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An Endless Sea of Energy
An Endless Sea of Energy
With crude oil prices in a strong corrective mode, energy depletion is understandably not on people’s minds these days. However, this is a scenario that many of us might have to deal with at some point in our lifetimes.
Yes, the world currently has more than abundant supplies of crude oil. US tight oil production has been rising exponentially, accounting for the biggest share of global growth since 2009. This is by any measure an amazing technological and logistical achievement. OPEC has simply been incapable to accommodate the resurgence of the US as a major producer; and falling prices may actually prompt some of its members to sustain outputs, otherwise lost revenues will be even larger.
We might be swimming in oil for now, but this should be no reason to become complacent.
As an example, an important fact that is often overlooked is that tight oil exploration is a different animal, and relatively recent in terms of its significance. Each tight oil well has very steep decline rates – in many cases 90% within 5 to 7 years, much steeper than conventional wells. This means that to sustain (let alone increase) production many new wells need to be drilled each year. And at US$5-10 million cost per well, this is not cheap either.
…click on the above link to read the rest of the article…
North Dakota Mineral Resources Dept Admits Half Its Shale Regions Below Breakeven
North Dakota Mineral Resources Dept Admits Half Its Shale Regions Below Breakeven
While talking heads and TV personalities reassure the investing public that low oil prices are “unambiguously awesome” for everyone, it seems the cracks in this narrative are starting to show. From falling wages, surging job cuts, plunging rig counts, and crashing capex, it’s becoming a lot harder to ‘pretend’ that everything’s fine. One wonders, when the companies themselves are slashing workweeks and cutting rig counts, when will ‘investors’ believe… perhaps now that Lynn Helms, Director of the North Dakota Department of Mineral Resources explains to the House Appropriations Committee that at least half of its shale regions are already below breakeven.
From a 12 page presentation…
The following shale regions are below breakevens (at which new drilling would cease)…
…click on the above link to read the rest of the article…
Bakken, Let’s Do The Math
Bakken, Let’s Do The Math
There has been considerable dispute over how many new wells required to keep production flat in the Bakken and Eagle Ford. One college professor posted, over on Seeking Alpha, figures that it would take 114 rigs in the Bakken and 175 in Eagle Ford to keep production flat. He bases his analysis on David Hughes’ estimate that the legacy decline rate fir Bakken wells is 45% and 35% for Eagle Ford wells. And he says a rig can drill 18 wells a year, or about one well every 20.3 days.
The EIA has comes up with different numbers. The data for the chart below was taken from the EIA’sDrilling Productivity Report.
The EIA has current legacy decline at about 6.3% per month for Bakken wells and about 7.7% per month for Eagle Ford wells. That works out to be about 54% per year for the Bakken and 62% per year for Eagle Ford. I believe the EIA’s estimate of legacy decline, in this case, is fairly accurate. For instance last month Mountrail County had over 30 new wells completed yet still declined by 6.4%. And in December 2013 North Dakota declined by 5.22% yet had 119 new well completions.
…click on the above link to read the rest of the article…
Saudi War On Shale Goes Nuclear – “No Chance OPEC Will Cut Output” Even With Brent Under $50
Saudi War On Shale Goes Nuclear – “No Chance OPEC Will Cut Output” Even With Brent Under $50
For those hoping that the recent brief dip in Brent crude below $50 – most notably Venezuela’s intrepid socialist leader Nicolas Maduro whose numbered days get shorter with every day Brent closes red, and countless bondholders of junk- debt capitalized shale companies – would mean that Saudi Arabia’s vendetta against OPEC would finally be put on hiatus, we have bad news: the vendetta just wen nuclear because as Reuters reports, there is “no chance of OPEC output cut.”
As Reuters further adds, Saudi Arabia and its Gulf OPEC allies are showing no sign of considering cutting output to boost oil prices, despite Brent’s dip below $50 a barrel this week, where it is surely headed once again in the coming days. More:
Those misgivings have grown with a slide in oil prices to below half their level in June, hurting the economies of OPEC’s smaller producers. Benchmark Brent dipped to $49.66 on Wednesday, its lowest since April 2009, before rising to $51 on Thursday.OPEC has forecast an increasing surplus in 2015, citing rising supplies outside the group and lacklustre growth in global demand. But the Gulf members, who account for more than half of OPEC output, are not wavering, arguing lower prices will slow competing supplies, spur economic growth and revive demand.
One delegate from a Gulf OPEC member said there was “no chance” of a rethink while another referred to the view that non-OPEC producers were to blame for the glut. “Naimi made it clear: OPEC will not cut alone,” the second delegate said.
…click on the above link to read the rest of the article…
Oil Prices, Rig Count And The Economic Impact
Oil Prices, Rig Count And The Economic Impact
A few years ago I spent a good deal of time overseas. When you travel for an extended period, it is always interesting to begin to understand the perception that people in other parts of the world have about where you come from. When I was living and working in Spain, it was a common misconception that since I was from Texas I must own cows and oil wells. (I was also asked several times if we really did ride horses to work and wear cowboy hats. Okay, some people still do.) The point is that perception and reality can be two entirely different things. The current perception is that falling oil prices will be a net positive to the economy. However, could reality actually be quite different?
