Tag Archives: Shale Oil

Capital Flight Is Killing The US Shale Boom, by Nick Cunningham

Posted on October 8, 2019 | Leave a comment

Just like Silicon Valley investors are backing away from unprofitable unicorns, shale patch investors are backing away from unprofitable shale drillers. From Nick Cunningham at oilprice.com:

The growth in U.S. shale production is grinding to a halt as low prices put drillers in a financial vice.

The slowdown has been unfolding for much of 2019, but the latest slide in oil prices is another blow to cash-strapped companies. Share prices for many E&Ps are down sharply. For instance, Devon Energy’s stock is down 20 percent since mid-September; EOG Resources is off by 17 percent and Pioneer Natural Resources is down by more than 13 percent. Many other companies have seen similar declines.

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Secret Survey: U.S. Shale In A State Of ‘Deep Anxiety’, by Nick

Posted on September 26, 2019 | 1 comment

If shale oil production collapses, does that mean the US has to suck up to Saudi Arabia even more than it already does? From Nick Cunningham at oilprice.com:

The financial stress sweeping over the U.S. shale sector has led to a sharp contraction in activity.

Oil and gas activity in Texas and parts of New Mexico declined in the third quarter, with the Dallas Fed’s business activity index reporting a reading of -7.4, down from -0.6 in the second quarter. A negative reading signals contraction while a positive reading indicates expansion. Falling deeper into negative territory indicates that shale drillers in the Permian further cut drilling activity over the last three months.

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The Shale Boom Has Turned To Bust: Producers Slashing Budgets, Staff, & Production Goals, by Tyler Durden

Posted on September 9, 2019 | Leave a comment

Shale oil is a great thing, if you can make money extracting it. From Tyler Durden at zerohedge.com:

The collapse in the shale industry is continuing with no signs of stopping or even slowing down.

No sooner did we highlight how shale is doomed no matter what the industry does and how recent price movements have triggered chaos across the industry, than we find out that oil producers and their suppliers are now cutting budgets, staffs and production goals, according to Reuters.

The U.S. now has 904 working rigs, which is down 14% from a year ago. Harold Hamm, chief executive of shale producer Continental Resources, still thinks this could be too many. 

Additionally, bankruptcy filings by U.S. energy producers through mid-August of this year have matched the total for all of 2018 already. Earl Reynolds, CEO of Chaparral Energy said:

“You’re going to see activity drop across the industry.”

His firm has slashed its workforce by about 25% and cut spending by about 5%. It has also agreed to sell its headquarters and use some of the proceeds to pay off debt.

Cowen & Co. estimated last month that oil and gas producers deployed 56% of their total budgets through June and the firm expects total spending to fall 11% over last year.

And one slowdown begets another: as drilling slows, oilfield services companies are also making staff and budget cuts. Some, like Schlumberger and Halliburton Co., are considering restructurings. For example, Schlumberger is planning a writedown this quarter and has said that its North American results have been “under significant pressure”.

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The G-7 Blues, by James Howard Kunstler

Posted on August 26, 2019 | 1 comment

Extended supply lines and the global economy’s dependence on fossil fuels creates an unstable situation prone to dramatic dislocations. From James Howard Kunstler at kunstler.com:

What’s at stake in all these international confabs like the G-7 are the tenuous supply lines that keep the global game going. The critical ones deliver oil around the world. China imports about 10 million barrels a day to keep its operations going. It produces less than 4 million barrels a day. Only about 15 percent of its imports come from next door in Russia. The rest comes from the Middle East, Africa, and South America. Think: long lines of tanker ships traveling vast distances across the seas, navigating through narrow straits. The Chinese formula is simple: oil in, exports out. It has worked nicely for them in recent decades. Things go on until they don’t.

That game is lubricated by a fabulous stream of debt generated by Chinese banks that ultimately answer to the Communist Party. The party is the Chinese buffer between banking and reality. If the party doesn’t like the distress signals that the banks give off, it just pretends the signals are not coming through, while it does the hokey-pokey with its digital accounting, and things appear sound a while longer.

