

Mar 08, 2020 | www.moonofalabama.org

Trailer Trash , Mar 6 2020 22:22 utc | 35

>USA shale producers

Soon people won't have to worry much about damage from new wells. Instead they will have to worry about existing-and-soon-to-be-abandoned wells. This is already a huge problem in Alberta, where "it's estimated that more than 155,000 Alberta energy wells have no economic potential and will eventually require reclamation".

But not to worry. It will only cost $47 Billion for Alberta to clean up the mess .

No surprise that it is worse in the US. I couldn't quickly find a cost estimate.

Nobody knows how many orphan and abandoned drilling sites litter farms, forests and backyards nationwide. The U.S. Environmental Protection Agency estimates there are more than a million of them. Unplugged wells can leak methane, an explosive gas, into neighborhoods and leach toxins into groundwater.

Why "orphan" oil and gas wells are a growing problem for states

[Mar 07, 2020] Is the U.S. Fracking Boom Based on Fraud?

Notable quotes:
"... As Fastow explained, in finance, the difference between a loophole and fraud isn't always easy to identify. And that may be something the U.S. fracking industry is working to its advantage. ..."
Mar 07, 2020 | www.nakedcapitalism.com

Posted on March 6, 2020 by Yves Smith Yves here. It really is remarkable how super low interest rates have led investors on a widespread basis to pour money down ratholes. Unicorns is one. Another has been fracking, which despite being another widespread cash sink, remarkably has kept sucking in funding. As we pointed out in 2014 :

John Dizard at the Financial Times (hat tip Scott) gives a more intriguing piece of the puzzle: the degree to which production is still chugging along despite it being uneconomical. The oil majors have been criticized for levering up to continue developing when it is cash-flow negative; they are presumably betting that prices will be much higher in short order.

But the same thing is happening further down the food chain, among players that don't begin to have the deep pockets of the industry behemoths: many of them are still in "drill baby, drill" mode. Per Dizard:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

Justin Mikulka argues that one reason these persistently unprofitable fracking companies keep going is via fraud.

By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Originally published at DeSmogBlog

In a 2016 interview with Fraud Magazine , former Enron CFO Andrew Fastow explained what he thought made him so successful while at the former energy corporation that's now infamous for financial scandal.

"I think my ability to do structured financing, to finance things off-balance sheet and to find ways to manipulate financial statements -- there's no nice way to say it. Like I said at the conference, I was good at finding loopholes."

As Fastow explained, in finance, the difference between a loophole and fraud isn't always easy to identify. And that may be something the U.S. fracking industry is working to its advantage.

Fastow, the convicted fraudster, does admit that what they did at Enron misled investors. "We created something that was monstrously misleading, but any one of those deals alone wasn't necessarily considered fraudulent," he said.

Fast-forward to today and a different part of the energy industry: The U.S. shale oil and gas industry has lost more than a quarter trillion dollars since 2007, while being sold to investors as an economic boom, even at oil prices much lower than those of recent years. Does that financial mismatch seem misleading? Or perhaps, familiar?

In an unexpected twist, Fastow now gives talks to the energy industry on ethical leadership.

Sounding the Alarm

Bethany McLean was the first reporter to question whether Enron was a financially sound company in a 2001 article for Fortune magazine. McLean went on to co-author the book The Smartest Guys in the Room , which documented the fall of Enron due to its fraudulent practices, including the ones Fastow engineered.

In 2018, McLean also published the book Saudi America , which highlighted many of the financial challenges the fracking industry has faced. In a recent interview for Texas Monthly's podcast Boomtown , McLean explained one of the very accepted and blatantly misleading practices of the fracking industry:

I'd raise a couple of points. One is that companies have long hyped these break-even numbers. They say we can break even at $25 a barrel, we can break even at $20 a barrel. And then you look at their consolidated financial statements and they are losing money. And so something is going wrong the people called it to me [sic] corporate math or investor economics. So they were trying to put together these investor pitch decks that would show investors a set of economics that weren't real. So they would show you that they could break even on a well at $25 barrel of oil but then yet you'd go to the corporate financial statements and they were losing money.

Is that a loophole? Where you can openly misrepresent to investors the financial reality of your business? Or is it fraud?

As more and more players in the fracking industry run out of options and file for bankruptcy, investors are beginning to ask questions about why all the money is gone.

"This is an industry that has always been filled with promoters and stock scams and swindlers and people have made billions when investors have lost their shirts."

In a bonus episode of #Boomtown , we speak to @bethanymac12 about the fracking industry. https://t.co/sSmXUM3ANu

-- Texas Monthly (@TexasMonthly) February 6, 2020

The Blank Check Companies

Much like with the housing crisis that caused the financial crisis of 2008, the fracking boom has led to Wall Street bankers finding innovative ways to finance a money-losing endeavor. Some companies are now even selling bonds based on future well performance , a concept similar to the mortgage-backed securities that led to the 2008 housing crisis.

Another Wall Street invention is what is called a "special purpose acquisition company" ( SPAC ), or, as they are also known, blank check companies. The way these investments work is a big bank or private equity firm backs a management team to raise money for the SPAC with the agreement that the leaders of the SPAC will then at some point make a "special purpose acquisition" -- which means they will find an existing company and buy it.

They are called blank check companies because the management is given a blank check to buy whatever they choose. In the 1980s, the Wall Street Journal ( WSJ ) noted that "blank-check companies were often associated with penny-stock frauds." In a 2017 article on the oil industry, the WSJ reported that " SPAC s were a hallmark of the frothy days before the financial crisis [of 2008]."

Understandably, SPAC s were often seen as a risky investment, but much like with the housing crisis, the biggest names on Wall Street are getting involved and giving the concept legitimacy, with Goldman Sachs starting to back SPAC s in 2016. And new fracking companies have come about as a result.

Ben Dell, a managing partner at investment firm Kimmeridge Energy, explained one of the risks of SPAC investments to the Wall Street Journal. " SPAC management teams have an incentive to spend the money they have raised no matter what, so they can collect fees and pay themselves a salary and stock options at the company they purchase," Dell said.

" SPAC s are the most egregious example in the industry of executive misalignment with investors," Dell told the WSJ .

As I have previously reported , one of the problems with the fracking industry is that CEO s are paid very well even when the companies lose money. According to Dell, SPAC s take this problem to a new "egregious" level.

Alta Mesa: A Star Is Born

To successfully raise money for a blank check company, having some star power in the management helps. As the Wall Street Journal has noted, investments in SPAC s " are largely bets on their executives ."

Jim Hackett would seem to be the ideal candidate to lead a SPAC in the fracking industry. Hackett has an impressive resume: the former CEO of fracking company Anadarko, former chairman of the Federal Reserve Bank of Dallas , an executive committee member of the industry lobbying group American Petroleum Institute , and partner at the major private equity firm Riverstone Holdings.

In 2013 Hackett retired from Anadarko to attend Harvard Divinity School to get a degree in theology. However, he was still a partner at Riverstone and in 2017 was lured back to the fracking business to run a SPAC backed by Riverstone.

The SPAC raised a billion dollars while being advised by the biggest names in the business, including Goldman Sachs and CitiGroup. The initial blank check company was called Silver Run Acquisition Corp. II .

Hackett used the money to buy two companies in Oklahoma -- an oil producer and a pipeline -- and the new combined company Alta Mesa was valued at $3.8 billion.

The Future Was Bright for Alta Mesa

Hackett and Alta Mesa had big plans for making money fracking wells in Oklahoma, which included forecasts for big increases in oil and gas production from the newly acquired assets with very low break-even numbers.

When the Wall Street Journal reported the creation of Alta Mesa, it noted , "Alta Mesa's core acreage in Northeast Kingfisher County has among the lowest breakevens in the U.S. at around $25 per barrel, the company said." Because oil was well over that price at the time, the future looked good, according to Hackett and Alta Mesa. Forbes reported that Hackett said Alta Mesa's holdings were "oil that will be economic even at $40 WTI [West Texas Intermediate]" and oil has been well over that mark since Hackett made that statement in 2017.

Like break-even numbers, another area where misleading investors in the oil industry might be particularly easy is making overly optimistic forecasts about how much oil will be produced by future wells. The Wall Street Journal has documented this as a significant problem for the U.S. shale industry.

Description of Alta Mesa assets in investor proxy statement. Credit: Screen capture from proxy statement.

In early 2018 when touting the potential of the proposed new company Alta Mesa, Hackett said that "its average well would produce nearly 250,000 barrels of oil over its life." A year later, Alta Mesa said it expected those wells would produce less than half that, only 120,000 barrels of oil over the life of the well.

In May last year, Alta Mesa was under investigation by the Securities and Exchange Commissions ( SEC ) "for possible issues in its financial reporting."

Later in 2019, Alta Mesa filed for bankruptcy after writing down its assets by $3.1 billion. The billion-dollar blank check had been spent, and it took less than two years to lose it all.

SEC Investigation and Multiple Investor Lawsuits

Alta Mesa's assets were sold off earlier this year. The SEC declined to comment on the status of the investigation.

In May 2019, the Houston Chronicle reported , "Alta Mesa also is facing a series of lawsuits. Some shareholders are suing claiming they were defrauded and lied to about the value of the company and its assets when the company was formed."

One lawsuit filed by the Plumbers and Pipefitters National Pension Fund claims that the proxy statement for Alta Mesa contained materially false and misleading information. That filing lays out a lot of facts to support that claim.

Statement for complaint for violation of the Securities Exchange Act of 1934. Credit: Screen capture of court documents

Another lawsuit alleges that Alta Mesa didn't pay the proper amount of royalties to landowners, with state investigations into this issue.

Yet another lawsuit has been filed against Riverstone for " misleading statements ."

Investors are saying they were misled by Hackett and Riverstone. The allegations are based on the claims that were made about how much oil the company could produce. In hindsight, those claims appeared wildly inaccurate and misleading. But is that fraud? Or just taking advantage of a loophole?

In January, the Houston Chronicle summed up the situation as it described Alta Mesa's downfall : "It was a dramatic fall from grace after significantly overestimating its potential in Oklahoma's STACK shale play "

While Alta Mesa is a spectacular example of how fast the fracking business can make large sums of money disappear after "significantly overestimating its potential," it also likely marks the beginning of investor lawsuits against many other failing fracking companies with similar histories.

Learning From Enron

When Jim Hackett decided to go to Harvard Divinity School, several favorable profiles about his choice were written, including one on the Harvard website. That article noted that one of the reasons Hackett decided to go to school was because of "the collapse of Enron, a disaster that he attributed to 'a failure in leadership' among people he knew well."

The speed with which Hackett and Alta Mesa went bankrupt is remarkable, indicating a likely failure in leadership.

However, Hackett seems to have learned something from former Enron executive Andrew Fastow: that there is work for former executives like them to teach the energy industry about ethics and morality.

Hackett is now a lecturer at the University of Texas at Austin Center for Leadership and Ethics .

Fraud? Or Just a Laughing Matter?
Good reporting is hard work but sometimes involves a bit of luck. Like when a Wall Street Journal reporter , in a room full of people hired to make forecasts of fracked oil and gas production, learned about the existence of much more accurate methods for predicting that oil production. And also learned that with accuracy comes much lower estimates of shale oil reserves.

The WSJ article that followed quoted Texas A&M professor and expert on calculating oil and gas reserves John Lee. "There are a number of practices that are almost inevitably going to lead to overestimates," said Lee. Those are the practices used by the industry, with Alta Mesa serving as just one example.

Overestimates are why Alta Mesa received funding but now no longer exists.

The Wall Street Journal reported that during a presentation given by Lee, an audience member "stood up and challenged the engineers in attendance," asking why the forecasters weren't using accurate models like the ones that were available -- as Lee had described.

Another audience member explained the reason.

" Because we own stock," replied another engineer, "sparking laughter," according to the Wall Street Journal.

Is it misleading to laugh at your company's investors if you know the estimates you are giving them are inflated, but because you own the stock that benefits from those estimates, you do it anyway? Is that fraud? Perhaps that depends on if you get you get ethics lessons from Andrew Fastow and Jim Hackett.

Will the biggest innovation of the fracking revolution be making financial fraud a laughing matter?

A lot of people on EFT like to talk about how shale is fraudulent. That's simply not true:

You can't commit fraud when the rules are so lax you can just make shit up and it's still allowed.

-- Alpine High Fire Sale (@losingyourmoney) February 19, 2020


PlutoniumKun , March 6, 2020 at 6:43 am

While I've little doubt there is a lot of fraud, so much of the stupidity around fracking comes down to the old saying that its hard to make a man undrestand something when his job is to not understand it.

The financing of the oil and gas industry is almost entirely dependent on projections – projections of flow per well, and projections of future prices. All you need to do is make a few optimistic projections of one or both, and you've suddenly turned a dud into a highly valuable asset. Anyone can look at the pricing and question it, but with oil/gas, that is much harder with 'novel' types of well as there are few if any precedents. So if someone says 'the well is producing X per day, we can continue this flow for 3 years and when thats finished, we can drill down another 200 metres and replicate the same flow', there is nobody to contradict it. The drilling guys aren't going to argue, they want to keep their jobs. The geologist isn't going to argue, he has his mortgage to pay. The senior manager won't argue, he wants a promotion. The drilling company owners won't argue, they want to cash out. And the Wall Street financier won't argue, because he can pass on the risk to the equivelent of the last booms 'German bankers'.

So when someone like Arthur Berman – a geologist who has continuously being questioning the underlying geological assumptions – raises concerns – he's listened to politely, even invited to some conferences, but is otherwise ignored. Because its not in anyones interest to listen. There is literally nobody who's job it is to shout 'stop'. So much for self regulating markets.

While there may well be very severe economic consequences if and when this blows up in everyones face (and I suspect that Covid-19 will be the catalyst for this, oil demand is collapsing day by day), the big loser is the planet we depend on for our survival.

jackiebass , March 6, 2020 at 7:15 am

I live in NY on the PA border. Fracking is still happening south in PA but is only a fraction of what it once was. If you drive into PA you will see lots full of fracking materials that have sat there for a long time. At first for about two years it was a boom. The activity from fracking was amazing. Then as fast as it started it slowed down to a crawl. There are a few reasons in my opinion. The so called sweet sports were quickly fracked leaving less attractive sights. It was concealed that a fracked well produced most of it's gas in the first two years. After that the production from a well dropped off drastically. Locals soon lost their enthusiasm for fracking.There is still some fracking but it is hardly noticeable. Local people thought this would be great but attitudes soon soured. A few made big bucks at the expense of the rest. The fracking was in former coal country. The difference is coal lasted a lot longer. Now the majority of people in the area oppose fracking. I'm thankful that NY state banned fracking because of the negatives associated with fracking. I own 50 acres near the PA border. Before fracking was banned I was constantly hounded by leasing companies. I refuse to lease because to me my land was more important than a few bucks. I hope in my life time NY doesn't reverse the fracking ban. On another note there are wind farms where I live. I would leas to a wind company because there are fewer negatives and it's less intrusive.

jefemt , March 6, 2020 at 9:31 am

The good news is that if the companies were chasing you, you own the minerals. You can donate them to a conservation land trust and assure that no mineral extraction takes place, and get a tax benefit for the foregone production.

Win Win!

Ignacio , March 6, 2020 at 7:27 am

So, one first profits from fraud to later profit by lecturing everybody about ethics?
A-ma-zing!

Kevin C. Smith , March 6, 2020 at 10:02 am

BIG red flag for me when someone like Jim Hackett decides to go to Harvard Divinity School

Shiloh1 , March 6, 2020 at 10:22 am

Daniel Plainview was baptiized, but that was so he could drink Eli's milkshake later and club him to death with a bowling pin.

Colonel Smithers , March 6, 2020 at 11:09 am

Thank you, Kevin.

That sounds like my former CEO and chairman, Stephen Green, becoming an Anglican clergyman.

Ignacio , March 6, 2020 at 7:49 am

It can be argued that the money invested in many fracking companies with such inflated pay-back periods, ROIs or breakeven estimates, apart from fraud, could be considered as a private subsidy, just like Uber investors subsidize Uber taxi services. If we can blame it to low interest rates resulting in such subsidies, for fracking oil, unicorns, education, housing etc. to my knowledge this has only been argued in very few sites like here at NC or Wolf Street but merits a close examination. If pension and mutual funds are pouring a lot of money in such business with low to negative returns what consequences are to be expected in the future?

Trent , March 6, 2020 at 8:18 am

Eight to Ten years ago you would have seen giant trucks moving water and dirt from fracking sites when you got off the turnpike around Donegal PA. Since about 2015 or 2016 i'd say that completely died. Pittsburgh actually had one year of population gain due to the fracking boom but thats done. Yves mentioned investors and low interest rates chasing bad investments and fraud. I'd say the same thing is going on in healthcare based on my exp. of it and the amount of money floating around. We need higher interest rates to nip this stuff in the bud and re-balance the economy.

a different chris , March 6, 2020 at 12:11 pm

>We need higher interest rates

Yup. In so many ways.

tegnost , March 6, 2020 at 8:25 am

This pretty much says it all regarding the health of our eCONomy, but hey, after it all falls apart we should have plenty of reformed criminals to teach ethics classes

"The Wall Street Journal reported that during a presentation given by Lee, an audience member "stood up and challenged the engineers in attendance," asking why the forecasters weren't using accurate models like the ones that were available -- as Lee had described.

Another audience member explained the reason.

"Because we own stock," replied another engineer, "sparking laughter," according to the Wall Street Journal."

fresno dan , March 6, 2020 at 8:39 am

In a 2016 interview with Fraud Magazine,
==============================================
I have to say, I was shocked, SHOCKED to find that there is a magazine actually, only devoted to fraud – that is published bi-monthly.
AND than I was shocked to find out that the magaine actually, only devoted to fraud is ONLY published bi-monthly

Zamfir , March 6, 2020 at 2:19 pm

That's what they say. After you take subscription, you'll find they publish monthly.

The Rev Kev , March 6, 2020 at 9:39 am

Is the U.S. Fracking Boom Based on Fraud? Is the Pope Catholic? There are going to have to be major structural changes in the world's economy in the next few years and with the demand for oil dropping, prices have gotten cheaper which is turning fracking into a non-profit industry. In any case, how are you suppose to frack with sick crews? This is one industry that needs to go away before it causes any more damage. You'd find more honesty in a boiler room brokerage firm than in this industry.

xkeyscored , March 6, 2020 at 12:33 pm

I did wonder why 'Fracking Boom' was in the title.

Carolinian , March 6, 2020 at 10:11 am

There's a recent documentary called The Price of Everything that is about the enormous sums being paid for every latest fad in modern art. The show says that all the great masters, old and new, have been locked up by museums or the super rich and so a recent flood of new investors are looking for any excuse to spend lots of money on paintings. Apparently there is so much money sloshing around at the top of our unequal economy that that these plutocrats don't even care if they lose their shirts on bad investments. The main thing is to keep it out of the hands of the poor.

Clearly we as a society are suffering from affluenza, at least among the elites who should all be virus quarantined and then maybe we will forget to check back.The show tries to pretend that this money driven art world is a cool thing. It had this viewer thinking of guillotines.

xkeyscored , March 6, 2020 at 12:37 pm

Unfortunately, those most negatively affected by affluenza are those not infected with it.

JBird4049 , March 6, 2020 at 6:11 pm

Yes, like all the people who cannot see the art. It's mostly buried in storage. What is the point of having over two thousand years of art from multiple civilizations, if most of it is hidden away and often only known from catalog descriptions or cramped tiny pictures.

TimH , March 6, 2020 at 10:51 am

If Enron was fraud, how come Uber isn't considered fraud?

a different chris , March 6, 2020 at 12:12 pm

Because people can still make money off it.

No, not *you*. Not *us*. But people that "matter".

lyman alpha blob , March 6, 2020 at 1:46 pm

You must mean the insiders who suckered the rubes into taking shares off their hands at the IPO. IIRC the IPO price was over $70/share. Right now it's just under $32 with no signs of every being a profitable enterprise.

Grifters, charlatans and mountebanks everywhere you look.

franklin kirk , March 6, 2020 at 11:03 am

Charging mineral resource rent, which everyone has an equal claim to, would help to reduce the tendency of financial shenanigans. The profit motive is crack to rent seekers.

Colonel Smithers , March 6, 2020 at 11:06 am

Thank you, Yves.

Speaking of Enron, it is perhaps appropriate that my employer's head of non core assets, toxic waste for fire sale, came from Enron. Standard Chartered has some, too.

Polar Donkey , March 6, 2020 at 11:32 am

It seems like the Russians today decided to put the final nail in U.S. fracking industry and turn the screws on Saudi Arabia.

inode_buddha , March 6, 2020 at 2:22 pm

Is the US a fraud?
.
Fixed it for you.

rd , March 6, 2020 at 5:31 pm

I think the big issue goes back to the investors and bond rating agencies, similar to the subprime mortgage crisis. If bondholders aren't willing to do the homework, then they don't get paid for the risk that they are undertaking. with the multiple prediction tools for well production, you can make up an optimistic and pessimistic case. If the bond yield doesn't cover that risk to your satisfaction, then you don't buy the bond or you demand a higher interest yield and lower bond price.

Instead, it seems like the industry is raising money from people who don't want to think more than a few months ahead on a multi-year investment. The challenges faced by the fracking industry have been well publicized for several years now. If an investor doesn't understand those challenges now and isn't looking at specific methods of calculating production yield etc., then they have only themselves to blame if their investment loses money.

This is a very different issue than if somebody flat out lies about whether or not wells exist etc.

A single well can make financial sense even if there will never be a net profit from it. Fracking is pretty similar to the Hollywood film industry where nobody ever has any net profits despite living high on the hog. "Don't ever settle for net profits. It's called 'creative accounting'." – Lynda Carter: https://en.wikipedia.org/wiki/Hollywood_accounting

elkern , March 6, 2020 at 5:52 pm

I dunno. There may be a sucker born every minute, but I can't picture enough of them getting born with a million (or billion) Dollars to blow on rackets like this to keep it going this long.

Sad to see that the Plumbers' Union Pension Fund was a victim; I hope that's not a pattern, but it would make sense. If it's a pattern, then it's no wonder the Fed tried so hard to postpone the next Crash until after the elections. How much junk paper has Wall Street sold to other Pension Funds? States & Municipalities are already squeezed by "unfunded liabilities"; how much repackaged funky Fracking paper are held by public (governmental) agencies? Damn, this is gonna be a mess.

I'd advise investing in popcorn, except that my 401k will probably evaporate soon, so maybe it's pitchforks.

JBird4049 , March 6, 2020 at 6:01 pm

CFO Fastow of Enron. How nice to see him land on his feet. The company made listening to the rolling blackout reports for California while driving to work a requirement.

[Mar 06, 2020] Is the U.S. Fracking Boom Based on Fraud?

Mar 06, 2020 | www.nakedcapitalism.com

Posted on March 6, 2020 by Yves Smith Yves here. It really is remarkable how super low interest rates have led investors on a widespread basis to pour money down ratholes. Unicorns is one. Another has been fracking, which despite being another widespread cash sink, remarkably has kept sucking in funding. As we pointed out in 2014 :

John Dizard at the Financial Times (hat tip Scott) gives a more intriguing piece of the puzzle: the degree to which production is still chugging along despite it being uneconomical. The oil majors have been criticized for levering up to continue developing when it is cash-flow negative; they are presumably betting that prices will be much higher in short order.

But the same thing is happening further down the food chain, among players that don't begin to have the deep pockets of the industry behemoths: many of them are still in "drill baby, drill" mode. Per Dizard:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

Justin Mikulka argues that one reason these persistently unprofitable fracking companies keep going is via fraud.

By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Originally published at DeSmogBlog

In a 2016 interview with Fraud Magazine , former Enron CFO Andrew Fastow explained what he thought made him so successful while at the former energy corporation that's now infamous for financial scandal.

"I think my ability to do structured financing, to finance things off-balance sheet and to find ways to manipulate financial statements -- there's no nice way to say it. Like I said at the conference, I was good at finding loopholes."

As Fastow explained, in finance, the difference between a loophole and fraud isn't always easy to identify. And that may be something the U.S. fracking industry is working to its advantage.

Fastow, the convicted fraudster, does admit that what they did at Enron misled investors. "We created something that was monstrously misleading, but any one of those deals alone wasn't necessarily considered fraudulent," he said.

Fast-forward to today and a different part of the energy industry: The U.S. shale oil and gas industry has lost more than a quarter trillion dollars since 2007, while being sold to investors as an economic boom, even at oil prices much lower than those of recent years. Does that financial mismatch seem misleading? Or perhaps, familiar?

In an unexpected twist, Fastow now gives talks to the energy industry on ethical leadership.

Sounding the Alarm

Bethany McLean was the first reporter to question whether Enron was a financially sound company in a 2001 article for Fortune magazine. McLean went on to co-author the book The Smartest Guys in the Room , which documented the fall of Enron due to its fraudulent practices, including the ones Fastow engineered.

In 2018, McLean also published the book Saudi America , which highlighted many of the financial challenges the fracking industry has faced. In a recent interview for Texas Monthly's podcast Boomtown , McLean explained one of the very accepted and blatantly misleading practices of the fracking industry:

I'd raise a couple of points. One is that companies have long hyped these break-even numbers. They say we can break even at $25 a barrel, we can break even at $20 a barrel. And then you look at their consolidated financial statements and they are losing money. And so something is going wrong the people called it to me [sic] corporate math or investor economics. So they were trying to put together these investor pitch decks that would show investors a set of economics that weren't real. So they would show you that they could break even on a well at $25 barrel of oil but then yet you'd go to the corporate financial statements and they were losing money.

Is that a loophole? Where you can openly misrepresent to investors the financial reality of your business? Or is it fraud?

As more and more players in the fracking industry run out of options and file for bankruptcy, investors are beginning to ask questions about why all the money is gone.

"This is an industry that has always been filled with promoters and stock scams and swindlers and people have made billions when investors have lost their shirts."

In a bonus episode of #Boomtown , we speak to @bethanymac12 about the fracking industry. https://t.co/sSmXUM3ANu

-- Texas Monthly (@TexasMonthly) February 6, 2020

The Blank Check Companies

Much like with the housing crisis that caused the financial crisis of 2008, the fracking boom has led to Wall Street bankers finding innovative ways to finance a money-losing endeavor. Some companies are now even selling bonds based on future well performance , a concept similar to the mortgage-backed securities that led to the 2008 housing crisis.

Another Wall Street invention is what is called a "special purpose acquisition company" ( SPAC ), or, as they are also known, blank check companies. The way these investments work is a big bank or private equity firm backs a management team to raise money for the SPAC with the agreement that the leaders of the SPAC will then at some point make a "special purpose acquisition" -- which means they will find an existing company and buy it.

They are called blank check companies because the management is given a blank check to buy whatever they choose. In the 1980s, the Wall Street Journal ( WSJ ) noted that "blank-check companies were often associated with penny-stock frauds." In a 2017 article on the oil industry, the WSJ reported that " SPAC s were a hallmark of the frothy days before the financial crisis [of 2008]."

Understandably, SPAC s were often seen as a risky investment, but much like with the housing crisis, the biggest names on Wall Street are getting involved and giving the concept legitimacy, with Goldman Sachs starting to back SPAC s in 2016. And new fracking companies have come about as a result.

Ben Dell, a managing partner at investment firm Kimmeridge Energy, explained one of the risks of SPAC investments to the Wall Street Journal. " SPAC management teams have an incentive to spend the money they have raised no matter what, so they can collect fees and pay themselves a salary and stock options at the company they purchase," Dell said.

" SPAC s are the most egregious example in the industry of executive misalignment with investors," Dell told the WSJ .

As I have previously reported , one of the problems with the fracking industry is that CEO s are paid very well even when the companies lose money. According to Dell, SPAC s take this problem to a new "egregious" level.

Alta Mesa: A Star Is Born

To successfully raise money for a blank check company, having some star power in the management helps. As the Wall Street Journal has noted, investments in SPAC s " are largely bets on their executives ."

Jim Hackett would seem to be the ideal candidate to lead a SPAC in the fracking industry. Hackett has an impressive resume: the former CEO of fracking company Anadarko, former chairman of the Federal Reserve Bank of Dallas , an executive committee member of the industry lobbying group American Petroleum Institute , and partner at the major private equity firm Riverstone Holdings.

In 2013 Hackett retired from Anadarko to attend Harvard Divinity School to get a degree in theology. However, he was still a partner at Riverstone and in 2017 was lured back to the fracking business to run a SPAC backed by Riverstone.

The SPAC raised a billion dollars while being advised by the biggest names in the business, including Goldman Sachs and CitiGroup. The initial blank check company was called Silver Run Acquisition Corp. II .

Hackett used the money to buy two companies in Oklahoma -- an oil producer and a pipeline -- and the new combined company Alta Mesa was valued at $3.8 billion.

The Future Was Bright for Alta Mesa

Hackett and Alta Mesa had big plans for making money fracking wells in Oklahoma, which included forecasts for big increases in oil and gas production from the newly acquired assets with very low break-even numbers.

When the Wall Street Journal reported the creation of Alta Mesa, it noted , "Alta Mesa's core acreage in Northeast Kingfisher County has among the lowest breakevens in the U.S. at around $25 per barrel, the company said." Because oil was well over that price at the time, the future looked good, according to Hackett and Alta Mesa. Forbes reported that Hackett said Alta Mesa's holdings were "oil that will be economic even at $40 WTI [West Texas Intermediate]" and oil has been well over that mark since Hackett made that statement in 2017.

Like break-even numbers, another area where misleading investors in the oil industry might be particularly easy is making overly optimistic forecasts about how much oil will be produced by future wells. The Wall Street Journal has documented this as a significant problem for the U.S. shale industry.

Description of Alta Mesa assets in investor proxy statement. Credit: Screen capture from proxy statement.

In early 2018 when touting the potential of the proposed new company Alta Mesa, Hackett said that "its average well would produce nearly 250,000 barrels of oil over its life." A year later, Alta Mesa said it expected those wells would produce less than half that, only 120,000 barrels of oil over the life of the well.

In May last year, Alta Mesa was under investigation by the Securities and Exchange Commissions ( SEC ) "for possible issues in its financial reporting."

Later in 2019, Alta Mesa filed for bankruptcy after writing down its assets by $3.1 billion. The billion-dollar blank check had been spent, and it took less than two years to lose it all.

SEC Investigation and Multiple Investor Lawsuits

Alta Mesa's assets were sold off earlier this year. The SEC declined to comment on the status of the investigation.

In May 2019, the Houston Chronicle reported , "Alta Mesa also is facing a series of lawsuits. Some shareholders are suing claiming they were defrauded and lied to about the value of the company and its assets when the company was formed."

One lawsuit filed by the Plumbers and Pipefitters National Pension Fund claims that the proxy statement for Alta Mesa contained materially false and misleading information. That filing lays out a lot of facts to support that claim.

Statement for complaint for violation of the Securities Exchange Act of 1934. Credit: Screen capture of court documents

Another lawsuit alleges that Alta Mesa didn't pay the proper amount of royalties to landowners, with state investigations into this issue.

Yet another lawsuit has been filed against Riverstone for " misleading statements ."

Investors are saying they were misled by Hackett and Riverstone. The allegations are based on the claims that were made about how much oil the company could produce. In hindsight, those claims appeared wildly inaccurate and misleading. But is that fraud? Or just taking advantage of a loophole?

In January, the Houston Chronicle summed up the situation as it described Alta Mesa's downfall : "It was a dramatic fall from grace after significantly overestimating its potential in Oklahoma's STACK shale play "

While Alta Mesa is a spectacular example of how fast the fracking business can make large sums of money disappear after "significantly overestimating its potential," it also likely marks the beginning of investor lawsuits against many other failing fracking companies with similar histories.

Learning From Enron

When Jim Hackett decided to go to Harvard Divinity School, several favorable profiles about his choice were written, including one on the Harvard website. That article noted that one of the reasons Hackett decided to go to school was because of "the collapse of Enron, a disaster that he attributed to 'a failure in leadership' among people he knew well."

The speed with which Hackett and Alta Mesa went bankrupt is remarkable, indicating a likely failure in leadership.

However, Hackett seems to have learned something from former Enron executive Andrew Fastow: that there is work for former executives like them to teach the energy industry about ethics and morality.

Hackett is now a lecturer at the University of Texas at Austin Center for Leadership and Ethics .

Fraud? Or Just a Laughing Matter?
Good reporting is hard work but sometimes involves a bit of luck. Like when a Wall Street Journal reporter , in a room full of people hired to make forecasts of fracked oil and gas production, learned about the existence of much more accurate methods for predicting that oil production. And also learned that with accuracy comes much lower estimates of shale oil reserves.

The WSJ article that followed quoted Texas A&M professor and expert on calculating oil and gas reserves John Lee. "There are a number of practices that are almost inevitably going to lead to overestimates," said Lee. Those are the practices used by the industry, with Alta Mesa serving as just one example.

Overestimates are why Alta Mesa received funding but now no longer exists.

The Wall Street Journal reported that during a presentation given by Lee, an audience member "stood up and challenged the engineers in attendance," asking why the forecasters weren't using accurate models like the ones that were available -- as Lee had described.

Another audience member explained the reason.

" Because we own stock," replied another engineer, "sparking laughter," according to the Wall Street Journal.

Is it misleading to laugh at your company's investors if you know the estimates you are giving them are inflated, but because you own the stock that benefits from those estimates, you do it anyway? Is that fraud? Perhaps that depends on if you get you get ethics lessons from Andrew Fastow and Jim Hackett.

Will the biggest innovation of the fracking revolution be making financial fraud a laughing matter?

A lot of people on EFT like to talk about how shale is fraudulent. That's simply not true:

You can't commit fraud when the rules are so lax you can just make shit up and it's still allowed.

-- Alpine High Fire Sale (@losingyourmoney) February 19, 2020


PlutoniumKun , March 6, 2020 at 6:43 am

While I've little doubt there is a lot of fraud, so much of the stupidity around fracking comes down to the old saying that its hard to make a man undrestand something when his job is to not understand it.

The financing of the oil and gas industry is almost entirely dependent on projections – projections of flow per well, and projections of future prices. All you need to do is make a few optimistic projections of one or both, and you've suddenly turned a dud into a highly valuable asset. Anyone can look at the pricing and question it, but with oil/gas, that is much harder with 'novel' types of well as there are few if any precedents. So if someone says 'the well is producing X per day, we can continue this flow for 3 years and when thats finished, we can drill down another 200 metres and replicate the same flow', there is nobody to contradict it. The drilling guys aren't going to argue, they want to keep their jobs. The geologist isn't going to argue, he has his mortgage to pay. The senior manager won't argue, he wants a promotion. The drilling company owners won't argue, they want to cash out. And the Wall Street financier won't argue, because he can pass on the risk to the equivelent of the last booms 'German bankers'.

So when someone like Arthur Berman – a geologist who has continuously being questioning the underlying geological assumptions – raises concerns – he's listened to politely, even invited to some conferences, but is otherwise ignored. Because its not in anyones interest to listen. There is literally nobody who's job it is to shout 'stop'. So much for self regulating markets.

While there may well be very severe economic consequences if and when this blows up in everyones face (and I suspect that Covid-19 will be the catalyst for this, oil demand is collapsing day by day), the big loser is the planet we depend on for our survival.

jackiebass , March 6, 2020 at 7:15 am

I live in NY on the PA border. Fracking is still happening south in PA but is only a fraction of what it once was. If you drive into PA you will see lots full of fracking materials that have sat there for a long time. At first for about two years it was a boom. The activity from fracking was amazing. Then as fast as it started it slowed down to a crawl. There are a few reasons in my opinion. The so called sweet sports were quickly fracked leaving less attractive sights. It was concealed that a fracked well produced most of it's gas in the first two years. After that the production from a well dropped off drastically. Locals soon lost their enthusiasm for fracking.There is still some fracking but it is hardly noticeable. Local people thought this would be great but attitudes soon soured. A few made big bucks at the expense of the rest. The fracking was in former coal country. The difference is coal lasted a lot longer. Now the majority of people in the area oppose fracking. I'm thankful that NY state banned fracking because of the negatives associated with fracking. I own 50 acres near the PA border. Before fracking was banned I was constantly hounded by leasing companies. I refuse to lease because to me my land was more important than a few bucks. I hope in my life time NY doesn't reverse the fracking ban. On another note there are wind farms where I live. I would leas to a wind company because there are fewer negatives and it's less intrusive.

jefemt , March 6, 2020 at 9:31 am

The good news is that if the companies were chasing you, you own the minerals. You can donate them to a conservation land trust and assure that no mineral extraction takes place, and get a tax benefit for the foregone production.

Win Win!

Ignacio , March 6, 2020 at 7:27 am

So, one first profits from fraud to later profit by lecturing everybody about ethics?
A-ma-zing!

Kevin C. Smith , March 6, 2020 at 10:02 am

BIG red flag for me when someone like Jim Hackett decides to go to Harvard Divinity School

Shiloh1 , March 6, 2020 at 10:22 am

Daniel Plainview was baptiized, but that was so he could drink Eli's milkshake later and club him to death with a bowling pin.

Colonel Smithers , March 6, 2020 at 11:09 am

Thank you, Kevin.

That sounds like my former CEO and chairman, Stephen Green, becoming an Anglican clergyman.

Ignacio , March 6, 2020 at 7:49 am

It can be argued that the money invested in many fracking companies with such inflated pay-back periods, ROIs or breakeven estimates, apart from fraud, could be considered as a private subsidy, just like Uber investors subsidize Uber taxi services. If we can blame it to low interest rates resulting in such subsidies, for fracking oil, unicorns, education, housing etc. to my knowledge this has only been argued in very few sites like here at NC or Wolf Street but merits a close examination. If pension and mutual funds are pouring a lot of money in such business with low to negative returns what consequences are to be expected in the future?

Trent , March 6, 2020 at 8:18 am

Eight to Ten years ago you would have seen giant trucks moving water and dirt from fracking sites when you got off the turnpike around Donegal PA. Since about 2015 or 2016 i'd say that completely died. Pittsburgh actually had one year of population gain due to the fracking boom but thats done. Yves mentioned investors and low interest rates chasing bad investments and fraud. I'd say the same thing is going on in healthcare based on my exp. of it and the amount of money floating around. We need higher interest rates to nip this stuff in the bud and re-balance the economy.

a different chris , March 6, 2020 at 12:11 pm

>We need higher interest rates

Yup. In so many ways.

tegnost , March 6, 2020 at 8:25 am

This pretty much says it all regarding the health of our eCONomy, but hey, after it all falls apart we should have plenty of reformed criminals to teach ethics classes

"The Wall Street Journal reported that during a presentation given by Lee, an audience member "stood up and challenged the engineers in attendance," asking why the forecasters weren't using accurate models like the ones that were available -- as Lee had described.

Another audience member explained the reason.

"Because we own stock," replied another engineer, "sparking laughter," according to the Wall Street Journal."

fresno dan , March 6, 2020 at 8:39 am

In a 2016 interview with Fraud Magazine,
==============================================
I have to say, I was shocked, SHOCKED to find that there is a magazine actually, only devoted to fraud – that is published bi-monthly.
AND than I was shocked to find out that the magaine actually, only devoted to fraud is ONLY published bi-monthly

Zamfir , March 6, 2020 at 2:19 pm

That's what they say. After you take subscription, you'll find they publish monthly.

The Rev Kev , March 6, 2020 at 9:39 am

Is the U.S. Fracking Boom Based on Fraud? Is the Pope Catholic? There are going to have to be major structural changes in the world's economy in the next few years and with the demand for oil dropping, prices have gotten cheaper which is turning fracking into a non-profit industry. In any case, how are you suppose to frack with sick crews? This is one industry that needs to go away before it causes any more damage. You'd find more honesty in a boiler room brokerage firm than in this industry.

xkeyscored , March 6, 2020 at 12:33 pm

I did wonder why 'Fracking Boom' was in the title.

Carolinian , March 6, 2020 at 10:11 am

There's a recent documentary called The Price of Everything that is about the enormous sums being paid for every latest fad in modern art. The show says that all the great masters, old and new, have been locked up by museums or the super rich and so a recent flood of new investors are looking for any excuse to spend lots of money on paintings. Apparently there is so much money sloshing around at the top of our unequal economy that that these plutocrats don't even care if they lose their shirts on bad investments. The main thing is to keep it out of the hands of the poor.

Clearly we as a society are suffering from affluenza, at least among the elites who should all be virus quarantined and then maybe we will forget to check back.The show tries to pretend that this money driven art world is a cool thing. It had this viewer thinking of guillotines.

xkeyscored , March 6, 2020 at 12:37 pm

Unfortunately, those most negatively affected by affluenza are those not infected with it.

JBird4049 , March 6, 2020 at 6:11 pm

Yes, like all the people who cannot see the art. It's mostly buried in storage. What is the point of having over two thousand years of art from multiple civilizations, if most of it is hidden away and often only known from catalog descriptions or cramped tiny pictures.

TimH , March 6, 2020 at 10:51 am

If Enron was fraud, how come Uber isn't considered fraud?

a different chris , March 6, 2020 at 12:12 pm

Because people can still make money off it.

No, not *you*. Not *us*. But people that "matter".

lyman alpha blob , March 6, 2020 at 1:46 pm

You must mean the insiders who suckered the rubes into taking shares off their hands at the IPO. IIRC the IPO price was over $70/share. Right now it's just under $32 with no signs of every being a profitable enterprise.

Grifters, charlatans and mountebanks everywhere you look.

franklin kirk , March 6, 2020 at 11:03 am

Charging mineral resource rent, which everyone has an equal claim to, would help to reduce the tendency of financial shenanigans. The profit motive is crack to rent seekers.

Colonel Smithers , March 6, 2020 at 11:06 am

Thank you, Yves.

Speaking of Enron, it is perhaps appropriate that my employer's head of non core assets, toxic waste for fire sale, came from Enron. Standard Chartered has some, too.

Polar Donkey , March 6, 2020 at 11:32 am

It seems like the Russians today decided to put the final nail in U.S. fracking industry and turn the screws on Saudi Arabia.

inode_buddha , March 6, 2020 at 2:22 pm

Is the US a fraud?
.
Fixed it for you.

rd , March 6, 2020 at 5:31 pm

I think the big issue goes back to the investors and bond rating agencies, similar to the subprime mortgage crisis. If bondholders aren't willing to do the homework, then they don't get paid for the risk that they are undertaking. with the multiple prediction tools for well production, you can make up an optimistic and pessimistic case. If the bond yield doesn't cover that risk to your satisfaction, then you don't buy the bond or you demand a higher interest yield and lower bond price.

Instead, it seems like the industry is raising money from people who don't want to think more than a few months ahead on a multi-year investment. The challenges faced by the fracking industry have been well publicized for several years now. If an investor doesn't understand those challenges now and isn't looking at specific methods of calculating production yield etc., then they have only themselves to blame if their investment loses money.

This is a very different issue than if somebody flat out lies about whether or not wells exist etc.

A single well can make financial sense even if there will never be a net profit from it. Fracking is pretty similar to the Hollywood film industry where nobody ever has any net profits despite living high on the hog. "Don't ever settle for net profits. It's called 'creative accounting'." – Lynda Carter: https://en.wikipedia.org/wiki/Hollywood_accounting

elkern , March 6, 2020 at 5:52 pm

I dunno. There may be a sucker born every minute, but I can't picture enough of them getting born with a million (or billion) Dollars to blow on rackets like this to keep it going this long.

Sad to see that the Plumbers' Union Pension Fund was a victim; I hope that's not a pattern, but it would make sense. If it's a pattern, then it's no wonder the Fed tried so hard to postpone the next Crash until after the elections. How much junk paper has Wall Street sold to other Pension Funds? States & Municipalities are already squeezed by "unfunded liabilities"; how much repackaged funky Fracking paper are held by public (governmental) agencies? Damn, this is gonna be a mess.

I'd advise investing in popcorn, except that my 401k will probably evaporate soon, so maybe it's pitchforks.

JBird4049 , March 6, 2020 at 6:01 pm

CFO Fastow of Enron. How nice to see him land on his feet. The company made listening to the rolling blackout reports for California while driving to work a requirement.

[Feb 16, 2020] Africa's largest oil nation could see production drop 35%

Feb 16, 2020 | www.rt.com

Africa's largest oil producer could see oil production fall by 35 percent as low oil prices and regulatory uncertainty threaten to prompt oil majors to postpone final investment decisions. OPEC member Nigeria is the largest oil producer in Africa and it pumped 1.776 million barrels of oil per day (bpd) in January 2020, according to OPEC's secondary sources in its monthly report published this week. Adding condensate production, Nigeria's total oil output exceeds 2 million bpd.

However, three deepwater projects offshore Nigeria, operated by oil majors Exxon, Shell, and Total, could see their start-up dates delayed by two to four years to the late 2020s, according to the research WoodMac shared with Reuters ahead of publishing it on Friday.

Also on rt.com Russia to bring back to life Nigeria's major steel plant project, abandoned for decades

The regulatory changes in Nigeria's oil industry and the still pending final approval of a petroleum bill - after two decades of delays and wrangling - act as deterrents to the oil majors' investment decisions, according to Wood Mackenzie.

Moreover, the three deepwater projects - which could add a combined 300,000 bpd to Nigeria's production - are not profitable at current oil prices with Brent Crude below $60 a barrel, the consultancy noted.

Just this week, Nigeria assured foreign oil investors that the country is open to business and can guarantee high returns on investment, the country's President Muhammadu Buhari told an energy conference on Monday.

Nigeria is set to finally pass a new bill regulating the petroleum industry by the middle of this year, after nearly two decades of delays, the country's Minister of Petroleum Timipre Sylva said at the same event.

Also on rt.com Africa to become 'land of opportunity' if US & China strike trade deal – Bank of America

Mele Kyari, Group Managing Director at the Nigerian National Petroleum Corporation (NNPC), said at the conference that "We are, more than ever before, committed to working with stakeholders to increase our crude oil production from 2.3 million bbl per day to 3 million bbl per day."

The recent amendment to the Deep Offshore Act will improve financial stability and investor confidence, NNPC's head said.

This article was originally published on Oilprice.com

[Feb 09, 2020] OPEC has almost 80% of World oil reserves

Notable quotes:
"... that every nation produces what oil they can produce. Production must have some relation to reserves. ..."
"... The normal R/P ratio is around 20. That doesn't mean a nation with an R/P ratio of 20 will run out of oil in 20 years. Because as their production declines, their R/P ratio will still hold at about 20 because they are producing less oil therefore their reserves will go further. So an R/P ratio of about 20 is the norm for normal size conventional fields. ..."
"... For giant and supergiant fields the R/P ratio would be greater and for smaller fields, as well as shale fields, the R/P ratio would be smaller. ..."
"... Using OPEC's reserves data for both OPEC and Non-OPEC, OPEC has an R/P of 109 while Non-OPEC has an R/P ratio of about 12. That OPEC number is absurd beyond belief. ..."
"... If we exclude the heavy oil then OPEC's share is close to the 70% I suggested. How does this square its share of the production numbers for the world. This was my original question. I would like to read what the thoughts of other posters are on this as well. ..."
Dec 21, 2019 | peakoilbarrel.com

What is the explanation that Non-OPEC produces more than OPEC, but OPEC has 70% of world reserves?