Since 2010, the Texas economy has boomed due to the surge in oil prices which has led to substantial increases in employment, net worth and corporate profits. People from all over the country have moved to Texas in droves in search of higher wage-paying employment than what could be achieved in many other states. With a substantially lower cost of living, Texas has been a mecca in the desert of economic growth found in many states since the financial crisis.
http://www.zerohedge.com/news/2015-01-07/oil-prices-rig-count-and-economic-impact
The First Shale Casualty: WBH Energy Files For Bankruptcy; Many More Coming
The First Shale Casualty: WBH Energy Files For Bankruptcy; Many More Coming
“There are too many ugly balance sheets,” warns one energy industry analyst, adding simply that “the group is not positioned for this downturn.” While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various ‘statistics’ about how the down-side of low oil prices is ‘contained’ and the huge colossal massive tax cut means ‘everything is awesome’ for America, the data – and now actions – do not bear this out. Macro data has done nothing but disappoint and now, we have the first casualty of the shale oil leverage debacle as WSJ reports, on Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money. There are many more to come…
In December we illustrated the problem names (in the publicly traded markets) among the most-levered energy companies in America…
And now, as The Wall Street Journal reports, the bankruptcies have begun as financing costs are not just prohibitive, there is no liquiidty available at any price for many…
…click on the above link to read the rest of the article…
Oilfield Writedowns Loom as Crude Slump Guts Drilling Values
Oilfield Writedowns Loom as Crude Slump Guts Drilling Values
Tumbling crude prices will trigger a flood of oilfield writedowns starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration.
With crude prices down more than 50 percent from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, said a team of Citigroup Inc. (C) analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $50-a-barrel market include international titans such as Royal Dutch Shell Plc and small wildcatters like Sanchez Energy Corp.
The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.
…click on the above link to read the rest of the article…
The Real Cause Of Low Oil Prices: Interview With Arthur Berman
The Real Cause Of Low Oil Prices: Interview With Arthur Berman
With all the conspiracy theories surrounding OPEC’s November decision not cut production, is it really not just a case of simple economics? The U.S. shale boom has seen huge hype but the numbers speak for themselves and such overflowing optimism may have been unwarranted. When discussing harsh truths in energy, no sector is in greater need of a reality check than renewable energy.
In a third exclusive interview with James Stafford of Oilprice.com, energy expert Arthur Berman explores:
• How the oil price situation came about and what was really behind OPEC’s decision
• What the future really holds in store for U.S. shale
• Why the U.S. oil exports debate is nonsensical for many reasons
• What lessons can be learnt from the U.S. shale boom
• Why technology doesn’t have as much of an influence on oil prices as you might think
• How the global energy mix is likely to change but not in the way many might have hoped
OP: The Current Oil Situation – What is your assessment?
Arthur Berman: The current situation with oil price is really very simple. Demand is down because of a high price for too long. Supply is up because of U.S. shale oil and the return of Libya’s production. Decreased demand and increased supply equals low price.
As far as Saudi Arabia and its motives, that is very simple also. The Saudis are good at money and arithmetic. Faced with the painful choice of losing money maintaining current production at $60/barrel or taking 2 million barrels per day off the market and losing much more money—it’s an easy choice: take the path that is less painful. If there are secondary reasons like hurting U.S. tight oil producers or hurting Iran and Russia, that’s great, but it’s really just about the money.
…click on the above link to read the rest of the article…
Oil, Power and Psychopaths – The Automatic Earth
Oil, Power and Psychopaths – The Automatic Earth.
Iran has a – very – long running dispute with the US about its nuclear technology. The US wants Assad (Bashar Al-Assad) out of Syria, while Iran and Russia support Assad (Russia’s sole proper base in the Middle East), who’s an Alawite (a Shi-ite branch), a people historically persecuted by Sunni’s. ISIS (or Daesh in the region) is Sunni. So are the Saudi’s. Iran is Shi’ite. Bahrain is ruled by Sunni but has a majority Shi’ite population. And I could go on for a while. A long while.
All this plays into the oil game, the falling oil prices. Blaming OPEC for the recent price fall is seeing the world from a child’s perspective. OPEC and its major voteholder, Saudi Arabia, are no more to blame for the plunge than the US, Russia or other non-OPEC producers. Everybody produces as if there’s no tomorrow, and the Saudi’s have merely concluded that their only choice is to do the same. It’s a race to the bottom.
The reason is the fast declining demand for oil; China is nowhere near as mighty as we seem to think, Europe is a basket case, emerging economies are being strangled as we speak by the surging dollar and the Fed taper, and we’re just getting started. It’s cute and all that nobody wonders how much virtual money has vanished into the great beyond as both oil itself and the companies that get it out of the earth have lost half of their ‘values’ in Q4 2014, let alone the countries that depend on oil for their very existence. But cute doesn’t cut it.