The US produces just over 12 million barrels of oil a day. About 6.5 million of our production is shale oil. We use nearly 20 million a day. (We’re not “energy independent.”) The shale oil industry is wobbling under the onerous debt load that it has racked up since 2005. About 90 percent of the companies involved in shale oil lose money. The capital costs for drilling, hauling a gazillion truckloads of water and fracking sand to the rig pads, and sucking the oil out, exceed the profit from doing all that. It’s simply all we can do to keep the game going in our corner of the planet, but it’s not a good business model. After you’ve proved conclusively that you can’t make a buck at this using borrowed money, the lenders will quit lending you more money. That’s about where we are now.

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Time Is Almost Up For U.S. Shale, by Nick Cunningham

Posted on August 10, 2019 | Leave a comment

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.

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What Looms Behind, by James Howard Kunstler

Posted on July 16, 2019 | Leave a comment

Are we running out of fuel and technology? From James Howard Kunstler at kunstler.com:

Don’t hold your breath waiting for a coherent pre-election debate about the mother-of-all-issues facing this republic, namely, that we can’t afford the living arrangements Americans think of as “normal” anymore. This quandary has stalked us since the millennium turned. It thunders through all the activities of daily life, and the tensions emanating from it are so agonizing and difficult to face that our politics have deflected off into the kind of hysteria spawned by bad dreams.

As the great Wendell Berry pointed out years ago, this is about the nation’s home economics: energy and resources in, production out, surplus wealth saved. America had a brush with reality in 2008 when all the distortions of our home economics came together and whapped the country between the eyes with a two-by-four. Our energy-in was faltering. US oil production had fallen to a new low of under 4 million barrels a day and we were importing around 15 million. We papered over the problem with borrowed money in ever-larger amounts. This dynamic prompted ever riskier work-arounds on Wall Street, especially “innovations” in securitized debt, which invited criminal shenanigans. It blew up badly. Wealth vaporized. Industries collapsed. Homes and jobs were lost. Lives ruined.

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Trump Thinks US Oil Is His Strength When It’s His Achilles’ Heel, by Tom Luongo

Posted on June 14, 2019 | Leave a comment

It’s hard to call shale oil a US strength when so much of it is produced at a loss and funded by borrowed money. From Tom Luongo at strategic-culture.org:

Headlines abound about the massive surge in US shale oil production. The energy independence-cheering punditocracy hail this as a great victory. This includes President Trump.

And it would be if this surge in production was built on financially stable ground. But it isn’t. The fracking industry continues to bleed massive amounts of cash. As I pointed out in an article earlier this week, when accounting for this inconvenient truth much of the U.S’s return to dominance in the energy space is a lot of hot air.

Nick Cunningham’s article at Oilprice.com tells the tale.

Heading into 2019, the industry promised to stake out a renewed focus on capital discipline and shareholder returns. But that vow is now in danger of becoming yet another in a long line of unmet goals.

“Another quarter, another gusher of red ink,” the Institute for Energy Economics and Financial Analysis, along with the Sightline Institute, wrote in a joint report on the first quarter earnings of the shale industry.

The report studied 29 North American shale companies and found a combined $2.5 billion in negative free cash flow in the first quarter. That was a deterioration from the $2.1 billion in negative cash flow from the fourth quarter of 2018. “This dismal cash flow performance came despite a 16 percent quarter-over-quarter decline in capital expenditures,” the report’s authors concluded.

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Energy Dominance or Flatulence? Shale Drillers Bleed Cash, by Tom Luongo

Posted on June 9, 2019 | 2 comments

The shale drillers are the Elon Musks of natural resources: they produce products at a loss, but intend to make it up on volume. From Tom Luongo at tomluongo.me:

All of President Trump’s foreign policy can be summed up by two themes, making the world safe for Israel and controlling the price of energy.

He calls the latter “Energy Dominance.” And to those who still believe Trump has a plan, these two things are the only ones consistently in evidence.

His reactions to things contrary to his plan, however, are purely limbic.

These two themes converge completely with Iran. Trump wants Iran neutered to force Jared Kushner’s now-delayed again, “Deal of the Century” onto the Palestinians while also taking Iran’s oil off the market to support surging U.S. domestic production in the hopes of taking market share permanently.