Although this might have been the case in the early history of oil production, I would think that this should not be the case near the peak. If I recall correctly, Campbell thought that OPEC's stated reserves are actually the estimated values produced by the government for each OPEC country?


Ron Patterson 12/12/2019 at 11:08 pm

No, no, no, OPEC has almost 80% of World oil reserves: OPEC Share of World Oil Reserves, 2018

Well, 79.4% to be exact Some people really believe that unbelievable crap. Well hell, there are still people who believe the earth is flat and that the sun revolves around the earth. So why should we be surprised? Some people will believe anything.

I would like to think that most people on this list know that OPEC quoted reserves is pure bullshit.

Hey, we have a president who lies every time he tweets. And sometimes he tweets 200 times a day. And perhaps 45% of the nation believes him. The capacity of humans to believe the absurd is unbounded.

Anyway if IEA and EIA projections are made on the basis of OPEC claimed reserves, we have a serious problem.

Ron Patterson 12/13/2019 at 2:15 pm
Well, I have always stated, on this blog as well as The Oil Drum, that every nation produces what oil they can produce. Production must have some relation to reserves.

The normal R/P ratio is around 20. That doesn't mean a nation with an R/P ratio of 20 will run out of oil in 20 years. Because as their production declines, their R/P ratio will still hold at about 20 because they are producing less oil therefore their reserves will go further. So an R/P ratio of about 20 is the norm for normal size conventional fields.

For giant and supergiant fields the R/P ratio would be greater and for smaller fields, as well as shale fields, the R/P ratio would be smaller.

If a giant or supergiant field is nearing the end of its life, but infill drilling, creaming the top of the reservoir, this will throw a monkey wrench into their R/P ratio. While in its prime, the field may have had an R/P ration of 40 or even greater, its R/P ratio while being creamed will be much smaller, less than 20.

Using OPEC's reserves data for both OPEC and Non-OPEC, OPEC has an R/P of 109 while Non-OPEC has an R/P ratio of about 12. That OPEC number is absurd beyond belief.

Seppo Korpela 12/15/2019 at 5:55 pm
Ron,

According to Hubbert methodology, at the peak production the number of years to exhaust the reserve is N = 2/a in which "a" is the intrinsic growth rate

dQ/dt=a Q (1-Q/Q_0)

From Laherrere's reports for world peak, this is between 0.04 and 0.05. This means that the R/P ratio is between 40 and 50 at the peak. Thus if we say that 1/2 of the reserves are left at the peak and we take Laherre's URR = 2500, this gives R/P=1250/35=36 years. These are ball park figures, but suggest that R/P ~ 20 is low. These numbers are for the entire world and for example for North Sea at its peak Hubbert's analysis gave a = 0.12, so R/P=2/0.12=16.6, and this illustrates the fact that smaller fields are closer to your number R/P=20.

If we exclude the heavy oil then OPEC's share is close to the 70% I suggested. How does this square its share of the production numbers for the world. This was my original question. I would like to read what the thoughts of other posters are on this as well.

[Jan 25, 2020] Wolf Richter The Great American Shale Oil Gas Bust Fracking Gushes Bankruptcies, Defaulted Debt, and Worthless Shares nak

Jan 25, 2020 | www.nakedcapitalism.com

Wolf Richter: The Great American Shale Oil & Gas Bust: Fracking Gushes Bankruptcies, Defaulted Debt, and Worthless Shares Posted on January 24, 2020 by Jerri-Lynn Scofield Jerri-Lynn here. I've previously crossposted many segments of Justin Mikulka's excellent series for DeSmogBlog on fracking follies. Here's Wolf Richter's take on the issue, wrapped up with a discussion of collapsing prices for oil and natural gas.

By Wolf Richter, editor of Wolf Street . Originally published at Wolf Street

Following the sharp re-drop in oil and natural gas prices in late 2018, bankruptcy filings in the US by already weakened exploration and production companies , oilfield services companies, and "midstream" companies (they gather, transport, process, or store oil and natural gas) jumped by 51% in 2019, to 65 filings, according to data compiled by law firm Haynes and Boone . This brought the total of the Great American Shale Oil & Gas Bust since 2015 in these three sectors to 402 bankruptcy filings.

The debt involved in these bankruptcies in 2019 doubled from 2018 to $35 billion. This pushed the total debt listed in these bankruptcy filings since 2015 to $207 billion. The chart below shows the cumulative total debt involved in these bankruptcies since 2015.

But this does not include the much larger losses suffered by shareholders that get mostly wiped out in the years before the bankruptcy as the shares descend into worthlessness, and that then may get finished off in bankruptcy court.

The banks, which generally had the best collateral, took the smallest losses; bondholders took bigger losses, with unsecured bondholders taking the biggest losses. Some of them lost most of their investment; others got high-and-tight haircuts; others held debt that was converted to equity in the restructured companies, some of which soon became worthless again when the company filed for bankruptcy a second time. The old shareholders took the biggest losses.

The Great American Fracking Bust started in mid-2014, when the price of WTI dropped from over $100 a barrel to below $30 a barrel by early 2016. Then the price began to recover, going over $70 a barrel in September and October 2018. But then it began to re-plunge. By the end of 2018, WTI had dropped to $47 a barrel.

Two major geopolitical events in the Middle East – the attack on Saudi Aramco's oil facilities last September and the US assassination of Iranian Major General Qasem Soleimani – that would have shaken up oil markets before, only caused brief ripples, quickly squashed by the onslaught of surging US production. At the moment, WTI trades at $56.08 per barrel, which is still below where the shale oil industry can survive long-term:

And 2020 is starting out terrible for natural gas producers. The price of natural gas has plunged to $1.90 per million Btu at the moment, a dreadfully low price where no one can make any money. Producers in shale fields that produce mostly gas, such as the Marcellus, are in deeper trouble still, because oil, even at these prices, would be a lot better than just natural gas.

Producing areas with constrained takeaway capacity (it takes a lot longer to build pipelines than to ramp up production) are subject to local prices, which can be lower still. In some areas, such as the Permian in Texas and New Mexico, the most prolific oil field in the US, where natural gas is a byproduct of oil production, limited takeaway capacity has caused local prices to collapse, and flaring to surge.

The chart shows the spot price for delivery at the Henry Hub:

Texas at the Epicenter.

The most affected state, in terms of the number of bankruptcy filings, is Texas, the largest oil producer in the US. Since 2015, the state had 207 oil-and-gas bankruptcy filings, of the 402 total US filings. In 2019, Texas had 30 of the 65 US filings.

Delaware, obviously, is not into oil and gas production, but into coddling corporations, and many companies are incorporated in Delaware, including some oil-and-gas companies in Texas. When they file for bankruptcy, they do so in Delaware. These are the eight states with the most oil-and-gas bankruptcy filings since 2015:

Bankruptcy filings are triggered when the E&P companies no longer get funding from Wall Street or from their banks to continue with their perennially cash-flow negative operations and service their debts. And this is what is happening now. Wall Street and the banks have started to demand that these companies stick to an entirely new mantra in the fracking business: "live within cash flow."

When E&P companies run short on funding, they cut back on drilling activity which puts the squeeze on oilfield services companies that provide products and services to the oilfield, including drilling and completing wells. And then these OFS companies go bankrupt.

This is what happened to oilfield-services giant Weatherford which filed for a prepackaged bankruptcy last July . Back in 2014, before the oil bust, it had 67,000 employees; by July, it was down to about 26,000. The reorganization plan allowed Weatherford to shed $5.8 billion of its $7.6 billion in long-term debt. Old shareholders got wiped out. The creditors got 99% of the restructured company's new shares.

In its report on the OFS bankruptcies, Haynes and Boone cited this pressure from Wall Street and its cascading effect, which Weatherford had pointed out in its bankruptcy filing:

We note that Weatherford, in its July 2019 filing, attributed its insolvency in part to reduced drilling activity by producers who have also been dramatically affected by the commodity price slump since 2015. Investors' pressure on producers to "live within cash flow" is further reducing demand for OFS services and supplies leaving the OFS sector with little near term hope for a turnaround in prospects.

What this sector needs are much higher prices for oil and natural gas. But that cannot happen while production continues to surge. A large-scale culling in the sector – a lot more bankruptcies – could reduce production, and support higher prices.

But as soon as prices rise above certain levels, with investors still chasing yield at every twist and turn, the flood of new money will wash over the sector again, with investors having already forgotten by then that shale oil and gas was where money went to die every time. And this new money will cause a new surge in production, which will collapse prices once again. It's a cycle that the shale industry has a hard time getting out of, under the current loosey-goosey monetary conditions.


Clive , January 24, 2020 at 4:37 am

The cratering of natural gas prices is bad news for any attempt to encourage renewables.

From my own situation, I made a substantial capital investment in moving my domestic space heating from gas to ultra-high efficiency air source heat pumps.

The economics worked out as broadly favourable (this wasn't my motivation, but it helped justify the investment). My heat pumps have a raw (non-seasonally adjusted) coefficient of performance of a little over 5. So I get 5kW of heat for every 1kW of electrical input). Here in the UK I was paying 14 pence per kW/hr for electricity compared with 3.5 pence for natural gas. With a AFUE efficiency on the gas heat of 90% my heat pumps generated heat at just under 3 pence per kilowatt, the gas heat would work out, net, at around 3.8 pence. So I saved about 10% to 15% in energy costs doing space heating via renewables. Again, here in the UK market, electicity is about one-third to 40 percent from zero-carbon sources, wind, hydro and nucelar. So my carbon footprint for space heating using heat pumps was hugely lower (maybe up to half).

I've just got my utility's latest quote on energy prices. Electricity charges are about the same. But I'm being quoted 2.5 pence per kilowatt hour for natural gas.

There's no way my air source heat pumps can compete with that. I might as well just burn the gas and say screw the carbon dioxide emissions. I won't, of course. I'll grin and bear it. But the shale glut and the uneconomic (wasted) investment in overproduction is massively distorting the energy market.

Ignacio , January 24, 2020 at 5:36 am

Yes. Those are the calculations to be done. I am in the same situation though in Spain the "spread" between gas and electricity prices in energy terms is smaller compared with the UK and will probably get even smaller in the future despite the natl gas glut (because tariff policies and investment in renewables). I am paying about 0,14€/kWh on electricity consumed (fixed power contract apart but I needn't change it) and gas is at 0,06€/kWh. The seasonal coefficient of performance of my reversible air/water heat exchanger is 4.5 by Eurovent (third party certification of performance) so current expenses relative to natural gas are 0.14/(0.06 x 4.5) = 0,52 that means I save 48% relative to the gas boiler. In fact a bit less because the seasonal COP of the condensation boiler was about 1.05. But then, there are other advantages about getting freed of natural gas: not needed periodical inspections. Also my boiler was ageing and requiring more frequent revisions and repairs. In Spain the electrical mix is now about 60% renewable + nuclear (approx). Gas prices are also more volatile.

Peter , January 24, 2020 at 6:08 am

I among other things was designing, sourcing and installing high efficient NG powered floor heating system in the North West of British Columbia. I once participated in 2012 in a symposium by a supplier of heat pump systems.
The maximum savings one could expect because of the demand of the system (basically a reverse refrigerator with a compressor demanding the most power) was actually 30% of the cost of gas.
However – and that is the big one – a gas powered system at the time using high efficiency boilers cost about 5 – 7$/ square foot, depending how much electronic controls you threw into the system.
This way a new house install at an average 2500 square foot house would set you back an average of 15 grand. Installing a heatpump system with either 8 -10′ buried PEX loops or wells to 100′ deep would add between 25 – 30 000$ on top minus the cost for the boilers at an average of 4500$.
And the typical heat-pump unit would cost between 8-10 000$ with a lifetime of about 10 years, double the cost of a boiler who usually have a somewhat longer lifespan.

The reason: air heat extraction systems in Canada do not work, when the heat is needed the air temp. is at about – 5 to – 35C ..so only subsoil extraction works with attending cost of machinery and labour.

The conclusion by all 25 contractors attending was quite unanimous – heat pump systems in Canada except maybe in the most southern portions – are a waste of resources and money.

Clive , January 24, 2020 at 7:08 am

Even here in mild England, despite having a heat pump installation which has capacity for the space heating load even on a design condition day for winter extremes (let's say minus 5C) I have done a lot of data logging which has shown that in some not exactly challenging or unusual climatic situations, the heat pump performance doesn't meet anything like submittal sheet claims.

A few weeks ago, I'd forgotten to run the systems overnight at a low setpoint (but enough to keep the space at a reasonable temperature -- I usually pick 16C or the low 60s F). When I went into the kitchen / breakfast nook at seven o'clock-ish it was freezing cold (okay, maybe not freezing, about 14C) with an outside temperature of 1 or 2C (low 30s F).

I turned the heat pump on, set it to a high output as I needed the space to warm through relatively quickly before I had coffee then had to leave.

After less than five minutes, the outdoor unit went straight into a defrost cycle. Why? Because it was one of those typically English damp, foggy mornings (where there was almost 100% RH outside). Even though the outdoor coil would have been, say, 2 or 3C, as soon as the system started, the coil surface temperature would have crashed to minus 3 or 4C -- whereupon the saturated outside air promptly froze the coil solid. Coefficient of performance would have been less than one for the twenty minutes or so I needed to heat the space. I'd have been better off firing up the gas heat.

Only an isolated and probably unusual use case. But a good illustration that green technology has limits. For US climate zone 3 or 4 inhabitants, I suspect heat pumps will only ever be viable in the shoulder months. For the severe winters you guys get, I can't see how you can avoid combustion heat sources. Not to say that renewables such as air source (or ground source) heat pumps aren't a partial solution, but the capital costs will be high, probably prohibitively so for a monovalent system and overall carbon emissions savings won't be especially spectacular.

Ignacio , January 24, 2020 at 7:51 am

Coastal temperate US regions might the best. Many inhabitants there. But I guess it works in Texas, New México, Arizona (may be not so well in high plains north to the Canyon) and others. May be Arkansas for instance and north up to Iowa?. It has to be noted that when temperatures go close to 0ºC or below, and for long hours, performance is much worse. So, in Madrid (a urban heat island itself) this occurs in winter for about 3-10 hours during the night (I set thermostats at 19ºC during the night) in an average January day and it is not big deal.

But, again, the climate is very important indeed. It has to be carefully analysed.

vlade , January 24, 2020 at 8:26 am

IMO Air heatpump is good for Oz, NZ and the likes, with the south UK being marginal now, but not-applicable once Gulf Stream goes :)

ground-water, or water-water HP are needed for anything that gets freezing 3-4 months a year, but that, as you say, has nontrivial capital costs, unless costs of carbon goes up by a lot.

And, TBH, there are problems even with that. Say if ground-water is using subsurface loop, it actually has a measurable impact on the soil temperature over few years, which is bad for a number of reasons. Water-water can be ok if the water source is running water and not over-used, but I've seen water-water sources that were using ponds freeze large ponds that under normal circumstances would never fully freeze.

That said, ground-water well driven HPs are IMO very good for large office or apartment buildings, especially if they work both ways (i.e. cooling into ground in the summer, avoiding city heat islands).

JohnnyGL , January 24, 2020 at 9:00 am

I think the broadest lesson to be drawn from Clive's experience is that investment capital is actively making it difficult to transition away from fossil fuels because investment managers and underwriters absolutely insist on continuing to invest in fossil fuel projects, even if it loses tons of money!!!

How can we compete with rich, powerful people who insist on wasting money!?!?!!

inode_buddha , January 24, 2020 at 10:35 am

I have long wanted to use geothermal heat pump. In my case it simply won't happen, sadly. For one, I would never be able to get the permit to drill the well in city limits. Two, the equipment would cost more than my older, poorly insulated house itself. Three, our state government has allowed and caused some of the highest electric prices in the nation, despite having a huge hydro electric plant in town. We don't get that electricity, it gets sold to NYC at greatly inflated prices. We don't get the money either. Instead we are forced to import our electricity with full taxes and tariffs on it.

Last week, the temperatures were down to -15C at night And of course the snow.

Clive , January 24, 2020 at 11:46 am

Yes, the condition of the building is such a crucial aspect. I used to have beautiful hardwood window frames, but there were an unmitigated disaster for energy efficiency and creating a good building envelope. They were an almost complete thermal bridge. And they could only accommodate the thinnest of double glazing. In a really cold winter's day, I'd have to set the leaving air discharge temperature fairly high on the heat pump indoor coil to get warm, which hampered efficiency. I was able to change to triple glazing (which fixed the problem and significantly reduced heat loss but, again, at a cost ) because the property is modern. If I'd had an older property, the windows would only have been part of the problem (solid or poorly insulated walls and an un-insulated slab, for example, would be worse). And the chances of getting permission to replace windows in a historic house would be slim, certainly with the UK's tight building control.

And as you say, if you're in zone 5 or 6, you're a bit stuffed with regular drops to -15C (5F). My heat pumps guarentee operation down to -15C, but capacity takes a nosedive. Luckily, design conditions here in southern England are -5C, which reduces capital cost massively. And if design conditions demand operation is guaranteed down to -20C (c. 0F), there is not much choice of air source equipment available at any price. The only unit I know which is rated down to below -30C is a Panasonic mini split, which here in the UK costs nearly £2,000 (c. $2,600) for a 3/4 ton unit. Out of reach for most. So you're left with ground source, but -- as you say about NYC -- forget that idea in, say, London where tunnels and utility wayleaves can't be interfered with. And ground conditions are difficult too, with a heavy clay.

Green tech is not a panacea. I don't want to be discouraging, just the opposite. But some of the talk about how practical it is is fanciful.

inode_buddha , January 24, 2020 at 1:47 pm

I do believe that much good is possible by greatly revising and liberalizing the building codes, but practally trying to accomplish this is like pulling teeth. For some reason there is large political resistance to change in this area. Older buildings can easily be made quite efficient with current tech, but then the problem becomes an economic one. How to overcome the first costs when the cost of upgrading is more than the structure itself?

FWIW many homes in my area were built in the 70s and 1980s with the assumption that electric power would be free, or nearly free once the original bond issue for the power plant was paid off. LOL the bastards managed a 30% rate hike the same year they paid it off, using every little excuse possible.

ambrit , January 24, 2020 at 12:10 pm

Reading your reply, I was struck with just how underdeveloped the building insulation field is. I have seen blow in and spray in foam retrofit insulation systems used in commercial construction. (I particularly remember a system for inserting expanding cellular foam into the void spaces in concrete block walls. [Yes! It can be done!])
Saying the above, I have read about the building insulation codes in the Nordic countries being very 'tight.' Anyone from there care to enlighten us?
All the above is referencing winter heating. Where we live, summer time air conditioning is the main energy sink.

Harry , January 24, 2020 at 1:23 pm

Excellent points. Of course there is one plus. In the US we also need cooling in the summer. My impression was that the heat pump systems could provide this as well, and very economically.

Clive , January 24, 2020 at 1:57 pm

Yes, we had a hot summer (hot by north European standards at any rate, we had about 10-15 days in the low 90s F and only a single day over 100F, maybe another few weeks in the 80s) and my A/C cost was well under $100 for the whole cooling season, just because the heat pumps with variable speed compressors and larger coil surface areas are so efficient when in A/C mode.

As ambrit says above, even with low US electricity costs (in some areas, anyway), I don't know how feul-poor folks manage in the south and so-cal with 10 SEER equipment and poorly insulated homes when you have day after day at 95-100F.

Synoia , January 24, 2020 at 8:31 pm

It's dry in SoCal. One can easily survive by opening the windows, avoid direct sun on windows, and dress accordingly.

I lived in the tropics under the same conditions, no direct sun on windows, behind insect screen. That, one bed sheet to cover oneself, and a ceiling fan worked well.

Clive , January 24, 2020 at 7:16 am

Yes, the avoidance of service costs for gas-fired equipment plus the utility connection fee for the gas service does make me consider the idea of moving away from gas as a fuel source entirety. I must run the numbers on that to see how it might work out. It's a good point to consider for anyone looking at the long-term costs for air source water or space heating.

Ignacio , January 24, 2020 at 5:46 am

And you UKers are not precisely big spenders of electricity in per capita terms. About half than French with all that nuclear power in place. Guess that how the power is delivered to the grid has an important effect in consumption patterns.

drumlin woodchuckles , January 24, 2020 at 8:09 pm

If natural gas prices stayed cratered just long enough to exterminate thermal coal beyond hope of revival in many countries before the natural gas prices went back up . . . would that be a good thing?

Felix_47 , January 24, 2020 at 5:03 am

Can someone at NC explain why the government allows burning flared gas? If it was outlawed production would drop for oil as well until some way to store and use the gas was developed. It seems burning natural gas at the wellhead must increase CO2 since gas is a hydrocarbon.

JohnnyGL , January 24, 2020 at 9:10 am

I think you've answered your own question. The US govt has long had a policy to INCREASE oil/gas production, side effects be damned.

There's a collective action problem among producers where they'd all benefit if they all agreed to drop production 20%, say. But, each individual player benefits if they get to cheat on those production cuts.

Plus, they've all floated a ton of high interest debt, which requires that they put capital to work to generate cash flow to service that debt. It's clear that we're in the 'ponzi finance' stage of the cycle where new debt has to be issued to keep up payments on the interest of the older debt. That's why the bankruptcies are perking up.

Bond underwiters, investment mgrs, oil services execs, and other players are all very incentivized to keep getting new deals done.

ptb , January 24, 2020 at 9:19 am

First of all, it seems to be up to the states (?). There actually are regulations in Texas (the Permian basin is the marginal-cost producing location in the US, where most of these stories are centered). But the state is a friend of the industry and these regs are loosely enforced. Secondly, emitting unburned natgas (mostly methane) is even worse than CO2 as a greenhouse gas. Thirdly, they are drilling for oil, not gas, and are hoping to maximize the oil-to-gas ratio. With low natgas prices and smaller amounts per well than elsewhere in the US, putting in pipe for natgas is not economical. In fact the oil-gas-ratio varies in simple geographic pattern that was known for years. The best, i.e. oil-rich land was claimed early, subsequent waves of development that came on line during the oil price spike in mid 2000s, are now getting killed. Fourthly, the ones losing money can't afford the extra ongoing capital investment anyway – recall the very short life cycle of wells in fracking. They are certainly cutting corners in other environment related tasks, like wastewater disposal.

So will it stop? Not at the moment no. On the legal front, not until the next Ralph Nader comes along and we get another wave of federal public interest legislation like we had in the 70s (which neither major party wanted at the time, just like now, and always). Economically, also no. The marginal producers who were late to the gold rush will exit, but there is no shortage of oil at even $50. The wildcard is in international developments. We are suppressing production and export of conventional oil from Iraq, Iran, Libya, and Venezuela. We are suppressing transport of natural gas from Russia to the EU. There is also unconventional oil in Canada. I.e. US policy is supporting prices. Net effect on global oil and gas use? None, since we just produce the difference ourselves, with a bunch of extra natgas the world doesn't want, and can't be stored, so we burn it. Sucks.

Pym of Nantucket , January 24, 2020 at 2:27 pm

Flaring is usually classed as solution gas flaring, emergency flaring and just unwanted gas flaring.

These days flaring unwanted gas is rare because of the huge waste. But not long ago producers could just flare stuff they didn't feel like getting to market, so entire reservoirs of gas were burned just to get to the oil. This mostly doesn't happen anymore.

Emergency flaring happens in production or refining when a sudden unwanted flow of gas manifests and for safety reasons, it must be disposed of rapidly. This appears a sudden very large luminous flares over short timescales. Again, this is rare and essentially can't be avoided. Flaring is much safer than just releasing.

Solution gas flaring is the bubbles of gas dissolved in liquid that come out of solution during production as liquid pressure drops close to the wellhead. These need to be collected or they would fill up liquid storage tanks. The volume and composition of the gas flows determines the cost of collection. Companies have to balance the cost of collection vs. the damage to the environment if flared. They usually try to make a case that the containment cost (the cost to produce it to market, since the market value is usually minimal) is prohibitive and request a permit to flare. This is the usual minimum compliance approach of most resource development.

Basically, the conditions to obtain flaring permits vary with jurisdiction and are based on a balance of revenue vs. environmental damage. These days most places encourage developers to collect solution gas, but for remote locations in sour plays, that is costly to the viability of the play.

drumlin woodchuckles , January 24, 2020 at 8:12 pm

If no one will build the gas-flaring oil fielders a free pipeline from oilfield to gas-market, and building their own pipeline would cost more than what the oilfielders could sell the gas for; they will just burn it in place. The other alternative would be for them to release the methane UNburned into the air, which would be even worse than burning it first.

Peter , January 24, 2020 at 5:49 am

But as soon as prices rise above certain levels, with investors still chasing yield at every twist and turn, the flood of new money will wash over the sector again, with investors having already forgotten by then that shale oil and gas was where money went to die every time

This among the agricultural folk is called the "Schweinezyklus" or "pig cycle". Typical for larger scale farming when from a previous oversupply the market has tried up, raising prices and everyone increasing again their pig production till – again – the market collapses.
I studied agricultural economy and production in the early 1970's when this type of cycle became typical when farmers moved from mixed production providing risk compensation to dual or even single products.

Peter , January 24, 2020 at 10:41 am

has tried up didn't catch that, shoud read "dried up" of course – or even better: crashed

ambrit , January 24, 2020 at 12:18 pm

Indeed, the situation you refer to looks suspiciously like a process of financialization of agriculture. Not to wax nostalgic for the "good old days" of backbreaking labour and crummy living standards, but agriculture used to be a form of 'calling.' Now it's just a job. Of course, the serfs and other 'forced' agricultural labourers of yesteryear disproved the ethos of Goldsmith's "The Deserted Villiage."
There was a Golden Age, but it was not evenly distributed.

BrianM , January 24, 2020 at 8:54 am

Frankly it is hard from Wolf's figures to know if he is even right. $207bn of defaulted debt sounds like a lot of money, but is that from a total of $250bn or $2.5tn? I have no idea if this is a lot of the industry or a little. And 2019 may be worse than 2018 for defaults, but both 2016 and 2017 were way higher than that. Are things really getting worse or not? I am deeply sceptical about the financial viability of fracking, but the case being made here doesn't justify the sensation rhetoric.

jefemt , January 24, 2020 at 9:03 am

Heat: Superinsulated tight homes with air-exchange conservation remains the low hanging fruit

A refrigerator and incandescent light bulb provide a lot of heat, if one can preserve it

John Rose , January 24, 2020 at 10:19 am

In 1993 I built a house guaranteed to use 6,192 Kwh per year for heating and cooling here in central PA, near Harrisburg. That includes resistance electric heat for backup. At that time the cost was less than $40 a month.
Following the specifications to achieve this added about $2,500 to the cost of this 1288 sq.ft. house. It was a result of government requirements but no subsidies except for administrative cost by the utility. Those requirements were subsequently dropped and the program disappeared.

ambrit , January 24, 2020 at 12:21 pm

My question would be, was this program dropped because of complaints from the general public, the homeowners as a group, or the builders and developers? $2 USD a square foot added to construction expense wasn't chicken feed back in the 1970s.

Michael , January 24, 2020 at 10:45 am

Great article! It causes me to wonder, are the neocons trying to start a shooting war in the Middle East to drive up US petroleum prices? Make America Great at least Texas. ;-)

Pym of Nantucket , January 24, 2020 at 2:33 pm

I feel like supply control over there is more about petrodollars and perhaps efforts to hurt Russia and Iran. Meanwhile the US seems to essentially be dumping oil with QE and repo money funding money losing small fracking plays. I figured ages ago the plan was always to have the supermajors mop up the wreckage at pennies on the dollar when the party ends.

Mike , January 24, 2020 at 12:57 pm

Paper bankruptcies seem like a small price to pay for the gain in geopolitical influence of all that extra production. Not being at the mercy of someone turning down the crude tap can foster much more unilateral, terrible decision making in the middle east.
The invisible hand of the market did well to coddle a massive infrastructure buildup I saw first hand in the Eagle Ford in Texas. Long term well production may have dropped off significantly faster than the sales pitch but all of those wells will still be in place to re-fracture when the market demands it.

Jack Parsons , January 24, 2020 at 5:42 pm

How do I short fracking?

Synoia , January 24, 2020 at 8:35 pm

Short Continental Resources, Howard Hamm's Company,

He's the Genius who married his corporate Lawyer, and then went womanizing.

[Jan 16, 2020] The Plateau of Shale Production the Biggest Story of 2020

Notable quotes:
"... Such is the extent of the shakeout in the U.S. shale industry that Permian Basin oil production is closer to peaking than many forecasts suggest, according to one energy investor. ..."
"... Adam Waterous, who runs Waterous Energy Fund, regards the sector's financial position as unsustainable after years of disappointing returns for investors and negative free cash flow. With capital markets now largely shunning shale producers, the impact will begin to show in oil and natural gas output from the largest U.S. oil patch, he said. ..."
Jan 16, 2020 | peakoilbarrel.com

X says: 01/13/2020 at 6:45 pm The Plateau of Shale Production the Biggest Story of 2020?

https://www.financialsense.com/podcast/19463/slowing-shale-production-be-story-2020-says-adam-rozencwajg Reply

TonyEriksen says: 01/14/2020 at 1:48 am

Production from these selected top 9 US shale oil companies might be about to fall as shown by decreasing quarterly crude oil production changes in chart. ExxonMobil (XOM) shale oil is growing fast about 11% per quarter but probably not enough to offset declines from other operators.

EOG
Pioneer
Concho
ConocoPhillips
Marathon
Occidental incl Anadarko acquisition
Diamondback
Devon
ExxonMobil

XOM data is taken from shaleprofile.com, averaging three months into a quarter, then multiplying by 75% to get crude oil. 75% is used because Pioneer Natural Resources crude to total shale oil is 75% and Pioneer operates in the Permian which is also XOM main basin.

Dennis Coyne says: 01/14/2020 at 9:57 am
Pretty sure shale profile reports crude plus condensate, for "oil" production. As the data matches pretty closely with the EIA's tight oil estimates by play when Oklahoma output is excluded (shaleprofile only reports Oklahoma output on the subscription service.)

In short, one should not assume 75% of what is reported at shale profile is the "crude" portion of output. In fact all US output is reported as crude plus condensate, all the way back to 1860.

There is also Chevron, BP, and Shell operating in US tight oil, all have deep pockets and will be unaffected by the tightening up of the credit markets. In the past 2 years these 5 have doubled their tight oil output, though most of the increase occurred in 2018 when oil prices were higher.

Output may drop, that in turn will lead to higher oil prices and higher tight oil output, also the majors will be able to pick up cheap assets as smaller oil companies that have not been financially prudent go bankrupt, that may accelerate the growth of tight oil output from the majors as oil prices rise.

Dennis Coyne says: 01/14/2020 at 10:55 am
Here is output from 5 oil majors for US tight oil from

https://shaleprofile.com/blog/us-monthly-update/us-update-through-september-2019/

Output was 839 kb/d in Sept 2019, 402 kb/d in Sept 2017, and 686 kb/d in Sept 2018.

Output from Shell, Exxon/Mobil, Conoco-Philips, Chevron, and BP.

Synapsid says: 01/14/2020 at 7:18 pm
DC,

Liquids produced at natural-gas processing plants are excluded. Those are the NGPLs if memory serves and are not NGLs which I think of as coming from NG at the well head.

In other words liquid from NG is listed two ways: The stuff obtained at the well head (NGL) and the stuff obtained farther down the line at NG processing plants (NGPL), and the latter is not included as oil. This is from my failing memory but so is my ability to find my way home most of the time.

Hmm it's been a while since Port.

Dennis Coyne says: 01/15/2020 at 7:49 am
What some do not realize is that the natural gasoline (which condenses from the natural gas stream at standard temperature and pressure of 1 ATM, 25 C) has always been included in the crude plus condensate data in the US since 1860. The lower carbon chain products (C2, C3, C4) are not liquids at STP, they are gases and remain in the natural gas stream until they are separated at the natural gas processing plant. The definition given by the EIA is quite clear on this point.
TonyEriksen says: 01/14/2020 at 6:46 pm
In the Permian basin, the ratio of crude to total oil (incl NGL) produced by Pioneer has fallen from 81% at beginning of 2016 to 75% at the end of 2019. If this fall is similar for other Permian producers then it may be harder to continue increasing Permian crude production.

TonyEriksen says: 01/14/2020 at 6:50 pm
The comparison between oil production from shaleprofile.com and from Pioneer is very close, as shown by the two green lines. For 2019Q3, shaleprofile production was 286 kbd compared to 290 kbd from Pioneer quarterly report. Note that both these numbers include crude, lease condensate and NGLs.
http://www.pxd.com/

Freddy Gulestø says: 01/14/2020 at 9:35 pm
I read an very interested report here on this forum where US geological Institute had estimated break even prices for Thiere 6 to 1. Thiere 6 was categorizized as sweet spots with more than 800 kbpd. As I remember this had break even cost 18 usd each barrel and to next class you could aproximately multiplay it with 3. I believe this is much of the core knowledge the Pioneer Mark Papa is estimated US future shale production at wich again is related to change in rock quality. What we know is in 2014 -2015 I believe US could earn money at least with some borrowings at 30 usd WTI , 5 years after tjey cant earn money at 60 usd WTI even with huge improvement in drilling efficiency that it is a reason to believe will go much slower in future. Labour cost and all other will continue to increase. It might be break even price in 2025 will be above 120 usd WTI iff Thiere 5 runs out as same as Tiere 6 the sweet spots. This mean we will be back to the situation before 2014 when the main source off oil was offshore, and investment was there. It simply means US need to cut more cost in shale oil, develop more oil from wells drilled in less quality rock but this challange might be very hard to solve even for Exxon that is ramping up, the question will be if their barrels are profittable at 42 usd WTI as they predict. Perhaps Mr. President could give tax release, or simply start buy up the 1500 billion in depth that need to be payed next 4 years.
Dennis Coyne says: 01/15/2020 at 10:58 am
Tony,

Some people may consider natural gasoline (which condenses from Natural gas in the lease separators) as "NGL", I consider this this to be lease condensate and generally is is mixed with the crude and sold with the crude. Perhaps Pioneer keeps a separate account of "crude" and "condensate", in the US these are usually lumped together as C+C, most of the NGPL produced in the US is Ethane (C2), Propane (C3), and Butane (C4), about 12% of the NGPL is natural gasoline (C5), roughly 600 kb/d of a 5000 kb/d total output of NGPL. Note that the US does not count the pentanes plus from NGPL plants as part of C+C output even though it is chemically very similar to lease condensate. In Canada, for example the pentanes plus from NGPL is added to C+C from the field, not sure why the US does things this way, Canada's approach seems more sensible.

See https://www.eia.gov/dnav/pet/pet_pnp_gp_dc_nus_mbblpd_m.htm

Jack says: 01/14/2020 at 11:20 pm
what are they smoking at the EIA they expect production to keep on increasing through dec/jan while rigs and frac spreads have cratered ..

Great comments on twitter re the data and EIA response to questioning how they get to their numbers

https://twitter.com/ZmansEnrgyBrain?lang=en

TonyEriksen says: 01/15/2020 at 12:41 am
Such is the extent of the shakeout in the U.S. shale industry that Permian Basin oil production is closer to peaking than many forecasts suggest, according to one energy investor.

Adam Waterous, who runs Waterous Energy Fund, regards the sector's financial position as unsustainable after years of disappointing returns for investors and negative free cash flow. With capital markets now largely shunning shale producers, the impact will begin to show in oil and natural gas output from the largest U.S. oil patch, he said.

"We think we are at or near peak Permian" production, Waterous said last week in an interview. "The North American oil market has been grossly overcapitalized, which is not sustainable."

Predicting peak Permian output for 2020 isn't a mainstream view. There's plenty of debate about how much production growth in the West Texas and New Mexico patch may slow this year as shale drillers slash capital spending, but the consensus is that supplies will rise, albeit at a slower pace. Tai Liu, an analyst at BloombergNEF, said in a report Tuesday that the pessimism may be overdone.

https://www.bloomberg.com/news/articles/2020-01-14/peak-permian-oil-output-is-closer-than-you-think-investor-says

Watcher says: 01/15/2020 at 2:57 am
Just because there are newcomers I will re offer up a consideration.

If you have to have it, and you do have to have it, you are not going to let a substance created from nothingness on a whim by the local Central Bank get in the way.

This is a peak oil blog, and that means scarcity. When something that you have to have is scarce, then you are going to go get it. The concept of price is a parameter of value -- value that exists only in the imagination of counterparties. Oil moves food and your stomach doesn't care about the imagination of counterparties. So don't be so sure that price determines production. Or consumption.

Anybody notice that the price is rather a lot less than it was five or six years ago? How does production compare to then?

HuntingtonBeach says: 01/15/2020 at 11:38 am
"'There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don't know. But there are also unknown unknowns. There are things we do not know we don't know."

Economics is the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively.

Supply and demand is the amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.

Watcher, we don't live in a perfect world of instant information and production.

" Over the past five years, the industry and its investors "mistook a massive structural change for a simple cyclical event," he said. "It's impossible to continue to have uneconomic production and capex.""

https://www.bloomberg.com/news/articles/2020-01-14/peak-permian-oil-output-is-closer-than-you-think-investor-says

Watcher, maybe some day you will figure out you need to apologize to Dennis for your ignorance and demeanor. Until than your the loser.

Watcher says: 01/15/2020 at 10:46 pm
It is basic stuff. I can show you many time periods of increasing price that aligned with increasing consumption.

And again, worst of all, you know I can show those time periods.

The theory fails. If you find even one instance where it is wrong, it fails. That's the scientific method. The hypothesis is proposed. Experiments are observed. If even one fails to support it, that's failure. That's how it's always worked.

There is no oh, but. Price is lower than 6 years ago and production is higher. 2010 to 2014 price rose from $95/b to $112/b. Consumption 2010 89 bpd to 2014 93 mbpd. I found that without breaking a sweat.

The theory fails. Embrace a new one. And why be surprised? It's a substance whose value derives from whimsy and counterparty imagination

Lightsout says: 01/15/2020 at 4:17 am
US gas production in decline.
https://amp.ft.com/content/6a39af48-3719-11ea-a6d3-9a26f8c3cba4?segmentid=acee4131-99c2-09d3-a635-873e61754ec6&__twitter_impression=true
Dave P says: 01/15/2020 at 1:43 pm
Search the article name in google and open it from there, this gets around the paywall for me.

[Jan 16, 2020] The average price for 2019 was $56.72 WTI for 2019 doesn't seem to be exciting anyone.

Jan 16, 2020 | peakoilbarrel.com

shallow sand x Ignored says: 01/10/2020 at 1:53 pm

$56.72 WTI for 2019 doesn't seem to be exciting anyone.

That was the average price for 2019.

I think the major agencies see US C + C topping 20 million BOPD by 2030.

Along with the slow but steady increase in renewables, just not much of a reason to get excited about oil. Reminds me a lot of the 1990s.

Jack x Ignored says: 01/10/2020 at 3:59 pm
So rigs and frac spreads continue to fall yet almost all experts predict continued LTO growth . it would appear the day of reckoning is coming and the majors in the Permian will not save the day .. wasn't everyone hoping for a pick up in rigs and spreads as budgets were meant to be renewed in the new year
Jack x Ignored says: 01/10/2020 at 7:53 pm
I think independents are finally getting it that they can't simply look to increase production as soon as the POO goes up.

I think the change has solely been bought about by investors requiring a return on investment, I'm not sure we can surmise that LTO producers will act as they have in the past, I suspect it will take a sustained period of high POO before LTO producers open the spigots it will create even more of a boom/bust scenario going forward ..

Stephen Hren x Ignored says: 01/11/2020 at 7:36 am
I agree with you Jack, a large increase in oil prices seems unlikely to have much boost in LTO production for several years because banks will want significant loan payback before increasing drilling budgets. Dennis' model is an excellent BAU projection, but we live in more dynamic times than that imho. Banks will need a consistent high oil price to lend like they did in the past. That seems unlikely given possibility for recession, war, EV adoption, increased regulation from Democratic prez, etc.

Wall Street is obsessed with the shiny new thing and that is not FF production. Tesla's share price now more than GM and Ford combined.

Stephen Hren x Ignored says: 01/11/2020 at 9:35 am
Debt mountain for shale producers 2020-2023. Maybe once they get past this mountain banks will be ready to loan again and rig counts and frac spreads will increase. But only if there's a consistently high oil price during this period so banks have confidence to lend and debt is substantially reduced.

https://oilprice.com/Energy/Energy-General/US-Oil-Companies-Face-240-Billion-Debt-Mountain.html

shallow sand x Ignored says: 01/11/2020 at 8:01 am
It's all about the Permian and has been for quite some time.

None of the other shale basins have enough rigs running to grow production significantly.

The Bakken is probably the most economic besides the Permian, and it seems the operators there are in maintenance mode with regard to production.

There are still 397 rigs running in the PB. That is still a large number. I suspect there are more locations left there than in the remaining shale basins combined (not counting the ones which produce mostly natural gas).

Ron Patterson x Ignored says: 01/11/2020 at 8:49 am
It takes rigs to drill wells and frak spreads to complete them. No, rigs and frak spreads have not improved their efficiency that much in such a short time. And drillers and frakers are not working that much faster.

What you are seeing, or are about to see, is a slowdown in completions. The frak spreads that are being retired have obviously just finished completing a well. But they will not be completing another one. That's why you see a lag between falling rig and frak spread count and completions.

Ron Patterson x Ignored says: 01/11/2020 at 11:59 am
Hell, that's all we need Dennis. If the total number of national frac spreads fall then the total completions, nationwide, will fall. If production falls everywhere except the Permian, then that decline will offset any increase in the Permian.

Okay, we know that the lions share of frac spreads are for oil therefore???

I think you are way overplaying your hand with this efficiency stuff. Last time when rigs and frac spreads declined, then production declined. Why should it be any different this time?

The simple fact of the matter is: "The total number of frac spreads are falling". Therefore completions will fall because retired frac spreads frac no new wells. Yes, it is as simple as that. Saying the remaining frac spreads will be more efficient therefore completions will not fall, is just wishful thinking at best, and total nonsense at worst.

The Primary Vision Frac Spread Count is 275 for the week ending January 10th, 2020.

Jack x Ignored says: 01/11/2020 at 2:57 pm
Well said Ron losing frac spreads means that the maximum number of completions able to be completed has decreased – the concept of increased efficiency is a red herring when spreads have fallen 40%!in the past 6 months – spreads efficiency sure hasn't risen 65% in the same time ..

I think we all agree once the worm turns in the Permian LTO production will decrease, I am not sure producers will increase production as the POO rises they do have to pay back a lot of debt and have shareholders to answer to who want a return ..

Freddy Gulestø x Ignored says: 01/11/2020 at 3:55 pm
From what I have read there is always improvement of efficiency in operation regarding new Buisinesses such as shale. This improvement is normaly linked to exsperiance, increased volumes i.e. but typical it will slow down during time as much of the easy potential will be taken out. I see this as drilling padds, skidding systems as same rig could drill more wells without be dismantled and mounting again. Dere have also been improvements in latheral lenghts, propant, and fluid . But as Slumberger wrote in 2019, they believed max latheral lenght already is reach as if increased cost off equipment will be much higher and also risk increase when operating atbthe limit, more tear i.e. There might still be improvements but more slow than it have been. According to reports the break even price increase 4-5 times each Tiere class, and I believe rock quality will be a main challange in years to come as shale will need higher oil price to earn money, pay back ballons and dividends.
Jack x Ignored says: 01/11/2020 at 8:09 pm
Let's see the next quarterlies from LTO producers noting the continued comments about being profitable under $50. If Permian centric producers cannot profit on maintaining production output we know Houston we have a problem going forward .. will the companies be able to stick to using cash flows from continued operations only or will we see more excuses carted out again .
Stephen Hren x Ignored says: 01/12/2020 at 7:28 am
Gail makes the case for an oil peak for 2018, predicting production down 1% in 2020 in a low-price environment. Her take is worth a read even though she likes to go far out on a limb with little support sometimes

https://oilprice.com/Energy/Energy-General/Recession-Fears-Cap-Oil-Prices-In-2020.html

TonyEriksen x Ignored says: 01/13/2020 at 1:57 am
Production from these selected top 8 US shale oil companies might be about to fall as shown by decreasing quarterly crude oil production changes as in chart below.

EOG
Pioneer
Concho
ConocoPhillips
Marathon
Occidental incl Anadarko acquisition
Diamondback
Devon

Jack x Ignored says: 01/13/2020 at 2:32 am
very interesting graph it shows what is evident that independents are being forced into financial discipline at last. I cannot see the majors picking up the slack regardless of what the MSM say, why would they continue with the growth at all costs strategy which has caused noting but carnage for the above 8 producers.
TonyEriksen x Ignored says: 01/13/2020 at 7:34 am
Majors won't be picking up the slack according to the top 5 from https://shaleprofile.com/2020/01/07/us-update-through-september-2019/

Dennis Coyne x Ignored says: 01/13/2020 at 12:10 pm
Looks like XOM grew quite strongly. Their pockets are deep, they can buy up assets on cheap as smaller companies fail, fairly standard in capitalism.
Jack x Ignored says: 01/13/2020 at 4:10 pm
Can XOM do all the heavy lifting itself once the independent growth plateaus then falls is the million $ question. My bet XOM will grow but in a sustainable way, the impact of the Permian increase will be interesting to note in their quarterly how much has that growth cost them is the question ..
Dennis Coyne x Ignored says: 01/13/2020 at 4:54 pm
Jack,

If we look at Exxon/Mobil, Chevron, Conoco-Philips, Shell, and Total combined, they have increased combined tight oil output from 400 kb/d to 840 kb/d in the past 2 years (Sept 2017 to Sept 2019). Most of this increase occurred from Sept 2017 to Sept 2018 when oil prices were a bit higher, in the past 12 months output grew by only 155 kb/d. Oil prices matter, low oil prices may kill tight oil output growth, if so, oil prices are likely to rise.

shallow sand x Ignored says: 01/13/2020 at 9:44 pm
Dennis.

I read some of your models some of the time, so forgive me if this question you have already answered.

When you model the Permian, how many wells are you assuming?