Another Shale-Bubble Bursts: Oil’s Plunge Is Not ‘Unequivocally Good” For This Group | Zero Hedge
Another Shale-Bubble Bursts: Oil’s Plunge Is Not ‘Unequivocally Good” For This Group | Zero Hedge.
While Jim Cramer went “all-in on oil stocks” in May 2014 (right before the collapse), it was the fracking sand-providers that were the most-loved stocks on many individual investors buying lists last year… until their worlds caved in. As WSJ reports, for many sand producers, this is their first time on the bucking bronco that is the cyclical energy business—and not all of them are ready for the wild ride. As one CEO exclaimed, “there are a lot of wide-eyed people out there right now in the industry.”
Sand is an important ingredient in hydraulic fracturing, or fracking, which has pushed American oil output above 9 million barrels a day, rivaling the production of Saudi Arabia or Russia. Sand companies’ biggest customers used to be golf courses and glass manufacturers, but the oil boom brought energy clients to their door and now roughly 60% of business is tied to fracking, according to PacWest Consulting Partners, which forecasts sand demand.
But as The Wall Street Journal reports, now that oil prices have fallen, many fracking companies are retrenching—and that is bad news for sand producers.
Low Prices Lead To Layoffs In The Oil Patch
Low Prices Lead To Layoffs In The Oil Patch.
Crude oil is set to close out a shocking year with a fresh five-year price low in the final days of 2014, falling more than 50 percent from their June highs.
The decline continues to bedevil the markets. Sensing a rally was in order, speculators had dumped money into energy stocks throughout the month of December, hoping to buy up positions at basement prices. But Bloomberg reports that long positions in West Texas Intermediate declined by the most since August for the week ending on December 23, an indication that the markets have lost confidence in a swift rebound for oil prices.
This portends a longer period of low oil prices, and with that, a cutback in drilling and job losses in the U.S. oil patch. Baker Hughes reported that the rig count took another significant hit in the week ending on December 29, falling by 35 to a total of 1,840 oil and gas rigs in operation. Across the country, exploration companies are slashing their capital expenditures for the coming year to reflect the poor price environment.
WTI Hits $52 Handle As US Rig Count Tumbles To 8-Month Lows | Zero Hedge
WTI Hits $52 Handle As US Rig Count Tumbles To 8-Month Lows | Zero Hedge.
Just as T. Boone Pickens warned “watch the rig counts” last week, so the Baker Hughes rig countjust collapsed for the 3rd week in a row to 8-month lows. This is the fastest 3-week drop since mid-2009. Crude prices were already weak but the news has flushed WTI to a $52 handle (not seen in the front-month contract since May 2009)
Rig count is tumbling…
Some context for the surge in US rig count…
Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs
Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs.
Despite the decline in oil prices, the U.S. is expected to boost production by 300,000 barrels per day in 2015, up to a yearly average of about 9.3 million barrels per day, according to the most recent government estimates.
But the number of oil and gas rigs in operation is already beginning to drop. For the week ending in December 19, the rig count dropped to 1,875 active rigs, down from 1,893 a week earlier. The fall off is an indication that exploration companies are beginning to pare back investments. Pulling back on drilling may result in a lower future production, which could hurt the growth prospects of some oil firms.
However, the slowdown in drilling activity is having a much more immediate and acute effect on a separate set of companies – those supplying the rigs.
Offshore oil contractors such as Halliburton or Transocean have seen their share prices tank worse than exploration companies because their revenue comes from being paid to drill, not necessarily from oil production after wells are completed. That means that when drilling slumps, their profits take an immediate hit. Even worse, exploration companies may see rising profits from existing production as oil prices rebound, but drilling service companies don’t benefit if their drilling contracts had been put on hold or cancelled.
Peak Oil Review – 25 December 2014
Peak Oil Review – 25 December 2014.
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The Dangerous Economics of Shale Oil | Peak Prosperity
The Dangerous Economics of Shale Oil | Peak Prosperity.
For years, we’ve been warning here at PeakProsperity.com that the economics of the US ‘shale revolution’ were suspect. Namely, that they’ve only been made possible by the new era of ‘expensive’ oil (an average oil price of between $80-$100 per barrel). We’ve argued that many players in the shale industry simply wouldn’t be able to operate profitably at lower prices.
Well, with oil prices now suddenly sub-$60 per barrel, we’re about to find out.
Using the traditional corporate income statement, it is difficult to determine if shale drilling companies make money. There are a lot of moving parts, some deliberate obfuscation at some companies, and the massive decline rates make analysis difficult – since so much of reported profitability depends on assumptions made regarding depreciation and depletion.
So, can shale oil be profitable? If so, at what price? And under what conditions?
I try to deconstruct all this here.
Technology
A shale well consists of a vertical shaft that drives down into the earth to get to the right geological layer where the oil is located. Then the shaft bends 90 degrees, and extends horizontally 5000-10000 feet. It is in the horizontal section where the magic takes place. At intervals along the horizontal section, the “frac stages” happen, each of which fracture the surrounding rock to release the oil locked inside the rock.