Everything Trump does is in support of these two themes while throwing some red meat at his base over China, Mexico and the border.

It was never his intention to leave Syria back in December, really. Look how easy was it for John Bolton and the Joint Chiefs to convince him to stay because how else would we cut Iran’s exports to zero if we didn’t stop the land route through Iraq?

This is why we’re still harboring ISIS cells in the desert crossing around Al-Tanf at the Jordan/Iraq/Syria border, to stop Iranian oil from coming into the country.

This feeds right into hurting all of Syria’s allies to strengthen Israel’s position.

To paraphrase the song from Aladdin, “It’s stupid, but hey, it’s home.”

If the average Trump voter truly understood the lengths we are going to starve the Syrian army from having enough energy to finish wiping out the Al-Qaeda-linked groups in Idlib and Homs provinces they would burn their MAGA hats and stay home next November.

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Be Wary Of Unrealistic Shale Growth Expectations, by Nick Cunningham

Posted on March 6, 2019 | Leave a comment

It turns out the shale oil story isn’t quite the miracle it’s touted to be. From Nick Cunningham at oilprice.com:

U.S. shale drillers are facing a serious problem: Their wells are not producing as much oil and gas as they had anticipated.

When facing shareholder scrutiny, shale drillers have countlessly hyped the litany of technological breakthroughs, efficiency gains and innovative drilling techniques. Indeed, production from U.S. E&Ps has skyrocketed over the past decade, save for interruption during the 2014-2016 bust. But even then, shale executives argued that the downturn made them lean and mean, and that they would use their newfound frugality to ramp up production and profits.

But the hype has slammed into reality on a few fronts. First, after years of bankrolling the shale industry in hopes of juicy profits, Wall Street is starting to lose patience. Some companies turn a profit, but the industry on the whole has been losing money since its inception in the mid-2000s. Executives are once again promising that enormous profits are just around the corner, but you could forgive the skeptics for questioning whether that will turn out to be the case.

A second – and no less damning – development is starting to occur on the operational side of things. Shale companies are finding that the returns on pushing their drilling practices to evermore intense frontiers are beginning to fizzle. For years, drillers increased the length of their laterals, injected more and more sand and water underground, and packed wells closer and closer together. These techniques of intensification promised to produce more oil and gas for less money.

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In the Deep Mid-Winter, by James Howard Kunstler

Posted on January 25, 2019 | Leave a comment

Like spring, collapse, financial and political, is coming. From James Howard Kunstler at kunstler.com:

Ill winds sweep across the fruited plain in the cruel heart of winter. America can resolve nothing. The state-of-the-union is a kind of hysterical nausea, and the nation hunkers into its crib of toxic diverse identities waiting for history to bitch-slap it back on its feet. History’s big sister, Reality, stands by, witnessing all. Spring… is… coming….

Things break up in spring. Nature unlocks what was frozen. The bodies emerge from the melting ice and ripen. The air is electric and thunderbolts frighten the gathering mobs in the public square, the Walmart parking lot, with rumors of war. The earth shakes and monuments fall. That’s how it’s shaping up for 2019.

Sometimes nations just lose their shit. The complex collapse of American life proceeds as the public and its leaders fail to comprehend the forces in play. What the Federal Reserve actually accomplished with its ten years of extend-and-pretend policy was not an economic “recovery,” but a degenerative disease of the social contract. If you look more closely, you can sense what will be unleashed when the ground thaws.

There will be a reckoning in the financial markets. Something ominous is rumbling over in bonds. No more high-yield for you! Among the victims of a credit freeze in “junk” (high-risk) lending: the shale oil industry. Watch it start to roll over this spring as money becomes unavailable for the exorbitant operations that comprise fracking. The swift collapse of the shale oil industry will shock the country, but it is really just the downside of its improbably rapid and acrobatic rise since 2005 on the false premise that profits don’t matter in a business venture. Only the fall will be even sharper than the rise: a few measly years. And, of course, the bond market represents the supreme untruth of the age: that debts can be racked up forever and never paid back.

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