It seems the EFS and Bakken likely do not have years of locations left, at least on a large scale. Likely why there aren't a lot of rigs.

If there are a decade of locations for 400 rigs in the PB, I suspect oil prices will remain range bound.

Dennis Coyne x Ignored says: 01/14/2020 at 9:47 am
Shallow sand,

For my "medium oil price scenario" (maximum WTI price of $83/b in 2018$ reached in 2027), we get about 195,000 total wells drilled, about 110,000 total horizontal tight oil wells get completed from 2010 to 2030 (about 26,000 have been completed through November 2019) so roughly 80k wells completed from Sept 2019 to Sept 2029 in scenario below.

Also link below has spreadsheet you can play with.

Changing row 4 changes completion rate to any rate that seems reasonable. Scenario ends in 2030 for this particular spreadsheet, you can use excel, google sheets, or some other spreadsheet program, it is saved in microsoft excel format.

https://drive.google.com/file/d/1fyAD5-CngWdgq_kaZ7ow1k7O_dNr8xaW/view?usp=sharing

On prices remaining range bound, that depends in part of how quickly oil consumption grows. From 1982 to 2018 the average rate of growth in annual oil consumption has been about 800 kb/d. My $83/bo model has US tight oil growing by about 385 kb/d over the next 7 years, it is not clear that the rest of the World will be able to fill the 415 kb/d gap each year (assuming the 800 kb/d C+C consumption growth continues for the next 7 years). That is why I expect oil prices to rise.

There has been relatively low offshore oil investment over the past 5 years and this is likely to start affecting World oil output soon, the bumps in output from Brazil and Norway are likely to be offset by declines in other producing nations (Mexico, China, and UK) and it is far from clear that we will see higher output from Iran, Venezuela, Libya, or Nigeria.

As always the future is difficult to predict and I am often wrong, so perhaps oil prices will remain "range bound" in your preferred $55 to $65/bo range. If that is correct Permian output will grow far more slowly, perhaps growing from 4 Mb/d to about 6 Mb/d. The low oil price scenario has about 72,000 wells completed from Sept 2019 to May 2030 in the Permian, about 52,000 wells in all other US tight oil basins for a total of about 124,000 wells for the low oil price scenario over that period. The completion rate falls from 850 in 2030 to zero in 2035 for the low oil price scenario and output falls from 8200 kb/d at the start of 2030 to 2600 kb/d at the end of 2035.

I think it unlikely oil prices will remain range bound when World oil output peaks in 2026, that is only 6 years away, growth in oil output will slow significantly starting in 2024 and oil prices are likely to rise (at the latest) by June 2023.

shallow sand x Ignored says: 01/14/2020 at 11:36 am
Thanks.

That is a lot of locations. Of course, not all locations are the same productivity wise.

Incredible how much oil the Permian Basin has produced and will produce in the next decade.

Interesting how many companies sold out most of their acreage in the PB in the late 1980s and 1990s, thinking it was past its prime.

I know of a small operator that bought leases in the PB and drilled some good vertical wells. Martin Co. I don't know what they paid, but I am sure it was a tiny fraction of the $600 million they sold out for a three years ago.

QEP bought about 9,500 acres from them for $600 million. There was 1,400 BOPD of production from vertical wells at the time of the sale.

I have been looking at the wells QEP has drilled on this acreage. I don't think $600 million for 450 hz locations was a good deal for QEP. There are some good wells, but not enough of them.

Dennis Coyne x Ignored says: 01/14/2020 at 1:13 pm
Shallow sand,

Yes I agree, all locations will not have the same productivity, I use the average for all wells drilled for any given month as I am interested in the entire industry, some operators will have better wells than others, some of this is skill and some of it is luck, I simply assume generic company X will have a well productivity distribution that will be similar to the industry average, in practice this is not likely to be true, but if we think of the entire Permian basin as being run by a single large oil producer (Big Permian Oil Company) it would be approximately correct, if my economic assumptions are correct.

I also find it amazing how much tight oil has been produced (5.6 Gb so for for Permian since Jan 2000) and will be produced ( a total of 29 Gb for my model from Jan 2000 to May 2030, and for longer scenarios out to Dec 2079, about 60 Gb URR for Permian basin alone.) Mike Shellman thinks that is completely wrong, but if the USGS mean estimate is roughly correct and my medium oil price scenario and other economic assumptions are correct, that is what the model suggests might happen. Mike is not a fan of the USGS TRR estimates, their F95 estimate is 43 Gb for Permian Basin URR, my low oil price scenario is in line with that F95 TRR estimate, with a URR of about 37 Gb.

If the TRR is low, oil prices are likely to be higher and a higher percentage of the TRR is likely to be profitable to produce. (For a low TRR scenario the EUR would decrease more rapidly than my "medium" TRR assumption (the basis for my best guess estimates).

I assume new well EUR starts to decrease starting in Jan 2019. In Dec 2018, my model has the average Permian well with an EUR of 378 kbo. Chart below shows how the model assumes the EUR will change from Sept 2019 to May 2030 (end of model scenario) for the Permian scenario I presented above.

Again this is a guess for how future EUR will change based on a TRR scenario (no economics) with 255,000 wells and a TRR matching the USGS mean estimate of 75 Gb for the Permian basin. The rate that the EUR decreases depends on the number of wells completed each month. Chart is small, click on chart for larger chart.

So they paid 1.33 million per well, I agree the wells do not look very good, for a 2017 average well, QEP has cumulative output of 145 kbo, my basin wide average well has about 190 kbo at 24 months, so the QEP wells about 24% lower than average, yikes.

shallow sand x Ignored says: 01/14/2020 at 5:44 pm
QEP was $18/share when they bought the acreage. $4/share now.
Ovi x Ignored says: 01/13/2020 at 8:31 am
Tony

Great chart. 👍👍👍👍

Watcher x Ignored says: 01/13/2020 at 11:58 am
No evidence of any of that in chart.

[Dec 23, 2019] Energy Analysts Deliver More Bad News for US Fracking Industry's Business Model

Dec 23, 2019 | www.nakedcapitalism.com

Energy Analysts Deliver More Bad News for US Fracking Industry's Business Model Posted on December 22, 2019 by Lambert Strether Lambert here: Yet another bezzle.

By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Originally published at DeSmogBlog .

This month, the energy consulting firm Wood MacKenzie gave an online presentation that basically debunked the whole business model of the shale industry.

In this webinar, which explored the declining production rates of oil wells in the Permian region , research director Ben Shattuck noted how it was impossible to accurately forecast how much oil a shale play held based on estimates from existing wells.

" Over the years of us doing this, as analysts, we've learned that you really have to do it well by well," Shattuck explained of analyzing well performance. "You cannot take anything for granted."

For an industry that has raised hundreds of billions of dollars promising future performance based on the production of a few wells, this is not good news. And particularly for the Permian, the nation's most productive shale play , located in Texas and New Mexico.

Up until now, the basic premise of the fracking business model has been for a company to lease some land, drill until finding a high-volume well, hype to the press this well and the many others it plans to drill on the rest of its acreage, and promise a bright future, all while borrowing huge sums of money to drill and frack the wells.

Throughout the seminar, Wood MacKenzie analysts emphasized that companies can't reliably predict future oil production by "clustering" wells, that is, estimating volumes of many future wells based on the performance of a small number of nearby existing wells, and described the practice as potentially "misleading."

Shattuck called out how the old business model of firms borrowing money from investors while hoping for future payouts on record-breaking wells no longer works. He summed up the situation:

" We're transitioning to a point in time, where the investment community was enamored of the next well and how big it might be. That has changed for a variety of reasons. One very important reason is the next well might not be bigger. It might be smaller."

The fracking industry is now being asked to produce positive financial results -- not just promises of new super wells, or cube development, or artificial intelligence. And yet the industry couldn't deliver profits while drilling all the best acreage over the last decade. Now, shale companies need to do that with oil wells that may not produce as much.

Seven years ago, Rolling Stone referred to the fracking industry as a " scam " while profiling the "Shale King" Aubrey McClendon, the man generally credited with inventing the business model the shale industry has used the past decade. Today, McClendon's old company Chesapeake Energy is in danger of going bankrupt .

Perhaps investors are finally catching on.

Are Child Wells the New Normal?

Last year I covered the issue of child wells , or secondary wells drilled close to an existing "parent" well, and the risk they posed to the fracking industry. Child wells often cannibalize or damage parent wells, leading to an overall drop in oil production.

At the time, I cited a warning about this situation from Wood MacKenzie, which said, "Closely spaced child well performance presents not only a risk to the viability of the ongoing drilling recovery but also to the industry's long-term prospects."

Over a year later, has the shale oil industry abandoned this approach or are child wells still an issue?

During this month's webinar, Ben Shattuck answered that question, making a statement that should strike fear in the heart of shale investors and the owners of all this shale acreage:

" We know we're on the cusp of a child-well world."

One of the biggest problems with fracked oil well production is child wells, and according to Shattuck, that looks like the new normal. When the bug in an unprofitable business becomes the main feature of the business model, its future is definitely at "risk."

In the Eagle Ford shale, average production per foot of well length and per pound of "proppant" has been falling steadily. Mr Kibsgaard blamed the decline on a rising proportion of child wells, which are now up to about 70 per cent of all new wells drilled https://t.co/uG58KcNNJp

-- Alexander Stahel (@BurggrabenH) October 19, 2018

Fracking's Fatal Catch-22

As long as shale firms could keep borrowing and losing money to drill new wells, producing more oil was simple. When profits weren't a concern, the debt-heavy business model worked. But similar to the dot com boom and bust, the fracking industry is learning that if you want to stay in business, you need to make a profit.

Without a doubt, drilling and fracking shale can produce a lot of oil and gas in the right geological regions. It just usually costs more to get the oil and gas out of the rock than the fossil fuels are worth on the free market. Now, however, the much-lauded "shale revolution" is facing two big issues -- the best rock has been drilled and few are eager to loan money to drill the remaining acreage.

E&E News recently highlighted what this reality means for Texas's Eagle Ford shale play, where production is now 20 percent lower than at its peak in early 2015. For an oil basin that's only been producing oil via fracking for just over a decade , that is a pretty grim number. However, an analyst quoted by E&E News highlights the secret to making money while fracking for oil: Simply stop fracking.

"Generating free cash is easy: Stop spending on new wells," said Raoul LeBlanc, vice president for North American unconventionals at IHS Markit. "The catch is that production will immediately move into steep decline in many cases."

# IHSM arkit forecasts capital spending for shale drilling & completions to fall by 10% to $102 billion this year. By 2021, we'll see a near $20 billion decline in annual spending. What's causing this? Raoul LeBlanc comments- https://t.co/7q1QTiWZVs @HoustonChron

-- IHS Markit Energy (@ IHSM arkitEnergy) November 8, 2019

Ah, the catch. To generate cash while fracking requires companies to stop fracking and sell whatever oil they have left from rapidly declining wells. Because fracked wells decline quickly even when everything goes perfectly, if a producer isn't constantly drilling new wells, then the oil production of a field drops off very quickly -- the "steep decline" noted by LeBlanc.

That's exactly what happened in the Eagle Ford shale, an early darling of the fracking industry, and most of the top acreage in the Bakken shale play in North Dakota and Montana has already been drilled, and will likely see similar declines.

LeBlanc emphasizes this point again in the Journal of Petroleum Technology , where he is recently quoted saying that the decline rates in the Permian region have "increased dramatically" for new fracked wells.

A year and a half ago, DeSmog launched a special series exploring the finances of the fracking industry , putting a spotlight on its financial failings. At the time, optimism about the future of fracking was still filling the pages of the financial press.

The initial article kicking off the series closed with a quote from David Hughes, a geoscientist and fellow specializing in shale gas and oil production at the Post Carbon Institute . For years, Hughes has been warning about the optimistic estimates for shale oil and gas.

Hughes told DeSmog that with the finances of fracking, "Ultimately, you hit the wall. It's just a question of time."

With the industry on the cusp of a "child-well world," that wall appears to be approaching quickly -- unless you still believe the industry promises that fracking's big money is right around the corner.


PlutoniumKun , December 22, 2019 at 7:55 am

As the article says, the key scary thing for investors and the industry about fracking is that fracked wells don't tail off over years like conventional ones – they stop producing quite abruptly. Once the sweet spots are sucked dry, the drop off in production will be calamitous with all sorts of potential impacts through both the oil/gas and the finance world. It will probably happen far too quickly for most investors to jump off the carousel in time. It will be a game changer when it happens (and probably, sadly, quite good news for the Gulf States).

In past years, whenever I've expressed scepticism about the finances of fracking, the usual response is 'but those guys wouldn't be putting in billions unless they knew there was lots of oil and gas there'. What they don't seem to grasp is that making money from oil and gas exploration is not the same as making money from oil production. Its not about selling on the fuel. Its about first of all extracting money from investors for the exploration (and getting your cut), then its about developing a prospect and selling it on for a big profit. They don't really care if the well is profitable in the long term or not. I know of at least one oil company (not in fracking, mostly off-shore), which has made millions for its owners over the 40 years of its existence, despite the fact that it has never sold one barrel of oil, nor ever found a field which could be brought to full production. All their profits have come from their cut in selling on prospective fields, not one of which has ever come to production.

Jerry B , December 22, 2019 at 3:54 pm

===Its about first of all extracting money from investors for the exploration (and getting your cut)==

==All their profits have come from their cut in selling on prospective fields, not one of which has ever come to production===

What that tells me is there are a lot of investors that have soo much idle money floating around the world and can literally throw huge sums of money at some venture and if the venture fails oh well.

Many authors (Susan Strange, etc.) have used the term Casino Capitalism and this seems to fit that.

It's like taking millions of dollars and making an idle bet at the roulette wheel and if you lose oh well it was just pocket change or I'll just make up the losses on some other scam. Meanwhile millions of people are homeless, without healthcare, hungry, etc. It's is long past time to storm the castles! Pitchforks Up!!

Noel Nospamington , December 22, 2019 at 7:59 am

I predict a nightmare of numerous abandoned wells as the many unprofitable fracking companies go belly up, leaving the public with an expensive environmental mess to clean up.

Just another example of western cronie capitalism where you privatise all profit, and socialise all losses including both monetary and environmental.

The only way to stop this is to make shareholders personally responsible for such losses including environmental clean up, even after a company goes belly up. Only then will shareholders demand long term viability and more sustainable environmental practices, instead of only short term profits.

PlutoniumKun , December 22, 2019 at 8:46 am

A much simpler way is to simply insist that any license to drill can only be granted if it is tied to a certified insurance bond for correct capping and abandonment. It would be interesting to see just how many insurance companies would be willing to take on that risk.

XXYY , December 22, 2019 at 10:09 am

This should be the norm for all resource extraction permits: mining, logging, drilling, whatever. A "restoration bond" has to be in place to finance the restoration of the site after the valuable resources have been carted away.

This would be cheap in some cases, and very expensive in others (e.g., uranium mining). It would be a way of factoring the externalities (as economists like to call them) into the overall cost of the project, as well as decreasing the odds that fly by night operators will trash the planet.

The Historian , December 22, 2019 at 10:26 am

Just a very small quibble:
The days of the big pits for uranium mining are over. Most uranium, and I think all uranium in the US, is now mined by in-situ leaching. You wouldn't know you were near an uranium mine any more except for the small pumps in the field.
https://www.world-nuclear.org/information-library/nuclear-fuel-cycle/mining-of-uranium/in-situ-leach-mining-of-uranium.aspx

This link has a good picture of what a uranium mine now looks like:
https://trib.com/business/energy/in-situ-leach-process-drives-wyoming-uranium-ambitions/article_c5f8b9b7-da51-5f3f-86f4-79d1698bcb2f.html

Eclair , December 22, 2019 at 11:22 am

"You wouldn't know you were near an uranium mine any more ."

Alas, the residents of Red Shirt, South Dakota, a tiny Lakota community on the fringes of the Pine Ridge Reservation, know about uranium mining. Past uranium mining activity has resulted in the leaching of radioactive materials into their ground water and wells. Even the nearby Cheyenne River has been contaminated. They can't drink the water. Or use it for irrigation or fishing. The entire region is an official National Sacrifice Area. Just a bunch of poor Indians.

The Defenders of the Black Hills are now fighting efforts to mine uranium using in-situ leach mining. In this process, holes are dug, water and solvents injected to dissolve the uranium, then the waste water is brought to the surface and temporarily stored in mud waste ponds. Sounds like 'fracking?' Concerns are for the spread of contaminants in ground water and aquifers. Where you can't see it.

The Historian , December 22, 2019 at 12:27 pm

Granted, no type of mining is without its problems.

But you could live in an area like mine where well water has to be tested routinely for the high levels of uranium that occurs naturally in our water. No uranium mines around here.

drumlin woodchuckles , December 22, 2019 at 8:16 pm

You have uranium in your water, so let everybody have uranium in their water. Is that it?

The Historian , December 23, 2019 at 1:01 am

I'm going to be polite and ignore the tone of your comment. I was merely pointing out that uranium mining is not the only reason for high uranium levels in ground water. There is a lot of uranium in the earth's crust and it is dissolvable in water. All well water should be checked for uranium levels but it is rarely done.

JTMcPhee , December 22, 2019 at 10:47 am

"Restoration bonds" would just become another "wetlands mitigation meets emissions trading" scam. https://www.cfact.org/2016/01/29/federal-wetlands-mitigation-bank-scam-threatens-popular-california-golf-course/

I'd favor forcing the investors and executives that want to erect these horrors to personally (along with their family members) do the on-site labor of closing and cleanup, while breathing the air and drinking the water that locals do. Still, of course, possible to game even that by capturing the regulatory process of setting cleanup standards and requirements, a la the federal and state Superfund programs.

Malum prohibitum vs. malum in se

" Latin referring to an act that is "wrong in itself," in its very nature being illegal because it violates the natural, moral or public principles of a civilized society. In criminal law it is one of the collection of crimes which are traditional and not just created by statute, which are "malum prohibitum." Example: murder, rape, burglary and robbery are malum in se, while violations of the Securities and Exchange Act or most "white collar crimes" are malum prohibitum." https://dictionary.law.com/Default.aspx?selected=1201

George Stubbs , December 22, 2019 at 7:44 pm

The public won't be asked to fund the cleanup because there will be no cleanup. The responsible parties aren't interested, and our government is no longer interested either. It's another one of those issues in which communities without power will insist on government action, and they will be ignored.

Wukchumni , December 22, 2019 at 8:28 am

"We know we're on the cusp of a child-well world."

Do it for the children!

I hope the whole fracking thing goes down in flames financially before they desecrate the Sierra Nevada, finger crossed and all that.

Ignacio , December 22, 2019 at 10:38 am

I wonder if could it be the case that some government considers strategically important to keep production from free-falling, no matter if the economics are not sound, and shifting the cost to the Treasury. MMT to the rescue of shale plays and financiers.

If the article is correct, calling for a plateau as soon as in 2021, the shale boom will prove more transient than expected.

JTMcPhee , December 22, 2019 at 12:29 pm

Clearly, Obama and Trump were/are all-in on the "strategic importance" of frack-extraction. https://www.americanthinker.com/articles/2018/11/the_nerve_obama_takes_credit_for_americas_energy_independence.html

I can't keep up with all the interlocks and back-scratches. But Banksters are getting rich, the intermediators in exploration and production are getting rich, the petroleum Bigs are getting rich and using the notional global competition and Market to damage one "nation's" comparative advantage to their own ends. And as with all the behaviors leading to the conclusion that humanity is a failed, and maybe more honestly a plague species, all the incentives and flows of power are in the direction of what I believe it was a Reagan appointee offered as the moral underpinning of globalization and ruination: "God gave us dominion over the planet, and Jesus is coming back real soon and if we have not used up the whole place in accordance with His Holy Word as i read it, He is going to be really pissed "

As with all the stuff we NCers read here, everything seems to drive the truly awake soul in the direction of despair and that sense of vast futility, and that mindset of "Eat, drink and be merry, for tomorrow we shall die " And screw future generations – past generations said that to us, so why should we, or some small elite among us, who now are in a position to have all our pleasure centers fully engaged and satiated to the max, behave "Responsibly?" "Responsible people maximize shareholder value (and executive looting)!"

Rats, roaches, obscure creatures from the deeps of the ocean, that enormous mass of living cells that we are learning inhabit the whole crust of the planet and maybe far deeper toward the hot center, they'll make it right, eh? After the last human has mouldered? Here's hope for you (though not for "us" and our death-wish ways): There Is A Colossal Cornucopia Of Exotic Life Hiding Within Earth's Crust https://www.forbes.com/sites/robinandrews/2018/12/11/there-is-a-colossal-cornucopia-of-exotic-life-hiding-within-earths-crust/#453227553b3d

Gregory Etchason , December 22, 2019 at 8:46 am

5 million EV takes inevitably back to nuclear energy. Without nukes you can anticipate losing your residential AC for several hours/day. PG&E is the future.

The Historian , December 22, 2019 at 9:22 am

Perhaps you should read this:
https://www.forbes.com/sites/amorylovins/2019/11/18/does-nuclear-power-slow-or-speed-climate-change/#1ef5f9d3506b

There are a lot more problems with nuclear energy than just waste.

Grumpy Engineer , December 22, 2019 at 11:25 am

The Forbes article is crap. Any analysis of electricity costs coming from renewable power that does not include the costs of the energy storage systems required at high penetration levels will underestimate the costs. Badly. The solar panels and wind turbines are the easy part. The energy storage systems will easily cost 10X as much (and take 10X as much time). Because of this, we've seen renewable energy deployment efforts stall out in Germany, Spain, China, Denmark, and elsewhere, as they bumped into grid stability issues that require storage to mitigate. And the storage costs too much.

bob , December 22, 2019 at 11:37 am

Using "batteries" also produces a 10%* net loss to charge the batteries right off the bat. You need 110% of the electricity to get to same 100% you were getting before the battery. Rather than batteries helping, they actually end up using more electricity. That's also before counting the electricity to make the battery.

* that's best case, theoretical, scenario.

Batteries are net users of electricity. The do not make it.

The Historian , December 22, 2019 at 12:12 pm

Perhaps you should read this?
https://www.nrel.gov/docs/fy15osti/63033.pdf

The Forbes article talks about balancing the grid so that variable energy sources can be incorporated reliably. To whit:

Actually, battery storage, though often cost-effective today, is rarely needed to "firm" the output of variable renewables (photovoltaics and windpower), because there are eight ample cheaper methods.

I believe the author's thesis is for the electricity from renewables to be fed into the grid when it is available, not to store it.

Do you think nuclear power plants run continuously and are never taken off the grid? Do you think we use huge storage batteries when they are down?

bob , December 22, 2019 at 4:43 pm

Both your quote, and the pdf 'talk about' that. That's all they do. The forbes author really is a treat. "There are 8 ample, cheaper methods" What are those eight methods? why only 8? No further details.

"I believe the author's thesis is for the electricity from renewables to be fed into the grid when it is available, not to store it."

It seems you noticed it too. No details, just numbers spelled out as words and asserted as evidence.

The Historian , December 22, 2019 at 5:39 pm

Well, unfortunately the link that explains his 8 methods is behind a paywall.

But I think we are talking apples and oranges here.

The author of the Forbes article is talking about how a grid works. When a power plant is taken off the grid, energy is moved in from some other area to take up the slack as long as that power plant is offline. He expects that should be done with renewable energy also.

If you are depending on only one form of renewable energy, then of course you would need batteries when that form of energy is not available. But batteries are an added cost and not as efficient as moving energy via the grid. A better method would be to have many types of renewable energies available so that you can switch between them as necessary. It is what he means when he is talking about needing to firm the output of variable renewables.

So for example, in my area, the winds kick up when the sun goes down so it makes sense to switch from solar to wind power at dusk.

The Historian , December 22, 2019 at 5:49 pm

I forgot to add that his main thesis is that when you compare the costs of energy going into the grid, then nuclear power doesn't look so good.

Grumpy Engineer , December 22, 2019 at 7:26 pm

I'm don't buy Amory Lovins' thesis. Bob's criticism is correct. The other 8 methods aren't listed. The required sizes and associated costs aren't listed. It is impossible to judge the viability of the scheme he envisions when the relevant information is missing.

A real plan would list nameplate GW for all types of generation assets and GW and GWh for all energy storage assets. In other words, full details.

The only "plan" I've seen for supplying US energy needs with 100% renewable power that actually contained full details came from Mark Jacobson of Stanford University: https://web.stanford.edu/group/efmh/jacobson/Articles/I/USStatesWWS.pdf . To his credit, he did the time-domain analysis necessary to determine the amount of load-sharing and energy storage necessary to keep the lights on through even extended periods of unfavorable weather.

Unfortunately, his "solution" required two things: (1) expanding US hydro capacity by a factor of 10, and (2) deploying a stupendous 541 TWh of energy storage. Neither is feasible. The first would cause massive flooding and ruin river ecosystems if ever run at full power, and the second would cost over $100 trillion at today's energy storage costs of $200/kWh. His plan was so wildly unrealistic (and yet popular with Democrats) that a team of scientists and engineers issued a formal rebuttal: https://www.pnas.org/content/114/26/6722 . Jacobson's plan has been debunked .

The South Koreans deployed their nuclear fleet for approximately $3000/kW. At this cost, we could completely de-carbonize the US electrical system for less than $2.5 trillion. It would be quite the bargain in comparison.

The Historian , December 23, 2019 at 12:31 am

The South Koreans do have one of the lowest costs for nuclear energy production – a LCOE of about $2021/kWe compared to the US of $4100/kWe and the world average of $4702/kWe – but the way they do that is by having much looser regulations and by severely underestimating the decommissioning, waste management, and accident compensation costs. Is that what you want for nuclear energy in the US?

I think it's kind of dangerous to just throw numbers around unless you understand what they actually mean.

Ignacio , December 22, 2019 at 10:40 am

Nuclear cars? You must be kidding!
/s

The Historian , December 22, 2019 at 10:46 am

If you want nuclear airplane engines, I know where you can get a couple:

https://en.wikipedia.org/wiki/Aircraft_Nuclear_Propulsion

Jokerstein , December 22, 2019 at 12:12 pm

Ah, the wonderful "Heaters". They are situated outside EBR-1, just south of ID-20, west of Idaho Falls, and east of Arco.

The whole of the area around there is a fascinating place to visit for a nuclear nerd like me, plus you have the wonderful Craters of the Moon NM there too.

Other interesting places to visit are Atomic City, which has a population of around 25, and is a weird time capsule from the '60s, plus Big Southern Butte, which is a, er, big butte.

You can also find a gate leading off ID-20 to the north, into INL (Idaho National Laboratory), which used to be the access road to the army's SL-1 reactor, which underwent a steam explosion due to a core excursion in 1961, and is (as far as is admitted) the only nuclear accident that led to immediate deaths in the US.

For a really interesting review of nuclear history read the three books by James Mahaffey. He was a nuclear plant operator for a while, and describes the little pastime of "reactor racing", which was seeing who could get a reactor up to nominal operating capacity in the shortest time.

Louis Fyne , December 22, 2019 at 8:49 am

blame the Fed/zero interest rates.

At every Dem. presidential primary debate, there should be multiple monetary policy questions and someone(s) should be blasted the Fed every time.

The Fed isn't "independent." -- its nominal independence is itself a form of political bias.

The Rev Kev , December 22, 2019 at 9:06 am

I guess that this means that Trump and his crew will make another run at Venezuela – before the fracking industry goes down the gurgler. All of Venezuela's oil fields are like a big box of chocolates in America's backyard. But if they try to take it, like life, you never know what you are going to get.

Susan the Other , December 22, 2019 at 12:29 pm

That's probably the most accurate forecast. And it has been eerily quiet lately.

James , December 22, 2019 at 7:27 pm

They are engaging in long term siege warfare targeting Venezuela's economy. They can't invade every country.

Samuel Conner , December 22, 2019 at 10:04 am

Am I right in guessing that this will significantly impact forecasts of aggregate US domestic oil production? Do we remain the global "swing" producer?

ambrit , December 22, 2019 at 11:33 am

As PlutoniumKun says above, the collapse of the shale field production will be great news for the Gulf Coast's petroleum industry. Not only is the Gulf a proven reserve, but with the inevitable higher prices for crude oil, many more of the offshore wells will become profitable.
The American shale collapse will also be good news for other world producers of petroleum. OPEC will regain some of it's lost political influence.
On the down side; all forms of shipping and transportation will have a spike in per unit costs. A canny politician could use this factor to push an onshoring of lost industrial and manufacturing capacity. Put Americans back to work in America. That will be a winning strategy.

JTMcPhee , December 22, 2019 at 12:35 pm

" many more of the offshore wells will become profitable." For some definition of "profitable." "Externalities? A fig for your externalities!"

ambrit , December 22, 2019 at 10:00 pm

Yes, well, I generally assume that the definition of "profitable" in use in the board rooms of the giant conglomerates 'rules the day.' Until some method of 'regulating' the actions of the board rooms of industry are brought into play, I'm afraid we are stuck with some version of the status quo.
Just as the German usual suspects moved nations into 'Realpolitik' after the War, so too have the modern Austrian usual suspects moved the world into 'Realeconomik.' Both have led our best of all possible worlds into a Neoliberal Paradise.

Susan the Other , December 22, 2019 at 12:47 pm

Didn't Chesapeake Energy declare bankruptcy a good ten years ago? And then restructured itself into a shale fracking company with the extreme help of the Obama administration? When Obama "pivoted" away from KSA he went straight to US drillers. Allowing any hype necessary to get the needed investments. Obama was clearly panicked. I wonder if it is possible that that is when he learned that Aramco's reserves were only a fraction of the Saudi hype? Bin Sawbones was subsequently allowed to provide the estimate of the worth of KSA's oil reserves at 2 Trillion. The IPO went forward at that estimate and just today there is an article in ZH about Aramco's actual value being much less. It looks to me like we just up and left KSA. Why on earth would we do that unless they were running dry? And why would they have fought that obscene war with Yemen unless they (the Saudis) were getting desperate? Secure people generally don't do things that stupid. And the next logical question might be, How long will Russian reserves hold up as they supply both China and the EU? The simple answer is it is all just a question of time. We need to envision a lifestyle that is far more compatible with the planet. Fracking was just a distraction. A farce. It would be better to own warm sox than oil shares. And electricity is not going to help us out if we do not aggressively restrict our use. I'd just like to know why we can't all come together and admit this one elemental fact.

ObjectiveFunction , December 22, 2019 at 1:32 pm

Drainage! Draaaainage, Eli, you boy! Drained dry. I'm so sorry.

Here, if you have a milkshake, and I have a milkshake, and I have a straw. There it is, that's a straw, you see? You watching? And my straw reaches acroooooooss the room, and starts to drink your milkshake.

I drink your milkshake! slurp I drink it up! Every day I drink the Blood of Lamb from Bandy's tract.

John k , December 22, 2019 at 1:59 pm

The last man standing might be profitable.
Not so long ago gas was much higher I think the peak during a pre fracking cold winter was $15 now under $3. Plus we're exporting the stuff bc us price is so far below Eu price. But us price is clearly unstable Bc it's too low for frackers to break even, much less make money.
It's the large fracking production that's driven price down to sub $3. Maybe foolish investors and banks will soon stop burning $, after which price will rise towards $10 as this happens utilities will really jump on solar bc gas will be increasingly non competitive.
Ca should refuse all utility requests to build more gas-fired generating plants existing ones will be shut over the next decade as solar plus storage price continues falling and gas price rises.

ptb , December 22, 2019 at 2:17 pm

Additional Reading – stats on US oil production by well productivity: https://www.eia.gov/petroleum/wells/

From graphs 2 and 3, you can see that half or more of the national oil production comes from about 50,000 high producing wells (out of roughly 1mm total). These are of course on the treadmill of decline and need continuous investment to be renewed.

Note the changing oil price, esp. collapse in mid 2014. (aside: when was Nixon impeachment?)
https://www.macrotrends.net/1369/crude-oil-price-history-chart

Anyway after 2014 the national production responded to the price collapse within about a year. This is what is somewhat different about fracking -- the short time horizon and the outsize contribution of the "top" wells -- constant depletion and investment -- results in a fairly fast response to the price environment.

Factor in pipeline capacity shortages come and go, affecting the share of $$ taken by the midstream. In any case, they're losing money when the WTI price is in the $50-$60 range. What does that mean? Great question.

kiers , December 22, 2019 at 5:19 pm

So, the shale/fracking industry has ~$200bn in debt, god only knows how much market cap is at risk on Shale and fracking alone, and it's COMPLETELY UN PREDICTABLE. And people buy shares in this snake oil on the market? SEC sleeping? what a crock.

James , December 22, 2019 at 7:29 pm

Don't worry – it is "contained to subprime".

kiers , December 22, 2019 at 9:38 pm

I suspect that shale plays like OXY, with marketwatch assigning a "beta" of (get this!) 0.99 to this stock, are fundamental misallocations of capital. In a political sense, it's a red state SOE type play that doesn't pass snuff. I saw the entire Wood MacKenzie webinar linked in Lambert's article, and even THEY themselves are amazed at the range of valuations in the shale sector. No two wells can be compared truly. The webinar references when Ben Shattuck asked a wall street analyst for their comps on some company, and Wood MacKenzie's analysis using on the ground depletion knowledge, was 40% lower, versus a higher paid wall street "comps" analysis!

This entire sector is SNAKE OIL, imho, not to mention the environmental degradation not on the balance sheets. But it is politically privileged, so we must zip it.

[Dec 21, 2019] Again, rule of thumb the cost of a conventional well in our field is approximately 1/100 of a shale oil well ($70K range v $7 million range).

Dec 21, 2019 | peakoilbarrel.com

shallow sand x Ignored says: 12/14/2019 at 8:18 pm

HB. I have used leases developed in our field in the past ten years to demonstrate that shale is high cost. Again, rule of thumb the cost of a conventional well in our field is approximately 1/100 of a shale oil well ($70K range v $7 million range).

Here are some examples with production through 10/31/19:

8 producers 4 injection wells. Cumulative BO 83,466. YTD BO 2,085. First production 4/2003.

10 producers 4 injection wells. Cumulative BO 116,065. YTD BO 2089. First production 9/2005.

10 producers 4 injection wells. Cumulative Bo 55,595. YTD BO 3,023. First production 3/2006.

4 producers 1 injection well. Cumulative BO 37,418. YTD BO 1,289. First production 8/2008.

8 producers 3 injection wells. Cumulative BO 42,494. YTD BO 2,328. First production 10/2008.

4 producers 1 injection well. Cumulative BO 19,216. YTD BO 1,220. First production 12/2010.

8 producers 3 injection wells. Cumulative BO 46,463. YTD BO 1,877. First production 8/2011.

4 producers 2 injection wells. Cumulative BO 10,700. YTD BO 634. First production 10/2011.

8 producers 3 injection wells. Cumulative 59,592 BO. YTD 4,956 BO. First production 11/2011.

1 producer. Water disposed of in adjoining lease. Cumulative BO 7,872. YTD BO 444 BO. First production 5/2012.

8 producers 3 injection wells. Cumulative 56,500 BO. YTD 3,858 BO. First production 6/2012.

4 producers 1 injection well. Cumulative BO 11,758. YTD BO 1,457. First production 6/2013.

2 producers. Water disposed of on adjoining lease. Cumulative 3,524 BO. YTD BO 393. First production 11/2013.

6 producers Two injection wells. Cumulative 25,988 BO. YTD 3,233 BO. First production 9/2014.

Figure in anywhere from $60K-80K to drill, complete and equip each well including electric, flow and/or injection lines. Figure another $20-30K for a tank battery.

Assume anywhere from 12.5 to 20 percent royalty.

Of course, some projects do better than others. But compare this to shaleprofile.com wells.

There was very little drilling in our field from 1987 to 2003. There has been very little since 2015. Century plus year old stripper field.

Shale is expensive oil.

shallow sand x Ignored says: 12/14/2019 at 8:37 pm
There have also been many reclamation projects in our field during 2005-2014 of abandoned wells wherein the producers went bust in the 1990s, with 1998 being a knockout blow.

We took over 2 wells drilled in the 1950s they were abandoned in 1998. We just had to equip them and build a new tank battery. We also took over three wells also drilled in the 1950s where we had to do the same, plus plug the injection well and convert one producer to an injector. These work well at $55-65 WTI also.

I can also point to many projects developed in our field in the 1980s where cumulative per well has topped 40K BO to date.

Conventional oil is a much better deal than shale usually when you can find it. And also when you aren't trying to pay for 8 figure CEO pay, skyscrapers and jets out of it.

Shale just has the scale. Huge scale. Worldwide game changing size.

HuntingtonBeach x Ignored says: 12/16/2019 at 10:37 am
Shallow, I can't thank you enough. Alot to digest here. My first glance gave me the feeling shale drilling dollars are about half as productive. Maybe you have a better number.

When a new field is drilled, is it always under pressure without the cost of lifting it from the hole? Then once the pressure is exhausted it becomes a stripper?

A lot of the Huntington Beach field lays under the ocean. There is over a mile long row of wells along the shoreline. I'm assuming they go horizontal under the ocean. Only a few wells have lift Jacks. Can strippers wells go horizontal?

shallow sand x Ignored says: 12/16/2019 at 1:13 pm
There isn't enough down hole pressure here for natural flow. Everything goes on pumping unit immediately and injection wells are also drilled at the same time as production wells.

To put into perspective, the field was originally drilled over 100 years ago. Waterflood was initiated on a large scale right after WW2. Many wells were plugged in the late 1960s-early 1970s when oil prices were low. The field was redrilled in the late 1970s – early 1980s. Little activity after 1986, until prices took off during the Iraq War.

For example, we operate a lease that was originally drilled in the 1950s. It was plugged out in 1972. In 1979-81, all of the plugged wells were drilled out (casing had not been pulled). New injection wells were drilled.

Cumulative from 9 producing wells since 1979 is over 140K BO with production currently at 5.5 BOPD. It is difficult to tell what these wells produced from 1953-1972, because they were part of a larger unitized waterflood project. Our guess is around 200-250K BO during that time frame.

Only a small company would be interested in 9 wells making 5.5 BOPD, but they have been economic even during the worst part of 2016 (barely during Q1 – 2016).

There haven't been HZ wells drilled in the shallow zones (1,500' and below). However, there has been some success with 1,800'-5,000' TVD hz wells. Not sure of the economics.

There has been success with slick water fracks in deeper vertical wells also.

shallow sand x Ignored says: 12/17/2019 at 11:25 am
Correction. Project discussed above was not economic Q1 2016.

Had not included overhead, which is primarily labor. Labor is usually the major expense with stripper wells.

[Dec 21, 2019] OPEC November Production Data " Peak Oil Barrel

Dec 21, 2019 | peakoilbarrel.com

Mike Sutherland x Ignored says: 12/18/2019 at 12:23 am

"Peak in tight oil will be 2024 to 2026."

No way. It's already here, and there will be no rebound. BTW I did carefully read your comments above Dennis and thank you for your time to respond. As always, your responses are significantly better than what my caustic remarks deserve.

As has been said many times, money does not equal geology. Even if a new tranche of 'investment' could be begged, borrowed, or stolen (likely stolen) it would be spent to build new drilling equipment, pay for new leases/roads/infrastructure, with all of it into new wells that will produce less than any before them. If inflation is a factor (and it is), the borrowed & eventually defaulted upon money will buy less than before.

Shale started bad, and it will stay bad. No shale well was a gusher instead, they all needed huge horsepower, millions of gallons of water, hundreds of tons of sand, and lots of investment dollars just to get started. None of these were ever a Texas gusher. To me, this is no business model to follow, it is a debacle.

We have seen hundreds of shale companies go bankrupt over the last couple of years. Going forward, there won't be hundreds of bankruptcies because there won't be hundreds of shalies to go bankrupt. Like the motorcar companies of old, it'll go from dozens of market participants to a handful through M&A and bankruptcies. There is still plenty of surface carnage to come and it is far from over. Bear in mind, this is largely the same crowd that kept exclaiming a dropping 'breakeven' price from 2010 forward, to the point where $20 was wildly shouted from the rooftops (particularly from John Mauldin) as the point of profitability. Of course, none of it was true. Now we see at long last that $60 (and probably $75) was the true breakeven point. Lots of C-suite executives should be in jail for their malfeasance, but of course none are and with the exception of Aubrey McClendon, all of them are still 'at large'.

So with all this in mind and to round off a long screech, I summarize by saying that 2019 is peak shale.

TonyEriksen x Ignored says: 12/18/2019 at 1:51 am
Peak shale is either 2019 or 2020. Ovi and I guess that peak shale month February or March 2020.
Eulenspiegel x Ignored says: 12/18/2019 at 5:27 am
This is a good guess in my opinion.

The small companies, which have gotten only B class land will have to reduce, leading the decline.

The bigger ones can continue to grow to a certain amount – but using up their A class land. Especially all non-Permian will see this very soon and start declining. So Permian growth soon will not be enough to keep up all shale decline – and this at the cost of the Permian Tier A claims.

Oil production from shale will have a long future if prices settle at 100$ – but with worse land it will just not be a bit boom.

A boom means high drilling everything costs, in a long calm era everything has more normal prices (why should a truck driver carrying fertiliser to farm tows earn much less than a truck driver delivering sand to a hole). And so finally some money can be earned in the oil spot.

If the Democrats take over and get more green, taxes on oil production will be increased anyway, and tax credits cut – so more calm drilling anyway. This is a big "if", I don't know how the D – R battle stands now.

[Dec 21, 2019] It (Shale) still reminds me of the old joke, "Well, we're still losing money with every unit sold, so let's just make it up with volume."

Dec 21, 2019 | peakoilbarrel.com

TonyEriksen

x Ignored says: 12/18/2019 at 6:28 am
" The golden age of U.S. shale is far from over, with an expected slowdown in the Permian Basin likely to be temporary, according to the new U.S. Energy Secretary.

The shale boom helped transform the U.S. into a net exporter of crude and petroleum products in September from a major importer a decade ago. Even as growth is set to slow next year in the Permian and elsewhere as drillers respond to investor demands for capital restraint, Dan Brouillette said the shale boom has further to run."

Shale boom has further to run. Time will tell.

https://www.rigzone.com/news/wire/us_energy_sec_shrugs_off_permian_oil_slowdown-18-dec-2019-160598-article/

Paulo x Ignored says: 12/18/2019 at 6:09 pm
It (Shale) still reminds me of the old joke, "Well, we're still losing money with every unit sold, so let's just make it up with volume."

[Dec 21, 2019] Permian Drillers Are Struggling To Keep Output Flat

Dec 21, 2019 | peakoilbarrel.com

SRSrocco x Ignored says: 12/12/2019 at 1:27 pm

Permian Drillers Are Struggling To Keep Output Flat

Newer wells in the Permian see their oil and gas production declining much faster than older wells, and operators will need to drill a large number of wells just to keep current production levels, an IHS Markit analysis showed on Thursday.

IHS Markit has analyzed what it calls the "base decline" rate, calculating the actual or expected production of all the operating wells at the start of the year and tracking their cumulative decline by the end of the year. Over the past decade, the base decline rate of the more than 150,000 producing oil and gas wells in the Permian has "increased dramatically," according to the analysis.

https://oilprice.com/Energy/Energy-General/Permian-Drillers-Are-Struggling-To-Keep-Output-Flat.html

LOL,

Steve

[Dec 21, 2019] New wells depleting fasting than old wells partly explains why the monthly legacy loss keeps increasing from month to month. It's now close to 600kbd/month, according to EIA DPR.

Dec 21, 2019 | peakoilbarrel.com

TonyEriksen x Ignored says: 12/14/2019 at 12:01 am

dclonghorn,

Your article goes into a lot of depth. I noticed these statements:
"The main driver of Legacy Loss is Total Production, which is logical.
In Permian, higher Initial Production (IPt) increased legacy loss, probably because new wells deplete faster than old wells"

New wells depleting fasting than old wells partly explains why the monthly legacy loss keeps increasing from month to month. It's now close to 600kbd/month, according to EIA DPR.

The chart below from the article shows Jan 2015 as Peak Shale No 1 as legacy loss was above new monthly shale production. The author says when "red line gets above new monthly initial production then that's Peak Shale No 2", which might happen as soon as early 2020. This is shown by the dashed line "IPt minus Legacy Loss" reaching zero, which means Peak Shale No 2. The author says that this could happen if WTI stays at $55.

dclonghorn x Ignored says: 12/13/2019 at 10:01 pm
Interesting article on seeking alpha about why Opec can now push up the price without starting a third shale boom.

https://seekingalpha.com/article/4310727-analysis-why-opec-can-push-up-price-and-not-risk-third-shale-boom

The basic premise is that productivity per completion has stalled, and there is no longer a huge overhang of cheap frac spreads keeping the frac market oversupplied.

[Dec 21, 2019] Shale finances in the tank: $300 billion of already accumulated and un-repayable debt, and Wall Street financiers demanding repayment on their investments,

Dec 21, 2019 | peakoilbarrel.com

Mike Sutherland x Ignored says: 12/17/2019 at 1:00 am

And what, Dennis? How, pray tell, will 17 million horsepower -and other infrastructure including manpower – magically re-appear in 2020 and inflate another peak? With existing shale finances in the tank, $300 billion of already accumulated and un-repayable debt, and Wall Street financiers demanding repayment on their investments, your prognostication for a rebound has a tinge of 'wildly unrealistic' about it.
HuntingtonBeach x Ignored says: 12/17/2019 at 2:27 am
ExxonMoble boe per day is 2.25 millon and has a market value of $300 billion. The tight oil shale play over the last decade has increased production 7 million bpd. Is $300 billion of debt really out of line? Do you have CFO experience with a multi-billion dollar company?

In the trucking industry the major freight companies running 24/7 turn their tractor fleet over on a 5 year rotation receiving 20 cents on the dollar at retirement. Ready mix trucks are turned over after 10 years rotation at 20 cents or less on the dollar running 12/5. When the business environment is good. It's easy to delay retirement a little to meet demand. When times are difficult, the old trucks sit in the yard and can be stripped for parts.

I have to question your hair on fire comment. Do you know the life expectancy of a drilling rig for a large corporation ? The related article is talking about retiring 10 percent. That's a 10 year rotation. Maybe replacement is just cost efficient verses down time. The big boys don't work on the same time frame as the little guy.

shallow sand x Ignored says: 12/17/2019 at 9:27 am
HB. $300 billion divided by 7 million comes to over $42,000 per barrel of debt. IMO that is a high level of debt unless oil prices recover to 2011-14 levels.

Only the best oil production is selling for that in our part of the world and that is production with a decline rate of 3% per year or less.

Regarding XOM, keep in mind that includes not just the upstream, but the midstream and down stream, both of which are substantial.

