There’s more trouble looming for the Permian Basis petroleum industry. From Wolf Richter at wolfstreet.com:
“The capital markets for oil and gas remain extremely difficult.”
The Dallas Fed’s Forth Quarter Energy Survey, released today, portrays an industry that is turning increasingly somber. The data is based on responses of executives (names are not disclosed) of 170 energy companies – 111 exploration and production (E&P) companies; and 59 oil field services companies – located or headquartered in the Dallas Fed’s district, which covers Texas, northern Louisiana, and southern New Mexico and includes the most prolific shale oil-and-gas field in the US, the Permian Basin.
This time, there were additional questions, including on the reasons for “flaring” of natural gas in the Permian Basin. Natural gas is so abundant in the hydrocarbon mix produced at these wells (“associated” natural gas), and natural-gas pipeline takeaway capacity is so insufficient, that the surge in production led to the collapse of the price of natural gas in the area, reportedly dropping below zero on occasion. And it led to a record amount of natural gas getting flared in 2019.
Flaring large amounts of gas is a waste of natural resources, a source of air pollution, and a big financial drag for the already struggling oil-and-gas companies, investors, and banks.
The shale patch will not be making much of a contribution to economic expansion over the course of the next few years. From Nick Cunningham at oilprice.com:
A few high-profile shale executives say the glory days of shale drilling are over.
In a round of earnings calls, the financial results were mixed. A few companies beat earnings estimates, while others fell dramatically short.
The chief executive of Pioneer Natural Resources, Scott Sheffield, said that the Permian basin is “going to slow down significantly over the next several years,” and he noted on the company’s latest earnings call that the company is also acting with more restraint because of pressure from shareholders not to pursue unprofitable growth. “I’ve lowered my targets and my annual targets, a lot of it has to do with…to start with the free cash flow model that public independents are adopting,” Sheffield said.
Much of the shale oil produced in this country is done so at a loss. That can’t last forever. From Nick Cunningham at oilprice.com:
A top U.S. shale executive said that it may only be the Midland basin in the Permian that can grow production beyond 2025.
Aside from Midland, every other shale basin may be on borrowed time, with the best acreage already picked over and oil prices languishing below $60 per barrel.
It’s been a brutal two weeks for the U.S. shale industry, clobbered by a series of poor financial results from several drillers at a time when oil prices more broadly are in freefall. The latest was Oasis Petroleum, which plunged by more than 30 percent on Wednesday, after the company said it would probably spend a little bit more than previously expected, and might produce a little bit less.
Last week, Concho Resources admitted that one of its more promising experiments, a 23-well project, suffered from poor results because the wells were packed too closely together. The company’s share price plunged by more than 22 percent because investors realized that perhaps Concho Resources, and other shale drillers like it, may not be able to produce as much oil as expected from a given level of spending.
But the hits keep on coming. President Trump announced a new round of tariffs, scheduled to take effect in September. China responded by digging in, and letting its currency depreciate, which set off a global panic about currency wars and a slowing economy. Oil entered a bear market, down more than 20 percent from a recent peak in April. U.S. energy stocks across the board fell to new depths.
Prices recovered on Thursday on rumors about more OPEC+ cuts, but that has done little to dispel concerns about U.S. shale.
Oil and gas companies flare off huge amount of natural gas in the Permian Basin and the Bakken, hundreds of millions of cubic feet per day. From Nick Cunningham at oilprce.com via wolfstreet.com:
The rate of flaring in the Permian basin reached a record high in the first three months of this year, averaging 661 million cubic feet per day (MMcfd), according to Rystad Energy. That is more than double the amount of flaring for the same period from a year earlier.
There is little chance of a reduction in the next few months. “We anticipate that basin-wide flaring will stay above 650 MMcfd before the Gulf Coast Express pipeline comes online in the second half of 2019,” Artem Abramov, Head of Shale Research at Rystad Energy, said in a press release.
It’s an astonishing amount of gas that is being flared into the atmosphere. Rystad puts it into context, noting that the most productive gas facility in the U.S. Gulf of Mexico – Shell’s Mars-Ursa complex – produces about 260 to 270 MMcfd of gross natural gas. In other words, the most productive gas project in the Gulf of Mexico only produces about 40 percent of the volume of gas that is being flared and vented in West Texas and New Mexico every single day.