XOM also has substantial international upstream assets which are generating substantial cash flow at $60s Brent.

[Dec 21, 2019] The only reason there is any production of shale oil at all is that there is a combination of cheap money and a plethora of desperate investors starved for yield

Dec 21, 2019 | peakoilbarrel.com

Mike Sutherland

x Ignored says: 12/17/2019 at 1:33 am
The only reason there is any production of shale oil at all is that there is a combination of cheap money and a plethora of desperate investors starved for yield. Well guess what, the investors want a return on their investment and the cheap money is drying up. So, artificial life support is being withdrawn and the patient is now expected to get off the emergency room gurney and start working for his keep. We shall see how that turns out.

This whole exercise in perfidy is much like Uber, that has never made a profit to date, and yet was supported by billions of investor dollars. The whole ignominious affair put hundreds of thousands of cabbies into destitution and bankruptcy, i.e those who didn't enjoy the largess of investors willing to put up with loss-making operations for years on end.

Uber and Shale; the twin shitstorms of inequity, capital misalocation, and widespread collateral damage to their respective proximal markets.

Hickory x Ignored says: 12/17/2019 at 11:32 am
I agree with your concerns Mike. It seems to me that debt will be accumulated in the system until it needs to be defaulted on. The governments of the world have become expert on kicking the can down the road.
But that path will end one day, perhaps suddenly. Default will come via one of several mechanisms- currency devaluation and debt write-off, for example. Whatever method, it will severely hurt those who were expecting pensions or government payments (Medicare/SS), or to live on savings or investment yield. These things will be massively de-valuated. Negative interest rates you have been hearing about are just the early symptom of this process. A president who cannot release his tax returns because he has a long pattern of committing severe financial crimes, is another. The extreme accumulation of wealth among the super wealthy is yet another.
I have given up expecting a 'fair' or rational game.
Ron Patterson x Ignored says: 12/16/2019 at 8:52 am
The EIA has December 2019 C+C production at 12.99 million bpd. They have December 2020 at 13.28 million bpd. That is an increase, December to December of .29 million bpd. Quite a comedown from the over 2 million bpd increase in 2018.

[Dec 06, 2019] Shale's Debt-Fueled Drilling Boom Is Coming To An End

Dec 06, 2019 | www.zerohedge.com

Shale's Debt-Fueled Drilling Boom Is Coming To An End by Tyler Durden Thu, 12/05/2019 - 22:05 0 SHARES

Authored by Nick Cunningham via OilPrice.com,

The financial struggles of the U.S. shale industry are becoming increasingly hard to ignore, but drillers in Appalachia are in particularly bad shape.

The Permian has recently seen job losses , and for the first time since 2016, the hottest shale basin in the world has seen job growth lag the broader Texas economy. The industry is cutting back amid heightened financial scrutiny from investors, as debt-fueled drilling has become increasingly hard to justify.

But E&P companies focused almost exclusively on gas, such as those in the Marcellus and Utica shales, are in even worse shape. An IEEFA analysis found that seven of the largest producers in Appalachia burned through about a half billion dollars in the third quarter.

Gas production continues to rise, but profits remain elusive. "Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters," the authors of the IEEFA report said.

Of the seven companies analyzed, five had negative cash flow, including Antero Resources, Chesapeake Energy, EQT, Range Resources, and Southwestern Energy. Only Cabot Oil & Gas and Gulfport Energy had positive cash flow in the third quarter.

The sector was weighed down but a sharp drop in natural gas prices, with Henry Hub off by 18 percent compared to a year earlier. But the losses are highly problematic. After all, we are more than a decade into the shale revolution and the industry is still not really able to post positive cash flow. Worse, these are not the laggards; these are the largest producers in the region.

The outlook is not encouraging. The gas glut is expected to stick around for a few years. Bank of America Merrill Lynch has repeatedly warned that unless there is an unusually frigid winter, which could lead to higher-than-expected demand, the gas market is headed for trouble. "A mild winter across the northern hemisphere or a worsening macro backdrop could be catastrophic for gas prices in all regions," Bank of America said in a note in October.

The problem for Appalachian drillers is that Permian producers are not really interested in all of the gas they are producing. That makes them unresponsive to price signals. Gas prices in the Permian have plunged close to zero, and have at times turned negative, but gas production in Texas really hinges on the industry's interest in oil. This dynamic means that the gas glut becomes entrenched longer than it otherwise might. It's a grim reality plaguing the gas-focused producers in Appalachia.

With capital markets growing less friendly, the only response for drillers is to cut back. IEEFA notes that drilling permits in Pennsylvania in October fell by half from the same month a year earlier. The number of rigs sidelined and the number of workers cut from payrolls also continues to pile up.

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The negative cash flow in the third quarter was led by Chesapeake Energy (-$264 million) and EQT (-$173 million), but the red ink is only the latest in a string of losses for the sector over the last few years. As a result, the sector has completely fallen out of favor with investors.

But gas drillers have fared worse, with share prices lagging not just the broader S&P 500, but also the fracking-focused XOP ETF, which has fallen sharply this year. In other words, oil companies have seen their share prices hit hard, but gas drillers have completely fallen off of a cliff. Chesapeake Energy even warned last month that it there was "substantial doubt about our ability to continue as a going concern." Its stock is trading below $1 per share.

Even Cabot Oil & Gas, which posted positive cash flow in the third quarter, has seen its share price fall by roughly 30 percent year-to-date. "Even though Appalachian gas companies have proven that they can produce abundant supplies of gas, their financial struggles show that the business case for fracking remains unproven," IEEFA concluded. Tags Business Finance

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[Oct 26, 2019] Will the Public End up Paying to Clean up the Fracking Boom?

Notable quotes:
"... StateImpact Pennsylvania noted that costs to reclaim a well could add up to $20,000, and DEPspokesperson Fraley said they could be "much, much higher." The GAO report noted that "low-cost wells typically cost about $20,000 to reclaim, and high-cost wells typically cost about $145,000 to reclaim." ..."
"... The Western Organization of Resource Councils summarized bonding requirements by state, and none of them came even close to being adequate to cover estimated costs to deal with old wells. In North Dakota, a $50,000 bond is required for a well. But a $100,000 bond can cover up to 6 wells, which comes out to $16,667 per well -- or approximately one tenth of the estimated cost to reclaim a well in that state. ..."
"... By any measure, the amount of private money currently allocated in the U.S. to plug and reclaim oil and gas wells is a small fraction of the real costs. That means oil and gas wells -- and the U.S. had one million active wells in 2017 , and even more abandoned -- will either be left to fail and potentially contaminate the surrounding water, air, and soil, or the public will have to pick up the tab. This represents just one of the many ways the public subsidizes the oil and gas industry. ..."
"... The mineral extraction business model in the U.S. is set up to maximize profits for executives, even as they lose investor money and bankrupt their companies. That is true of the coal industry and that is true of the shale oil and gas industry . ..."
Oct 26, 2019 | www.nakedcapitalism.com

Posted on October 20, 2019 by Jerri-Lynn Scofield By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Originally published at DeSmog Blog

Increasingly, U.S. shale firms appear unable to pay back investors for the money borrowed to fuel the last decade of the fracking boom. In a similar vein, those companies also seem poised to stiff the public on cleanup costs for abandoned oil and gas wells once the producers have moved on.

"It's starting to become out of control, and we want to rein this in," Bruce Hicks, Assistant Director of the North Dakota Oil and Gas Division, said in August about companies abandoning oil and gas wells. If North Dakota's regulators, some of the most industry-friendly in the country , are sounding the alarm, then that doesn't bode well for the rest of the nation.

In fact, officials in North Dakota are using Pennsylvania as an example of what they want to avoid when it comes to abandoned wells, and with good reason.

The first oil well drilled in America was in Pennsylvania in 1859, and the oil and gas industry has been drilling -- and abandoning -- wells there ever since. Pennsylvania's Department of Environmental Protection (DEP) says that while it only has documentation of 8,000 orphaned and abandoned wells, it estimates the state actually has over a half million.

"We anticipate as many as 560,000 are in existence that we just don't know of yet," DEP spokesperson Laura Fraley told StateImpact Pennsylvania . "There's no responsible party and so it's on state government to pay to have those potential environmental and public health hazards remediated."

According to StateImpact, "The state considers any well that doesn't produce oil and gas for a calendar year to be an abandoned well."

That first oil well drilled in Pennsylvania was 70 feet deep. Modern fracked wells, however, can be well over 10,000 feet in total length (most new fracked wells are drilled vertically to a depth where they turn horizontal to fracture the shale that contains the oil and gas). Because the longer the total length of the well, the more it costs to clean up, the funding required to properly clean up and cap wells has grown as drillers have continued to use new technologies to greatly extend well lengths. Evidence from the federal government points to the potential for these costs being shifted to the tax-paying public.

The Government Accountability Office (GAO) released a report this September about the risks from insufficient bonds to reclaim wells on public lands. It said, "the bonds operators provide as insurance are often not enough to cover the costs of this cleanup." The report cited a Bureau of Land Management (BLM) official's estimate of $10 a foot for well cleanup costs.

StateImpact Pennsylvania noted that costs to reclaim a well could add up to $20,000, and DEPspokesperson Fraley said they could be "much, much higher." The GAO report noted that "low-cost wells typically cost about $20,000 to reclaim, and high-cost wells typically cost about $145,000 to reclaim."

In North Dakota, where state regulators have raised concerns about this growing problem, one of the top industry regulators, State Mineral Resources Director Lynn Helms, estimated that wells there cost $150,000 to plug and reclaim.

And this problem isn't just in the U.S. Canada is facing a similar cleanup crisis.

Financial Bonding Requirements for Well Cleanup

Legally, oil and gas companies are required to set aside money to pay for well cleanup costs, a process known as bonding. These requirements vary by state and for public lands, but in all cases, the amounts required are so small as to be practically irrelevant.

The GAO report reviewed the bonds held by the Bureau of Land Management for wells on public lands and found that the average bond per well in 2018 was worth $2,122.

The Western Organization of Resource Councils summarized bonding requirements by state, and none of them came even close to being adequate to cover estimated costs to deal with old wells. In North Dakota, a $50,000 bond is required for a well. But a $100,000 bond can cover up to 6 wells, which comes out to $16,667 per well -- or approximately one tenth of the estimated cost to reclaim a well in that state.

North Dakota has a history of bending to oil and gas industry pressure when it comes to regulations. While North Dakota's bonding rules fall far short of what's needed to actually cover full cleanup costs, the reality on the ground is much worse. Regulators allow companies to "temporarily abandon" wells, which requires no action from companies for at least seven years. Wells can hold this "temporary status" for decades. And another practice in the state allows a company to sell old, under-performing wells to another company, passing along the liability but not the bonding funds.

By any measure, the amount of private money currently allocated in the U.S. to plug and reclaim oil and gas wells is a small fraction of the real costs. That means oil and gas wells -- and the U.S. had one million active wells in 2017 , and even more abandoned -- will either be left to fail and potentially contaminate the surrounding water, air, and soil, or the public will have to pick up the tab. This represents just one of the many ways the public subsidizes the oil and gas industry.

A South Dakota Case Study

South Dakota allows companies to post a $30,000 bond for as many wells as the company chooses to drill. Spyglass Cedar Creek is a Texas-based company that was operating in South Dakota and recently abandoned 40 wells, which the state has estimated will have a cleanup cost of $1.2 million.

However, there is a twist to this story. That $30,000 bond doesn't really exist. The owners of the company had put $20,000 of it into a Certificate of Deposit. But when the state went looking for that money, the owners said they had cashed it in 2015 because, as reported by the Rapid City Journal , "company officials did not remember what the money was for."

Spyglass Cedar Creek does not have the money set aside that was required to clean up these wells, the state does not have recourse to get that money, and some of the wells are reportedly leaking. So, what can be done?

According to Doyle Karpen, member of the South Dakota Board of Minerals and Environment, the answer is for the taxpayers of that state to cover the cost.

" I think the only way we can correct this is go to the Legislature and ask for money," Karpen said earlier this year.

Following the Coal Industry Business Model

What is starting to unfold with the oil and gas industry is very similar to what has already been playing out with the U.S. coal industry.

According to a Center for Public Integrity investigation , more than 150 coal mines (and dozens of uranium mines) have been allowed to idle indefinitely, enabling their owners to avoid paying for the costs of cleanup.

In April, the Stanford Law Review published the paper, " Bankruptcy as Bailout: Coal Company Insolvency and the Erosion of Federal Law ," which notes that almost half the coal mined in the U.S. is done so by companies that have recently declared bankruptcy.

The paper notes how the bankruptcy process is used by coal companies to rid themselves of environmental cleanup liabilities and pension costs "in a manner that has eviscerated the regulatory schemes that gave rise to those obligations."

Yet company executives often receive healthy bonuses , even as they are driving companies into bankruptcy.

This summer, Blackjewel famously failed to pay its coal miners, and even pulled funds out of their bank accounts, after the company suddenly declared bankruptcy in July. That prompted workers to sit on train tracks in Kentucky, blocking a $1 million shipment of coal, in a two-month protest . And Blackjewel is poised to leave behind thousands of acres of mined land in Appalachia without adequate reclamation.

Privatize the Profits, Socialize the Losses

The mineral extraction business model in the U.S. is set up to maximize profits for executives, even as they lose investor money and bankrupt their companies. That is true of the coal industry and that is true of the shale oil and gas industry .

At the same time, the regulatory capture by these industries at both state and federal levels allows private companies to pass on environmental cleanup costs to the public, and the inadequate bonding system for oil and gas well reclamation represents just one more example.

The so-called fracking revolution in America has resulted in many new records: record amounts of U.S. oil and gas exported (to the detriment of a livable climate), new levels of human health impacts on surrounding communities, record numbers of industry-induced earthquakes , record amounts of flaring natural gas in oil and gas fields, and record-breaking depths and lengths of wells.

And the cleanup costs for the fracking boom are also poised to be staggering.


jackiebass , October 20, 2019 at 6:36 am

The answer to the question posed is yes. History confirms this. Present laws allow companies to get away with this. I don't see this changing in the future.

Phacops , October 20, 2019 at 9:08 am

Socializing the cost of cleanup/decommissioning was one of the reasons the people in our township fought, and won, to stop Duke Energy's wind power project which would have put a few hundred industrial turbines over three townships.

I was offered a contract and it was truly toxic. Duke would not have been required to fund decommissioning until 20 years into what is a 25 year lifespan for the generators and that bond would have been held in Duke's accounts. Duke could have merely walked away before 20 years leaving a liability for any landowner. My expectation would be a $250,000 escrow for each tower/generator and held by the landowner so that Duke would have no access to it until decommissioning.

Olga , October 20, 2019 at 2:56 pm

My reaction to seeing the headline was "is the Pope Catholic?"
Of course, the public will pay. Texas govt already pays to cap abandoned wells.
As for decommissioning costs, utilities typically keep decom accounts, and include the costs of decom in their revenue requirement, when coming in for a rate case. The money should be there, when needed. (Of course, anything can happen – but if that were the case, we'll have bigger things to worry about than the decommissioning of wind turbines.)

inode_buddha , October 20, 2019 at 3:33 pm

Why is Texas paying to cap abandoned wells? I thought they liked small government?

drumlin woodchuckles , October 20, 2019 at 5:55 pm

Rich Texans like small government when they can profit from governmental smallness.
Rich Texans like big government when they can profit from governmental bigness. If Rich Texans can make the Texas government pay bigly for capping abandoned privately profitable frack well, such Texas big government payments to cap the abandoned wells just make the Rich Texans richer by relieving them of paying themselves for the costs they themselves caused by fracking those wells.

JBird4049 , October 20, 2019 at 8:04 pm

Restated, privatize the profits and socialize the costs.

Nakheed , October 20, 2019 at 4:59 pm

There are several opportunities for enhancing the public good in this process.

There are superfund sites in every state, allowing all Americans equal opportunities to contribute to the health of Earth. Moreover:

The Superfund law also authorizes Native American tribes to recover natural resource damages caused by hazardous substances

What can Congress do?

Easy.

1. Increase the EPA budget tenfold or more for cleanup, adding fracksites to the superfund list. This will provide much-needed jobs for millions of Americans as they help in greening Earth.

2. Require that Native American tribes get busy recovering natural resource damages. If they refuse, this would provide a much-needed opportunity to establish military bases on reservations to quell rebellions against superfund cleanup.

3. Some alarmists have alleged that cleanup of toxic superfund sites can pose health risks, which is a well-known talking point of enemies of Earth. Even so, Congress can require healthcare providers to deliver all necessary treatments to superfund workers in order to assuage any concerns of the workforce.

4. Congress can relax labor laws so that undocumented migrants and their children are allowed to participate in healing Earth by joining the superfund cleanup workforce.

These measures will ensure Full Employment, Earthhealth, Native Pacification, and Demographic Diversity throughout the nation.

JBird4049 , October 20, 2019 at 8:25 pm

>>>Require that N<ative American tribes get busy recovering natural resource damages. If they refuse, this would provide a much-needed opportunity to establish military bases on reservations to quell rebellions against superfund cleanup.<<<

It has been a decade since I have done any research, but that said, requiring the destitute to demand that they somehow get the money needed to get recompense from the Feds and corporations is silly. Many tribes are dirt poor and others are marginal, even though many nations have been trying for decades, perhaps longer than anyone alive, to get the payments owned from the mineral and oil extraction from their lands. Records and payments that the federal government are supposed to manage, but never have. Records go missing, the decision making process is obfuscated, and billions have gone missing.

One of the big reasons I just loathe Identity Politics, victim blaming, and other current dodges is that the current political establishment and all their little minions in social media and nonprofits pay no mind to the continuing financial, political, legal and social rape, impoverishment, and degradation of millions of Americans have and do endure is just ignored. Although Standing Rock was a nice blip. At least the Disposables are worthy of conscious contempt. The Indians are sent to oblivion where they can go finish dying.

John A , October 20, 2019 at 6:54 am

Ditto yes to the long-term cost of secure disposal/storage of nuclear power waste.

Carla , October 20, 2019 at 9:45 am

You mean, there IS a secure way to dispose of nuclear waste? Huh, I didn't know that.

Oregoncharles , October 20, 2019 at 4:42 pm

The cost is infinite, in perpetuity.

Janie , October 20, 2019 at 6:14 pm

Succinct – and accurate.

HotFlash , October 20, 2019 at 7:14 am

Well, yes and no. Yes, the public will pay for any 'cleanup' that is actually done (ie, YOOGE dollars to 'remediation' companies), but really, my bet is that most of these orphan wells and mines will just be left as they are.

xkeyscored , October 20, 2019 at 11:04 am

Exactly what I was about to say. The wells will leak their toxins, the rich will escape to some idyllic bunker, while the poor are offered oxycodone or fentanyl to alleviate their suffering.

JTMcPhee , October 20, 2019 at 6:28 pm

Just like the zillions of abandoned coal and metal mines, those other gifts from the fossil fuel "industrial revolution."

rjs , October 20, 2019 at 8:31 pm

Cleveland is an example not one of the dying industries that once flourished here cleaned up after themselves before they shut down most of the former degraded sites don't rise to the level of a superfund problem, but they are virtually irredeemable nonetheless

Peter , October 20, 2019 at 8:25 am

do not know how the figure for abandoned well cleanup is derived. In Canada, estimates by the industry friendly Fraser Institute and the CD Howe Institute claim those figures:

C.D. Howe estimates there are more than 155,000 wells with no economic potential that must be reclaimed, with cleanup costs for an orphan well ranging from $129 million to $257 million, with a total provincial cleanup bill of $8 billion. Glen cites a far higher estimate from the Orphan Well Association -- $47 billion.

And the problems regarding financing are the same as in the USA – although the Supreme Court of Canada has ruled in favour of clean-up cost coverage before debtor payout:

Glen quotes Daryl Bennett of My Landman Group who observes that not only are the funds on deposit insufficient, but "the cost to reclaim all these assets is now far higher than the value of those assets." With the oil and gas sector unable to shoulder these costs, the costs look likely to land in two places -- the pockets of landowners with land dotted with abandoned wells, and the taxpayers who will pay those landowners to ensure the land is kept in productive use.

https://www.fraserinstitute.org/article/albertas-abandoned-wells-need-tending

Energy companies must fulfil their environmental obligations before paying back creditors in the case of insolvency or bankruptcy, Canada's Supreme Court has ruled.

The top court's ruling released Thursday overturns two lower court decisions that said bankruptcy law has paramountcy over provincial environmental responsibilities in the case of Redwater Energy, which became insolvent in 2015. That meant energy companies could first pay back creditors before cleaning up old wells. In practical terms, that means energy companies could walk away from old oil and gas wells, leaving them someone else's responsibility.

https://www.cbc.ca/news/business/supreme-court-redwater-decision-orphan-wells-1.4998995

Ignacio , October 20, 2019 at 8:37 am

Wild wild west is well and alive. What a mess!

Karma Fubar , October 20, 2019 at 9:53 am

I live in the hills of SE Ohio. Gas is everywhere down here, but (fortunately) not in the commercial quantities needed for major fracking operations. Small gas wells dot the landscape. Due to the crash and the oversupply of the fracking boom, gas prices fetch a small fraction (about 20%) of their previous peak. No new wells have been placed in years.

A neighbor of mine has a has well that has ceased commercial operation. He still gets free gas from it as per the lease agreement, but the small local gas company no longer wants to pay to maintain and operate it, as in no longer yields any appreciable commercial output. The gas company initially said that they would sell him the well for $7,000, and he agreed (verbally, I believe) to that price. The gas company then said it wasn't even worth that, and would just give him the well.

It struck me as decidedly odd that a business, which by all accounts is cash-strapped and barely getting by, would voluntarily forgo any amount of money. It makes me think that there must be certain laws and regulations that apply to a commercial transaction that do not apply to what is in effect a donation.

Does anyone know if there are reasons why someone would give away as opposed to sell an asset, particularly one that has clear and significant liabilities and/or associated cleanup expenses? I know that the landowner should be responsible for cleanup and capping costs whether they bought for money or were given the gas well for free, but does the gas company get out of something by giving as opposed to selling the asset? They certainly did not do it out of the kindness of their hearts; they hate that landowner. He opened up a business and a commercial kitchen and hooked it to his gas well, which was almost certainly responsible for its commercial depletion.

Rod , October 20, 2019 at 12:21 pm

Can't give you that answer but have a similar observation. My homeplace is just up the road a bit–bought sans Mineral Rights in the 1960's–and had a well placed just off the property line on a pad located in the swamp/drainage next door in 1981.
We got no free gas–but hundreds in the Township couldn't resist. Too good to be true. Lots of wells installed–with FREE GAS and a Royalty Check which helped many heat through winter and constant Lay-offs in that churning, rust-belting economy of late 80's and 90's
It was a 90 day drill–24/7, then pumped with an electric skip jack until early 2000s when production petered out.
Still idled–however that swampland finally sold 2 months ago–and Seller was insistent that well ownership transferred with the sale. No transfer–No Sale. There was a token of 1,000$ for the well included in the Land Price. The five adjoining landowners (all No Mineral Rights and 2 with located wells) all looked at purchase and walked away–partly because of the Lay(2 of 7 acres high ground) but all because you had to take the "dead well" with the land.
Locals thought that was just plain "fishy" about something.
Ohio EPA isn't very effective–note the Mud Spill at the Tuscarawas R–and as more and more well plays are petering out and Service Co.'s going out of business concern IS rising among landowners.

I won't say my Homesteads neighbors are environmentalists as much as PO'd that the access roads have not been graded and graveled and that inconsistent gas flows are causing them to go Propane

Oregoncharles , October 20, 2019 at 4:52 pm

It might come under Real Estate full disclosure laws, which require a seller to notify buyers of any liabilities – like the cost of closing and cleanup of a well. Might not apply to a "gift."

If course, if the owner keeps it operating for their own use, they don't have to cap and restore it – but it will run out some day.

Charles Yaker , October 20, 2019 at 9:55 am

But how will we pay for it?

Rodger Malcolm Mitchell , October 20, 2019 at 3:35 pm

Not well understood is the fact that:
State taxpayers fund state spending, and
County taxpayers fund county spending, and
City taxpayers fund city spending, but
Federal taxpayers do not fund federal spending.

The federal government neither needs nor uses tax income for anything. In fact, federal taxes are destroyed upon receipt.

The federal government, being Monetarily Sovereign, creates brand new dollars, ad hoc, by spending.

Thus, all the federal spending to remediate any polluted sites in America add dollars to the economy, and thereby benefit taxpayers.

JTMcPhee , October 20, 2019 at 6:51 pm

Benefits natural-person taxpayers just how? By underwriting the looting behaviors of corporations and their executives, sparing them from having to internalize the "costs" that leavings from industry impose on "neighbors" and all the natural persons, and nature, downwind and downstream and living next to those industrial and extractive spots? Not much healthy incentive or public benefit in that formulation.

The federal "Superfund" was funded by a tax on feedstock chemicals, and "responsible parties" that caused or contributed to the release of hazardous substances, anyone related by contract to them, and site owners, were to pay all removal and remedial response costs. Why not that model, which sought to force the costs back into the calculus? And yes, the Superfund program had its share of problems, still does -- contractor gold-plating, goldbricking, and fraud, corruption of the processes, and others, and of course the exemption of "petroleum products" from the definition of hazardous substances. But it did effect some significant changes, along with the federal Resource Conservation and Recovery Act, in generation and disposal of hazardous substances.

It's a model to maybe work from, at least.

rd , October 20, 2019 at 8:37 pm

Its pretty simple. Most governments have been collecting royalties on the extracted oil and gas. They can just repurpose that past and future money to cleanup. The politicians said it would pay for schools and firemen but future politicians will likely need to repurpose money. At least Superfund exists, so there is a mechanism to do it.

Annieb , October 20, 2019 at 10:54 am

In Colorado there are 60,000 active oil and gas wells and 20,000 that are abandoned. That count is from 2017. Several thousand more wells have been permitted and drilled since then.
https://corising.org/colorado-map-oil-gas-wells/

Not only will governments have to pay for remediation of some abandoned wells, the residents may pay with their health, even their lives. Methane leaks from abandoned gas wells are discovered now and then, as in Broomfield, CO in May, 2019.
https://kdvr.com/2019/10/14/abandoned-oil-and-gas-well-in-broomfield-leaking-methane/

In 2017, one such abandoned well in Firestone, CO caused an explosion killing two people.

Colorado has an "Orphaned Well Program" that spent over 1.3 million in FY19.
http://cogcc.state.co.us/documents/library/Technical/Orphan/Orphaned_Well_Program_FY2019_Annual_Report_20190830.pdf

Tomonthebeach , October 20, 2019 at 11:58 am

A more-to-the-point question in response to this title is; When has Big Oil, Big Mineral, Big any natural resource exploiter ever paid to clean up their mess? The answer is only when there is a gun at its head and all the owners have not yet run off with their booty.

Janie , October 20, 2019 at 6:32 pm

Beulah, North Dakota, has a coal gasification plant, open for free public tours. It's a closed loop – shallow strip mining on their property, has sold to a single nearby customer. The size of the equipment is mind-boggling. They are required to recontour the land to exact pre-mining measurements and to replace every shrub and tree. The reclaimed land looked lovely.

As a passing tourist, I know nothing in depth, but I was impressed and see no reason why the same is not required of any resource extraction.

Leroy , October 20, 2019 at 12:40 pm

I think it's time we take a long hard look at this country's bankruptcy laws. For as long as I can remember, bankruptcy has been a "tool" of business to escape what is most often the responsibility of the business and/or business owner. See DJT et.al. The idea that a business like the ones in this article can declare bankruptcy , dump the debt owed to creditors, and continue to give huge bonuses to management members is foolish. When a business like the fracking industry operators can't pay it's debts, the doors should close, the assets sold and the creditors (in this case, the state involved) receive everything necessary to "clean up" the mess. Most cases involving fracking wells would need more in funds than the company has in assets. Bottom line, that's it folks. The state gets it all (which will almost never be enough) and the folks go home, no bonus, no car, end of story. Many things would change in a system that does not allow the dumping of debt onto society so people who were very bad at running a business can continue to be rewarded. Just sayin ..

rd , October 20, 2019 at 8:41 pm

In many cases, the state could impose a unit royalty dedicate to future clean-up. The royalties could go into a dedicated trust fund. The cash flow of producing wells would set aside the means to cleanup many wells.

Rodger Malcolm Mitchell , October 20, 2019 at 3:33 pm

If by "the public," the author is referring to federal taxpayers, the answer is, "NO." Not well understood is the fact that:
State taxpayers fund state spending, and
County taxpayers fund county spending, and
City taxpayers fund city spending, but
Federal taxpayers do not fund federal spending.

The federal government neither needs nor uses tax income for anything. In fact, federal taxes are destroyed upon receipt .

The federal government, being Monetarily Sovereign, creates brand new dollars, ad hoc, by spending.

Thus, all the federal spending to remediate any polluted sites in America add dollars to the economy, and thereby benefit taxpayers.

barrisj , October 20, 2019 at 3:39 pm

But, but, but we are "energy-independent!". Surely a small price to pay for massive environmental despoliation in the era of late-capitalism, where "externalities" are booked on the public ledger.

Tony Wright , October 20, 2019 at 4:12 pm

Yes, so Dubya invades Iraq to make sure the supply of black gold to the US is not interrupted (and hey Dad – look, we got Saddam .), then the pendulum swings and Obama mostly pulls out of the ME and " encourages" fracking to get domestic oil security. In the meantime the political vacuum caused allows the rise of ISIS, so Syria is destroyed and millions of refugees overwhelm Jordan, Turkey and Europe. Then along comes Trump and doubles down, allowing the Saudis to commit unfettered genocide in Yemen (with a nice little side in US arms sales), and now the Turks to indulge in a bit of "ethnic cleansing" of their Kurds – you know that mob who have fighting for a bit of their own country for a hundred years since they were unfortunately overlooked when the British and French divided up the Middle East.
We all really need to get off this addiction to fossil fuels ASAP and convert to electric cars and road transport and household and industry power derived from solar, wind and hydro electricity.
It is not just climate change which is the " collateral damage" of fossil fuel use.
And in my country we have to do the same, and STOP MINING F .. COAL and allowing new coal mines to be run by environmental vandals like Adani. AAAAAAAGH!

Skip Intro , October 20, 2019 at 6:15 pm

Obama pulled out of the ME? I must missed that during the US invasion/occupation of parts of Syria as part of its illegal regime change war, that provided safe haven for jihadists and ISIS in Syria

JTMcPhee , October 20, 2019 at 6:54 pm

Is Libya in the Middle East? Yemen?

JBird4049 , October 20, 2019 at 8:31 pm

Libya is in North Africa, not that it really changes anything. The United States still destroyed it.

xkeyscored , October 21, 2019 at 6:35 am

Saudi Arabia is generally considered part of the Middle East, so why not Yemen?

Tony Wright , October 20, 2019 at 9:17 pm

Skip-As I read it Obama pulled many, but not all obviously ,of the troops from Afghanistan and Iraq, – and was widely criticised for doing so "prematurely" by the media and commentariat.
Mind you, that could have been just " fake news" .

xkeyscored , October 21, 2019 at 6:34 am

along comes Trump and doubles down, allowing the Saudis to commit unfettered genocide in Yemen
Trump inherited that from Obama.

stan6565 , October 20, 2019 at 4:12 pm

Of course that the Public will pay for the environmental cleanup of the pollution of dead fracking wells. Just as they will pay for dead oil platforms in high seas, or "decommissioning" of spent nuclear fuel (when someone figures out how that's done), or underfunded pension plans or any other such scam that was advertised as doing something for greater good but which always was, and always will be, extraction of something out of presumed public ownership (earth) for benefit of those who figured out what to extract. Bottled water comes to mind too.

How will public pay? Entropy, of course. No need to involve printed papers masquerading as "money". Public will simply work harder and harder, but will have less and less of everything, firstly less hospitals and schools, then less police and firefighters, then less judiciary and then less water, less food and less air suitable for breathing.

The sad part is, we taxpayers, continue to live in an imaginary world where we expect that "government" will do "something for us, the people". Governments do not look at it that way. "Governments" are just an extraction apparatus, by which those that can extract, extract, and those that cannot, provide the extracted material.

I looked at governments and economical systems all over the world and there is no exceptions to this. The conundrum is, what to do about it and how?

stan6565 , October 20, 2019 at 4:22 pm

I apologise to the commentariat but I simply must enclose two links to my favourite brain washing outlet, BBC, here in UK. While our parliament continues to work for everyone else but the British People, the Big Brother outfit goes on to disseminate dross like this:

https://www.bbc.co.uk/news/business-50116368

And then, they provide a link explaining to the gullible why they should be eating this sh1t, hook, line and sinker.

This type of mind control exists everywhere, I have checked. USA, Norway, Philippines, whatever, you name it, it's there.

https://www.bbc.co.uk/news/help-41670342

[Oct 23, 2019] If you look at the shale oil "Annual Compounded Decline Rate" presently, it resembles a 70-75% STEEP CLIFF

Oct 23, 2019 | peakoilbarrel.com

SRSrocco x Ignored says: 10/09/2019 at 10:50 am

Complacency & Nothing To Be Concerned About

After my article on the Permian, some more notable oil folks came out of the woodwork to reply. Here is the link: https://srsroccoreport.com/more-than-50-of-the-mighty-permians-2018-oil-production-has-vaporized/

It seems as if ole David Hughes, which I have a lot of respect, decided to come on the website and leave a few comments. Basically, Hughes's reply was, "WHAT'S THE BIG DEAL IN 2018?" He went on to say that we all know these wells decline 50+% in the first year, so why start to make a STINK about it now?

I also had several email replies from some other folks. And then we had a bit of a TIT for TAT here in this blog with HUNTY.

However, what is going on in the Permian is only a small part of the overall situation. Regardless if we bicker about the future Permian revisions due to the incomplete TRRC data, the fact remains, if you look at the "Annual Compounded Decline Rate" presently, it resembles a 70-75% STEEP CLIFF. And, the Permian isn't the only one that looks like that. You can add the Bakken and Eagle Ford to varying degrees.

So, while a portion of the "OIL FOLKS" and a large percentage of the "DUMBED DOWN PUBLIC" believe there is NOTHING TO SEE HERE, they couldn't be more wrong.

Furthermore, the U.S. public debt just ballooned by $227 billion in less than two weeks and $814 billion since August 1st. While everyone has seemingly become NUMB to the amount of these figures, the rate at which debt is being added in the United States and globally is heading up in an exponential trend. But, there is nothing to see here.

And, then we have the fun taking place in the REPO MARKETS when, according to a specialist in the field, a large BLOCK of CASH has been removed from the market and hasn't come back, I gather it's just another sign that EVERYTHING IS OKAY . .nothing to see here.

Also, ExxonMobil, the largest U.S. oil company, had to borrow $7 billion in August to repay the huge $11 billion in short term paper it borrowed 1H 2019 in order to pay dividends and fortify its balance sheet as its Permian stake is destroying its bottom line.

And today, we see that ExxonMobil just sold its $4.5 billion upstream assets in Norway. Yes, this is part of Exxon's plan to sell $15 billion by 2021 to focus on KEY ASSETS. I gather that really means, they are going to have to fill in the RED they will be suffering in the Permian as its U.S. upstream earnings continue to suffer. But again nothing to see here

Lastly while the NOTHING TO SEE here mentality will continue even as the U.S. and global economy heads over the cliff, taking the highly leveraged debt-based financial system down with it, I'll make sure that I schedule some time from my day to come in here and read all the "I TOLD YOU SO" comments.

steve

hole in head x Ignored says: 10/09/2019 at 10:58 am
Keep plugging .Steve . Too many people worldwide smoking hopium .

[Sep 02, 2019] Did the plato proction arrives for the US shale oil ? No US C+C output in June 2019 was 12,082 kb/d and in Dec 2018 US C+C output was 12,038 kb/d, so output has risen, but not by much

Sep 02, 2019 | peakoilbarrel.com

Watcher x Ignored says: 08/31/2019 at 1:48 pm

Some intriguing consumption stuff.

Pop on over to the BP spreadsheet and find the regional consumption tab. For some regions there are countries broken out and for others, not. But on this tab you can get granularity on what kind of oil, what constituent part of crude, was consumed.

Japan. The population decline is actually pretty recent -- only since 2010. Their decline in consumption is popularly attributed to population reduction, and I have gotten this wrong, too, but consumption decline has been since 1995 with population gain for 15 of those years. In more detail, their consumption decline is not gasoline. They have increased gasoline burn since 1995. (The Prius is the 2nd most popular car in Japan and it first went on sale in 1997, so Prius didn't kill gasoline burn, which has increased).

It's middle distillates and Fuel Oil that are way down. Stuff that fuels big commercial engines. That's what has fallen. Fuel Oil is more than maritime bunker fuel. It powers big stuff. There was a sharp uptick of Fuel Oil consumption . . of 44% in 2012 because it was Fuel Oil that was called on to generate electricity when all the reactors were shut down during the quake panic. But the reactors returned and Fuel Oil resumed its decline.

One last thing that could blow all those paras out of the water. Japan had until recently more refinery capacity than internal consumption. It's a lot like Singapore. The crude comes in and product exports and this seems to somehow corrupt all measurements. The govt recently shut down many of the refineries. It wasn't voluntary. Gov't ordered. Now Japan has to import fuels, not just crude. Quite a lot. Which likely confuses the consumption measurements further.

shallow sand x Ignored says: 08/31/2019 at 4:02 pm
Ron.

I see in EIA short term energy outlook that they are predicting US to average 12.3 in 2019 and 13.3 2020.

Also predicting July, 2019 will be 11.7.

So, first 7 months of 2019 would be average of a little over 11.9.

Which means as of 8/1/19 EIA expects last 5 months US will average around 12.8?

Wonder what info they have that we don't?

Stephen Hren x Ignored says: 08/31/2019 at 7:12 pm
Ok I read this blog quite regularly but now I'm confused. US oil production has actually fallen since the start of the year?

Dennis, can you respond to that? I thought I was just reading in the last post that the current completion rate in the Permian was enough to raise production for five more years or so. July is probably skewed because of the hurricane, but what gives?

GuyM x Ignored says: 09/01/2019 at 7:35 am
It's definitely slowing. See my first post on June monthly production. When you add all the states with shale production, there is no growth from May to June. Yes, July should be down significantly due to the hurricane, but I expect no growth from shale.

Dennis sees an increase, Ron sees it plunging. I see it flat for a few months, and slowly trending down. Pick your poison.

Dennis Coyne x Ignored says: 09/01/2019 at 3:56 pm
GuyM,

Yes the increase is pretty small for tight oil over the next 5 years only an average annual rate of increase of 344 kb/d for US tight oil from 2019 to 2024 for the flat completion rate scenario. This is a far cry from the 1620 kb/d increase in US tight oil output from Dec 2017 to Dec 2018, a factor of 4.7 times slower on average than the rapid rate of increase in 2018.

Dennis Coyne x Ignored says: 09/01/2019 at 8:25 am
Stephen Hren,

No US C+C output in June 2019 was 12,082 kb/d and in Dec 2018 US C+C output was 12,038 kb/d, so output has risen, but not by much. Yes a flat completion rate could lead to a rise in tight oil output until 2025, though conventional output could fall to offset this. Conventional output has been falling of late as fewer new conventional wells have been completed for the past 6 months.

shallow sand x Ignored says: 09/02/2019 at 8:35 am
Guy.

If $75-80 WTI would hold for awhile (6 months +) drilling would resume in conventional fields lower 48 at higher levels in my opinion.

Might be able to stem the decline, but I doubt there would be significant growth until WTI got back to 2012-14 (early) levels.

Hard to believe we were paid $99.25 per barrel in June, 2014!

Freddy x Ignored says: 08/31/2019 at 5:39 pm
The current financial strain on shale producers is likely to intensify as many companies that took on debt after the 2016 oil slump face large debt maturities in the next four years. As of July, about $9 billion was set to mature throughout the remainder of 2019, but about $137 billion will be due between 2020 and 2022, according to S&P.
Seems that there will be more bancurupt filings in the years to come.
PeterEV x Ignored says: 09/01/2019 at 2:09 pm
Here is the 2019 version of the graph above from:
https://corporate.exxonmobil.com/-/media/Global/Files/outlook-for-energy/2019-Outlook-for-Energy.pdf

What is interesting is the footnotes. The first one says: " The supply of existing oil production naturally declines at an **estimated 7 percent per year** without further investment. Significant investment is needed to offset this natural decline and meet the projected demand growth." The 7 percent figure caught my eye.

Also see the footnote about the switch over to Biofuels but Biofuels are such a very small amount.

Here is the graph:

Hickory x Ignored says: 09/01/2019 at 2:17 pm
The footnote that catches my eye is- Biofuels grows more than 70%.
That is a horror show for the global environment.
Things like species extinction.
PeterEV x Ignored says: 09/01/2019 at 4:04 pm
Agreed, but it's so miniscule on the graph. In 2040, it would never be able to power much.
Watcher x Ignored says: 09/01/2019 at 1:18 pm
Continuing to look at the Regional Consumption tab from the World Stat stuff.

There is this category called Others. BP defines it as:

" 'Others' consists of refinery gas, liquefied petroleum gas (LPG), solvents, petroleum coke, lubricants, bitumen, wax, other refined products and refinery fuel and loss."

This is not trivial afterthought. This is over 20% of the total oil consumption for nearly all countries/regions. 24% for the whole world, and that deserves a !!!

It's 41% for India, also deserving a !!! I happen to know this derives from LPG, a hugely popular transportation fuel in India.

China, 30%.
US 22.6%

India's total oil consumption last year was 5.9%. Light distillates had 10% growth, gasoline 8.9%. Others, 6%. EVs and hybrids did nothing to gasoline burn there, which you would expect for such a narrow niche product for rich people in year-round warm cities. They didn't drive much anyway. And of course rural driving is a big thing in India, per the recent item about political campaigns travelling place to place by road.

China's total oil consumption last year was +5.6%. Light distillates +7.3%. Kerosene/jet fuel + 14% (!!!) Others, 7.1%.
And ditto.

As noted above Japan's consumption drop has been from lost economic activity, not population, and it burns more gasoline today than in 1995, so Prius didn't do much there. Their big loss is in middle distillates, because they shut down a lot of factories. Repeat, population ROSE in Japan up to 2010. Only since then has it fallen and middle distillate consumption (and Others consumption) has been falling steadily since 1995, even when population was rising.

First you lose your economy, then you lose your food.

(Caveat about refinery exports from previous comment)

[Sep 02, 2019] To me it seems like the DUCS that was good have now been used,

Sep 02, 2019 | peakoilbarrel.com

Freddy x Ignored says: 09/01/2019 at 4:24 pm

From the EIA monthly I see the US oil and condensate production was:
April 12. 123 Mbpd
May 12. 115 Mbpd ( – 8 000 bpd / 0,1%)
June 12. 082 Mbpd ( – 33 000 bpd/ 0,3%).
Will be very i teresting to see the production for July and August including new pipeline capacity. To me it seems like the DUCS that was good have now been used, Baker Hughes drill statistick document number of riggs still go down. In January EIA and Rystad believed US oil production would reach 13 Mbpd in 4th Quartile 2019, the truth is this might already be below 12 Mbpd . As they told the growth in US shale have be funded by borrowed money , now investors have far from get back what they where promissed, they are pissed off
Ovi x Ignored says: 09/01/2019 at 8:19 pm
Attached are charts for World, OPEC and Non-OPEC C + C up to May 2019.

World production down is by 2,958 kb/d from peak.
Opec is down by 3,037 kb/d.
Non-OPEC is down by 1,252 kb/d

https://www.eia.gov/beta/international/data/browser/#/?pa=00000000000000000000000000000000002&f=M&c=ruvvvvvfvtvnvv1urvvvvfvvvvvvfvvvou20evvvvvvvvvnvvuvs&ct=0&tl_id=5-M&vs=INTL.57-1-AFG-TBPD.M&cy=201406&vo=0&v=H&start=201201&end=201905

Ovi x Ignored says: 09/01/2019 at 8:21 pm
OPEC

Ovi x Ignored says: 09/01/2019 at 8:21 pm
Non-OPEC

Hugo x Ignored says: 09/02/2019 at 2:57 am
How can production be falling, consumption increasing and stocks remain the same?
Jeff x Ignored says: 09/02/2019 at 4:05 am
Patience young padawan. 🙂

First, stocks don't remain the same. There is a time lag of several months between production in OPEC/MENA and stock change in US meaning that excess production in late 2018 impacted US stocks in the spring (see for example these two figures from Art: https://pbs.twimg.com/media/ECW_IhNXsAweltI.png https://pbs.twimg.com/media/ECkcTfzXkAE5uED.png ).

There is no good real time data, at least not publicly available, on global stocks but US stocks have declined so far this year ( https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCESTUS1&f=W ). It seems to me that we are starting to see the effect now on lower OPEC production (cut or whatever reasons) and LTO not growing as fast as forecasted.

A quote from IEA's last OMR ( https://www.iea.org/newsroom/news/2019/august/economic-woes-hold-sway-over-geopolitics.html ): "If the July level of OPEC crude oil production at 29.7 mb/d is maintained through 2019, the implied stock draw in 2H19 is 0.7 mb/d, helped also by a slower rate of non-OPEC production growth." Note that this assumes LTO-growth in US causing the market to be oversupplied next year

The market sentiment is currently bearish on oil for whatever reason (US LTO growth, economic slowdown, etc.), you can see this on the yield curve that Art provides, the curve has become more flat ( https://pbs.twimg.com/media/EDENJx2XUAIR5lC.png:large ). I find the herd mentality of the oil market interesting and would not be surprised if the herd changes direction in a not too distant future. The big question mark I see is what will happen with the Iran-deal if/when stocks continue to decline.

Ovi x Ignored says: 09/02/2019 at 7:43 am
Gold has been out of favour for quite a while. Suddenly in June 2019, it started to rise from around 1250 to 1500 today. Why? Wish I knew.
Iron mike x Ignored says: 09/02/2019 at 10:19 am
Lower world wide interest rates is one reason. Worries about a global recession is another.
Ovi x Ignored says: 09/02/2019 at 7:35 am
Non-OPEC without U.S.

Tony Eriksen x Ignored says: 09/02/2019 at 8:05 pm
Dennis,

EIA STEO forecasts US crude oil production of 12.95 mbd at Dec 2019 and splits it into
Alaska 0.49
GoM 2.12
L48 10.34
https://www.eia.gov/outlooks/steo/data/browser/#/?v=9&f=M&s=0&start=201501&end=202012&map=&linechart=~PAPRPAK~PAPRPGLF~PAPR48NGOM&id=&ctype=linechart&maptype=0

My Dec 2019 guess is 0.45 mbd for Alaska, partly due to majors exiting Alaska
https://ca.finance.yahoo.com/news/bp-exit-alaska-60-years-172226498.html

My Dec 2019 guess is 1.95 mbd for GoM
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFP3FM2&f=M
https://www.offshore-mag.com/production/article/14034424/gulf-of-mexico-oil-production-forecast-for-record-year

My Dec 2019 guess is 10.10 mbd for L48, Permian being the main reason for the 0.4 mbd increase from June. The STEO data browser also forecasts a 0.4 mbd change from Jun 2019 to Dec 2019 for L48.
https://www.eia.gov/outlooks/steo/data/browser/#/?v=9&f=M&s=0&start=201501&end=202012&map=&linechart=~~~PAPR48NGOM&id=&ctype=linechart&maptype=0
The L48 Jun production of 9.7 mbd is derived from the latest EIA monthly production. (12.08 (total US)-1.91 (GoM) – 0.46 (Alaska) = 9.71 mbd)
https://www.eia.gov/petroleum/production/

My guess for US crude production in Dec 2019 is 12.5 mbd which is less than EIA STEO 12.95 mbd

Tony Eriksen x Ignored says: 09/02/2019 at 3:11 am
Why does Texas oil production data differ between EIA and Texas RRC?

EIA shows Texas crude making a new peak of 5.0 mbd in May 2019. In Dec 2018, it was 4.9 mbd.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPTX2&f=M

RRC shows peak of 4.7 mbd in Dec 2018 and down to 4.1 mbd in May 2019.
https://www.rrc.state.tx.us/oil-gas/research-and-statistics/production-data/texas-monthly-oil-gas-production/

Watcher x Ignored says: 09/02/2019 at 11:03 am
BTW Norway, the darling of alternative transport.

2018 oil consumption growth 5.1% Not broken out by distillate portion.

Ivan Kudder x Ignored says: 09/02/2019 at 11:35 am
Talking about Norway:

https://oilprice.com/Energy/Energy-General/Busting-The-Myth-Of-The-Worlds-Hottest-Electric-Car-Market.html

PeterEV x Ignored says: 09/02/2019 at 1:16 pm
Even though Norway is "the darling of alternative transport", EV sales are still a small part of their transportation mix. All-electric 7.8%, Plug-In hybrids, 3.6%, and Hybrids 4.0%. Without the impact of EVs, their consumption would likely have been higher.
Tony Eriksen x Ignored says: 09/02/2019 at 6:28 pm
It looks like Nick Cunningham, the author of the article below, reads peakoilbarrel.com

"The more important point is that the oil industry is slowing down more generally.

Most oil forecasters expected explosive production growth to continue through this year and into 2020. But with June U.S. production at 12.082 mb/d, output is only about 80,000 bpd above levels seen at the end of 2018. In other words, growth has been pretty slow this year.

Financial stress is really setting in, forcing drillers to cut back. The rig count fell by 12 in the last week of August, part of an ongoing slide since reaching a peak late last year. Bankruptcies are on the rise. As the Wall Street Journal notes, an estimated 26 U.S. oil and gas companies have declared bankruptcy this year, which is close to the full-year 2018 total. More are expected.

Worse, there is a tsunami of debt that comes due in the years ahead. According to the WSJ, roughly $9 billion worth of debt was set to mature over the second half of 2019. But a whopping $137 billion in debt matures between 2020 and 2022, a massive total that stems from the huge debt issuance following the oil market meltdown a few years ago. A serious reckoning is just around the corner."

https://oilprice.com/Energy/Energy-General/Oil-Production-Growth-In-US-Grinds-To-A-Halt.html

[Sep 02, 2019] USA Oil Production by Ron Patterson

Images removed. See original post for full content.
Aug 31, 2019 | peakoilbarrel.com

The Real Reason Why US Oil Production Has Peaked

Raymond James recently estimated that over the last three years the U.S. decline rate for oil has doubled from 1.6 to 3.2 million barrels per day. The drilled but uncompleted well inventory ("DUC") is back to normal, so the number of wells being drilled and the number of wells being completed is now about the same. We need over 12,000 new horizontal oil wells completed each year to hold production flat and the number of completed wells will need to go up each year.

The U.S. Energy Information Administration ("EIA") forecast at the beginning of this year was that the U.S. shale oil plays were just getting started and that production would increase by at least 2 million barrels of oil per day ("MMBOPD") each year for several more years.

Now if you believe that U.S. shale production will increase by 2 million barrels per day each year for several more years, then I have a bridge that I think you might be interested in. But let's just play "what if", or what if it really did increase by 2 million barrels per day for the next five years.

According to the EIA's Drilling Productivity Report, December 2018 shale production, all basins, was 8,232,750 barrels per day and the legacy decline, for all basins, averaged 6.14 percent per month or 505,737 barrels per day.

Legacy decline of over one million barrels per day would be a crippling requirement of shale producers. But not to worry, that is simply not going to happen. Now total US production did increase by two million barrels per day 2018. In fact, according to the EI.s Monthly Energy Review, US production increased by 2,064,000 barrels per day in 2018. But for the first 7 months of 2019, total US production has declined by 54,000 barrels per day.

USA production appears to have hit a snag. July production is now below November 2018 production.

In my opinion, legacy decline in shale production has reached a point where new production only replaces legacy decline. In fact, legacy decline may have reached a point where it is crippling shale oil production.

Those who have followed this blog for years know that Texas oil production is reported by the Texas Railroad Commission. But their data is very slow coming in, sometimes it is more than a year before all the data has come in. However, Dean Fantazzini, Energy economist, Deputy Head of MSU's Chair of Econometrics and Mathematical Methods in Economics, has developed a program that uses the vintage data to make a pretty good estimate of the actual data. His past corrected data has been relatively accurate.

If Dr. Fantazzini's data is correct then Texas peaked in December 2018 and has declined by 280,000 by June.

All the below charts were created from the EIA's Drilling Productivity Report. The data is through September 2019 and the last few months is, of course, an estimate. Historically the estimate for those last few months has been overestimated.

Notice the last six months is pretty much a straight line. That is because most of it is just an estimate.

It looks like the Permian is pretty much the story as far as US shale is concerned.

The Permian is now just over 50% of total US shale production.

Permian Legacy Decline has been slowly rising and now sits at about 6%.

Eagle Ford has the highest legacy decline rate, now about 8.5% per month.

It looks like shale production, outside the Permian, has pretty much hit the wall. Pay no attention to those last four months. They are just the EIA's wild ass guess.

In conclusion: Very high legacy decline, now over 6% per month, is shale's Achilles heel. Of course, there are other problems as well. Bankruptcies are rampant, running out of sweet spots and the price of oil is just not high enough. It appears that the USA has peaked, or peaked until the price of oil rises at least $20 a month.

And check this one out:

Oil and Gas Bankruptcies Grow as Investors Lose Appetite for Shale


GuyM x Ignored says: 08/31/2019 at 8:46 am

EIA monthlies to June
https://www.eia.gov/petroleum/production/

Dean's charts self correct after a couple of months. Good estimates. Red Queen is already catching up. And, it will catch up faster the next six months from June, as most of the independents have severely cut back on capex.

Your Wall Street journal link has a firewall. Never mind, I got through. Good post.

Tom x Ignored says: 08/31/2019 at 2:30 pm
where do you see that independents have severely cut back on CAPEX?

Grateful for more information/links.
Cheers

Ron Patterson x Ignored says: 08/31/2019 at 3:38 pm
I googled "Shale Capex Cuts" and got about a dozen hits of shale capex cuts. Just three of them are below.

US Shale Operators Cut CAPEX, Up Production
https://www.rigzone.com/news/us_shale_operators_cut_capex_up_production-01-mar-2019-158282-article/

Montage Resources reduces drilling, cuts 2019 Capex
https://www.kallanishenergy.com/2019/08/08/montage-resources-reduces-drilling-cuts-2019-capital-spending/

US Shale Firms Cut CapEx, Up Production
https://www.aogdigital.com/energy/item/8981-us-shale-firms-cut-capex-up-production

GuyM x Ignored says: 08/31/2019 at 3:50 pm
https://csimarket.com/stocks/single_growth_rates.php?code=EOG&capx

https://rbnenergy.com/surprise-surprise-part-3-eandps-paring-capex-despite-strong-2018-profits-2019-prices

It's widespead, simply google.

Pioneer has not only reduced its capex, it's reduced its workforce by 25%. Apache has given up on the Alpine High, their biggest capex. It's 90 % gas, how stupid can you get? Yadda, yadda, Yadda. Just google the company for capex, and put 2nd quarter 2019. Voila!

Your sure to get a positive statement from the company, but just concentrate on the capex going forward. For example, we're losing money had over fist, translates to reduced operating expenses will provide an increased return for 2019. Get serious. None of these companies are going to say, we are screwed.

EOG could make it, most of the rest are totally screwed.

Mike Sutherland x Ignored says: 09/02/2019 at 7:43 pm
Even EOG will get pulled under the waves, probably sooner than later. All those wells, all of them, deplete at breakneck pace.
Matt Mushalik x Ignored says: 08/31/2019 at 9:08 am
My latest post uses data from the BP Statistical Review published in June 2019

26/8/2019
2005-2018 Conventional crude production on a bumpy plateau – with a little help from Iraq
http://crudeoilpeak.info/2005-2018-conventional-crude-production-on-a-bumpy-plateau-with-a-little-help-from-iraq

Krishnan Viswnathan x Ignored says: 08/31/2019 at 10:04 am
Reminds me of what Khalid Falih said about shale.

"I have no doubt in my mind that U.S. shale will peak, plateau and then decline like every other basin in history," Al-Falih told reporters at OPEC's Vienna headquarters. "Until it does I think it's prudent for those of us who have a lot at stake, and also for us who want to protect the global economy and provide visibility going forward, to keep adjusting to it."

Dr. Raymond Pierrehumbert will be proven right belatedly.

https://slate.com/technology/2013/02/u-s-shale-oil-are-we-headed-to-a-new-era-of-oil-abundance.html

GuyM x Ignored says: 08/31/2019 at 10:10 am
Yeah, he was right. I could never imagine West Texas could ever support the lofty imaginations.
Hugo x Ignored says: 08/31/2019 at 10:06 am
The article does say US production still has an up side, but prices would have to be higher.

If there is not enough supply then oil prices will obviously go higher as the did in 2003-2005 and in 2012-13.

US drilling rig count is very low at the moment being only 742, at it's highest recently the US could have 1,400 drilling rigs working.

1,400 drilling rigs will certainly complete enough wells so new supply would exceed decline rates. When oil prices are over $100 as they were in 2012 and the number of drilling rigs are 1,400 then you can wake me up.

Dennis Coyne x Ignored says: 09/01/2019 at 6:03 pm
Hugo,

You want to focus on horizontal oil rigs. The count was as high as 1100, but many of those rigs were lower power rigs no longer economic to operate, a lot of the current rigs are higher power and far more efficient at drilling 3300 meter laterals commonly drilled today.

Dennis Coyne x Ignored says: 09/02/2019 at 8:36 pm
Hugo,

Go to pivot table at page below, then select horizontal oil wells.

https://rigcount.bhge.com/na-rig-count

Mike Sutherland x Ignored says: 09/02/2019 at 8:12 pm
Holy f*ck Hugo, you are a raving lunatic. The oil prices can't go higher, otherwise there will be a repeat of 2008. Clearly you are incapable of learning from the past.
Dennis Coyne x Ignored says: 09/02/2019 at 8:35 pm
Mike Sutherland,

2008 financial crisis had very little to do with high oil prices as proven by recovery during 2011 to 2014 during a period of high oil prices.

Tońito de Espańa x Ignored says: 08/31/2019 at 11:21 am
Hello, i m from spain.

Ron, you say that we are reaching the physical limits and then in the end you say that if it goes up $ 20 we can produce more, is it a contradiction?

Ron Patterson x Ignored says: 08/31/2019 at 12:28 pm
Yeah, there is sort of a contradiction there. Sorry about that. But we are seeing the physical limits hit in much of the world, regardless of the price. But if oil hits $80 to $100 a barrel, a lot more shale could be produced. But that will not change things in the long run. It could delay peak oil by a year or two.

[Aug 22, 2019] Shale Bleeds Cash Despite Best Quarter In Years

Aug 22, 2019 | www.nakedcapitalism.com

by Nick Cunningham

... ... ...

In a study of 29 fracking-focused oil and gas companies by the Sightline Institute and the Institute for Energy Economics and Financial Analysis (IEEFA), only 11 companies posted positive free cash flow. Even then, the figures were paltry. Collectively, the group only reported $26 million in free cash flow for the second quarter, "far too modest to make a significant dent in the more than $100 billion in long-term debt owed by these companies, let alone reward equity investors who have been waiting for a decade for robust and sustainable results," the report said.

... ... ...


PlutoniumKun , August 21, 2019 at 7:09 am

I think a key point about a future shale bust is that it will leave very little in long term assets. In other busts, someone comes along to cherrypick the assets with potential profitability – its the early investors who get burnt. But if shale operators aren't even breaking even on cashflow excluding early borrowings, then its likely that any attempt to consolidate and shrink the industry to make it profitable would fail in the absence of a significant price rise. Since a typical fracked well for tight oil or gas has about 18 months production, this means that constant capital inputs are essential, an investor can't just get a free ride for a few years on past investments.

What this means in reality is that a year or more after the inevitable bust, there will be a massive drop off in production. Ironically of course this will lead to exactly the sort of price rise the industry is craving – but by then it may be too late. It could of course also be highly disruptive to the world fuel market if the US suddenly finds itself needing a few million barrels a day of SA crude.

Harry , August 21, 2019 at 7:43 am

I tend to think of shale as an out of the money option, that the industry keeps on early exercising to generate the appearance of a going concern, despite it losing money. As absurd as this model of events sounds, it would predict that in a consolidation, these assets would be picked up by oil majors, who would "mothball" till higher prices. Of course the longer these bozos are allowed to pump at capital depleting oil prices, the less there is for the eventual buyer in bankruptcy.

Frank Little , August 21, 2019 at 8:58 am

There's an interesting story in Reuters today about how towns in the Permian are starting to make long-term bets on shale production there, in the form of investing in education and infrastructure. It seems like the entrance of oil majors sent a signal to people there that the bust hasn't come yet and apparently won't come for a little while. After reading the coverage of fracking on NC and Bethany McLean's book Saudi America this seems like a bad idea, as the financial problems of fracking stem from physical limitations of the technology. It doesn't seem like a big oil company would be able to solve this problem, besides maybe having deeper pockets and greater ability to ride out low prices, but that still doesn't make fracking profitable, just less unprofitable. Here's the link:

Texas shale towns grapple with growth as oil-bust fears fade

ewmayer , August 21, 2019 at 4:01 pm

Yes, I fwded that link to Yves & Lambert earlier today – the key thing to me is that the oil majors don't make such long-term investments lightly. From the story:

Some of the smaller producers that pioneered shale drilling in the Permian, such as Concho Resources (CXO.N), Laredo Petroleum (LPI.N) and Whiting Petroleum (WLL.N), are downshifting as West Texas oil prices have lost 16% and natural gas has tumbled 36% over the past year.

But the world's biggest oil majors are increasingly taking control of the Texas shale business, and their drilling plans – sometimes sketched out in decades rather than years – are envisioned to withstand the usual price drops.

The Permian Strategic Partnership, a group of 20 energy companies operating in the area, promises to spend $100 million to promote training, education, health care, housing and roads. The partnership chipped in $16.5 million for the charter school initiative, which will open its first campus in August 2020 and plans to offer public education to 10,000 students over time.

Nat , August 21, 2019 at 4:18 pm

The only thing in all this that is baffling me is that Wall st. just keeps giving loans to and buying bonds for these companies to the tunes of 10s of billions of dollars. Everyone on Wall St can't all be willfully in denial and completely blind to the fact that these were bad investments from the beginning and that continuing to give them money is just throwing good money after bad. Everyone makes a bad investment from time to time, but the solution isn't to just burn money indefinitely to turn it into a zombie corporation when there are no signs it will ever be profitable – indeed from what I have read fracking and shale's best ROI is right after the well is turned on, after that it only gets worse so these bad investments are only gangrening and rotting faster and faster. Yet still, ever more more money from Wall st., the same people who chide any and all public services for being unprofitable and engendering unprofitable subsidized behavior.

So if they can't all be that stupid, the only other explanation is that at least some of them are just plain evil. In this case that would entail them working on "greater fool theory" where they are planing something like the old sub-prime mortgage CDOs. Something like: 1. package all this festering financial garbage they created into illegible little financial products; 2. pay-off the rating's agency to give this repackaged garbage AAA rating; 3. sell to sovereign wealth, retirement, and pension funds; 4. take out credit-default swaps and other bets against the garbage they have sold off because they know it is going to imploade; 5. run like hell; 6. blame poor people for destroying the economy while begging for a government bailout as a result of fallout from destroying the world again.

JPerry , August 21, 2019 at 5:42 pm

The Shale companies believe they can refinance at lower rates and put time on their side. Unfortunately for them there is a divergence between the oil price and oil stocks. Links
https://www.wsj.com/articles/energy-stocks-diverge-from-oil-prices-11561489513
https://www.koyfin.com/research/2019/04/23/thoughts-about-the-divergence-between-oil-prices-and-energy-stocks/
Plus with oil stocks being valued lower by the market, and more natural gas & renewables coming online, and likely a worsening climate sooner rather than later, I believe we've seen top of market and it is clarified by the Saudis weak Aramco IPO interest.
https://www.aljazeera.com/ajimpact/dwindling-enthusiasm-fossil-fuels-hit-saudi-aramco-ipo-190820120106784.html

Pwelder , August 21, 2019 at 6:44 pm

That "study" is a pretty cheesy piece of work.

I'm somewhat familiar with Noble Energy, one of the 29 companies the authors claim to have examined.

They report Noble as having a cash flow deficit of $499 million, a full 20% of their grand total for all 29 companies. The grand total, of course, purports to demonstrate the weakness of the US shale plays.

The thing is, the cash flow from Noble's shale operations in Texas and Colorado is solidly positive. The company has a cash flow deficit because it is finishing up its share of the Leviathan project offshore Israel, which by this time next year will have that country energy independent while enabling a massive shift from coal to natural gas as their primary energy source. Not a bad thing, IMO.

The anti-hydrocarbon jihadists have some valid points, but they also generate a lot of propaganda that has no relation to reality. This "study" is an example of what happens when you know the answer you want before you do your investigation.

The risks and benefits of hydrocarbon energy is an important question. Unfortunately there's a lot of garbage produced on both sides.

drumlin woodchuckles , August 21, 2019 at 7:08 pm

Why should the Shale Business feel bad about bleeding money? It isn't their money. It is "other peoples' money". It is investors' money. As long as the Shale Business operators are retaining for their personal selves some of the "investor peoples' money" which they are bleeding from investors, why should they feel bad about it? Maybe their whole business model was based on bleeding other peoples' money till other people have no more money left to bleed. . . . and keeping a little bit of the money-bleed for themselves.

It's like with mosquitoes . . . . mosquitoes aren't "bleeding" blood. They are sucking blood. It is the animals they are sucking blood FROM . . . which are bleeding blood. If the animals eventually die from blood loss, the mosquitoes at least got some blood in the meantime.

And so it is with the shale frackers. They aren't bleeding money. They are sucking money. The investors they suck money from are the people who are bleeding money. And if the investors finally die from money loss, the shale frackers at least got some money in the meantime.

[Aug 22, 2019] Banks and investors took away the punch bowl from shale oil, and second quarter losses reflect that.

Aug 22, 2019 | peakoilbarrel.com

TechGuy : 08/19/2019 at 9:40 am

Hugo,

The only production preventing Oil from peaking as far back as 2013-2014 was US Shale, which can only function by borrowing Billions from gullible investors that will never be paid back. If investors were not so gullible, US production would have peaked years ago. Global Peak Oil is controlled by cheap & easy credit. Take away the credit punch bowl and US Shale production collapses, and global production peaks. PO is no longer dependent of geology, but credit.

FWIW: I suspect Shale drillers are going to have a hard time finding more investors willing to part with their capital, especially when Oil prices are very low. That said its possible that the Federal gov't (via Fed) will step in and start buying billions of shale debt (via QE or some other financial bailout mechanism) so Shale drilling can continue on. It appears that the US is running into liquidity problems again as Bond markets are showing signs that they are freezing up again.

GuyM : 08/19/2019 at 10:00 am
Banks and investors took away the punch bowl, and second quarter losses reflect that. Third is going to be the same, and too late for any price increases to reflect anything but losses for this year. No positives going into 2020. Their best option is to find adoption. And being a bunch of spoiled brats, that's going to be somewhat difficult.
Hugo : 08/19/2019 at 12:22 pm
Tech

I agree that shale has been the biggest contributor to increase in global oil supply. However it has also distorted the entire industry.

If the shale companies had to make a profit each year, global supply would have been a less and prices much higher.

This in turn would have supported e&p investment around the world. The fall in investment has been due entirely to shale companies that have been allowed to run at a loss for so many years.

https://www.iea.org/oil2018/

A fall from $800 billion to $400 billion will have a detrimental knock on effect in the mid 2020s

https://www.iea.org/newsroom/news/2018/november/crunching-the-numbers-are-we-heading-for-an-oil-supply-shock.html

TechGuy : 08/19/2019 at 1:04 pm
I don't think we would see a massive rebound in E&P if US shale was eliminated. Shell, Exxon, BP and other started pulling back on Megaprojects back in 2012-2013, since it was doubtful that it would be economical. Basically megaprojects (deepwater & arctic) required $120 to $150 (in 2013 dollars) per bbl to be economically. I don't believe those prices would be sustainable as it would result in demand destruction as consumers would cut back on consumption. The fact that Oil majors were looking at Arctic and deepwater back in 2010-2013 indicates they are reaching the bottom of the barrel for production. There was a long term trend of declining exploration finds even when exploration budgets increased.

At this point any major rebound isn't going to make a difference, if a Oil major started on a new megaproject it would be between 5 and 7 years before new oil reaches the market, and very unlikely to offset declines from existing production (5% to 7% annual declines). We are already behind the curve on gains from any new projects to offset ongoing declines with out shale growth). Perhaps a some of the declines in existing fields could be offset some with higher oil prices. Still reaching to scrap the bottom by trying to extract trapped oil in fields in terminal decline. With all of the supergiants in terminal decline (with the exception of Kazakhstan), its going to be very difficult to expand production further.

Personally I am guessing that global production has already peaked or within the next 18 months if we are lucky). Its difficult to pinpoint an exact period since their are way to many variables to gage effectively. That said I cannot say my record for guessing peak production is any better than winning a lottery, but as the window narrows due to depletion and a shrinking supply of future projects the guessing gets a lot easier.

Hugo : 08/20/2019 at 1:31 am
Tech

Did the majors start cutting back because having knowledge of the geology of the shale plays they realised their potential?

https://www.eia.gov/todayinenergy/detail.php?id=38372

Shale had already taken off by then and predictions of possible productions were being made and importantly have come true.

The majors would have realised there would be too much oil in the short to medium term, so they sensibly postponed more expensive drilling.

How this mess with heavy indebted shale companies and years of under investment plays out I am not sure.
Probably a lower and sooner peak oil than would otherwise have been.

Dennis Coyne : 08/19/2019 at 6:32 pm
Hugo,

Not sure anyone has said US has peaked, the point is that US tight oil growth will slow and it is not apparent that any other nations are increasing output in 2019, so far the drop by OPEC/NOPEC has been greater than any US increase in 2019 and it is looking like 2019 output will be lower than 2018 if current trends continue. When we get to the point that oil prices rise to $80/b, I expect OPEC/NOPEC will increase output, but we do not know when that will be and it is certainly possible that US output might be falling at a faster rate than the rest of the World's rise in output so the net might be a plateau or decline.

Note also that my "medium URR" estimates might be too optimistic, if my "low URR scenarios" prove correct, the peak is likely to be earlier (2022/2023), and if there is a fast transition to EVs, more public transport, etc perhaps the peak in World C+C output could be earlier still. I doubt this will be the case, but in the past I doubted that World C+C output would exceed 80 Mb/d, I was wrong then and I may be wrong now.

Survivalist : 08/20/2019 at 10:00 am
Hugo, something peaked in 2011, so I'd say the peak oil gang is onto something worth listening to. Perhaps you disagree. The graph is a bit dated, but you get the point I'm sure.
I'd say calling peak oil to be in 2018/2019, vs to be within 2022 to 2026 time frame, is pretty much splitting hairs. Perhaps you're just smarter than everyone else here and don't tolerate such loose parameters?
How did you come to your prediction, riding on Dennis' coattails, or do you have any original ideas of your own to contribute?

... ... ...

GuyM : 08/19/2019 at 6:05 am
The assumptions make all the difference. And no one can accurately predict what will happen the rest of the day, much less tomorrow.

The key to the future, so far, is how the majority of independents will fare. Dennis sees prices improving so that many of them heal up, and production is restored to a norm. Ron sees them as totally messed up, which is more my take.

And I am also betting on the majors. They don't lay out hundreds of billions of dollars for downstream without a big plan in mind. And, that plan could not call for those investments to be totally useless in ten years. It wouldn't surprise me to see the skies over the shale areas filled with golden parachutes.

Ten years, or less, based on EOGs quarterly tell sheet. Do you opt for the golden parachute soon, or use your own just before the plane crashes?

[Aug 21, 2019] US shale production is stresssed. Any estimates past this point in time are totally meaningless

Aug 21, 2019 | peakoilbarrel.com

GuyM

x Ignored says: 08/17/2019 at 1:26 pm
Inventory draws should begin to pick up for the US soon. 1 million in pipeline from the Permian to the coast. Exports to increase, Cushing to decrease, and production mostly flat. A lot of the Permian production has been going to Cushing as an outlet. Depends on how much can be loaded on to ships, now, and how much lite oil can be sold. Pipelines are going to be losers for awhile. Additional pipelines need to take note.
GuyM x Ignored says: 08/17/2019 at 4:17 pm
There are two, sure fire, statistics and reports that will define where we are going. You can argue them, but you will lose. One is the EIA monthly 914 report, the other is the Texas RRC permits. There's some DUCs, but by this time, I consider them as normal DUCs between drilling and completion as is norm. And the 914 May show it up a little for June, but I don't see it going up further. Or, much more.
Ovi x Ignored says: 08/17/2019 at 6:36 pm
Guy

Attached is the latest LTO data from the monthly EIA 914 page. The main difference that I can see is the drop in the monthly production growth from 2018 to 2019. 2018 production growth averaged 153 kb/d/mth. 2019 production growth over the first seven months has dropped to an average of 97 kb/d/mth. The total July increase over June was 107 kb/d/mth. The biggest increases for July came from Sprayberry (33 kb/d) and Wolfcamp (46 kb/d).

GuyM x Ignored says: 08/18/2019 at 5:46 am
Not sure what that is. This is what I was referring to:
https://www.eia.gov/petroleum/production/

Any estimates past this point in time are totally meaningless.

[Aug 01, 2019] People in New York are turning against shale as it not profitable sub $75 WTI and if the money is cut off, it's going to fall like a rock.

Notable quotes:
"... He says everything USA lower 48 other than shale is completely dead, and has been for sometime. He said look at Kansas since 2014. That is pretty much the rest of conventional lower 48. ..."
"... They are also concerned about 2020 big time. A lot of wasted money on new pipes if there is a fracking ban, which they are taking seriously. ..."
"... I would say that as far as the shale industry is concerned, the shit is about to hit the fan. ..."
"... Yes, all liquids includes ethanol from corn or sugar cane. ..."
Aug 01, 2019 | peakoilbarrel.com

shallow sand x Ignored says: 08/01/2019 at 6:44 pm

I talked to a guy with a pretty key position in a pipeline company recently.

He says everything USA lower 48 other than shale is completely dead, and has been for sometime. He said look at Kansas since 2014. That is pretty much the rest of conventional lower 48.

He also said they are getting nervous about shale because the financial people in New York are turning against it. He says it is not profitable sub $75 WTI and if the money is cut off, it's going to fall like a rock.

They are also concerned about 2020 big time. A lot of wasted money on new pipes if there is a fracking ban, which they are taking seriously.

Ron Patterson x Ignored says: 08/01/2019 at 7:23 pm
Just a wild ass guess, but I would say that as far as the shale industry is concerned, the shit is about to hit the fan.
SRSrocco x Ignored says: 08/01/2019 at 7:43 pm
Ron,

Agreed. Gosh, I might as well post Whiting's Chart. Looks more impressive than Concho's.

https://srsroccoreport.com/top-bakken-shale-producer-stock-plummets-nearly-40-today/

Also, we must remember that Whiting did a 4-1 reverse split back in Nov 2017. So, a more realistic stock price for Whiting is $2.71 LOL

God hath a sense of humor

steve

Hickory x Ignored says: 08/01/2019 at 5:35 pm
USA All Liquids Production chart/data - does that include the ethanol derived from corn [40% of the acreage devoted to corn]?
Ron Patterson x Ignored says: 08/01/2019 at 6:18 pm
Yes, all liquids includes ethanol from corn or sugar cane.

[Jul 28, 2019] OPEC June Crude Oil Production " Peak Oil Barrel

Jul 28, 2019 | peakoilbarrel.com

Chris Martenson x Ignored says: 07/13/2019 at 9:05 am

I'm a little bit suspicious of Rystad because they tilt bullish consistently, and I'm specifically suspicious because only 10% of the shale companies operating int he US have positive free cash flows.

If these wells were really spitting out mid to high double digit IRR's then these companies would be rolling in cash.

They are not.

Despite saying "fully burdened" multiple times, it wasn't until I got to the very last paragraph of the report where I found this:
++++++++++
"While the economics of recent vintages in the most prospective US liquid basin remain exceptionally robust, we should note that these ATAX IRRs still do not correspond to fully-burdened returns.

For a complete picture, we also need to take into account land cost, where the variability between early and late entrants is expected to be significant. We aim to tackle this assumption in a forthcoming analysis."
+++++++
Oh.

They left out land costs. You know, one of the largest line-item expenses there is.

Put those back and these wells are negative I will bet you. And that's a decidedly "bearish tilting" discovery.

GuyM x Ignored says: 07/13/2019 at 10:51 am
Yeah, the "singers" leave off land cost, road cost, earth moving equipment, tanks, and pipelines, which can easily add up to a couple of million more per well.
Dennis Coyne x Ignored says: 07/13/2019 at 12:41 pm
Thanks Chris
I missed that. For some basins there might be a 10% IRR at 65 per barrel for the average new well over its productive life for all costs including land.
Mike Shellman x Ignored says: 07/13/2019 at 8:19 pm
Howdy from a hot S. Texas, Chris. IRR is a bad financial metric for the shale oil biz; its easily manipulated, much like break'even prices. And generally speaking it's the same folks always doing the manipulating. The IEA and the EIA are Rystad, DI and IHS's biggest clients. Good news sells, bad news, not. As George says, it's not a lie if you believe it.

ROI's on CAPEX have always been an important, and overlooked key to the failed shale oil business model. The possibility (often based on exaggerated EUR's to begin with) of earning $13MM undiscounted cash flow on a $8.5MM dollar investment, over 15-20 years, no less, was never conducive to staying out of debt to grow. And current 165% ROI's on the very BEST of wells are not now conducive to paying interest, reserve replacement and ultimately, we hope, deleveraging debt. It simply does not work. The "models" that predict growth, and debt reduction, short of $85 oil prices, sustained for many consecutive years, are ridiculous. By year end '19 we'll see how ridiculous.

The American shale oil phenomena (not to be confused with the American oil industry) is a textbook example of "non-profit capitalism." From printing press to Central Banks to lenders to shale companies, the end result is suppose to benefit the American consumer at the pump and burner tip and is a great redistribution of wealth in our nation. But it's the people in the middle that are making the killing, the lawyers that put the deals together, the banks that get the yields, the CEO's that make the +$20MM annual compensation packages while their EPS suck the royalty owners getting the free money, they are the big winners. And none of those folks want to see it end. EVER. They could care less about 2 BCFPD of associated gas being flared, or all the LTO getting exported at $20 discounts to Brent, or ground water levels in Reeves County they love the shale thing because it makes them money. And they all do whatever they can to make sure people believe it's a miracle, a revolution; a game changer.

Phftttttt.

The real oil business, the real America, works on profit. Debt is for pussies, for weenie-necks, for dads who do not care what sort of life they leave for their kids.

Keep up the good work, buddy!

GuyM x Ignored says: 07/13/2019 at 8:30 pm
Yeah, $85 and above would work for some, not all. $65 would work for a lot less of them, and $55 is pretty much a sucking action for cash on almost all. And as a royalty owner, I would much prefer them not to drill until $85. But, royalty owners do not run the damn companies. Faulting them is like laughing at the homeless. I have about 30, or more, wells that can be drilled on my lease, and I have a tiny ownership. Do you think I am happy with $55 to $60 drilling on it, you are wrong. It's about the last hope in life I have, and I am happy with wasting it??? GD, I am 70, but not that senile, yet. Ok, I may be an exception, but, at least, you could say some, or maybe even a lot. Otherwise, it's discrimination, which for you, I would not guess. But, all royalty owners, is like downgrading the homeless. Most, do not have a clue they could have had steaks, instead of mush.
Mike Shellman x Ignored says: 07/14/2019 at 6:30 am
I am "discriminating" against greed and in any way I can trying to draw attention to the need to conserve America's remaining resources. Continuous 120 day drilling commitments in MOST oil and gas leases, term assignments and/or farmouts has led to over drilling, increased GOR and potential loss of BHP and recovery rates. It's also led to excessive flaring and the waste of associated gas, overproduction, much lower product prices and more debt. If operators (Lessees/Assignees) do not comply with these continuous drilling provisions they typically lose acreage they've paid thousands of dollars per acre to lease.

I am a royalty owner and consider it one of America's great privileges. By proper management of my minerals I have ensured my family will benefit from them for many, many decades. Onerous drilling to earn provisions, however, are part of why the shale oil and shale phenomena in America is, essentially, out of control and on a mission to drain the last of our country's hydrocarbon resources as fast as borrowed capital will allow. If your leases do not contain Pugh clauses and drilling commitments then ignore my observations and goodonya.

GuyM x Ignored says: 07/14/2019 at 8:34 am
I guess I see a different picture of most royalty owners than you, and I will just concentrate on the EF, as that's where I am. Most of the EF was leased up by around 2009, far before public knowledge of the field. Ours was originally with Cheatapeak for about $800 a net acre. The common way to lease it, was through third party land men, who would lie with impunity. The standard story was, if you don't lease it, with our lease, you may not get anything if they find oil. In return for signing their lease, as is, was a generous quarter, rather than the usual eighth. I knew the rest was BS, but a quarter sounded pretty good. The continuous drilling clause in that, was so weak to be non-existent. No Pugh clause. That was standard. I actually did not sign with Cheatapeake, nor EOG, but the lease wording was basically the same. My guess, is the vast majority of mineral right owners were given the same deal. Maybe not the majority of land, but certainly the number of signers. Most of the Permian was leased many years ago, with an eighth, or less. Chevron actually owns 100% on a lot, and so does Oxy, no doubt. Exxon's acquisition of the Bass families' holdings in the Delaware span 4 decades. EOG's entry into the Delaware was through purchase of Yates. I believe the picture you are painting of royalty owners is distorted, for most. With, at least, the big holders, the number of wells is determined by the company. Not the lease. And most of the rest have very little capex to complete with.
shallow sand x Ignored says: 07/14/2019 at 2:35 pm
There are so many mineral owners in so many different situations that it is difficult to paint all with a broad brush.

However, management of shale weren't playing with their own money, and so what happened happened.

If we could just not keep having these quick drops like Q4 2018 and Q2 2019.

I think that it will be interesting to see what happens to all of the sub 10 BOPD shale wells. Better hope no down hole failures. Pretty hard to pay 8 figure pay packages to management on the backs of those. Lol.

I think all investors need to think about what happens when these companies start to run out of shale locations and have falling production.

shallow sand x Ignored says: 07/14/2019 at 2:49 pm
Just go to shaleprofile.com and run some calculations on 2014-2016 wells in the various shale basins.

By the time you subtract 25% royalty, then severance, LOE, G & A, it's apparent that the majority of the wells cannot payout in a reasonable time. 3-5 years.

I guess in early 2015 those of us in the conventional upstream arena were saying this. Vertical wells fell off a cliff. But shale wells (with OPM) kept on trucking.

And the stories told about break evens, which we knew were fraudulent, have proven such.

Mike x Ignored says: 07/14/2019 at 7:41 pm
It is not necessary I "distort" the truth or generalize the role greedy mineral owners have in the overdrilling and premature depletion of America's shale oil resources; the evidence is in every courthouse in every county in every shale oil basin in America. Google it, or better yet, go research public records yourself, as I often have to do. It is abysmal, the requirements made of Lessees, Assignees and Farmoutees to develop those shale oil resources, regardless of price, or pressure preservation or common sense. It is very much part of the problem the shale industry faces. They, and the regulatory agencies that protect them, may have brought it on themselves when they changed applicable field rules nevertheless the big winner in all of this shale gig is the American royalty owner, RI and ORRI combined. I estimate to the tune of about $800 billion in free money the past decade. Those are just the facts, as painful as they may be.

As a side note, the Texas DPS reports 30 people have been killed on Texas oilfield roads in July so far all in a hurry to deplete America's last remaining hydrocarbon resources, flare its associated gas, and export the shit to Korea.

GuyM x Ignored says: 07/14/2019 at 8:22 pm
I give up. Communication is at a firewall, here. Ok, the royalty owners are the problem. I will no longer reply to any more of your tirades.
shallow sand x Ignored says: 07/14/2019 at 8:23 pm
Mike.

I'm not familiar with Texas shale leases nor who the mineral owners tend to be, so I am not qualified to comment as I did.

Where I am, several royalty companies have bought fractional interests in active leases and also where production is inactive.

During the high prices we tried to lease a tract offsetting us, which had been abandoned. The wells are in the state plugging fund. The mineral owners are from a shale state, and they wanted a large royalty, much larger than had been granted here. Plus cash upfront. Plus wanted us to drill the two remaining locations within a certain time or forfeit them (which made no sense given the lease boundaries, etc. So we passed. It has sat abandoned for several more years, Wells haven't been plugged either.

However, we have reactivated several leases from 1990s to present, and we are working on two more small ones that offset us right now. In each case the mineral owners have been relatively easy to work with.

I ballpark that we have produced over 50K BO from those reclamation projects. With royalties from 1/6 to 1/8, I'd say those that worked with us have fared pretty well.

I guess maybe when you aren't operating near shale things are a lot easier.

Synapsid x Ignored says: 07/24/2019 at 6:39 pm
Hi Mike.

This is a whole different topic: Kayross (I haven't heard of them) are quoted on Rigzone today as saying that Permian CAPEX data for 2018 have been underreported by some $4.1 billion. They quote Andrew Gould: Average production costs have been underestimated and production per well overestimated. He says that current shale-oil production is substantially more water- and sand- intensive than commonly believed.

Kayross: Sand and water intensity in Permian tight-oil production in 2018 is 23% higher than previously recorded, with sand demand underestimated by 9.2 billion pounds and water by 12.5 billion gallons.

Is this something you've come across?

Paul Pukite (@WHUT) x Ignored says: 07/12/2019 at 11:37 am
Bloomberg news article: "Frackers still don't seem to realize their glory days are behind them"

https://twitter.com/StuartLWallace/status/1149104114501971968

Dennis Coyne x Ignored says: 07/12/2019 at 1:10 pm
Thanks Paul,

Chart below from that Bloomberg piece suggests that without all the external capital, US tight oil output would be only about 2 Mb/d instead of 7.5 Mb/d in May 2019. We might see relatively flat growth going forward, much will depend on future oil prices (low prices might result in decline, medium prices, flat output and high prices a small increase, perhaps to 9 Mb/d or so.

GuyM x Ignored says: 07/12/2019 at 8:16 am
Wow!
https://www.bloomberg.com/amp/news/articles/2019-07-12/cracks-show-in-the-permian-s-promise-as-shale-producers-retrench

Even EOG. Flat, at best. One could expect more rig count drops soon. Because, this does not reflect the multitude of smaller companies that make up a good portion of production.
This can be used for reference to the article for perspective.
https://www.rrc.state.tx.us/media/50413/top32producers2018.pdf

Oxy is actually three of those companies, now. Both the Oxies and Anadarko.

Hickory x Ignored says: 07/12/2019 at 2:44 pm
" Chinese consumption is enroute to a 6-7% growth year .It's relentless'
I'll leave other to respond to the call for war, if they so choose.
But I will say that the USA would be wise to have no plan to import oil from beyond this hemisphere, because others, including China, will be consuming all that is available from Africa and Asia.
There will come a time when EV's look brilliant. To some they already do.
Ron Patterson x Ignored says: 07/12/2019 at 3:01 pm
The latest SRSrocco is quite interesting.

FINANCE COSTS ARE KILLING THE SHALE INDUSTRY

Tony Eriksen x Ignored says: 07/13/2019 at 2:58 am
Another article on Permian slowing down
https://finance.yahoo.com/news/shale-boom-permian-slowing-down-100000463.html
ProPoly x Ignored says: 07/13/2019 at 11:54 am
The early season hurricane in the GOM is going to put a major dent in US July crude output. Around 60% of production is shut-in and will be that way for around a week. This storm is weak but so sprawling there is a huge area of the Gulf flying helicopters is dangerous

Not the Big One for the industry, New Orleans or Houston by any means. Still, Gulf is hot and favorable for storms this year.

GuyM x Ignored says: 07/14/2019 at 6:36 pm
https://oilprice.com/Energy/Energy-General/IEA-Huge-Oil-Glut-Coming-In-2020.html

As long as this BS continues, oil prices will stay low. More BKs and mergers, and flat shale output. Because, it's now official, big oil determines Permian output. Which will not be recognized much until 2020. Because, the elevator do not go to upper floors. I wasn't going to call it until an Oxy takeover by a major, but I can finish the sentence with the words we have. Final conclusion will have to wait for the official autopsy, but the doc needs to be smart enough to know that the patient died. May be quite smelly by then.

GuyM x Ignored says: 07/15/2019 at 8:29 pm
https://oilprice.com/Energy/Energy-General/Shale-Investors-Fear-Bloodbath-As-Earnings-Season-Kicks-Off.html

Ok, the more I read his stuff, the more I understand the more where he is coming from. You have to read his last paragraph.

shallow sand x Ignored says: 07/15/2019 at 11:26 pm
GuyM.

Similar deal in grain trade.

Lots of Ag professors at major universities study grain trade. I listen to some of their podcasts. This is what they say in unison.

Right now the US corn and soybean crop is not looking good. But the funds do not so crop tours, talk to farmers, fly drones over fields, etc. So as long as USDA says all is well, grain prices stay low.

USDA estimated 91.7 million acres of corn planted most recently. None of the Ag professors believe the number, nor do the various independent traders I listen to. But the funds went with it and corn sold off limit down.

GuyM x Ignored says: 07/16/2019 at 6:56 am
That's a very close comparison. Very interesting.
GuyM x Ignored says: 07/16/2019 at 2:59 pm
Stuck between a rock and a hard space.
https://www.bloomberg.com/amp/news/articles/2019-07-16/no-fast-exit-from-permian-oil-for-private-equity-rs-energy-says

All the way from Occidental (largest Permian acreage owner) to the private equity shrimp, everyone is looking to be adopted,

API x Ignored says: 07/16/2019 at 3:46 pm
API data

Crude -1.401M Cushing: -1.115 M Gasoline -476K Distillate +6.226M

U.S. crude stocks fell less than expected last week, while gasoline inventories decreased and distillate stocks built, industry group the American Petroleum Institute said on Tuesday. Crude inventories fell by 1.4 million barrels in the week to July 12 to 460 million, compared with analysts' expectations for a decrease of 2.7 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.1 million barrels, API said. Refinery crude runs rose by 17,000 barrels per day, API data showed. Gasoline stocks fell by 476,000 barrels, compared with analysts' expectations in a Reuters poll for a 925,000-barrel decline. Distillate fuels stockpiles, which include diesel and heating oil, rose by 6.2 million barrels, compared with expectations for a 613,000-barrel gain, the API data showed. U.S. crude imports fell last week by 41,000 barrels per day to 7 million bpd.

GuyM x Ignored says: 07/17/2019 at 3:14 pm
https://www.bloomberg.com/amp/news/articles/2019-07-16/permian-watch-america-s-hottest-shale-play-is-slowing-down

Rehash, plus extra.

Krishnan Viswnathan x Ignored says: 07/18/2019 at 11:03 am
Just as I predicted, plant condensate which is not crude has entered the refinery as crude. Mason Hamilton of EIA confirmed it in his tweets yesterday.

https://twitter.com/T_Mason_H/status/1151586951247646722

Krishnan Viswnathan x Ignored says: 07/18/2019 at 7:00 pm
The adjustment factor will likely remain above 500 KBD as a portion of plant condensate has entered the refinery as input on a consistent basis. The plant condensate can be directly used as gasoline blend material just as butane in winter months. Expect gasoline production to remain high as a result.

These NG shale management folks have even less of a brain that shale oil folks. The NG stocks have pummeled and many stocks such as RRC and AR hit 52 week lows.

Krishnan Viswnathan x Ignored says: 07/18/2019 at 7:02 pm
Enno posted yesterday that the shale decline rate is running at the rate of 350KBD/month (or 4.2 MBD/year). I expect the treadmill effect to slow down the shale growth to a virtual crawl sooner rather than later.
Longtimber x Ignored says: 07/21/2019 at 5:38 pm
Buy, Sell Hold? Anyone betting on the Service Co's Returning to Former Glory?
https://seekingalpha.com/article/4276285-expect-nabors-industries-turnaround-soon?app=1
Longtimber x Ignored says: 07/22/2019 at 7:58 pm
An answer to my own Q from The (IEEFA) – Institute for Energy Economics and Financial Analysis.
"EQT's former CEO Steve Schlotterbeck recently made headlines when he called fracking an "unmitigated disaster" because it helped crash prices and produce mountains of red ink."
"In fact, I'm not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change," Schlotterbeck said at an industry conference in June.
Amazingly Appears EQT displaced CHK as the GASSEST one to rule them all with an Unresolved Strategy to bury their stakeholders even deeper in doom.
https://www.zerohedge.com/news/2019-07-22/why-us-shale-doomed-no-matter-what-they-do
Freddy x Ignored says: 07/23/2019 at 2:50 pm
https://www.rigzone.com/news/permian_fracking_activity_underreported_in_2018-23-jul-2019-159378-article/
Latest news from Rig zone , fracking underreported in permian in 2018. Seems there are not maby DUCs left to compleate and the oroduction each well is lower than reported that increase the break even price each barrel.significant. If this is true EIA need to revice their shale play forcast, also the majours their plans if they used the data reported that was wrong
ProPoly x Ignored says: 07/24/2019 at 8:36 am
The majors get their own data. Why do you think they are so hesitant/ picky on what to buy up from "Saudi America"?
API x Ignored says: 07/23/2019 at 4:07 pm
Inventories:

Crude: -10.961M Gasoline: +4.436M Distillates: +1.420M Cushing: -0.448M

U.S. crude stocks fell more than expected last week, while gasoline and distillate inventories built, industry group the American Petroleum Institute said on Tuesday.

Crude inventories fell by 11 million barrels in the week to July 19 to 449 million, compared with analysts' expectations for a decrease of 4 million barrels.
Crude stocks at the Cushing, Oklahoma, delivery hub fell by 448,000 barrels, API said.
Refinery crude runs fell by 396,000 barrels per day, API data showed.
Gasoline stocks rose by 4.4 million barrels, compared with analysts' expectations in a Reuters poll for a 730,000-barrel decline.
Distillate fuels stockpiles, which include diesel and heating oil, rose by 1.4 million barrels, compared with expectations for a 499,000-barrel gain, the API data showed.
U.S. crude imports fell last week by 467,000 barrels per day to 6.6 million bpd.

Sean McMahon x Ignored says: 07/23/2019 at 5:49 pm
https://oilprice.com/Latest-Energy-News/World-News/Oil-Spikes-After-API-Reports-Largest-Crude-Inventory-Draw-Of-The-Year.html

Net build now 1.2million barrels for the year. Interesting, will be really to see number of Texas wells completed for July

Dean x Ignored says: 07/23/2019 at 5:51 pm
Hi guys, please read this article in the Oil&Gas journal:

"Oil and gas companies under-reported hydraulic fracturing activity for producing light, tight oil by more than 20% in the Permian basin during 2018, estimates Kayrros, a data analytics company serving energy markets.
Using optical and synthetic aperture radar imagery tracking coupled with proprietary algorithms to identify rigs and fracturing crews, Kayrros found that more than 1,100 Permian wells were completed but not reported through state commissions or FracFocus, a public repository for information on fracturing chemicals.
Kayrros counted 6,394 completed wells for 2018, representing a 21% increase on the FracFocus estimate of 5,272 wells as of June 20.
The backlog of drilled but uncompleted (DUC) wells is considerably smaller than believed, Kayrros said. In any given month, Kayrros evaluates the Permian DUC inventory at just about 1,000 wells."

https://www.ogj.com/drilling-production/production-operations/unconventional-resources/article/14036674/analytics-firm-finds-permian-basin-statistics-misleading

If this were true, it would be a massive fraudulent behavior, more typical of an emerging market with a large black economy. I am somewhat speechless and waiting for more information.

Paul Pukite (@WHUT) x Ignored says: 07/24/2019 at 4:42 pm
That part may not be illegal but it certainly sounds like the average return per well is 20% less than we thought. So, the already poor productivity of shale wells is now 20% less than previous estimates.
Hickory x Ignored says: 07/23/2019 at 8:55 pm
"If this were true, it would be a massive fraudulent behavior,"

Like similar to the presidents tax situation.

dclonghorn x Ignored says: 07/23/2019 at 10:34 pm
Link to the Kayrros media center which includes their public release.

https://www.kayrros.com/media

Commenting on the discovery, Andrew Gould, former Chairman of BG and Chairman CEO of Schlumberger and Kayrros advisory board chairman, said: "Misperceptions about shale oil in general and the Permian in particular have consequences, hence the importance of these measurements that show Permian production per well has been substantially overestimated. By the same token, average production costs per well are understated. With far more wells contributing to Permian and US oil production than accounted for, current shale oil production is substantially more water- and sand-intensive than is commonly believed."

The findings have significant implications for the assumed efficiency of the Permian Basin. The analysis revealed that while oil production is accurately measured in monthly US statistics, it took many more wells to account for that production in 2018 than were reported. Assuming a cost of $5 million per horizontal completion, 2018 operator capex is also underestimated by as much as USD 4.1 billion. Further, the sand and water intensity of Permian tight oil production in 2018 was 23% greater than previously recorded with sand demand being underestimated by 9.2 billion pounds and water by 12.5 billion gallons.

If they are correct it would explain a lot.

EIA x Ignored says: 07/24/2019 at 10:12 am
EIA report

Crude -10.84M exp -4.261M
Gasoline -226K
Distillates +613K
Cushing -429K

Production -700K to 11.3MM

ProPoly x Ignored says: 07/24/2019 at 6:08 pm
That's what a shutdown of over 70% of the GOM looks like.
Chris Martenson x Ignored says: 07/25/2019 at 12:10 pm
Seems this finding by Kayrros could be a really big deal. I am unclear on how exactly a well gets completed and put into production without triggering the state reporting mechanisms seems nigh impossible to me.

But it's a heavy-hitting firm with Andrew Gould on its board. From the Kayrros media page of their website:
+++++++++++++++
New Satellite Data Highlight Large Underreporting of Hydraulic Fracturing Activity
Houston, 23 July 2019

Kayrros, the leading data-driven analysis company serving the energy markets, disclosed today that hydraulic fracturing activity (fracking), the process for producing light tight oil, was underreported by more than 20% in the Permian, the most prolific US basin, in 2018.

Using optical and synthetic aperture radar imagery tracking together with proprietary algorithms to identify rigs and frac crews, Kayrros found that in 2018 alone, more than 1,100 wells were completed in the Permian basin but not reported through state commissions or FracFocus, a public repository for information on the chemicals used during fracking. The total figure of 6,394 completed wells counted by Kayrros for 2018 represents a 21% increase on the FracFocus estimate of 5,272 wells as of June 20, 2019.

US light tight oil (commonly referred to as "shale oil") has been the world's fastest growing source of oil supply in the last 10 years, turning the United States into the largest liquids producer and a major exporter of crude oil and refined products. Experts rely their analysis of the sector on data submitted by operators to state commissions and FracFocus.

Kayrros measurements reveal that public data fail to capture the full scale of fracking. The macroeconomic implications of this underreporting are far-reaching. For one thing, the backlog of drilled but uncompleted (DUC) wells is considerably smaller than thought. In any given month, Kayrros evaluates the Permian DUC inventory at just around 1,000 wells. Most of this rolling inventory results from regular drilling and completions operations. Over time, the number of wells drilled generally matches that of wells completed, leaving DUC inventories relatively unchanged.

The prevalent view that shale operators sit on a large backlog of DUCs that could be quickly brought to production in the event of an oil crisis even without further drilling is thus deeply misleading. There is just no such inventory.

The findings also transform the perception of light tight oil economics. In light of these measurements, the average well is both less productive and higher-cost than reflected in public data.

Commenting on the discovery, Andrew Gould, former Chairman of BG and Chairman CEO of Schlumberger and Kayrros advisory board chairman, said: "Misperceptions about shale oil in general and the Permian in particular have consequences, hence the importance of these measurements that show Permian production per well has been substantially overestimated. By the same token, average production costs per well are understated. With far more wells contributing to Permian and US oil production than accounted for, current shale oil production is substantially more water- and sand-intensive than is commonly believed."

Kayrros Chief Analyst and Co-Founder Antoine Halff added: "For all its revolutionary impact on the oil industry, shale remains poorly understood. Publicly available data based on old-fashioned company reporting have their limits. Hard measurements unlocked by new data technologies show that contrary to public belief, there is no great buildup of DUCs just waiting to be brought online. The whole idea that the market can rely on this sort of de facto spare production capacity is an illusion. The industry is actually running on a much tighter leash than that."

The findings have significant implications for the assumed efficiency of the Permian Basin. The analysis revealed that while oil production is accurately measured in monthly US statistics, it took many more wells to account for that production in 2018 than were reported. Assuming a cost of $5 million per horizontal completion, 2018 operator capex is also underestimated by as much as USD 4.1 billion. Further, the sand and water intensity of Permian tight oil production in 2018 was 23% greater than previously recorded with sand demand being underestimated by 9.2 billion pounds and water by 12.5 billion gallons.
+++++++++++++++++++++

Dennis Coyne x Ignored says: 07/25/2019 at 2:37 pm
Chris,

Enno Peters reports 4832 horizontal wells completed in the Permian basin in 2018, his data tends to be quite good, though over time more data shows up at the state agencies so this number will likely get revised higher. The most recent Permian basin report has 3583 Permian wells completed in 2017, in July 2018 the estimate was 3251 Permian wells completed in 2017, so about 91% of wells were reported after 7 months, if this rate is consistent (and it may not be) this suggests perhaps 5310 total wells will be reported for 2018 by July 2020. Pretty convinced that Enno Peters gets this right.

There is a bit of discussion of this at shaleprofile.com

https://shaleprofile.com/2019/07/22/north-dakota-update-through-may-2019/#div-comment-6188

see comments at link above.

[Jul 01, 2019] The USA will never be self-sufficient in oil. The government's official projections are a farce and they know it.

Notable quotes:
"... See these reports for more information about shale extraction: https://shalebubble.org/ ..."
Jul 01, 2019 | www.moonofalabama.org

vk , Jun 30, 2019 6:34:16 PM | 55

This shale oil/gas is no less important news. Careful analysis already knew shale oil/gas was a farce: the problem with it is that it provides a boom of production followed quickly by a bust (like an ejaculation). It follows a free-fall graphic line.

This is awful for investors, who expect a more rollercoaster-like productivity typical of the normal oil reserves (slowly crescent production, with an apex, followed by a slow decline in output).

The USA will never be self-sufficient in oil. The government's official projections are a farce and they know it.

See these reports for more information about shale extraction: https://shalebubble.org/

[Jun 25, 2019] S>hale is the disaster for drillers and investors by Sharon Kelly

This is about gas, but most info probably can be extrapolated on oil well too...
Notable quotes:
"... " While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars," he said. "The industry is self-destructive." ..."
"... Schlotterbeck's remarks, delivered to petrochemical and gas industry executives at the David L. Lawrence Convention Center in Pittsburgh, come from an individual uniquely positioned to understand how major Marcellus drillers make financial decisions -- because he so recently ran a major shale gas drilling firm. Schlotterbeck now serves as a member of the board of directors at the Energy Innovation Center Institute, a nonprofit that offers energy industry training programs. ..."
"... Since 2015, there's been 172 E&P company bankruptcies involving nearly a hundred billion dollars of debt." ..."
"... At the Friday conference, he displayed a slide showing the stock prices of eight major Marcellus shale gas drillers: Antero, Range Resources, Cabot Oil and Gas, Southwestern Energy, CNX Gas, Gulfport, Chesapeake Energy, and EQT , the company that Schlotterbeck ran until he resigned in March 2018. Seven of the eight companies saw their stock prices fall between 40 percent and 95 percent since 2008, the slide showed. ..."
"... " Excluding capital, the big eight basin producers have destroyed on average 80 percent of the value of their companies since the beginning of the shale revolution," Schlotterbeck said. "This is not the fall from the peak price during the shale decade, this is the drop in their share price from before the shale revolution began." ..."
"... " Nearly every American has benefited from shale gas, with one big exception," he said, "the shale gas investors." ..."
"... " The fact is that every time they put the drill bit to the ground, they erode the value of the billions of dollars of previous investments they have made," he said. "It's frankly no wonder that their equity valuations continue to fall dramatically." ..."
"... " As a result of investor pressure, all these companies have committed to lower growth rates and to live within cash flow," said Schlotterbeck. He noted that the drillers had slashed their gas production growth forecasts from over 20 percent down to 11 percent this year. "Yet both the gas commodity market and the equities market are saying this is not nearly enough of a cut." ..."
"... " And at $2 even the mighty Marcellus does not make economic sense," he said, later clarifying that that included both "dry" gas wells, which produce mostly methane, and "wet" gas wells, which also produce the natural gas liquids ( NGL s) that can be used by the petrochemical industry as raw materials for making plastic and chemicals. "Wet gas is better, but nobody's making money at $2 gas." ..."
"... " I tell you this because the current gas commodity price environment is not sustainable and higher gas prices are required for the shale revolution to continue," Schlotterbeck said. "Exactly what prices are required for the industry to become reasonably healthy is hard to predict." ..."
Jun 24, 2019 | www.nakedcapitalism.com

Posted on June 24, 2019 by Lambert Strether Lambert here: Sounds like it must have been a fun conference.

By Sharon Kelly, an attorney and freelance writer based in Philadelphia. She has reported for The New York Times, The Guardian, The Nation, National Wildlife, Earth Island Journal, and a variety of other publications. Prior to beginning freelance writing, she worked as a law clerk for the ACLU of Delaware. Originally published at DeSmogBlog .

Steve Schlotterbeck, who led drilling company EQT as it expanded to become the nation's largest producer of natural gas in 2017 , arrived at a petrochemical industry conference in Pittsburgh Friday morning with a blunt message about shale gas drilling and fracking.

" The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions," Schlotterbeck, who left the helm of EQT last year, continued. "In fact, I'm not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change."

" While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars," he said. "The industry is self-destructive."

Schlotterbeck is not the first industry insider to ring alarm bells about the shale industry's record of producing vast amounts of gas while burning through far more cash than it can earn by selling that gas. And drillers' own numbers speak for themselves. Reported spending outweighed income for a group of 29 large public shale gas companies by $6.7 billion in 2018, bringing the group's 2010 to 2018 cash flow to a total of negative $181 billion, according to a March 2019 report by the Institute for Energy Economics and Financial Analysis.

But Schlotterbeck's remarks, delivered to petrochemical and gas industry executives at the David L. Lawrence Convention Center in Pittsburgh, come from an individual uniquely positioned to understand how major Marcellus drillers make financial decisions -- because he so recently ran a major shale gas drilling firm. Schlotterbeck now serves as a member of the board of directors at the Energy Innovation Center Institute, a nonprofit that offers energy industry training programs.

His warnings on Friday were also offered in unusually stark terms.

'Destroyed on Average 80 Percent of the Value of Their Companies'

" The technological advancements developed by the industry have been the weapon of its own suicide," Schlotterbeck added, referring to the financial impacts of shale gas drilling on shale gas drillers. "And unfortunately, the industry still has not fully realized how it's killing itself. Since 2015, there's been 172 E&P company bankruptcies involving nearly a hundred billion dollars of debt."

" In a little more than a decade, most of these companies just destroyed a very large percentage of their companies' value that they had at the beginning of the shale revolution," he said. "It's frankly hard to imagine the scope of the value destruction that has occurred. And it continues."

At the Friday conference, he displayed a slide showing the stock prices of eight major Marcellus shale gas drillers: Antero, Range Resources, Cabot Oil and Gas, Southwestern Energy, CNX Gas, Gulfport, Chesapeake Energy, and EQT , the company that Schlotterbeck ran until he resigned in March 2018. Seven of the eight companies saw their stock prices fall between 40 percent and 95 percent since 2008, the slide showed.

" Excluding capital, the big eight basin producers have destroyed on average 80 percent of the value of their companies since the beginning of the shale revolution," Schlotterbeck said. "This is not the fall from the peak price during the shale decade, this is the drop in their share price from before the shale revolution began."

Mr. Schlotterbeck credited the shale rush with lowering power and natural gas bills nationwide and offering significant economic benefits since 2008, when he said the shale revolution began.

" Nearly every American has benefited from shale gas, with one big exception," he said, "the shale gas investors."

Residents of communities where shale gas drilling and fracking have caused disruptions and health issues might take exception to Mr. Schlotterbeck's categorical description of the beneficiaries of shale gas, as might climate scientists who have warned that the shale industry's greenhouse gas emissions are so severe that burning gas for power may be worse for the global climate than burning coal.

Only Cabot Oil and Gas, which owns the rights to drill gas from roughly 174,000 acres , mostly in one county in the northeastern corner of Pennsylvania, saw its stock price rise since 2008, according to Schlotterbeck's presentation.

Cabot remains at the center of disputes tied to water contamination, a gas well blow-out, and other problems in Dimock, PA . One major lawsuit in that dispute was filed against Cabot back in November 2009 and legal battles have continued since. The company has denied liability and settled on undisclosed terms with landowners along Carter Road in Dimock.

Schlotterbeck made no mention of Dimock, focusing his remarks on the economic decisions made by the shale gas industry's corporate management and boards of directors -- not just in the past, but also in the present.

" The fact is that every time they put the drill bit to the ground, they erode the value of the billions of dollars of previous investments they have made," he said. "It's frankly no wonder that their equity valuations continue to fall dramatically."

Slowing the Flow?

More recently, shale gas producers have begun to feel the heat from investors who are pushing to see signs that the gas can be produced not just in high volume, but also at a profit.

" As a result of investor pressure, all these companies have committed to lower growth rates and to live within cash flow," said Schlotterbeck. He noted that the drillers had slashed their gas production growth forecasts from over 20 percent down to 11 percent this year. "Yet both the gas commodity market and the equities market are saying this is not nearly enough of a cut."

He noted that the at-the-wellhead price of natural gas in the Marcellus region was around $8/ MMB tu back in 2008, and had plunged to less than $2/ MMB tu today. That price plunge was caused by a massive glut of shale gas production as drillers raced first to hold acreage by producing gas, then competed to see who could make individual wells produce at higher rates by using tactics like drilling longer horizontal well bores and experimenting with the proppants used during fracking.

" And at $2 even the mighty Marcellus does not make economic sense," he said, later clarifying that that included both "dry" gas wells, which produce mostly methane, and "wet" gas wells, which also produce the natural gas liquids ( NGL s) that can be used by the petrochemical industry as raw materials for making plastic and chemicals. "Wet gas is better, but nobody's making money at $2 gas."

" Over the past year or so, most of the producers have shifted away from the phenomenal growth rates of the past to more moderate growth projections," Schlotterbeck said. "The market is clearly telling them that they haven't slowed down enough."

" Now I tell you all this because I think it has long-term implications for the end users of natural gas. This situation cannot continue indefinitely," Schlotterbeck continued. "There will be a reckoning and the only questions is whether it happens in a controlled manner or whether it comes as an unexpected shock to the system."

Schlotterbeck's presentation separately described additional challenges facing shale gas producers. Credit: Sharon Kelly

Frackers Projected Returns 'Should Not Exist' -- and Don't

He pointed to profit predictions in a "current investor presentation" by a shale driller he did not name but described as one of the eight largest in the Marcellus. That driller, he said, presently predicts it can make a 46 percent internal rate of return by drilling their dry gas wells at current gas prices, and 61 percent internal returns from the same wells if gas prices rise 36 percent.

" Economics and common sense will tell you that in a world of abundant similar opportunities, rates of return at that level should not exist," Schlotterbeck said. "And they don't."

" Really indicates to me that there's a lot of these companies that still don't get it," he said. "They still think they're gonna earn 40, 50, 60 percent returns on their investment, even after six years now of saying that and getting negative returns."

Schlotterbeck said there was a reason he made his presentation to the petrochemical industry in Pittsburgh, where industry plans a massive construction spree to build plastics and chemical factories in large part because gas prices have fallen so sharply. In December, the Department of Energy cited the "tremendous low-cost resource from the Marcellus and Utica shales" as it announced publication of a report touting benefits from building new petrochemical infrastructure in Appalachia.

Drillers' financial troubles could have significant implications for the petrochemical build-out in the Ohio River Valley.

" I tell you this because the current gas commodity price environment is not sustainable and higher gas prices are required for the shale revolution to continue," Schlotterbeck said. "Exactly what prices are required for the industry to become reasonably healthy is hard to predict."

His own personal prediction, he added, was that prices would rise 60 to 80 percent, reaching $3.50 or $4 per thousand cubic feet (mcf). And production growth will have to slow.

In response to an audience question about the impact of demand from new petrochemical plants currently planned for the region, Schlotterbeck said that for drillers, those plans were "great news on the demand side."

" But when producers are growing 11 percent per year, I don't think demand can keep up at that pace," he added.

" The large gas producers will need to make further reductions in their drilling activity," he said. "Whether they do it on their own accord or if shareholders and bondholders revolt and force them to, I think remains to be seen."

Shale Crescent USA , a petrochemical industry group pushing to transform the Ohio River Valley and Appalachia into a plastics and chemical manufacturing center to rival the one on the Gulf Coast -- known locally as "cancer alley" -- offered their projections, which predict production will continue to grow rapidly, in a presentation following Schlotterbeck's.


Shale Crescent USA 's Wally Kandel and Jerry James presented at the Northeast Petrochemical Exhibition and Conference in Pittsburgh on Friday. Credit: Sharon Kelly, DeSmog

Shale Crescent USA 's pitch to policy-makers in Pennsylvania, Ohio, West Virginia and Kentucky and to plastics and chemical manufacturers has heavily emphasized the low cost of shale gas and NGL s in the region.

On Friday, Wally Kandel, a Solvay Specialty Polymers vice president, and Jerry James, president of Artex Oil Co., played back a video segment about Shale Crescent USA aired by Bloomberg in June 2018.

" In Shale Crescent USA , you have the most abundant natural gas, the cheapest natural gas in the developed world," Kandel told Bloomberg in the clip.

" It was that rapid increase in production that got us to start Shale Crescent USA ," James told the conference in Pittsburgh Friday.

James didn't take issue with Schlotterbeck's conclusions about the shale revolution. "It's profoundly changed the market," said James. "It's just absolutely amazing what we've been able to do."

" We've achieved everything but big profits -- and I agree with him," James continued, referring to Schlotterbeck, "but for people on the downstream side [i.e. industrial consumers of shale gas and NGL s], this is revolutionary."

In brief comments following Schlotterbeck's remarks, Charles Schliebs of Stone Pier Capital Advisors recalled an earlier -- but failed -- plan to drive demand for shale gas, one heavily pushed by former Chesapeake Energy CEO Aubrey McClendon, who died in a car crash a day after being indicted by federal prosecutors with the Department of Justice over alleged bid-rigging.

McClendon, Schliebs recalled, had urged car makers to start building cars that would run on compressed natural gas, or CNG . "Aubrey had amazing plans and was spending a lot of money and doing things to push CNG in cars and in light trucks," Schliebs recalled.

These days, CNG passenger vehicles seem more like a passing fad, overshadowed by the rise of electric vehicles. Schliebs noted that just two or three weeks before the petrochemical conference, EQT 's CNG fueling station in Pittsburgh's strip district closed permanently and quietly, adding that he'd been told its owners had no plans to open a replacement.

[Jun 10, 2019] Oil Shock Model Scenarios

Notable quotes:
"... The Wall Street Journal today has an article about how sources of funding have dried up for frackers. ..."
"... LTO is going to have to slow down with low prices and less access to capital. North Dakota drilling in at least the past 8 months is going to lose money. Getting mid-$40s at best and in December much worse in the initial flow burst is no bueno. Even if hedged, it's still an overall economic loser with operators having no positive free cash flow. ..."
"... Cash for additional drilling *has* to come from investors or lenders. That gets choked off, theres no money to pay the up front capital and labor costs of new wells. ..."
Jun 10, 2019 | peakoilbarrel.com

Boomer II says: 06/08/2019 at 1:07 am

The Wall Street Journal today has an article about how sources of funding have dried up for frackers.

I'm not sure substitution will kill oil prices. And while I know peak oil will happen, putting a date on it doesn't much matter to me.

What most interests me is when investors, lenders, and execs at oil companies decide having their money tied up in petroleum just doesn't make financial sense and it is time to bail.

ProPoly says: 06/08/2019 at 11:32 am
LTO is going to have to slow down with low prices and less access to capital. North Dakota drilling in at least the past 8 months is going to lose money. Getting mid-$40s at best and in December much worse in the initial flow burst is no bueno. Even if hedged, it's still an overall economic loser with operators having no positive free cash flow.

Cash for additional drilling *has* to come from investors or lenders. That gets choked off, theres no money to pay the up front capital and labor costs of new wells.

Lightsout says: 06/08/2019 at 1:54 am
"Well, we're never going to see WTI over $60 again"

I think that one is going to bite your ass.

Freddy says: 06/08/2019 at 7:11 am
According to Mark Papa in Q4 2018 presentation EOG did not see any possibility to increase oil production as they need 75 usd / bbl WTI. They priority to pay depth , interest and dividend to their investors.

If the vreak even price WTI average shale oil is 65 usd today , I doubt this will be reduced the next 3-5 years as the rock formation will have reduced production Quality, the max. latitude lenght and number each drill pad might be reach, now I read gaz is injected to stimulat production the impact of this remain to see.

Higher labour cost , increase cost of funding as oil & Gaz is already less popular because of environmental issues. Than there is some increase offshore activity, and onshore drilling in Europe.

But even the oil majours want cheeper wells and service work it will not be any cheaper because all need profit to grow a healthy Buisiness. In the mean time about 15% of the oil produced are replaced adding 6-7% decline rate to that and at least 1% growth in demand even with trade war it seems clear the world need significant more oil that is profittable to develop to a cost consumers around the globe , mostely poor in development Country can afford to buy and during time there need to be less energy made from fosil fuel.

GuyM says: 06/08/2019 at 8:13 am
I saved the Rystad article that has US at 12.5 now, and 13.4 by the end of the year. I will revisit it from time to time. It's classic BS to the point of being really funny. Like "Little shop of Horrors" (the original, not the 1986 remake) the really bad SF movie.

I mean, really. We were at 11.9 the end of March per EIA monthlies. With no substantial increase in completions and drops in active rigs, we have increased 600k in two months??? Then in the last half of 2019, we are going to increase another 900k per day, when prices are less than $55 now? Well, if your going to lie, tell a big one. My Venus flytrap ate my homework :-)

Ron Patterson says: 06/08/2019 at 11:24 am
Dennis, from your reply to Freddy:

In 2018 World C+C average output was about 82.84 Mb/d, so my "best guess" (which could indeed be incorrect) scenario sees an increase of 4.46 Mb/d from 2018 to 2026.

Okay, that ain't all that unreasonable except except you have C+C production in 2019 increasing by 1,449 over the average of 2018. February 2019 World C+C production was 82,389,000 barrels per day. Your 2019 average is 1,901,000 barrels per day above that figure. Dennis, that just ain't gonna happen.

Ron Patterson says: 06/08/2019 at 12:07 pm
The below chart is through April 2019.

OPEC + Russia + Canada accounts for 55% of the World's oil production. These 14 OPEC nations plus Canada plus Russia averaged 47,849,000 barrels per day in 2018. Their average for the first four months of 2019 was exactly 46,000,000 barrels per day or 1,848,000 barrels per day below their 2018 average. Their April output was 2,352,000 barrels per day below their 2019 average.

If World C+C is higher in 2019 than in 2018, who will make up this huge difference. US Shale?

Peak Beer says: 06/08/2019 at 4:05 pm
Scary Chart!

Canada still has lots of potential, their tars sands are just declining because of low oil prices.

I believe that the Aberta Tar Sands are pretty much "guaranteed" (much less risk compared to drilling for nothing) as long as the price is right. They are definitely there.

I am sure that statement will be destroyed by oil professionals (which I am not). But RockMtnGuy from Oil Drum who used to work on them I think, said pretty much the same thing.

thanks for your work Ron.

Greenbub says: 06/08/2019 at 6:33 pm
Isn't the answer the difference will be made up by drawing from storage until the price gets high enough to bring more production on? $120 barrel is going to get offshore fired back up and maybe even Venezuela.
Ron Patterson says: 06/08/2019 at 9:10 pm
No, there is just not that much storage. A nation can draw from storage for only a couple of months until they run out of storage. That is unless they have a tremendous amount of storage. Not many nations have that much storage. 120$ a barrel? You're dreaming. Perhaps in a decade or so.
Alice Friedemann says: 06/08/2019 at 2:06 pm
What role do the giant oil fields play? As I write in my book "When trucks stop running:
the average size of new oil fields has declined, leaving us heavily dependent on the original giant oil fields discovered many decades ago.
Of the roughly 47,500 oil fields in the world, 507 of them, about one percent, are giant oil fields holding nearly two-thirds of all the oil that has ever been, or ever will be produced, with the largest 100 giants, the "elephants," providing nearly half of all oil today
Since giant oil fields dominate oil production, the rate they decline at is a good predictor of future world oil production. In 2005, they provided 60 % of world oil. Giant fields only begin to decline after a long plateau phase where production fluctuates within a 4 % range. In 2007, the 261 giants past their plateau phase were declining at an average rate of 6 % a year. Their decline rate will continue to increase by 0.15 % a year, to 6.15, 6.3, 6.45 % and so on. By 2030 these giants, and the other giants joining them as time goes on, will be declining at an average rate of over 9 % a year
Since nongiant oil fields decline at much higher rates, especially offshore and tight oil, by 2030, the average decline rate of all oil fields past their peak production will be higher than 9 percent.
by 2030, from half to two-thirds of global crude oil production will need to be replaced -- 40 to 50 Mb/d of today's 77.8 Mb/d
Making up this shortfall will be difficult, since four out of five barrels now come from fields found before 1973 and the majority of them are declining.
So far, Enhanced oil recovery in giant fields has increased the decline rate after peak production, because oil extracted now is unavailable after the peak, making the decline rate steeper. For example, Cantarell in Mexico, the second largest oil field ever found, declined at 20 % rates due to the EOR used to increase the maximum rate of production

Aleklett, K., et al. 2012. Peeking at peak oil. Berlin: Springer.
Hook, M., et al. 2009. Giant oil field decline rates and their influence on world oil production. Energy Policy 37(6):2262–2272.
Murphy, D.J., et al. 2011. Energy return on investment, peak oil, and the end of economic growth. Annals of the New York Academy of Sciences 1219: 52–72.

Ron Patterson says: 06/08/2019 at 3:18 pm
Thanks Alice, that was very informative. That is why I believe the decline curve will be much steeper than the ascension curve. Individual fields, of course, reach their peak production in only a few years and their decline could take many years. But I am speaking of all the world's production combined. I think the decline curve will shock most people.
robert wilson says: 06/08/2019 at 3:31 pm
I once made a large poster about this 1978 Rand study. Had become interested in resource studies years earlier and occasionally lectured at ZPG and elsewhere. https://www.rand.org/pubs/reports/R2284.html
GuyM says: 06/08/2019 at 5:43 pm
That's very informative, Alice. Very rough estimation from that, is that if shale were able to eke out another 600k increase a year, for a year or two, it could not possibly keep up with current decline rates in the bigger fields. Especially, when that shale increase is not going to start in 2019. World will be down, and add on another year of decline. 2018 will be looking more like peak year.

This poster has been considering post peak for, obviously, years. Kudos, this stuff is good!
http://energyskeptic.com/

Watcher says: 06/08/2019 at 11:06 pm
First of all, oil field geography (not geology) can be changed. So that can be one source of corruption in whatever number you want to quote for field production.

Second of all, choke management can also corrupt whatever number you want to quote for field production.

And how about third of all you can change the definition of oil and call all sorts of liquids coming up the well bore "oil" regardless of API density and corrupt whatever number you want to quote for field production. Executives are paid for production, agencies collect taxes for production, royalty recipients are paid regardless of profit, so who is it that would oppose manufacturing any number for production you want to quote? Lenders? The Fed is providing nearly 0% interest rates. Why would lenders care? Maybe refineries would care, but you can probably cut them in.

So you can pretty much put numbers and conclusions about flow to bed.

Baggen says: 06/09/2019 at 6:32 am
Alice,

Excellent post, i tried in a previous thread to argue a bit for this case but i could not put word or numbers on it like you did.

I agree with Ron i think future global decline rates will come as a rude awakening.

Alice Friedemann says: 06/09/2019 at 7:06 pm
Dennis and others,

Thanks for educating me further.

I do think that geological depletion isn't the only factor that could knock it up to 6%.

Very little oil has been explored for and found in the past 5 years, plus add on another 10 years to develop what's discovered

As the contribution declines from the Giants more will have to be provided by the other 50,000 fields that have much higher decline rates. Onshore may be 3.5%, but a lot of new oil is offshore with a much higher decline rate, perhaps higher than it needs to be. I've heard that oil is left offshore due to the haste in building these rigs to pay investors off as quickly as possible.

Since diesel is all that matters in keeping civilization alive, and U.S. shale oil is only good for plastics, we depend on heavy oil producers like venezuela, mexico, Iran, and canadian tar sands which are all problematic

I'm not so sure there are a lot of good places to drill. A quarter of remaining oil is in the arctic and can't be obtained because of ice bergs, nor is it likely fields will be developed on land in Alaska due to the challenges of permafrost.

A financial crash stops or slows much of the exploration and production. Potentially for a long time, since unlike in the Great Depression, we won't have fossils to recover with as we did back then.

Oil is a global commodity today, but will it be when production declines? If not, that will accelerate the decline rate for nation's that can't get oil (i.e. the export land model of Jeffrey Brown).

Though we'll be just fine, I'm sure most nations will be keen to send us diesel in exchange for U.S. fracked plastic.

Hickory says: 06/09/2019 at 11:27 pm
"Since diesel is all that matters in keeping civilization alive, and U.S. shale oil is only good for plastics,"

I had missed this point in earlier discussions. Can others here confirm that LTO is not suitable for diesel production?

Niko McManus says: 06/09/2019 at 11:43 pm
This is only true to an extent. Because refineries we're designed over the years to process heavier oils than LTO the ones that exist have trouble handling all the light stuff. And the light stuff has less of the distillates needed for diesel. However, they don't produce no diesel at all, and refineries can be modified/upgraded to produce diesel from pretty much whatever oil you want, for a cost.
Jeff says: 06/10/2019 at 12:55 am
What products you get out from the refinery is a function of both what oil you put into it and what refinery you have. There is some diesel in LTO but not as high as conventional oil. Getting a higher share diesel requires a complex refinery (and is costly). It currently makes more sense for refineries to blend with medium and heavy oil.

Oil demand has over time shifted to higher API oil. LTO is too high but perhaps not that bad. I think the main issue is that supply of LTO has increased very fast and demand was not as responsive due to lack of investments in US refineries and export capacity.

Ron Patterson says: 06/10/2019 at 7:30 am
In addition to what Jeff said, LTO is just that Light Tight Oil. Light implies short polymers. Gasoline has (ideally) 8 carbon atoms, kerosene 12 to 15 and diesel 16, or mostly around 16. So you can see that in very light oil, only a tiny fraction would have polymers that long.

In petroleum molecules, the carbon atoms are all in a string. That's why they call them polymer strings.

[May 16, 2019] Global fossil fuel subsidies hit record $5.2 trillion

May 16, 2019 | peakoilbarrel.com

Hightrekker

says: 05/15/2019 at 9:51 am

Global fossil fuel subsidies hit record $5.2 trillion –
https://desdemonadespair.net/2019/05/global-fossil-fuel-subsidies-hit-record-5-2-trillion.html

The Free Market in action.

[May 16, 2019] The IEA's Dire Warning For Energy Markets: prepare for higher, possible much higher oil prices

Notable quotes:
"... Upstream spending rose by a modest 4 percent, which only partially repairs the savage cuts following the 2014 bust, which saw upstream spending fall by about 30 percent. However, the IEA said that 2019 could be a bit of a turning point, with a "new wave of conventional projects" in the works. ..."
"... Despite the increase in spending on new oil projects, "today's investment trends are misaligned with where the world appears to be heading," the IEA said. "Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth." ..."
"... Geographically, investment [in solar and wind] is concentrated in rich countries. Roughly 90 percent of total energy investment – both for fossil fuels and for renewable energy – was funneled into high- and upper-middle income regions. Rich countries alone accounted for 40 percent of total energy investment, despite only making up 15 percent of the global population. ..."
May 15, 2019 | www.zerohedge.com

Authored by Nick Cunningham of Oilprice.com,

Global energy investment "stabilised" at just over $1.8 trillion in 2018, ending three years of declines.

Higher spending on oil, natural gas and coal was offset by declines in fossil fuel-based electricity generation and even a dip in renewable energy spending. China was the largest market for energy investment, even as the U.S. closed the gap.

After the 2014-2016 oil market bust, spending on oil and gas plunged, and only started to tick up last year. But the oil industry is not returning to its old spending ways. New investment is increasingly concentrated in short-cycle projects, namely, U.S. shale, "partly reflecting investor preferences for better managing capital at risk amid uncertainties over the future direction of the energy system," the IEA wrote in its report.

Upstream spending rose by a modest 4 percent, which only partially repairs the savage cuts following the 2014 bust, which saw upstream spending fall by about 30 percent. However, the IEA said that 2019 could be a bit of a turning point, with a "new wave of conventional projects" in the works.

Despite the increase in spending on new oil projects, "today's investment trends are misaligned with where the world appears to be heading," the IEA said. "Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth."

... ... ...

The good news is that costs continue to fall. Solar PV has seen costs decline by 75 percent since 2010, and onshore wind and battery storage costs are down by 20 percent and 50 percent, respectively. As such, a dollar spent on renewables buys a lot more energy than it used to, so flat investment is not entirely negative. And in a growing number of places, solar and wind are the cheapest option for power generation – increasingly cheaper than existing coal plants .

Geographically, investment [in solar and wind] is concentrated in rich countries. Roughly 90 percent of total energy investment – both for fossil fuels and for renewable energy – was funneled into high- and upper-middle income regions. Rich countries alone accounted for 40 percent of total energy investment, despite only making up 15 percent of the global population.

... ... ...


peakpeat , 1 hour ago link

Nothing, no EV's, solar, wind, coal or uranium is going to help. No tight shale, Arctic or North Slope oil is going to lift this sinking ship. There are no more new oil reserves to find and all the old fields are in a state of desperate high-tech extraction. We took all the easy stuff, Bakken and Permian are the last ditch effort. That's why all the playas have negative cash flow. That's why we are fecked.

Evil Liberals , 1 hour ago link

https://srsroccoreport.com/the-end-of-the-oil-giants-and-what-it-means/

Saudi Ghawar Field, admitted in decline

peakpeat , 59 minutes ago link

That was the last great elephant field. The largest resource ever discovered on the planet. Finally in decline. So goes Saudi Arabia. So goes OPEC. So goes mankind.

Evil Liberals , 2 hours ago link

Should have been building Nuclear Plants the last 20 years - that is Clean Energy.

Just don't build near the shore along the Ring of Fire or along Earthquake Fault Lines.

RDouglas , 2 hours ago link

Cheap crude was a 100 year party, the hangover has already begun. Fracked oil, tar sands, were a rescue remedy, funded by low interest rates, (debt). The massive population boom of the last century and a half directly coordinates with increasing oil production. If you aren't preparing yourself and your children for energy-down/population-down, you are insuring that YOUR decedents won't be among the 100 million or so people scratching out a living in North America in 100 years.

peakpeat , 57 minutes ago link

Before 1850 and the discovery of oil and coal, there were 1 billion people on the planet. Now there are 7 billion. 6 billion will die as the oil economy and oil infrastructure grinds to a halt. Better make you peace. Your plans are too late.

SilverSphinx , 5 hours ago link

Nuclear power generation is still King.

The use of nuclear power has resumed since the Fukushima disaster.

All the countries that swore off of nuclear power have returned to it and restarted their nuclear power plants and resumed construction on new plants.

Solarstone , 3 hours ago link

Let's hope you are right. It's the only viable option to oil

-- ALIEN -- , 3 hours ago link

2 words; Peak Uranium

"...Declining uranium production will make it impossible to obtain a significant increase in electrical power from nuclear plants in the coming decades."

Thorium Reactors...

"...A similar fate was encountered by another idea that involved "breeding" a nuclear fuel from a naturally existing element -- thorium. The concept involved transforming the 232 isotope of thorium into the fissile 233 isotope of uranium, which then could be used as fuel for a nuclear reactor (or for nuclear warheads). The idea was discussed at length during the heydays of the nuclear industry, andit is still discussed today; but so far, nothing has come out of it and the nuclear industry is still based on mineral uranium as fuel..."

https://www.resilience.org/stories/2017-01-18/peak-uranium-the-uncertain-future-of-nuclear-energy/

iSage , 2 hours ago link

There is a 1,000 years worth of uranium out west. I don't like the waste, used rods are hot for a long long time.

Cloud9.5 , 8 hours ago link

Mexican oil production is in decline. North Sea production is in decline. Alaskan production is in decline. There is a trend here.

peakpeat , 1 hour ago link

OPEC was the necessary cartel that helped to stabilize production and prices.

Now all of it including Saudi Arabia, Iran and the rest, all 14 nations past and present, is defunct. Output has been in decline since Nov. 2016. See IEA data or peakoilbarrel for a summary

JimmyJones , 8 hours ago link

US has enough coal to power us for over 200 years.

afronaut , 8 hours ago link

Not to mention natural gas

Ignorance is bliss , 8 hours ago link

Cool..How do I fill my BMW up with coal? How about that just in time delivery. Anyone ever try to power a semi-truck with coal? Eactly what do we pave the road ways with? Coal?

BangDingOw , 7 hours ago link

Yeesh. All wrong. Most important, slick Willie gave us our china trade problems, and then demand for raw commods in china soared. In response, his geniuses gave us the cfma, which was passed to let the JPMs of the world naked short commodities till the cows came home. However, china demand growth was so far in excess of supply growth that several of the WS firms saw the writing on the wall and went long. Thus the pols amazement when finding out v=bear stearns was actually long oil. Finally prices got high enough that supply growth started overtaking demand growth. We have been going down , on average, since. china demand late 90s oil wa 3Mbpd, currently 13Mbpd

[May 13, 2019] Samuelson points out how flawed economists are. And that includes projection of oil production

May 13, 2019 | peakoilbarrel.com

Boomer II x Ignored says: 05/12/2019 at 9:09 pm

As many of you, I don't expect business as usual to continue. We get projections based on past trends, but with oil being finite and the globe already showing the effects of climate change, I think we are in for a tumultuous future.

Samuelson points out how flawed economists are.

https://www.washingtonpost.com/opinions/economists-often-dont-know-what-theyre-talking-about/2019/05/12/f91517d4-7338-11e9-9eb4-0828f5389013_story.html

[May 11, 2019] The Shale Boom Is About To Go Bust by Nick Cunningham

Notable quotes:
"... Arthur Berman has been predicting exactly this for year. They'll spend more and more pushing production up, but eventually you get diminishing returns – the drop off in production, when it happens, will be quite dramatic as the sweet spots run dry. ..."
"... Just to add – one possible catastrophic outcome for the planet of a shale bust is poorly capped wells. Properly capping a fracked well is very difficult (you need to plug each individual geological layer, its not just a matter of putting a concrete plug on the well head). If they are not properly plugged, they will leak gas for decades and its extremely difficult and expensive to properly plug. In theory of course they are supposed to be properly capped by the operators, but if they go out of business . ..."
"... So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate. ..."
"... Natural gas is methane, so badly capped fracked gas wells would be really bad for climate change. ..."
"... Fracking the modern equivalent to hydrological gold mining. But money [tm] was made some confuse this with value ..."
"... This is old news. Drillers over estimated the production length for fracked wells to help their Ponzi Scheme. For a natural gas well the production tanks in most cases in 3 years. To keep production up more wells had to be drilled. Eventually places to drill become hard to locate.I witnessed this in northern PA. It was boom for about 5 years then came the bust. Although there is still some fracking it is only minor compared to what it was. A few made money but the cost to the environment was passed on to the taxpayers. ..."
"... Venezuelan oil is very important to frackers because almost all refineries in the US were built to handle the mid-density oils from Texas and Alaska. Tight oil (fracked) is super light (it can't be fracked otherwise), and so it needs to be mixed in with heavy grade oil to make it refinable. This is where heavy Venezuelan crude and Canadian tar sand oil comes in – they are essential to create a crude that can be refined in existing plants. ..."
"... So the relationship between the US tight oil industry and Venezuela/Canada is quite complex – they all need each other to some extent otherwise they are stuck with oil that can't be refined. This is of course one reason why Washington absolutely hates not having firm control of Venezuelan production. But its also why they can't afford to shut it down entirely (which would happen if there was a military invasion or civil war). ..."
"... The fracked oil and gas often have low market value. The gas wells may produce relatively low quantities of high value natural gas liquids. The oil often is so light that it produces low quantities of high value distillates like diesel fuel. The fracked crude may contain high amounts of impurities that make it difficult and expensive to refine. ..."
"... Venezuela oil can be delivered directly to the Gulf Coast refineries in tankers that require no permitting or construction. Canadian oil requires pipelines (e.g. Keystone XL) which are held up in permitting. So it is ironic that the Keystone pipeline permitting quagmire is likely to be a proximate cause for the Trump administration dabbling in Venezuela as many Gulf Coast refineries are geared for Alberta/Venezuela oil. ..."
"... It was the fruits of Bush admin energy policy. Doubt it was primarily geopolitical, more like tail wagging the dog. Though the distinction is increasingly blurry now. ..."
"... Destroying limited fresh water is insane. This is a perfect example of the horrible consequences of capitalism. Profit corrupts the political system as the state merges to serve the oligarchs. ..."
May 10, 2019 | www.nakedcapitalism.com

By Nick Cunningham, a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics based in Pittsburgh, PA. Originally published at OilPrice

The shale industry faces an uncertain future as drillers try to outrun the treadmill of precipitous well declines.

For years, companies have deployed an array of drilling techniques to extract more oil and gas out of their wells, steadily intensifying each stage of the operation. Longer laterals, more water, more frac sand, closer spacing of wells – pushing each of these to their limits, for the most part, led to more production. Higher output allowed the industry to outpace the infamous decline rates from shale wells.

In fact, since 2012, average lateral lengths have increased 44 percent to over 7,000 feet and the volume of water used in drilling has surged more than 250 percent, according to a new report for the Post Carbon Institute. Taken together, longer laterals and more prodigious use of water and sand means that a well drilled in 2018 can reach 2.6 times as much reservoir rock as a well drilled in 2012, the report says.

That sounds impressive, but the industry may simply be frontloading production. The suite of drilling techniques "have lowered costs and allowed the resource to be extracted with fewer wells, but have not significantly increased the ultimate recoverable resource," J. David Hughes, an earth scientist, and author of the Post Carbon report, warned. Technological improvements "don't change the fundamental characteristics of shale production, they only speed up the boom-to-bust life cycle," he said.

For a while, there was enough acreage to allow for a blistering growth rate, but the boom days eventually have to come to an end. There are already some signs of strain in the shale patch, where intensification of drilling techniques has begun to see diminishing returns. Putting wells too close together can lead to less reservoir pressure, reducing overall production. The industry is only now reckoning with this so-called "parent-child" well interference problem.

Also, more water and more sand and longer laterals all have their limits . Last year, major shale gas driller EQT drilled a lateral that exceeded 18,000 feet. The company boasted that it would continue to ratchet up the length to as long as 20,000 feet. But EQT quickly found out that it had problems when it exceeded 15,000 feet. "The decision to drill some of the longest horizontal wells ever in shale rocks turned into a costly misstep costing hundreds of millions of dollars," the Wall Street Journal reported earlier this year.

Ultimately, precipitous decline rates mean that huge volumes of capital are needed just to keep output from declining. In 2018, the industry spent $70 billion on drilling 9,975 wells, according to Hughes, with $54 billion going specifically to oil. "Of the $54 billion spent on tight oil plays in 2018, 70% served to offset field declines and 30% to increase production," Hughes wrote.

As the shale play matures, the field gets crowded, the sweet spots are all drilled, and some of these operational problems begin to mushroom. "Declining well productivity in some plays, despite application of better technology, are a prelude to what will eventually happen in all plays: production will fall as costs rise," Hughes said. "Assuming shale production can grow forever based on ever-improving technology is a mistake -- geology will ultimately dictate the costs and quantity of resources that can be recovered."

There are already examples of this scenario unfolding. The Eagle Ford and Bakken, for instance, are both "mature plays," Hughes argues, in which the best acreage has been picked over. Better technology and an intensification of drilling techniques have arrested decline, and even led to a renewed increase in production. But ultimate recovery won't be any higher; drilling techniques merely allow "the play to be drained with fewer wells," Hughes said. And in the case of the Eagle Ford, "there appears to be significant deterioration in longer-term well productivity through overcrowding of wells in sweet spots, resulting in well interference and/or drilling in more marginal areas that are outside of sweet-spots within counties."

In other words, a more aggressive drilling approach just frontloads production, and leads to exhaustion sooner. "Technology improvements appear to have hit the law of diminishing returns in terms of increasing production -- they cannot reverse the realities of over-crowded wells and geology," Hughes said.

The story is not all that different in the Permian, save for the much higher levels of spending and drilling. Post Carbon estimates that it the Permian requires 2,121 new wells each year just to keep production flat, and in 2018 the industry drilled 4,133 wells, leading to a big jump in output. At such frenzied levels of drilling, the Permian could continue to see production growth in the years ahead, but the steady increase in water and frac sand "have reached their limits." As a result, "declining well productivity as sweet-spots are exhausted will require higher drilling rates and expenditures in the future to maintain growth and offset field decline," Hughes warned.

Ignacio , May 10, 2019 at 5:07 am

I think everybody knew that the shale boom would prove to be transient –I consider several years as transient– and it will end with holes in earth and wallets. The Bakken and Eagle Ford have become mature plays in a relatively short period and we will learn, sooner than later, how the decline of these plays unfolds. Somehow the shale business model depends on ever increasing production and production would have increased even faster if it wasn`t for resource constraints (takeaway capacity, crew availability ). According to the EIA the Permian is now filled with DUCKS, sorry, DUCs (drilled but uncompleted wells) waiting for production. Those are waiting for new pipelines and, "hopefully", oil price increases engineered by the US by production suppression in Venezuela and Iran.

Count me amongst those that would like oil price increases, although for different reasons.

Yves Smith Post author , May 10, 2019 at 6:00 pm

The forecasts I saw earlier were that production would peak in the early 2020s, decline gradually for the rest of the decade, and then fall off sharply.

PlutoniumKun , May 10, 2019 at 5:09 am

Arthur Berman has been predicting exactly this for year. They'll spend more and more pushing production up, but eventually you get diminishing returns – the drop off in production, when it happens, will be quite dramatic as the sweet spots run dry.

The equally big question though is the influence of oil and gas prices. A crisis in the shale fields might be precipitated not by a drop in production, but further downward pressure on prices. Or likewise, a spike in oil prices could give a boost to yet more capital investment in those fields. For now, I suspect the producers are far more worried about low prices than running out of oil/gas. A lot of them are betting on substantial rises in the future in order to make their balance sheets look better. So that's a lot of rich people who would welcome a Middle East war.

PlutoniumKun , May 10, 2019 at 5:24 am

Just to add – one possible catastrophic outcome for the planet of a shale bust is poorly capped wells. Properly capping a fracked well is very difficult (you need to plug each individual geological layer, its not just a matter of putting a concrete plug on the well head). If they are not properly plugged, they will leak gas for decades and its extremely difficult and expensive to properly plug. In theory of course they are supposed to be properly capped by the operators, but if they go out of business .

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

Roger Boyd , May 10, 2019 at 11:57 am

Natural gas is methane, so badly capped fracked gas wells would be really bad for climate change.

rd , May 10, 2019 at 1:32 pm

States and provinces have started program to cap old O&G wells abandoned decades ago that are leaking methane. All they need to do for new fracking wells is put in tight regulations and enforce them. But that requires political will.

Oh , May 10, 2019 at 1:14 pm

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

And methane if the gas does not contain CO2.

Svante Arrhenius , May 10, 2019 at 1:50 pm

When we'd fish, mountain bike or varmint hunt in Western PA., many decades ago (ie: ancient conventional oil & gas wells only) it was clear; not only was none of the leaking gas ever flared, but folks were tapping the rusted christmas trees. By the 80's, as we were building the rail trails, it was far worse than our memories. Fracked ethane/ wet gas wells are off-limits, unless you have FLIR drones.

https://m.phys.org/news/2015-05-emissions-natural-gas-wells-downwind.html
https://m.youtube.com/watch?v=HanXGD2NJxk

skippy , May 10, 2019 at 5:29 am

Fracking the modern equivalent to hydrological gold mining. But money [tm] was made some confuse this with value

Svante , May 10, 2019 at 12:02 pm

Well, gold does a: not explode (oh, yes it DOES!) b: does not cause 20%-89% more global warming than CO2 (oh yes it DO!) c: "water is precious, sometimes more precious than gold?" Walter Houston, as Howard: The Treasure of the Sierra Madre, who called Bogart, "no, not ME baby!"

jackiebass , May 10, 2019 at 5:57 am

This is old news. Drillers over estimated the production length for fracked wells to help their Ponzi Scheme. For a natural gas well the production tanks in most cases in 3 years. To keep production up more wells had to be drilled. Eventually places to drill become hard to locate.I witnessed this in northern PA. It was boom for about 5 years then came the bust. Although there is still some fracking it is only minor compared to what it was. A few made money but the cost to the environment was passed on to the taxpayers.

The Rev Kev , May 10, 2019 at 6:11 am

There may be another factor at work here. Granted that the shale boom was always going to be a short term play, maybe the move on Venezuela is all about having oil to replace US production as it taps out – slowly at first, then all at once. Trump & Co could always buy Venezuelan oil at a market price but I think that the idea is to seize it to control more of the international oil market by being able to control international prices and you can't do that if Venezuela is an independent country. I just wonder how much damage is going to be done in America in terms of the environment and more importantly water supplies by all the chemicals pumped into the ground. It is going to be a toxic legacy that will be there for generations to come.

PlutoniumKun , May 10, 2019 at 6:30 am

Venezuelan oil is very important to frackers because almost all refineries in the US were built to handle the mid-density oils from Texas and Alaska. Tight oil (fracked) is super light (it can't be fracked otherwise), and so it needs to be mixed in with heavy grade oil to make it refinable. This is where heavy Venezuelan crude and Canadian tar sand oil comes in – they are essential to create a crude that can be refined in existing plants.

So the relationship between the US tight oil industry and Venezuela/Canada is quite complex – they all need each other to some extent otherwise they are stuck with oil that can't be refined. This is of course one reason why Washington absolutely hates not having firm control of Venezuelan production. But its also why they can't afford to shut it down entirely (which would happen if there was a military invasion or civil war).

So the calculations are complex, and they are being made by idiots, so there is no telling what they are planning.

Ken , May 10, 2019 at 11:49 am

There are several facets to this. The light oil from fracking and elsewhere is needed as a dilutent for the very heavy Venezuelan crude to enable it to be pumped on and off tank ships and through pipelines. Dilutents are also needed for the bitumen from the Alberta tar sands. The reason for the Keystone pipeline system is to pump diluted bitumen (dilbit) from Alberta to the Texas refineries is that are equipped to process this very heavy material similar to the very heavy Mexican and Venezuelan crudes. (Crude oils around the world vary greatly in composition. Refineries are equipped to process only certain types of crude.)

The fracked oil and gas often have low market value. The gas wells may produce relatively low quantities of high value natural gas liquids. The oil often is so light that it produces low quantities of high value distillates like diesel fuel. The fracked crude may contain high amounts of impurities that make it difficult and expensive to refine.

https://www.digitalrefining.com/article/1000979,Overcoming_the_challenges_of_tight_shale_oil_refining.html#.XNWZrqR7ncs

The rapid decline of output of the fracked wells is not new news. Oilprice.com has a 2017 article on the same point. https://oilprice.com/Energy/Crude-Oil/Shale-Growth-Hides-Underlying-Problems.html

Olga , May 10, 2019 at 12:58 pm

Well, and then there is this:
https://www.worldoil.com/news/2019/4/11/permians-flaring-rises-by-85-as-oil-boom-continues
"The Permian Basin has produced so much natural gas that by the end of 2018 producers were burning off more than enough of the fuel to meet residential demand across Texas. The phenomenon has likely only intensified since then."

The problem seems to be a lack of pipelines to get the gas to customers. Not that I disagree with "the boom is over" too much, but Permian is a large area and has a way to go. But it will fizzle out in time.

rd , May 10, 2019 at 1:23 pm

Venezuela oil can be delivered directly to the Gulf Coast refineries in tankers that require no permitting or construction. Canadian oil requires pipelines (e.g. Keystone XL) which are held up in permitting. So it is ironic that the Keystone pipeline permitting quagmire is likely to be a proximate cause for the Trump administration dabbling in Venezuela as many Gulf Coast refineries are geared for Alberta/Venezuela oil.

RWood , May 10, 2019 at 9:49 am

Using data from field experiments and computer modeling of ground faults, researchers have discovered that the practice of subsurface fluid injection used in 'fracking' and wastewater disposal for oil and gas exploration could cause significant, rapidly spreading earthquake activity beyond the fluid diffusion zone. The results account for the observation that the frequency of man-made earthquakes in some regions of the country surpass natural earthquake hotspots.

According to the U.S. Geological Survey, the largest earthquake induced by fluid injection and documented in the scientific literature was a magnitude 5.8 earthquake in September 2016 in central Oklahoma. Four other earthquakes greater than 5.0 have occurred in Oklahoma as a result of fluid injection, and earthquakes of magnitude between 4.5 and 5.0 have been induced by fluid injection in Arkansas, Colorado, Kansas and Texas.

Fracking: Earthquakes are triggered well beyond fluid injection zones
https://www.sciencedaily.com/releases/2019/05/190502143353.htm

QuarterBack , May 10, 2019 at 9:51 am

I seriously doubt that the shale boom was ever about being profitable. I have long held that the shale industry has been artificially elevated as a hedge against risks induced by the long term Middle East geopolitical and military strategy. It was always expected to loose money and have negative secondary effects, but it had been decided to be necessary. Shale has survived because of a gentleman's agreement by the power players to cover the costs of the shale strategy; that along with investment media hype and stealthy subsidies to try to induce outside suckers to reduce some of the burden of those behind the hedge.

rd , May 10, 2019 at 1:31 pm

The shale industry was largely small to mid-sized firms that figured out the technology to go into low-priced leases because the oil was inaccessible. Junk bonds have fueled their growth and operations. As long as they get the cash flow from wells to pay their junk bond interest payment, it can keep going. Once they can't, expect a Wile E. Coyote splat in the junk bonds market and the fracking oil patch. The majors have moved in so they might be a bit of a flywheel for the system, but ultimately if prices are too low to support drilling, then the majors will pull the plug as fracking is not a long-term investment play over multiple price cycles in the same way an offshore oil field is. Instead, it can be turned on and off at will with new drilling always required to sustain production, so you just stop drilling when prices are too low.

Amfortas the hippie , May 10, 2019 at 10:22 am

a couple of on the ground, as it were, observations:

i live in frac sand country("Brady Brown"). there was a crisis of late to my north, as 2 of the 3 sand plants in and around Voca and Brady Texas suddenly closed(after a few years of financial shenanigans/scandal, and them being sold to multnational outfits, etc). West Texas found a way to use the more local, white sand for their purposes, and stopped buying the Brady Brown.

Immediate local Depression, folks moving if they could sell their houses( for sale signs there are routinely a decade old ), local pols/big wigs freaking out.
one of them just reopened and all of a sudden, there's gobs of sand trucks heading South(Eagle Ford). first time in prolly 8 years.

Both of my brothers in law work in the patch in the Permian roughnecking. When i probe them for anecdotes being careful not to ask leading questions they expect more or less permanent employment. one, against my advice(which he asked for), just bought a house in Sanderson which has no reason for being save oil.

My cousin, in East Texas, just hired on with a pipeline company headed to either the Permian or the Bakken(he's waiting to find out).

So there's a spurt of renewed activity in South Texas, and the expectation(both in the workforce, and in the boardroom) that West Texas(and Dakota) will continue for some time.

and i just remembered my last trip through Pasadena, Texas a year ago
the great big refinery on 225(I think it's Exxon) was putting in a gigantic separater(or whatever you call those things) easily as tall as the smaller skyscrapers in downtown houston(maybe 20+ stories) using 2 of the biggest, tallest cranes i've ever seen or heard of.
Dad says it's for heavy, sour crude(a la Venezuela and Iran). so there's at least year old expectations there, as well ie: exxon thinks it's gonna need much more refining capacity for that oil.
it can't last forever, of course.

California Bob , May 10, 2019 at 11:08 am

" a gigantic separater(or whatever you call those things) " Crackers. https://en.wikipedia.org/wiki/Cracking_(chemistry)

Amfortas the hippie , May 10, 2019 at 11:12 am

That's the one!
Thanks.

Svante , May 10, 2019 at 12:09 pm

But, I thought, "Caucasoid American" or, "ofay, peckerwood-type individual" was more politically correct, nowadays? https://stateimpact.npr.org/pennsylvania/2017/11/16/public-health-researcher-issues-dire-warning-over-proposed-ethane-cracker-plant/

https://www.fractracker.org/2017/02/formula-disaster-ethane-cracker/

Harrold , May 10, 2019 at 12:54 pm

Midland & Odessa are definitely planning on the continuation of oil production and are forecasting no busts. This hurts my head to understand as there are still people alive there who have been thru multiple booms and busts over the past 70 years.

Harry , May 10, 2019 at 6:12 pm

I would imagine its for the same reason there is no global warming or climate change in Florida. Its bad for business. Those guys know the truth. But theres no advantage in talking about it.

Synapsid , May 10, 2019 at 3:24 pm

Amfortas,

I don't know about that particular cracker but Exxon is building up refining capability for the light tight oil and condensate coming out of the Permian. That work is in the Houston area.

The idea may be Why ship it out when we can make money out of the products? I dunno.

Svante , May 10, 2019 at 10:57 am

In summary: If you're leaving an exceedingly expensive, but eminently walkable major city, with acceptable (off peak) mass tramsit, prodigeous gas/coal/nuclear/hydroelectric sources immediately available to move to a "normal" southern Appalachian city? Don't neglect to research PV, geothermal, "passive" convection, and plug-in hybrid or EV transportation options? When we were awaiting news from LA/MS friends in 2005, I'd been wondering about what my actually retiring atop the Marcellus would be like. We'd all figured Katrina's tour of Mars, Ursa, Mensa, Bullwinkle & Ram Powell platforms would (given Halliburton ruling the country) touch off a slick water fracking pyramid scheme that would have the Acela megalopolis simply killing us for our fracked gas, as they'd simply stolen our coal, gas, oil and nuclear energy? Silly, substance abusing, deplorables!

jonst , May 10, 2019 at 12:34 pm

If Las Vegas represented the sentiment here I would be betting you guys are wrong.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

RBHoughton , May 10, 2019 at 10:48 pm

The evidence for production-suppression is opposition to the new Russia to Germany pipeline and US sanctions on Iran and Venezuela. Poland is America's stalking horse in Europe but is not getting much support from its neighbors.

Its my suspicion that vast sums of speculative money have gone into fracking in USA and UK because there was nothing better to do with the great increase in the money supply. That seems to be what's keeping the industry afloat for the time being.

Plutonium Kun's advice about plugging wells points to the frightful environmental effects that are coming to those countries that have allowed fracking. It will be the people that suffer.

Ptb , May 10, 2019 at 11:27 pm

It was the fruits of Bush admin energy policy. Doubt it was primarily geopolitical, more like tail wagging the dog. Though the distinction is increasingly blurry now.

Every presidency seems to have a couple of these programs. Mixed range of soundness as policy

Market innovation (Enron), corn ethanol, developing H2 fuel cells (with the H2 coming from natgas at the time), subsidies (and loan guarantees!) for electric cars, even bigger ones for luxury electric cars, natgas import facilities, natgas export facilities, favor pipe to Canada and block the rail, favor rail to Canada and block the pipe, govt indemnifying the nuke industry from lawsuit damages arising from accidents, allowing utilities to "bail in" customers in case of losses from nuke projects, exempting any and all fracking waste products from clean water regs, actually subsidizing solar and wind, actually retiring coal, also actually sanctioning or invading no less than big 5 oil producing countries
Whew! Policy!

Bob Bancroft , May 10, 2019 at 11:55 pm

Destroying limited fresh water is insane. This is a perfect example of the horrible consequences of capitalism. Profit corrupts the political system as the state merges to serve the oligarchs.

[May 11, 2019] The Shale Boom Is About To Go Bust naked capitalism

May 11, 2019 | www.nakedcapitalism.com

https://eus.rubiconproject.com/usync.html

https://c.deployads.com/sync?f=html&s=2343&u=https%3A%2F%2Fwww.nakedcapitalism.com%2F2019%2F05%2Fthe-shale-boom-is-about-to-go-bust.html

https://acdn.adnxs.com/ib/static/usersync/v3/async_usersync.html <img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" /> The Shale Boom Is About To Go Bust Posted on May 10, 2019 by Yves Smith By Nick Cunningham, a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics based in Pittsburgh, PA. Originally published at OilPrice

The shale industry faces an uncertain future as drillers try to outrun the treadmill of precipitous well declines.

For years, companies have deployed an array of drilling techniques to extract more oil and gas out of their wells, steadily intensifying each stage of the operation. Longer laterals, more water, more frac sand, closer spacing of wells – pushing each of these to their limits, for the most part, led to more production. Higher output allowed the industry to outpace the infamous decline rates from shale wells.

In fact, since 2012, average lateral lengths have increased 44 percent to over 7,000 feet and the volume of water used in drilling has surged more than 250 percent, according to a new report for the Post Carbon Institute. Taken together, longer laterals and more prodigious use of water and sand means that a well drilled in 2018 can reach 2.6 times as much reservoir rock as a well drilled in 2012, the report says.

That sounds impressive, but the industry may simply be frontloading production. The suite of drilling techniques "have lowered costs and allowed the resource to be extracted with fewer wells, but have not significantly increased the ultimate recoverable resource," J. David Hughes, an earth scientist, and author of the Post Carbon report, warned. Technological improvements "don't change the fundamental characteristics of shale production, they only speed up the boom-to-bust life cycle," he said.

For a while, there was enough acreage to allow for a blistering growth rate, but the boom days eventually have to come to an end. There are already some signs of strain in the shale patch, where intensification of drilling techniques has begun to see diminishing returns. Putting wells too close together can lead to less reservoir pressure, reducing overall production. The industry is only now reckoning with this so-called "parent-child" well interference problem.

Also, more water and more sand and longer laterals all have their limits . Last year, major shale gas driller EQT drilled a lateral that exceeded 18,000 feet. The company boasted that it would continue to ratchet up the length to as long as 20,000 feet. But EQT quickly found out that it had problems when it exceeded 15,000 feet. "The decision to drill some of the longest horizontal wells ever in shale rocks turned into a costly misstep costing hundreds of millions of dollars," the Wall Street Journal reported earlier this year.

Ultimately, precipitous decline rates mean that huge volumes of capital are needed just to keep output from declining. In 2018, the industry spent $70 billion on drilling 9,975 wells, according to Hughes, with $54 billion going specifically to oil. "Of the $54 billion spent on tight oil plays in 2018, 70% served to offset field declines and 30% to increase production," Hughes wrote.

As the shale play matures, the field gets crowded, the sweet spots are all drilled, and some of these operational problems begin to mushroom. "Declining well productivity in some plays, despite application of better technology, are a prelude to what will eventually happen in all plays: production will fall as costs rise," Hughes said. "Assuming shale production can grow forever based on ever-improving technology is a mistake -- geology will ultimately dictate the costs and quantity of resources that can be recovered."

There are already examples of this scenario unfolding. The Eagle Ford and Bakken, for instance, are both "mature plays," Hughes argues, in which the best acreage has been picked over. Better technology and an intensification of drilling techniques have arrested decline, and even led to a renewed increase in production. But ultimate recovery won't be any higher; drilling techniques merely allow "the play to be drained with fewer wells," Hughes said. And in the case of the Eagle Ford, "there appears to be significant deterioration in longer-term well productivity through overcrowding of wells in sweet spots, resulting in well interference and/or drilling in more marginal areas that are outside of sweet-spots within counties."

In other words, a more aggressive drilling approach just frontloads production, and leads to exhaustion sooner. "Technology improvements appear to have hit the law of diminishing returns in terms of increasing production -- they cannot reverse the realities of over-crowded wells and geology," Hughes said.

The story is not all that different in the Permian, save for the much higher levels of spending and drilling. Post Carbon estimates that it the Permian requires 2,121 new wells each year just to keep production flat, and in 2018 the industry drilled 4,133 wells, leading to a big jump in output. At such frenzied levels of drilling, the Permian could continue to see production growth in the years ahead, but the steady increase in water and frac sand "have reached their limits." As a result, "declining well productivity as sweet-spots are exhausted will require higher drilling rates and expenditures in the future to maintain growth and offset field decline," Hughes warned.

Ignacio , May 10, 2019 at 5:07 am

I think everybody knew that the shale boom would prove to be transient –I consider several years as transient– and it will end with holes in earth and wallets. The Bakken and Eagle Ford have become mature plays in a relatively short period and we will learn, sooner than later, how the decline of these plays unfolds. Somehow the shale business model depends on ever increasing production and production would have increased even faster if it wasn`t for resource constraints (takeaway capacity, crew availability ). According to the EIA the Permian is now filled with DUCKS, sorry, DUCs (drilled but uncompleted wells) waiting for production. Those are waiting for new pipelines and, "hopefully", oil price increases engineered by the US by production suppression in Venezuela and Iran.

Count me amongst those that would like oil price increases, although for different reasons.

Yves Smith Post author , May 10, 2019 at 6:00 pm

The forecasts I saw earlier were that production would peak in the early 2020s, decline gradually for the rest of the decade, and then fall off sharply.

PlutoniumKun , May 10, 2019 at 5:09 am

Arthur Berman has been predicting exactly this for year. They'll spend more and more pushing production up, but eventually you get diminishing returns – the drop off in production, when it happens, will be quite dramatic as the sweet spots run dry.

The equally big question though is the influence of oil and gas prices. A crisis in the shale fields might be precipitated not by a drop in production, but further downward pressure on prices. Or likewise, a spike in oil prices could give a boost to yet more capital investment in those fields. For now, I suspect the producers are far more worried about low prices than running out of oil/gas. A lot of them are betting on substantial rises in the future in order to make their balance sheets look better. So that's a lot of rich people who would welcome a Middle East war.

PlutoniumKun , May 10, 2019 at 5:24 am

Just to add – one possible catastrophic outcome for the planet of a shale bust is poorly capped wells. Properly capping a fracked well is very difficult (you need to plug each individual geological layer, its not just a matter of putting a concrete plug on the well head). If they are not properly plugged, they will leak gas for decades and its extremely difficult and expensive to properly plug. In theory of course they are supposed to be properly capped by the operators, but if they go out of business .

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

Roger Boyd , May 10, 2019 at 11:57 am

Natural gas is methane, so badly capped fracked gas wells would be really bad for climate change.

rd , May 10, 2019 at 1:32 pm

States and provinces have started program to cap old O&G wells abandoned decades ago that are leaking methane. All they need to do for new fracking wells is put in tight regulations and enforce them. But that requires political will.

Oh , May 10, 2019 at 1:14 pm

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

And methane if the gas does not contain CO2.

Svante Arrhenius , May 10, 2019 at 1:50 pm

When we'd fish, mountain bike or varmint hunt in Western PA., many decades ago (ie: ancient conventional oil & gas wells only) it was clear; not only was none of the leaking gas ever flared, but folks were tapping the rusted christmas trees. By the 80's, as we were building the rail trails, it was far worse than our memories. Fracked ethane/ wet gas wells are off-limits, unless you have FLIR drones.

https://m.phys.org/news/2015-05-emissions-natural-gas-wells-downwind.html
https://m.youtube.com/watch?v=HanXGD2NJxk

skippy , May 10, 2019 at 5:29 am

Fracking the modern equivalent to hydrological gold mining

But money [tm] was made some confuse this with value

Svante , May 10, 2019 at 12:02 pm

Well, gold does a: not explode (oh, yes it DOES!) b: does not cause 20%-89% more global warming than CO2 (oh yes it DO!) c: "water is precious, sometimes more precious than gold?" Walter Houston, as Howard: The Treasure of the Sierra Madre, who called Bogart, "no, not ME baby!"

jackiebass , May 10, 2019 at 5:57 am

This is old news. Drillers over estimated the production length for fracked wells to help their Ponzi Scheme. For a natural gas well the production tanks in most cases in 3 years. To keep production up more wells had to be drilled. Eventually places to drill become hard to locate.I witnessed this in northern PA. It was boom for about 5 years then came the bust. Although there is still some fracking it is only minor compared to what it was. A few made money but the cost to the environment was passed on to the taxpayers.

The Rev Kev , May 10, 2019 at 6:11 am

There may be another factor at work here. Granted that the shale boom was always going to be a short term play, maybe the move on Venezuela is all about having oil to replace US production as it taps out – slowly at first, then all at once. Trump & Co could always buy Venezuelan oil at a market price but I think that the idea is to seize it to control more of the international oil market by being able to control international prices and you can't do that if Venezuela is an independent country. I just wonder how much damage is going to be done in America in terms of the environment and more importantly water supplies by all the chemicals pumped into the ground. It is going to be a toxic legacy that will be there for generations to come.

PlutoniumKun , May 10, 2019 at 6:30 am

Venezuelan oil is very important to frackers because almost all refineries in the US were built to handle the mid-density oils from Texas and Alaska. Tight oil (fracked) is super light (it can't be fracked otherwise), and so it needs to be mixed in with heavy grade oil to make it refinable. This is where heavy Venezuelan crude and Canadian tar sand oil comes in – they are essential to create a crude that can be refined in existing plants.

So the relationship between the US tight oil industry and Venezuela/Canada is quite complex – they all need each other to some extent otherwise they are stuck with oil that can't be refined. This is of course one reason why Washington absolutely hates not having firm control of Venezuelan production. But its also why they can't afford to shut it down entirely (which would happen if there was a military invasion or civil war).

So the calculations are complex, and they are being made by idiots, so there is no telling what they are planning.

Ken , May 10, 2019 at 11:49 am

There are several facets to this. The light oil from fracking and elsewhere is needed as a dilutent for the very heavy Venezuelan crude to enable it to be pumped on and off tank ships and through pipelines. Dilutents are also needed for the bitumen from the Alberta tar sands. The reason for the Keystone pipeline system is to pump diluted bitumen (dilbit) from Alberta to the Texas refineries is that are equipped to process this very heavy material similar to the very heavy Mexican and Venezuelan crudes. (Crude oils around the world vary greatly in composition. Refineries are equipped to process only certain types of crude.)

The fracked oil and gas often have low market value. The gas wells may produce relatively low quantities of high value natural gas liquids. The oil often is so light that it produces low quantities of high value distillates like diesel fuel. The fracked crude may contain high amounts of impurities that make it difficult and expensive to refine.
https://www.digitalrefining.com/article/1000979,Overcoming_the_challenges_of_tight_shale_oil_refining.html#.XNWZrqR7ncs

The rapid decline of output of the fracked wells is not new news. Oilprice.com has a 2017 article on the same point. https://oilprice.com/Energy/Crude-Oil/Shale-Growth-Hides-Underlying-Problems.html

Olga , May 10, 2019 at 12:58 pm

Well, and then there is this:
https://www.worldoil.com/news/2019/4/11/permians-flaring-rises-by-85-as-oil-boom-continues
"The Permian Basin has produced so much natural gas that by the end of 2018 producers were burning off more than enough of the fuel to meet residential demand across Texas. The phenomenon has likely only intensified since then."
The problem seems to be a lack of pipelines to get the gas to customers.
Not that I disagree with "the boom is over" too much, but Permian is a large area and has a way to go. But it will fizzle out in time.

rd , May 10, 2019 at 1:23 pm

Venezuela oil can be delivered directly to the Gulf Coast refineries in tankers that require no permitting or construction. Canadian oil requires pipelines (e.g. Keystone XL) which are held up in permitting. So it is ironic that the Keystone pipeline permitting quagmire is likely to be a proximate cause for the Trump administration dabbling in Venezuela as many Gulf Coast refineries are geared for Alberta/Venezuela oil.

RWood , May 10, 2019 at 9:49 am

Using data from field experiments and computer modeling of ground faults, researchers have discovered that the practice of subsurface fluid injection used in 'fracking' and wastewater disposal for oil and gas exploration could cause significant, rapidly spreading earthquake activity beyond the fluid diffusion zone. The results account for the observation that the frequency of man-made earthquakes in some regions of the country surpass natural earthquake hotspots.

According to the U.S. Geological Survey, the largest earthquake induced by fluid injection and documented in the scientific literature was a magnitude 5.8 earthquake in September 2016 in central Oklahoma. Four other earthquakes greater than 5.0 have occurred in Oklahoma as a result of fluid injection, and earthquakes of magnitude between 4.5 and 5.0 have been induced by fluid injection in Arkansas, Colorado, Kansas and Texas.

Fracking: Earthquakes are triggered well beyond fluid injection zones
https://www.sciencedaily.com/releases/2019/05/190502143353.htm

QuarterBack , May 10, 2019 at 9:51 am

I seriously doubt that the shale boom was ever about being profitable. I have long held that the shale industry has been artificially elevated as a hedge against risks induced by the long term Middle East geopolitical and military strategy. It was always expected to loose money and have negative secondary effects, but it had been decided to be necessary. Shale has survived because of a gentleman's agreement by the power players to cover the costs of the shale strategy; that along with investment media hype and stealthy subsidies to try to induce outside suckers to reduce some of the burden of those behind the hedge.

rd , May 10, 2019 at 1:31 pm

The shale industry was largely small to mid-sized firms that figured out the technology to go into low-priced leases because the oil was inaccessible. Junk bonds have fueled their growth and operations. As long as they get the cash flow from wells to pay their junk bond interest payment, it can keep going. Once they can't, expect a Wile E. Coyote splat in the junk bonds market and the fracking oil patch. The majors have moved in so they might be a bit of a flywheel for the system, but ultimately if prices are too low to support drilling, then the majors will pull the plug as fracking is not a long-term investment play over multiple price cycles in the same way an offshore oil field is. Instead, it can be turned on and off at will with new drilling always required to sustain production, so you just stop drilling when prices are too low.

Amfortas the hippie , May 10, 2019 at 10:22 am

a couple of on the ground, as it were, observations:
i live in frac sand country("Brady Brown"). there was a crisis of late to my north, as 2 of the 3 sand plants in and around Voca and Brady Texas suddenly closed(after a few years of financial shenanigans/scandal, and them being sold to multnational outfits, etc). West Texas found a way to use the more local, white sand for their purposes, and stopped buying the Brady Brown.
Immediate local Depression, folks moving if they could sell their houses(for sale signs there are routinely a decade old), local pols/big wigs freaking out.
one of them just reopened and all of a sudden, there's gobs of sand trucks heading South(Eagle Ford). first time in prolly 8 years.

Both of my brothers in law work in the patch in the Permian roughnecking.
when i probe them for anecdotes being careful not to ask leading questions they expect more or less permanent employment. one, against my advice(which he asked for), just bought a house in Sanderson which has no reason for being save oil.
My cousin, in East Texas, just hired on with a pipeline company headed to either the Permian or the Bakken(he's waiting to find out).
so there's a spurt of renewed activity in South Texas, and the expectation(both in the workforce, and in the boardroom) that West Texas(and Dakota) will continue for some time.

and i just remembered my last trip through Pasadena, Texas a year ago
the great big refinery on 225(I think it's Exxon) was putting in a gigantic separater(or whatever you call those things) easily as tall as the smaller skyscrapers in downtown houston(maybe 20+ stories) using 2 of the biggest, tallest cranes i've ever seen or heard of.
Dad says it's for heavy, sour crude(a la Venezuela and Iran). so there's at least year old expectations there, as well ie: exxon thinks it's gonna need much more refining capacity for that oil.
it can't last forever, of course.

California Bob , May 10, 2019 at 11:08 am

" a gigantic separater(or whatever you call those things) "

Crackers.

https://en.wikipedia.org/wiki/Cracking_(chemistry)

Amfortas the hippie , May 10, 2019 at 11:12 am

That's the one!
Thanks.

Svante , May 10, 2019 at 12:09 pm

But, I thought, "Caucasoid American" or, "ofay, peckerwood-type individual" was more politically correct, nowadays? https://stateimpact.npr.org/pennsylvania/2017/11/16/public-health-researcher-issues-dire-warning-over-proposed-ethane-cracker-plant/

https://www.fractracker.org/2017/02/formula-disaster-ethane-cracker/

Harrold , May 10, 2019 at 12:54 pm

Midland & Odessa are definitely planning on the continuation of oil production and are forecasting no busts.

This hurts my head to understand as there are still people alive there who have been thru multiple booms and busts over the past 70 years.

Harry , May 10, 2019 at 6:12 pm

I would imagine its for the same reason there is no global warming or climate change in Florida. Its bad for business. Those guys know the truth. But theres no advantage in talking about it.

Synapsid , May 10, 2019 at 3:24 pm

Amfortas,

I don't know about that particular cracker but Exxon is building up refining capability for the light tight oil and condensate coming out of the Permian. That work is in the Houston area.

The idea may be Why ship it out when we can make money out of the products? I dunno.

Svante , May 10, 2019 at 10:57 am

In summary: If you're leaving an exceedingly expensive, but eminently walkable major city, with acceptable (off peak) mass tramsit, prodigeous gas/coal/nuclear/hydroelectric sources immediately available to move to a "normal" southern Appalachian city? Don't neglect to research PV, geothermal, "passive" convection, and plug-in hybrid or EV transportation options? When we were awaiting news from LA/MS friends in 2005, I'd been wondering about what my actually retiring atop the Marcellus would be like. We'd all figured Katrina's tour of Mars, Ursa, Mensa, Bullwinkle & Ram Powell platforms would (given Halliburton ruling the country) touch off a slick water fracking pyramid scheme that would have the Acela megalopolis simply killing us for our fracked gas, as they'd simply stolen our coal, gas, oil and nuclear energy? Silly, substance abusing, deplorables!

jonst , May 10, 2019 at 12:34 pm

If Las Vegas represented the sentiment here I would be betting you guys are wrong.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

RBHoughton , May 10, 2019 at 10:48 pm

The evidence for production-suppression is opposition to the new Russia to Germany pipeline and US sanctions on Iran and Venezuela. Poland is America's stalking horse in Europe but is not getting much support from its neighbors.

Its my suspicion that vast sums of speculative money have gone into fracking in USA and UK because there was nothing better to do with the great increase in the money supply. That seems to be what's keeping the industry afloat for the time being.

Plutonium Kun's advice about plugging wells points to the frightful environmental effects that are coming to those countries that have allowed fracking. It will be the people that suffer.

Ptb , May 10, 2019 at 11:27 pm

It was the fruits of Bush admin energy policy. Doubt it was primarily geopolitical, more like tail wagging the dog. Though the distinction is increasingly blurry now.

Every presidency seems to have a couple of these programs. Mixed range of soundness as policy

Market innovation (Enron), corn ethanol, developing H2 fuel cells (with the H2 coming from natgas at the time), subsidies (and loan guarantees!) for electric cars, even bigger ones for luxury electric cars, natgas import facilities, natgas export facilities, favor pipe to Canada and block the rail, favor rail to Canada and block the pipe, govt indemnifying the nuke industry from lawsuit damages arising from accidents, allowing utilities to "bail in" customers in case of losses from nuke projects, exempting any and all fracking waste products from clean water regs, actually subsidizing solar and wind, actually retiring coal, also actually sanctioning or invading no less than big 5 oil producing countries
Whew! Policy!

Bob Bancroft , May 10, 2019 at 11:55 pm

Destroying limited fresh water is insane. This is a perfect example of the horrible consequences of capitalism. Profit corrupts the political system as the state merges to serve the oligarchs.

[Apr 30, 2019] Concerning net revenue and production. The problem is not future price of oil. The problem is the past price of oil. Two-thirds of the total lifetime production of one of these shale wells comes out of the ground in the first two years

Notable quotes:
"... In a properly accounted world all of those wells from 2 years ago which cannot be repay their debt should have that debt apply to the new wells that are drilled now -- and erase their profit. This is forever, by the way. Anytime oil drops below whatever 60, or 55 or 50, the wells drilled then and the money borrowed to drill them is essentially guaranteed to get applied to future wells. ..."
"... But this won't happen. When you have to have the oil you get the oil. ..."
Apr 30, 2019 | peakoilbarrel.com

Watcher : 04/26/2019 at 2:32 am

Not going to scroll up for the spreadsheet above, not easy where I am sitting right now.

Concerning net revenue and production. The problem is not future price of oil. The problem is the past price of oil. Two-thirds of the total lifetime production of one of these shale wells comes out of the ground in the first two years. The price was sub-60 a couple of years back and that oil flowed and generated only that much money. That well's debt is not going to get repaid by that well. The oil came out at a lower price and that deal is done.

This means that the month number where revenue becomes negative is much sooner. And if things were logical and money was not created from thin air, the fact that the well in question cannot repay its debt does not make the debt go away.

In a properly accounted world all of those wells from 2 years ago which cannot be repay their debt should have that debt apply to the new wells that are drilled now -- and erase their profit. This is forever, by the way. Anytime oil drops below whatever 60, or 55 or 50, the wells drilled then and the money borrowed to drill them is essentially guaranteed to get applied to future wells.

But this won't happen. When you have to have the oil you get the oil.

[Apr 23, 2019] Mapping The Countries With The Most Oil Reserves

Apr 23, 2019 | www.zerohedge.com

1969wasgood , 38 minutes ago link

What it really means. 42 more years, and it's gone. 1.531 trillion bbls divided by a no grow of 100 million bbls consumption a day, simple math. And we rant about finding another 50 billion bbls. That only takes the total of the recoverable oil to 1.581 trillion bbls.

Oil will leave us before we leave oil. We are heading for mass starvation. There are no electric fire engines, there are no electric ambulances, there are no electric farm machinery, there are no electric military machinery, there are no electric boats or ships or ferries, there are no electric airplanes, fighter jets, helicopters, there are 1.4 billion cars in the world of which 3 million are electric, if Tesla quadruples production it couldn't replace the gas and diesel powered vehicles in 1200 years, and the Chinese electrics are crap.

deFLorable hillbilly , 1 hour ago link

This map is complete BS. No one, especially some spy agency, knows how much of anything is underground.

The only known fact is current production. "Known Reserves" is a hopelessly politicized exercise in conjecture, primarily for the purpose of securitizing international loans at favorable rates.

Yen Cross , 1 hour ago link

These numbers are complete horse-****.

U.S. Crude Oil, Natural Gas, and Natural Gas Proved Reserves, Year-end 2017

Proved reserves of crude oil in the United States increased 19.5% (6.4 billion barrels) to 39.2 billion barrels at Year-End 2017, setting a new U.S. record for crude oil proved reserves. The previous record was 39.0 billion barrels set in 1970.

USGS Announces Largest Oil And Gas Deposit Ever Assessed In U.S. : The Two-Way : NPR

The USGS says all 20 billion barrels of oil are "technically recoverable," meaning the oil could be brought to the surface "using currently available technology and industry practices."

Between the corrupt politicians, and oil execs. these morons can't even concoct a decent lie anymore.

Minamoto , 1 hour ago link

Those numbers are somewhat laughable... Venezuela's gigantic reserves require lots of processing to get the oil sands into proper crude.

In addition, Russia's total reserves are underestimated as most of Russia's territory has not been geologically explored.

bismillah , 1 hour ago link

Most oil reserve claims with OPEC countries are hugely exaggerated.

And reserve claims by others are faked higher than they really are, too.

[Apr 12, 2019] If my guess is correct, we will see KSA production declining on a accelerating rate within a few years. Kuwait will not be far behind. North American shale will likely be topped out by then. Gee, that might be post peak.

Notable quotes:
"... We can, however, demand reserve transparency in our own country and that we are NOT getting. In essence the lies being said about "economically" recoverable shale oil reserves in America are way bigger whoppers than any lies the Middle East has ever told. ..."
"... U.S. shale drillers have run into a series of problems that have resulted in increased scrutiny on their operations. The difficulties span their operations – production issues, poor financials and less love from Wall Street. ..."
"... Even as WTI has moved solidly above $60 per barrel, the U.S. shale industry is trying to find ways to right the ship. As Reuters reports, a series of drillers, even prominent ones, are laying off workers. Pioneer Natural Resources – often held up as one of the better of the bunch – and Laredo Petroleum announced just this week that they will be cutting staff. As Jennifer Hiller of Reuters points out, Pioneer has not laid off workers since 1998. ..."
"... In March, Devon Energy eliminated 200 jobs. ..."
"... According to a report from Tudor, Pickering, Holt & Co., the recent layoffs may not be the end of the story. Everyone should expect more job cuts "over the coming quarters as companies address right-sizing the corporate cost structures," the firm said in its report. ..."
Apr 12, 2019 | peakoilbarrel.com
xxx: 04/10/2019 at 10:56 pm

Hello Dennis. Have you ever really thought about why the Saudi's would keep their production info as a state secret? I think it has much less to do about quotas than maintaining the status quo of a country and society much different than our western norms.

I have guessed their remaining reserves around 80 gb before, and still believe its in that area. Of course ANYONE without actual production and reservoir info is also guessing whether they are economists, engineers, geologists, or whoever.

If my guess is correct, we will see KSA production declining on a accelerating rate within a few years. Kuwait will not be far behind. North American shale will likely be topped out by then. Gee, that might be post peak.

I hope they have more recoverable oil than my guess, because its going to be a difficult transition.

Mike Shellman : 04/11/2019 at 6:39 am

Mr. Patterson, thanks for the article. You have defended it quite well, this in spite of Dennis Coyne's constant interjections.

Estimating remaining reserves from mature fields is not difficult from an engineering standpoint and how one tinkers with known reservoirs in that field (stuffing gas back into them, HZ laterals above O/W contacts, etc.) does not magically create "new" reserves, it simply speeds up the rate of extraction (arrests natural decline rates). The Saudis lie about their sovereign wealth and it's their right to lie, I suppose; all we can do is try to outsmart them, as you have. America cannot control the Saudi's, regardless of tweets.

We can, however, demand reserve transparency in our own country and that we are NOT getting. In essence the lies being said about "economically" recoverable shale oil reserves in America are way bigger whoppers than any lies the Middle East has ever told.

Ron Patterson : 04/11/2019 at 7:26 am
Mike, thanks for the kind words. I am quite used to Dennis' interjections. They don't bother me. In fact, I enjoy the dialogue with him. It keeps me on my toes.

I can feel the tide turning concerning peak oil. I think OPEC peaked in 2016, politically suppressed production notwithstanding. However, the bigger surprise may be right here in the good old USA. The shale bubble could be bursting a lot sooner than a lot of people think.

Shale Jobs In Jeopardy Despite Oil Price Rally

U.S. shale drillers have run into a series of problems that have resulted in increased scrutiny on their operations. The difficulties span their operations – production issues, poor financials and less love from Wall Street.

Even as WTI has moved solidly above $60 per barrel, the U.S. shale industry is trying to find ways to right the ship. As Reuters reports, a series of drillers, even prominent ones, are laying off workers. Pioneer Natural Resources – often held up as one of the better of the bunch – and Laredo Petroleum announced just this week that they will be cutting staff. As Jennifer Hiller of Reuters points out, Pioneer has not laid off workers since 1998.

In March, Devon Energy eliminated 200 jobs.

According to a report from Tudor, Pickering, Holt & Co., the recent layoffs may not be the end of the story. Everyone should expect more job cuts "over the coming quarters as companies address right-sizing the corporate cost structures," the firm said in its report.

Nevertheless, the EIA still expects the boom to continue for years and years. We shall see.

[Apr 12, 2019] It looks to me like the global economy may be in for at least one serious oil shock in the 2020s. Yet another titanic wave on the Peak Oil ocean.

Apr 12, 2019 | peakoilbarrel.com

Graywulffe x Ignored says: 04/10/2019 at 5:55 pm

Nice summary, Ron. Brought to mind the old Oil Drum days. Thanks for taking the time to provide this information. Given the admittedly not high-confidence prognostications in Saudi/world oil production, it looks to me like the global economy may be in for at least one serious oil shock in the 2020s.

Yet another titanic wave on the Peak Oil ocean.

[Apr 12, 2019] It is very obvious that what Saudi will have difficulties to maintain the current level of production as giant fields will experience a more rapid decline in the future.

Notable quotes:
"... add to that the usual woes of increasing internal oil consumption (3 mbd and rising fast) and the need to try and build their way out of their demise (requiring more oil and money), and the usual predictions of the 'export land model' look very reasonable, and disastrous for the House of Saud. There will be a tapered end, but the potential for acute instability in production and the in political and social environments of the country within the next decade is real. ..."
Apr 12, 2019 | peakoilbarrel.com

Carlos Diaz : 04/10/2019 at 1:44 pm

It's "coup de grâce."

A great article that offers a more realistic view of the very old giant oil fields. It is very obvious that what they are doing to maintain production will result in a more rapid decline in the future. When that happens KSA will be in a lot of hurt, and the world will have an abrupt awakening.

Adam Ash : 04/10/2019 at 5:27 pm
So my simple math says: 256 URR was to last 53 years, 74 URR at the same production rate will last 15 years. Seneca with a vengeance! Rite? EOLAWKI here we come!

add to that the usual woes of increasing internal oil consumption (3 mbd and rising fast) and the need to try and build their way out of their demise (requiring more oil and money), and the usual predictions of the 'export land model' look very reasonable, and disastrous for the House of Saud. There will be a tapered end, but the potential for acute instability in production and the in political and social environments of the country within the next decade is real.

[Apr 12, 2019] At some point Saudi will hit the Seneca Cliff. If they are doing all this advanced recovery to to keep flow rates up then fields will probably hit a wall and crash rather than slow decline.

Notable quotes:
"... Oil consumption has been increasing in all sectors and the growing global economy will require more oil in industry. You seem to think oil is just used in transportation. NOT true. ..."
"... Imagine oil production peaked today. In order for aviation to continue to grow, along with other industries that use oil. How many of the 98 million vehicles sold this year would need to be electric cars? How many electric motorcycles would have to be sold? ..."
"... I believe a Seneca cliff scenario would be a catastrophic one hence the reaction to such a scenario would also be catastrophic. ..."
"... World demand is currently over 100 mb/day, while production is at about 99 mb/day. Does that mean we are using up the already produced reserves? ..."
Apr 12, 2019 | peakoilbarrel.com

Karen Fremerman : 04/10/2019 at 12:17 pm

At some point the Seneca Cliff will be hit. If they are doing all this advanced recovery to to keep flow rates up then fields will probably hit a wall and crash rather than slow decline. Is my thinking correct on that? Karen
Hugo : 04/11/2019 at 2:20 am
Dennis

Oil consumption has been increasing in all sectors and the growing global economy will require more oil in industry. You seem to think oil is just used in transportation. NOT true.

https://www.statista.com/statistics/307194/top-oil-consuming-sectors-worldwide/

Imagine oil production peaked today. In order for aviation to continue to grow, along with other industries that use oil. How many of the 98 million vehicles sold this year would need to be electric cars? How many electric motorcycles would have to be sold?

https://motorcyclesdata.com/2019/03/25/world-motorcycles-market/

Knowing these answers gives us a real understanding of what needs to happen.

Schinzy : 04/11/2019 at 3:42 am

The Seneca cliff for World output requires heroic assumptions which are unlikely to be true in practice.

I strongly disagree with that assessment. I believe the probability of a Seneca cliff is increasing. I think oil extraction is an economic phenomena, not a geological phenomena. During economic expansion, a positive feedback loop is in place: oil extraction produces economic growth which encourages investment in oil extraction producing more economic growth. Once peak oil occurs, I anticipate that this feedback loop will go into reverse: decreased oil production will produce economic contraction which will discourage investment in oil extraction reducing extraction rates leading to economic collapse.

Without investment the IEA estimates that production would fall by 50% in 2025 and by 80% in 2040.

I actually think economic collapse is a great opportunity to introduce a new economic system. The one we have is not only unfair, it encourages environmental devastation.

David Graebner asks rhetorically how a theory such as neoclassic economics based on false hypotheses perdures. His answer is that you teach the biggest lies in the first year. That's why false preconceptions about the economy are so common. I think neoclassical economics chose the wrong mathematical tool to analyse the economy, they chose optimisation. I don't see anything optimal in the economy, I think differential systems would be a much more appropriate mathematical tool with which to analyse the economy, keeping track of money flows.

Our assessment of how the oil cycle will play out can be found here: https://www.tse-fr.eu/publications/oil-cycle-dynamics-and-future-oil-price-scenarios .

Iron Mike : 04/11/2019 at 6:05 am
Hi Ron,

I assume a Seneca cliff scenario would imply rapid economic collapse, as a result i think there will be war over resources. Between which countries i don't know, but i assume U.S will go to war with Russia and or China, via direct war or proxy wars in regions were the countries national security depends on specific resources. So the middle east would as usual be a key area of conflict.

I believe a Seneca cliff scenario would be a catastrophic one hence the reaction to such a scenario would also be catastrophic.

Fred Magyar : 04/11/2019 at 8:30 am
U.S will go to war with Russia and or China, via direct war or proxy wars in regions were the countries national security depends on specific resources.

Perhaps! However modern warfare tends to be very energy intensive. It seems to me a rather safe bet that in a post peak oil world, mostly running on renewables, it might be more likely that societies will be trying to conserve their energy resources and not waste it on war.

But the verdict is not yet in, on whether or not humans are smarter than yeast!

German Guy : 04/10/2019 at 12:53 pm
World demand is currently over 100 mb/day, while production is at about 99 mb/day. Does that mean we are using up the already produced reserves?
Dennis Coyne : 04/10/2019 at 3:03 pm
German Guy,

It simply means we are using oil that is being stored, the so-called oil stocks, eventually as these are reduced, oil prices start to rise and demand (consumption) decreases while supply (production) increases in response to the change in oil price.

[Apr 12, 2019] The northern three Saudi fields reached their Seneca Cliff somewhere around 2010 and began declining at several times 2%. They will decline to near nothing in the next few years

Apr 12, 2019 | peakoilbarrel.com

Ron Patterson : 04/10/2019 at 4:06 pm

Well, no, Ghawar is not declining at 2% per year. Ghawar did not start declining in 2004. And the southern two fields are not declining at all. The northern three fields reached their Seneca Cliff somewhere around 2010 and began declining at several times 2%. They will decline to near nothing in the next few years. Then Ghawar will have level production at somewhere around 2 million barrels per day and hold that level for a decade or two.

Ghawar cannot possibly be adequately described as one field. It is five different fields with five different decline and depletion rates.

When Saudi said, in 2006, that their average decline rate was down to almost 2%, that was the average for all their fields. Some fields were declining at a much faster rate and some fields were not declining at all. Khurais and Manifa were still to be ramped up. Those fields had been in mothballs and would be brought back on line. Now they are likely not declining at all but other fields are declining at a much faster rate than 2%.

But here is the important point. The depletion rate is another matter altogether. That figure is likely above 8% per year.

Ron Patterson : 04/10/2019 at 7:08 pm
Do you have production data for the various fields from 2006 to 2018?

Dennis, you know better than ask such a silly question. Saudi production of individual fields is a closely guarded secret.

Dennis, have you ever wondered why the Saudis keep all this data such a secret? Why don't they just let the actual data known to the world? What was the production data from Safaniya in 2018? Or what was the production data from Manifa in 2018? Or what was the production data from Khurais in 2018, or from Berri, or from all their other fields? And how did that compare to the production in 2017, or 2016?

Dennis, we don't know shit about any of this. We don't know because it is a closely guarded secret. Why, Dennis, Why?

They know Dennis, they know and they don't want you to know. Why?

I know why Dennis. Because what they actually report, which is almost nothing, is a lie. You simply choose to believe it. I do not. I choose to believe the analysis who try to figure out why they are lying. You choose to simply believe the Saudis.

Dennis, the idea that Saudi Arabia has 266 billion barrels of reserves is preposterous beyond belief. Even the Saudis realize that now are trying to slowly reduce that figure. Yet some people, like you, Robert Rapier and Michael Lynch, seemed perfectly ready to believe such an absurd figure. That just floored me. Goddammit, have some people gone insane?

Okay, I have said my peace here and showed my ignorance as to what Saudi Arabia actually can produce for the next 50 years. But you know, it is what they say they can produce.

You believe them. I don't. And neither of us can prove our case. And there it must rest until the actual production data comes in next year and next year and ..

Eulenspiegel : 04/10/2019 at 10:41 am
Good work Ron.

When this is true, that's the reason China is pushing electric travel as hard as they can.

They have more possibilites to know the truth (secret service) than we reading reports. And with SA and Russia having only round about 80 GB left, and producing each round about 10 mbpd, there are not many years left before a major oil incident.

I wonder why oil prices are that stable at the moment. Oil production fell hard this year so far, down everywhere except USA. And there the growth is decelerated.
And demand is still climbing, it will use up all the US growth projected by the optimistic EIA.
A 500 kbpd decline from OPEC is not included here, they still calculate with an increase from opec.

Last question: Where is Russia standing at the moment?

[Apr 12, 2019] Looks like Saudi Arabia counts internal consumption as revenue

Notable quotes:
"... Saudi Arabia, in 2018 produced approximately 3.76 billion barrels of crude only. Their BOE produced was approximately 4.75 billion barrels. That would account for the revenue is they sold every barrel of it. But they consumed a lot themselves. So other than that I have no explanation. Do they count their own consumption as revenue? ..."
Apr 12, 2019 | peakoilbarrel.com

Chris Martensonx : 04/10/2019 at 11:05 am

Ron,

I'm wondering if you can help solve a mystery.

In the bond prospectus SA revealed their financials. Puzzling to me was the claim of revenue of $356 billion.

Why puzzling?

Because Brent averaged ~$75/bbl in 2018. Divide $356 by $75 and you come up with 4.75 Gbbl, which when we divide by 365 days in a year, we get 13 million barrels per day production.

???

I can't get their numbers to work. Even with a 10% premium on their grades of crude (generous), that leaves 11.7 mbd of production . I can't get anything to line up here.

Any ideas?

Dennis Coyne : 04/10/2019 at 11:15 am
Chris,

They also produce NGL and natural gas, in 2016 it was about 1.94 Mb/d or 708 MMb of NGL, I have no idea what the average selling price is for NGL on World markets, it would depend on the mix of NGL of course.

Ron Patterson : 04/10/2019 at 11:31 am
Saudi Arabia, in 2018 produced approximately 3.76 billion barrels of crude only. Their BOE produced was approximately 4.75 billion barrels. That would account for the revenue is they sold every barrel of it. But they consumed a lot themselves. So other than that I have no explanation. Do they count their own consumption as revenue?
Dennis Coyne : 04/10/2019 at 11:54 am
EIA has about 4.5 Gb of total liquids produced by KSA in 2018, that would imply $79/boe average selling price.

I suppose in accounting terms the Saudi Government could pay Aramco for the subsidized oil and the 4.75 Gbo would give us the $75/boe selling price.

[Apr 09, 2019] Rate of decline of production of shale wells is simply unsane up to 60% a year

Apr 09, 2019 | peakoilbarrel.com

Energy News says: 04/08/2019 at 9:26 am

Ron Patterson: 04/08/2019 at 10:26 am
An annual decline rate of 57.5 percent is insane. Yet 3,541,921 bo/day from 2018 wells is even more insane. Shale oil is a phenomenon no one would have believed just a few years ago.

But now it is obvious that this juggernaut called shale oil is slowing down. And its crash will likely be more shocking than its rise.

[Apr 09, 2019] The danger of Seneca cliff on oil production is growing

Apr 09, 2019 | peakoilbarrel.com

Carlos Diaz: 04/08/2019 at 8:07 pm

The decline is likely to be less steep than the increase

Have you heard about a Seneca cliff? It is called that way because Seneca in his letter number 91 to Lucillius (Epistulae Morales ad Lucilium), written towards the end of the year AD 64, a year before he died, refers to the fire that destroyed Lugdunum (Lyon) the summer of that year in the following terms:

It would be some consolation for the feebleness of our selves and our works, if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.

It appears he knew almost two thousand years ago what you don't.

Hickory: 04/09/2019 at 10:12 am
I expect that a long slow declining tail of production will have some abrupt jolts downward along the way, and end up lower quicker as a result.

The jolts downward will come as producing countries become failed states and the chaos disrupts operations.

For examples of how this comes to be, just look at the past 5 yrs of Venez and Libya as examples. Sure they may pick back up at some point, but overall effect is diminished global production, well below a theoretically well managed industry.

Secondly, (and likely a smaller effect) some deposits will likely be kept in the ground because of choices some cultures make. For example, I could see the USA deciding to keep its large remaining coal deposits largely in the ground after 2030. Canada could decide to put a big constraint on oil sand production, keeping just enough for domestic use, if they so desired.

Carlos Diaz: 04/09/2019 at 7:12 pm
Why you think such scenario is so improbable? Venezuela is living a Seneca cliff in its oil production right now. Did anybody predicted it before it took place?

We have no idea of what will happen after Peak Oil. Some people assume nothing, while others think it will be the end of our civilization. Somewhere in between probably. But I fail to see how the economy can take it well if for most applications we can't substitute oil. The globalization is run on oil and its derivatives.

Your assumptions can only be valid at this side of the peak. If you think otherwise you fool yourself.

[Apr 07, 2019] There is no doubt the tight rock structures which are much more difficult to extract oil from than sandstone reservoir can be stimulated in different ways with good result. But that costs a lot of money.

Highly recommended!
Edited for clatiry
Notable quotes:
"... Better propant , longer laterals , some improvement of fluid , improved rigs and pads enable to drill several laterals simultaneously have made the improvement they call shale revolution. ..."
Apr 07, 2019 | peakoilbarrel.com

Freddy says: 04/06/2019 at 5:26 pm

There is no doubt the tight rock structures which are much more difficult to extract oil from than sandstone reservoir can be stimulated in different ways with good result. But that costs a lot of money.

As I read fracking uses a very high hydraulic pressure open up the tight rock layers and until a few years ago the oil flow dropped at a very early stage because the overlaying weight and beacuse the oil flow carries with with itself particles that block the fraction.

Later it followed a propant research that was done before but again this gave improvement and could hold the fracs open for longer.

Than there was research on chemical injected that should reduce friction between oil flow and rock. There is also lots of other factores like gazes, metal that in certain pressures, temperatures might react and create pollutant as happened lately when oil cargo was sent back from Asia.

Better propant , longer laterals , some improvement of fluid , improved rigs and pads enable to drill several laterals simultaneously have made the improvement they call shale revolution.

Still very few are able to earn money to pay dividend, loan, interest and finance expansion with WTI 60 USD.

Now number of rigs increasing again, but why when there are so many DUCS? Probably because investors tells the business shall be cash neutral. Could it be the DUCS are so closely spaced that using along with the existing wells might be not profitable because of interference with nearby wells.

[Apr 06, 2019] Remember Peak Oil? It's back!

Notable quotes:
"... Hubbert wrote in 1948: "How soon the decline may set in is not possible to say, Nevertheless the higher the peak to which the production curve rises, the sooner and sharper will be the decline." ..."
"... In fact, Ghawar is not as resilient as we were led to believe. We just found out that its output has fallen substantially since Aramco previously came clean on its reserves and production. If Ghawar is losing momentum fast, peak oil – remember that theory? – might be closer than we had thought. And Ghawar is just one of dozens of enormous conventional-oil reservoirs scattered around the planet that are in various stages of decline. ..."
"... Those include the North Sea, Alaska's Prudhoe Bay, and Reguly reminds us that Mexico's Cantarell reservoir used to supply 2.1 million barrels a day and is now down to 135,000. ..."
Apr 06, 2019 | peakoilbarrel.com

Ron Patterson 04/06/2019 at 12:05 pm

Remember Peak Oil? It's back!

It seems that the biggest Saudi field is losing its punch.

Years ago we used to talk a lot about peak oil, the prediction made by M. King Hubbert that the easy oil was going to run out, that it was going to get harder and harder to find the stuff, and it was going to get more and more expensive to get out of the ground.

Hubbert wrote in 1948: "How soon the decline may set in is not possible to say, Nevertheless the higher the peak to which the production curve rises, the sooner and sharper will be the decline."

According to the predictions made back in 2005, right about now the Saudis are running out and we are smack in the middle of confusion, heading for chaos. Of course we are not, we are flooded with fossil fuels, thanks to the fracking boom.

But according to Eric Reguly, writing in the Globe and Mail, there is trouble ahead, because that prediction about Saudi oil may not be that far off. He writes that the giant Ghawar field used to produce ten percent of the world's oil, five million barrels a day.

The US Permian shale basin now supplies 4.1 million barrels a day, but fracked wells run out pretty quickly, and the fracking companies are all losing money. Better sell that pickup truck; it may well cost a lot more to fill it. As Reguly concludes, the Ghawar field is indeed in trouble,"and if it does collapse, peak oil will come a bit sooner."

In fact, Ghawar is not as resilient as we were led to believe. We just found out that its output has fallen substantially since Aramco previously came clean on its reserves and production. If Ghawar is losing momentum fast, peak oil – remember that theory? – might be closer than we had thought. And Ghawar is just one of dozens of enormous conventional-oil reservoirs scattered around the planet that are in various stages of decline.

Those include the North Sea, Alaska's Prudhoe Bay, and Reguly reminds us that Mexico's Cantarell reservoir used to supply 2.1 million barrels a day and is now down to 135,000.

[Apr 06, 2019] According to Art Bergman the Permian is flattening/rolling over.

Apr 06, 2019 | peakoilbarrel.com

Karen E Fremerman x Ignored says: 04/05/2019 at 6:40 am

Maybe I missed something and you guys have already talked about this but have you guys listened to Art Berman's Macrovoices podcast?

https://www.macrovoices.com/podcasts/MacroVoices-2019-03-14-Art-Berman.mp3

He is basically showing that the Permian is flattening/rolling over. See slide 11:

https://www.macrovoices.com/guest-content/list-guest-publications/2598-art-berman-slide-deck-march14-2019/file

If you listen to the interview he has lined up the 7 month lag time with Rig Count and Lagged Production. If this ends up sticking then the production flattening should show up in July. Just wanted to hear what you guys have to say about it.
Thanks! Karen

[Apr 02, 2019] Low rate money is the stuff of shale oil. Not profits.

Apr 02, 2019 | peakoilbarrel.com

Freddy

x Ignored says: 04/01/2019 at 2:58 pm
Seems US oil production from shale now are declining, seems the growth based on lended money now will stop. https://oilprice.com/Energy/Crude-Oil/US-Oil-Production-Dips-For-First-Time-In-Nearly-Six-Months.html
From the Rig Count we know this decrease will be strengthening the comming months until the oil price increase to a level profit will be possible that can pay dividend and growth. This might take time as soon Trump will tweet again as oil is to expensive and OPEC will be forced to take action.
Watcher x Ignored says: 04/01/2019 at 6:00 pm
The 10 yr bond is down at 2.5% today, and with the Fed's overt announcement 6 weeks ago, clearly the Fed isn't pushing its upward bias.

Low rate money is the stuff of shale oil. Not profits.

[Apr 02, 2019] As long as the world wide economy remains on its feet that there will be huge increases in demand for oil for transportation.

Apr 02, 2019 | peakoilbarrel.com

OFM x Ignored says: 03/30/2019 at 7:51 am

I'm sure that so long as the world wide economy remains on its feet that there will be huge increases in demand for oil for transportation.

But nobody seems to give any thought here to things that will reduce demand. Cars will be driving themselves soon. Think about trains. Before too much longer, railroaders will be able to move stuff on trains almost as nimbly as truckers do today, at least on city to city basis when the cities are at least a couple of hundred miles apart. Long distance trucking may be a thing of the past within, like camera film and typewriters, within a couple of decades. These possibilities are worthy of thought if you are in the oil biz for the long haul.

Every country that imports oil is going to have a powerful incentive to reduce demand for it to the extent it can as depletion sooner or later pushes one exporting country after another into the importer category. Countries in the Middle East with oil and gas to export are going to find it so profitable to build wind and solar farms that they will be building them like mushrooms popping up after a spring rain, because they can sell some or maybe even most of the oil and gas they are burning now to generate electricity, thereby earning a big profit on their solar and wind farm investment.

My thinking is that these changes will actually PROLONG our dependence on oil, taken all around, by helping hold the price down so we can afford to run existing legacy equipment, and have affordable petrol based chemicals, etc. I don't think anybody currently in the biz needs to worry about selling out anytime soon, lol. But considerations such as these may have a huge impact on exploration and development starting within a decade or so.

Times change. Doom doesn't necessarily have anything to do with it.

[Apr 02, 2019] Brazil's oil production is down

Apr 02, 2019 | peakoilbarrel.com

Energy News x Ignored says: 04/01/2019 at 1:52 pm

Brazil's oil production at 2,489 kb/day during February, which is down -142 from January
2018 average 2,587 kb/day
No press release yet, waiting to see if they mention the new FPSOs ANP -> http://www.anp.gov.br/
Chart: https://pbs.twimg.com/media/D3FsLyMW0AANPL4.png

[Mar 30, 2019] The US desperately needs Venezuelan oil

Highly recommended!
Mar 30, 2019 | www.moonofalabama.org

dh-mtl , Mar 30, 2019 5:00:04 PM | link

The U.S. desperately needs Venezuelan oil.

They lost control of Saudi Arabia, after trying to take down MBS and then betraying him by unexpectedly allowing waivers on Iranian oil in November.

The U.S. cannot take down Iran without Venezuelan oil. What is worse, right now they don't have access to enough heavy oil to meet their own needs.

Controlling the world oil trade is central to Trump's strategy for the U.S. to continue its empire. Without Venezuelan oil, the U.S. is a bit player in the energy markets, and will remain so.

Having Russia block the U.S. in Venezuela adds insult to injury. After Crimea and Syria, now Venezuela, Russia exposes the U.S. as a loud mouthed-bully without the capacity to back up its threats, a 'toothless tiger', an 'emperor without clothes'.

If the U.S. cannot dislodge Russia from Venezuela, its days as 'global hegemon' are finished. For this reason the U.S. will continue escalating the situation with ever-riskier actions, until it succeeds or breaks.

In the same manor, if Russia backs off, its resistance to the U.S. is finished. And the U.S. will eventually move to destroy Russia, like it has been actively trying to do for the past 30 years. Russia cannot and will not back off.

Venezuela thus becomes the stage where the final act in the clash of empires plays out. Will the world become a multi-polar world, in which the U.S. becomes a relatively isolated and insignificant pole? Or will the world become more fully dominated by a brutal, erratic hegemon?

All options are on the table. For both sides!

[Mar 21, 2019] OPEC February Production Data " Peak Oil Barrel

Mar 21, 2019 | peakoilbarrel.com

HuntingtonBeach x Ignored says: 03/19/2019 at 1:20 am

"Perfect Storm" Drives Oil Prices Higher

"The latest Brent rally has brought prices to our peak forecast of $67.5/bbl, three months early," Goldman Sachs wrote in a note. The investment bank said that "resilient demand growth" and supply outages could push prices up to $70 per barrel in the near future. It's a perfect storm: "supply loses are exceeding our expectations, demand growth is beating low consensus expectations with technicals supportive and net long positioning still depressed," the bank said.

The outages in Venezuela could swamp the rebound in supply from Libya, Goldman noted. But the real surprise has been demand. At the end of 2018 and the start of this year, oil prices hit a bottom and concerns about global economic stability dominated the narrative. But, for now at least, demand has been solid. In January, demand grew by 1.55 million barrels per day (mb/d) year-on-year. "Gasoline in particular is surprising to the upside, helped by low prices, confirming our view that the weakness in cracks at the turn of the year was supply driven," Goldman noted. "This comforts us in our above consensus 1.45 mb/d [year-on-year] demand growth forecast."

https://oilprice.com/Energy/Energy-General/Perfect-Storm-Drives-Oil-Prices-Higher.html

[Mar 20, 2019] I am now of the opinion that 2018 will be the peak in crude oil production, not 2019 as I earlier predicted. Russia is slowing down and may have peaked

If so, economics will suffer and chances for Trump for re-election are much lower, of exist at all due to all his betrayals
In the fable of "The Boy Who Cried Wolf," the wolf actually arrives at the end. Never forget that. Peak oil will arrive. We don't know when, and we are not prepared for it.
Shale play without more borrowed money might be the next Venezuela. .
Mar 16, 2019 | peakoilbarrel.com

I am now of the opinion that 2018 will be the peak in crude oil production, not 2019 as I earlier predicted. Russia is slowing down and may have peaked. Canada is slowing down and Brazil is slowing down. OPEC likely peaked in 2016. It is all up to the USA. Can shale oil save us from peak oil?

OPEC + Russia + Canada, about 57% of world oil production.

Jeff says: 03/14/2019 at 1: 50 pm

"I am now of the opinion that 2018 will be the peak in crude oil production, not 2019 as I earlier predicted. Russia is slowing down and may have peaked. Canada is slowing down and Brazil is slowing down. OPEC likely peaked in 2016. It is all up to the USA. Can shale oil save us from peak oil?"

IEA´s Oil 2019 5y forecast has global conventional oil on a plateau, i.e. declines and growth match each other perfectly and net growth will come from LTO, NGL, biofuels and a small amount of other unconventional and "process gains".

Iran is ofc a jocker, since it can quickly add supply. Will be interesting to see how Trump will proceed.

Carlos Diaz x Ignored says: 03/14/2019 at 3:23 pm

I am quite original in my opinion about Peak Oil. I think it took place in late 2015. I will explain. If we define Peak Oil as the maximum in production over a certain period of time we will not know it has taken place for a long time, until we lose the hope of going above. That is not practical, as it might take years.

I prefer to define Peak Oil as the point in time when vigorous growth in oil production ended and we entered an undulating plateau when periods of slow growth and slow decline will alternate, affected by oil price and variable demand by economy until we reach terminal decline in production permanently abandoning the plateau towards lower oil production.

The 12-year rate of growth in C+C production took a big hit in late 2015 and has not recovered. The increase in 2 Mb since is just an anemic 2.5% over 3 years or 0.8% per year, and it keeps going down. This is plateau behavior since there was no economic crisis to blame. It will become negative when the economy sours.

Peak Oil has already arrived. We are not recognizing it because production still increases a little bit, but we are in Peak Oil mode. Oil production will decrease a lot more easily that it will increase over the next decade. The economy is going to be a real bitch.

Dennis Coyne x Ignored says: 03/14/2019 at 4:57 pm
Carlos Diaz,

Interesting thesis, keep in mind that the price of oil was relatively low from 2015 to 2018 because for much of the period there was an excess of oil stocks built up over the 2013 to 2015 period when output growth outpaced demand growth due to very high oil prices. Supply has been adequate to keep oil prices relatively low through March 2019 and US sanctions on Iran, political instability in Libya and Venezuela, and action by OPEC and several non-OPEC nations to restrict supply have resulted in slower growth in oil output.

Eventually World Petroleum stocks will fall to a level that will drive oil prices higher, there is very poor visibility for World Petroleum Stocks, so there may be a 6 to 12 month lag between petroleum stocks falling to critically low levels and market realization of that fact, by Sept to Dec 2019 this may be apparent and oil prices may spike (perhaps to $90/b by May 2020).

At that point we may start to see some higher investment levels with higher output coming 12 to 60 months later (some projects such as deep water and Arctic projects take a lot of time to become operational, there may be some OPEC projects that might be developed as well, there are also Canadian Oil sands projects that might be developed in a high oil price environment.

I define the peak as the highest 12 month centered average World C+C output, but it can be define many different ways.

Carlos Diaz x Ignored says: 03/14/2019 at 7:18 pm
So Dennis,

Our capability to store oil is very limited considering the volume being moved at any time from production to consumption. I understand that it is the marginal price of the last barrel of oil that sets the price for oil, but given the relatively inexpensive oil between 2015 and now, and the fact that we have not been in an economical crisis, what is according to you the cause that world oil production has grown so anemically these past three years?

Do you think that if oil had been at 20$/b as it used to be for decades the growth in consumption/production would have been significantly higher?

I'll give you a hint, with real negative interest rates and comparatively inexpensive oil most OECD economies are unable to grow robustly.

To me Peak Oil is an economical question, not a geological one. The geology just sets the cost of production (not the price) too high, making the operation uneconomical. It is the economy that becomes unable to pump more oil. That's why the beginning of Peak Oil can be placed at late 2015.

The economic system has three legs, cheap energy, demographic growth, and debt growth. All three are failing simultaneously so we are facing the perfect storm. Social unrest is the most likely consequence almost everywhere.

Dennis Coyne x Ignored says: 03/14/2019 at 9:20 pm
Carlos,

If prices are low that means there is plenty of oil supply relative to demand. It also means that some oil cannot be produced profitably, so oil companies invest less and oil output grows more slowly.

So you seem to have the story backwards. Low oil prices means low growth in supply.

So if oil prices were $20/b, oil supply would grow more slowly, we have had an oversupply of oil that ls what led to low oil prices. When oil prices increase, supply growth will ne higher. Evause profits will be higher and there will be more investment.

Carlos Diaz x Ignored says: 03/15/2019 at 5:03 am
No Dennis,

It is you who has it backwards, as you only see the issue from an oil price point of view, and oil price responds to supply and demand, and higher prices are an estimulus to higher production.

But there is a more important point of view, because oil is one of the main inputs of the economy. If the price of oil is sufficiently low it stimulates the economy. New businesses are created, more people go farther on vacation, and so on, increasing oil demand and oil production. If the price is sufficiently high it depresses the economy. A higher percentage of wealth is transferred from consumer countries to producing countries and consumer countries require more debt. During the 2010-2014 period high oil prices were sustained by the phenomenal push of the Chinese economy, while European and Japanese economies suffered enormously and their oil consumption depressed and hasn't fully recovered since.

In the long term it is the economy that pumps the oil, and that is what you cannot understand.

Oil limits → Oil cost → Oil Price ↔ Economy → Oil demand → Oil production

The economy decides when and how Peak Oil takes place. If you knew that you wouldn't bother with all those models.

And in my opinion the economy already decided in late 2015 when the drive to increase oil production to compensate for low oil prices couldn't be sustained.

Schinzy x Ignored says: 03/15/2019 at 11:18 am
Carlos,

Your reasoning is close to mine. See https://www.tse-fr.eu/publications/oil-cycle-dynamics-and-future-oil-price-scenarios .

Dennis Coyne x Ignored says: 03/15/2019 at 3:01 pm
Carlos,

Both supply and demand matter. I understand economics quite well thank you. You are correct that the economy is very important, it will determine oil prices to some degree especially on the demand side of the market. If one looks at the price of oil and economic growth or GDP, there is very little correlation.

The fact is the World economy grew quite nicely from 2011 to 2014 when oil prices averaged over $100/b.

There may be some point that high oil prices are a problem, apparently $100/b in 2014 US$ is below that price. Perhaps at $150/b your argument would be correct. Why would the economy need more oil when oil prices are low? The low price is a signal that there is too much oil being produced relative to the demand for oil.

I agree the economy will be a major factor in when peak oil occurs, but as most economists understand quite well, it is both supply and demand that will determine market prices for oil.

My models are based on the predictions of the geophysicists at the USGS (estimating TRR for tight oil) and the economists at the EIA (who attempt to predict future oil prices). Both predictions are used as inputs to the model along with past completion rates and well productivity and assumptions about potential future completion rates and future well productivity, bounded by the predictions of both the USGS and the EIA along with economic assumptions about well cost, royalties and taxes, transport costs, discount rate, and lease operating expenses.

Note that my results for economically recoverable resources are in line with the USGS TRR mean estimates and are somewhat lower when the economic assumptions are applied (ERR/TRR is roughly 0.85), the EIA AEO has economically recoverable tight oil resources at about 115% of the USGS mean TRR estimate. The main EIA estimate I use is their AEO reference oil price case (which may be too low with oil prices gradually rising to $110/b (2017$) by 2050.

Assumptions for Permian Basin are royalties and taxes 33% of wellhead revenue, transport cost $5/b, LOE=$2.3/b plus $15000/month, annual discount rate is 10%/year and well cost is $10 million, annual interest rate is 7.4%/year, annual inflation rate assumed to be 2.5%/year, income tax and revenue from natural gas and NGL are ignored all dollar costs in constant 2017 US$.

Mario C Vachon x Ignored says: 03/15/2019 at 6:39 pm
You do incredible work Dennis and I believe you are correct. Demand for oil is relatively inelastic which accounts for huge price swings when inventories get uncomfortably high or low. If supply doesn't keep up with our needs, price will rise to levels that will eventually create more supply and create switching into other energy sources which will reduce demand.
Carlos Diaz x Ignored says: 03/15/2019 at 6:57 pm

Why would the economy need more oil when oil prices are low? The low price is a signal that there is too much oil being produced relative to the demand for oil.

You don't seem to be aware of historical oil prices. For inflation adjusted oil prices since 1946 oil (WTI) spent:
27 years below $30
13 years at ~ $70
18 years at ~ $40
10 years at ~ $90
5 years at ~ $50
https://www.macrotrends.net/1369/crude-oil-price-history-chart
And the fastest growth in oil production took place precisely at the periods when oil was cheapest.

You simply cannot be more wrong about that.

And your models are based on a very big assumption, that the geology of the reserves is determinant for Peak Oil. It is not. There is plenty of oil in the world, but the extraction of most of it is unaffordable. The economy will decide (has decided) when Oil Peak takes place and what happens afterwards. Predictions/projections aren't worth a cent as usual. You could save yourself the trouble.

Dennis Coyne x Ignored says: 03/16/2019 at 7:33 am
Carlos,

I use both geophysics and economics, it is not one or the other it is both of these that will determine peak oil.

Of course oil prices have increased, the cheapest oil gets produced first and oil gradually gets more expensive as the marginal barrel produced to meet demand at the margin is more costly to produce.

Real Oil Prices do not correlate well with real economic growth and on a microeconomic level the price of oil will affect profits and willingness of oil companies to invest which in turn will affect future output. Demand will be a function of both economic output and efficiency improvements in the use of oil.

Dennis Coyne x Ignored says: 03/16/2019 at 7:34 am
Thanks Mario.
Dennis Coyne x Ignored says: 03/16/2019 at 10:49 am
Carlos,

Also keep in mind that during the 1945-1975 period economic growth rates were very high as population growth rates were very high and the World economy was expanding rapidly as population grew and the World rebuilt in the aftermath of World War 2. Oil was indeed plentiful and cheap over this period and output grew rapidly to meet expanding World demand for oil. The cheapness of the oil led to relatively inefficient use of the resource, as constraints in output became evident and more expensive offshore, Arctic oil were extracted oil prices increased and there was high volatility due to Wars in the Middle east and other political developments. Oil output (C+C) since 1982 has grown fairly steadily at about an 800 kb/d annual average each year, oil prices move up and down in response to anticipated oil stock movements and are volatile because these estimates are often incorrect (the World petroleum stock numbers are far from transparent.)

On average since the Iran/Iraq crash in output (1982-2017) World output has grown by about 1.2% per year and 800 kb/d per year on average, prices have risen or fallen when there was inadequate or excess stocks of petroleum, this pattern (prices adjusting to stock levels) is likely to continue.

There has been little change when we compare 1982 to 1999 to 1999-2017 (divide overall period of interest in half) for either percentage increase of absolute increase in output.

I would agree that severe shortages of oil supply relative to demand (likely apparent by 2030) is likely to lead to an economic crisis as oil prices rise to levels that the World economy cannot adjust to (my guess is that this level will be $165/b in 2018$). Potentially high oil prices might lead to faster adoption of alternative modes of transport that might avert a crisis, but that is too optimistic a scenario even for me. 🙂

HHH x Ignored says: 03/15/2019 at 9:44 pm
China will be in outright deflation soon enough. Economic stimulus is starting to fail in China. They can't fill the so called bathtub up fast enough to keep pace with the water draining out the bottom. So to speak.

Interest rates in China will soon be exactly where they are in Europe and Japan. Maybe lower.

In order to get oil to $90-$100 the value of the dollar is going to have to sink a little bit. In order to get oil to $140-$160 the dollar has to make a new all time low. Anybody predicting prices shooting up to $200 needs the dollar index to sink to 60 or below.

The reality is oil is going to $20. Because the rest of the world outside the US is failing. Dennis makes some nice graphs and charts and under his assumptions his charts and graphs are correct. But his assumptions aren't correct.

We got $20 oil and an economic depression coming.

Peak Oil is going to be deflationary as hell. Higher prices aren't in the cards even when a shortage actually shows up. We will get less supply at a lower price. Demand destruction is actually going to happen when economies and debt bubbles implode so we actually can't be totally sure we are ever going to see an actual shortage.

We could very well be producing 20-30% less oil than we do now and still not have a shortage.

Oh and EV's are going to have to compete with $20 oil not $150 oil.

Lightsout x Ignored says: 03/16/2019 at 6:25 am
You are assuming that the oil is priced in dollars there are moves underway that raise two fingers to that.

https://www.scmp.com/economy/china-economy/article/2174453/china-and-russia-look-ditch-dollar-new-payments-system-move

Dennis Coyne x Ignored says: 03/16/2019 at 7:41 am
HHH,

When do you expect the oil price to reach $20/b? We will have to see when this occurs.

It may come true when EVs and AVs have decimated demand for oil in 2050, but not before. EIA's oil price reference scenario from AEO 2019 below. That is a far more realistic prediction (though likely too low especially when peak oil arrives in 2025), oil prices from $100 to $160/b in 2018 US$ are more likely from 2023 to 2035 (for three year centered average Brent oil price).

Dennis Coyne x Ignored says: 03/16/2019 at 9:56 am
HHH,

My assumptions are based on USGS mean resource estimates and EIA oil price estimates, as well as BIS estimates for the World monetary and financial system.

Your assumption that oil prices are determined by exchange rates only is not borne out by historical evidence. Exchange rates are a minor, not a major determinant of oil prices.

HHH x Ignored says: 03/16/2019 at 6:50 pm
Dennis,

Technically speaking. The most relevant trendline on price chart currently comes off the lows of 2016/02/08. It intersects with 2017/06/19. You draw the trendline on out to where price is currently. Currently price is trying to backtest that trendline.

On a weekly price chart i'd say it touches the underside of that trendline sometime in April in the low 60's somewhere between $62-$66 kinda depends on when it arrives there time wise. The later it takes to arrive there the higher price will be. I've been trading well over 20 years can't tell you how many times i've seen price backtest a trendline after it's been broken. It's a very common occurrence. And i wouldn't short oil until after it does.

But back to your question. $20 oil what kind of timetable. My best guess is 2021-2022. Might happen 2020 or 2023. And FED can always step in and weaken the dollar. Fundamentally the only way oil doesn't sink to $20 is the FED finds a way to weaken the dollar.

But understand the FED is the only major CB that currently doesn't have the need to open up monetary policy. It's really the rest of the worlds CB ultra loose monetary policy which is going to drive oil to $20.

[Mar 18, 2019] Countries that have reported their January production

Mar 18, 2019 | peakoilbarrel.com

Energy News, says: 03/17/2019 at 2:49 am

Countries that have reported their January production (shown on the chart)
OPEC14 -822
Alberta -268
Mexico -87
Russian Federation -78
Brazil -60
Norway -48
Total -1,429 kb/day
Chart https://pbs.twimg.com/media/D12BlLBW0AEDR6G.png

So far for February: Russia, OPEC14, Norway
Total: -330 kb/day

Chart for December which includes the big increases from the USA
https://pbs.twimg.com/media/D12IDSNW0AE18u1.png

China crude oil production
February: 3,813 kb/day
Average 2018: 3,788 kb/day
https://pbs.twimg.com/media/D12PhtXWsAALxTw.png

[Mar 17, 2019] OPEC Threatens To Kill US Shale

Mar 17, 2019 | finance.yahoo.com

The Organization of Petroleum Exporting Countries will once again become a nemesis for U.S. shale if the U.S. Congress passes a bill dubbed NOPEC, or No Oil Producing and Exporting Cartels Act, Bloomberg reported this week , citing sources present at a meeting between a senior OPEC official and U.S. bankers.

The oil minister of the UAE, Suhail al-Mazrouei, reportedly told lenders at the meeting that if the bill was made into law that made OPEC members liable to U.S. anti-cartel legislation, the group, which is to all intents and purposes indeed a cartel, would break up and every member would boost production to its maximum.

This would be a repeat of what happened in 2013 and 2014, and ultimately led to another oil price crash like the one that saw Brent crude and WTI sink below US$30 a barrel. As a result, a lot of U.S. shale-focused, debt-dependent producers would go under.

Bankers who provide the debt financing that shale producers need are the natural target for opponents of the NOPEC bill. Banks got burned during the 2014 crisis and are still recovering and regaining their trust in the industry. Purse strings are being loosened as WTI climbs closer to US$60 a barrel, but lenders are certainly aware that this is to a large extent the result of OPEC action: the cartel is cutting production again and the effect on prices is becoming increasingly visible.

Related: Pakistan Aims To Become A Natural Gas Hotspot

Indeed, if OPEC starts pumping again at maximum capacity, even without Iran and Venezuela, and with continued outages in Libya, it would pressure prices significantly, especially if Russia joins in. After all, its state oil companies have been itching to start pumping more.

The NOPEC legislation has little chance of becoming a law. It is not the first attempt by U.S. legislators to make OPEC liable for its cartel behavior, and none of the others made it to a law. However, Al-Mazrouei's not too subtle threat highlights the weakest point of U.S. shale: the industry's dependence on borrowed money.

The issue was analyzed in depth by energy expert Philip Verleger in an Oilprice story earlier this month and what the problem boils down to is too much debt. Shale, as Total's chief executive put it in a 2018 interview with Bloomberg, is very capital-intensive. The returns can be appealing if you're drilling and fracking in a sweet spot in the shale patch. They can also be improved by making everything more efficient but ultimately you'd need quite a lot of cash to continue drilling and fracking, despite all the praise about the decline in production costs across shale plays.

The fact that a lot of this cash could come only from banks has been highlighted before: the shale oil and gas industry faced a crisis of investor confidence after the 2014 crash because the only way it knew how to do business was to pump ever-increasing amounts of oil and gas. Shareholder returns were not top of the agenda. This had to change after the crash and most of the smaller players -- those that survived -- have yet to fully recover. Free cash remains a luxury.

Related: The EIA Cuts U.S. Oil Output Projections

The industry is aware of this vulnerability. The American Petroleum Institute has vocally opposed NOPEC, almost as vocally as OPEC itself, and BP's Bob Dudley said this week at CERAWeek in Houston that NOPEC "could have severe unintended consequences if it unleashed litigation around the world."

"Severe unintended consequences" is not a phrase bankers like to hear. Chances are they will join in the opposition to the legislation to keep shale's wheels turning. The industry, meanwhile, might want to consider ways to reduce its reliance on borrowed money, perhaps by capping production at some point before it becomes forced to do it.

By Irina Slav for Oilprice.com

[Mar 16, 2019] If we assume average EROEI equal 2 for shale oil then rising shale oil production with almost constant world oil production is clearly a Pyrrhic victory. Again, putting a single curve for all types of oil is the number racket, or voodoo dances around the fire.

Mar 16, 2019 | peakoilbarrel.com

likbez says: 03/16/2019 at 9:34 pm

likbez says:

03/16/2019 at 9:34 pm

Some arguments in defense of Ron estimates

1. When something is increasing 0.8% a year based on data with, say, 2% or higher margin of error this is not a growth. This is a number racket.

2. We need to use proper coefficients to correctly estimate energy output of different types of oil We do not know real EROEI of shale oil, but some sources claim that it is in the 1.5-4.5 range. Let's assume that it is 3. In comparison, Saudi oil has 80-100 range. In this sense shale oil is not a part of the solution; it is a part of the problem (stream of just bonds produced in parallel is the testament of that). In other words, all shale oil is "subprime oil," and an increase of shale oil production is correctly called the oil retirement party. The same is true for the tar sands oil.

So the proper formula for total world production in "normalized by ERORI units" might be approximated by the equation:

0.99* OPEC_oil + 0.97*other_conventional_oil + 0.95*shallow-water_oil + 0.9*deep_water_oil +0.75*(shale_oil+condensate) + 0.6*tar_sand_oil + 0.2*ethanol

where coefficients (I do not claim that they are accurate; they are provided just for demonstration) reflect EROEI of particular types of oil.

If we assume that 58% of the US oil production is shale oil and condensate then the amount of "normalized" oil extracted in the USA can be approximated by the formula

total * 0.83

In other words 17% of the volume is a fiction. Simplifying it was spent on extraction of shale oil and condensate (for concentrate lower energy content might justify lower coefficient; but for simplicity we assume that it is equal to shale oil).

Among other things that means that 1970 peak of production probably was never exceeded.

3. EROEI of most types of oil continues to decline (from 35 in 1999 to 18 in 2006 according to http://www.euanmearns.com/wp-content/uploads/2016/05/eroeihalletal.png). Which means that in reality physical volume became a very deceptive metric as you need to sink more and more money/energy into producing every single barrel and that fact is not reflected in the volume. In other words, the barrel of shale oil is already 50% empty when it was lifted to the ground (aka "subprime oil"). In this sense, shale wells with their three years of the high producing period are simply money dumping grounds for money in comparison with Saudi oil wells.

4. The higher price does not solve the problem of the decline of EROEI. It just allows the allocation of a larger portion of national wealth to the oil extraction putting the rest of the economy into permanent stagnation.

5. If we assume average EROEI equal 3 (or even 5) for shale oil then rising shale oil production along with almost constant world oil production is clearly a Pyrrhic victory. Again, putting a single curve for all types of oil is the number racket, or voodoo dances around the fire.

NOTES:

1. IMHO Ron made a correct observation about Saudi behavior: the declines of production can well be masked under pretention of meeting the quota to save face. That might be true about OPEC and Russia as a whole too. Exceptions like Iraq only confirm the rule.

2. EROEI of lithium battery is around 32

[Mar 16, 2019] Shale drilling is a lot like the housing bubble that began in 2003 and when bust in 2008. It made no sense to lend people with no job, no income and no assets, money to buy a home, but Lenders did it anyway and they did it for 5 years straight. While Shale Drillers aren't Ninja home buyers they continue to fund operations using debt.

Mar 16, 2019 | peakoilbarrel.com

TechGuy x Ignored says: 03/15/2019 at 11:52 pm

Dennis Wrote:
"I think the 4 Mb/d of increased tight oil output from Dec 2019 to Dec 2025 may be enough to keep World C+C output increasing through 2025, this assumes oil prices follow the AEO 2018 reference case "

I am sure there is sufficient Oil in the ground to delay Peak production to about 2040, if the consumer demand can afford $300 bbl. Shale drilling is a lot like the housing bubble that began in 2003 and when bust in 2008. It made no sense to lend people with no job, no income and no assets, money to buy a home, but Lenders did it anyway and they did it for 5 years straight. While Shale Drillers aren't Ninja home buyers they continue to fund operations using debt.

Shale growth is a function of credit available to shale drillers. As long as they can find a sucker^H^H^H^H lender to finance their growth, it will continue.

My wild-ass guess is that credit growth for shale drillers ends in 2021, because a lot of old shale debt comes due between 2020 and 2022.

My guess is that the shale drillers will have trouble rolling over the existing debt will also finding lenders to provide them more credit. In the past I presumed that interest rates would rise to the point it cut them off from adding new debt. but the ECB & the Fed continue to keep rates low. Perhaps the Shale drillers will get direct gov't funding to continue, pseudo nationalization as Watcher has proposed over many years on POB.

I don't see much traction in significantly higher oil prices. with 78% of US consumers living paycheck to paycheck, already, I don't believe they can absorb any substantial increase in energy costs.

Its also very likely demographics will start impacting energy consumption in the west as Boomers start retiring. A lot of boomers have postponed retirement, but I suspect that this will start to change in the early 2020s as age related issues make it more difficult for them to keep on working. Usually retired workers, consume considerably less energy as they no longer commute to work, and usually downsize their lifestyles.