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Baker Hughes reported a dip in the number of active oil and gas rigs in the United States today. Oil and gas rigs decreased by 3 rigs, according to the report, with the number of oil rigs increasing by 1, and the number of gas rigs decreasing by 4.

The oil and gas rig count now stands at 1,059—up 126 from this time last year.

Canada, for its part, gained 27 oil rigs for the week—after last week’s gain of 13 oil and gas rigs. Despite weeks of significant gains, Canada’s oil and gas rig count is still down by 20 year over year.

Oil benchmarks experienced a huge slide on Friday as Russia and Saudi Arabia proclaimed their willingness to increase output ahead of the June 22 OPEC/NOPEC meeting in Vienna, even if the oil production cut deal were to fall apart. The loose commitment by two of the largest signees to the production cut deal was enough to drag down prices that were earlier being pulled upwards by Venezuela’s freefalling oil production that some think will fall below 1 million barrels per day, and continuing reports that Iran may face multiple obstacles on the road to exporting its oil in the wake of renewed sanctions levied by the United States. Related: The Permian Faces A Long Term Natural Gas Crisis

At 12:07pm EDT, the WTI benchmark was trading down a massive 3.36% (-$2.25) to $64.64, with Brent down 3.48% (-$2.64) to $73.30. Both benchmarks are down week on week as well as on the day.

US oil production continues putting downward pressure on oil prices, and for the week ending June 08, production reached 10.900 million bpd—just a hair shy of the 11 million bpd production that many had forecast for the year.

At 7 minutes after the hour, WTI was trading down 2.93% at $64.93, with Brent trading down 3.29% at $73.44.

Shale Bottlenecks Could Send Oil Prices Higher

June 4, 2018

Shale Bottlenecks Could Send Oil Prices Higher

Amid reports that OPEC will likely decide to start easing production quotas after June 22 and an IEA forecast that electric vehicles will displace 2.5 million bpd in crude oil demand by 2030, some analysts remain upbeat about the future of oil prices, citing transport constraints in the U.S. shale patch as well as companies’ prioritization of returning cash to shareholders over investing in new production.

CNBC recently quoted one such analyst, Tamar Essner from Nasdaq Corporate Solutions, as saying “I think it’s temporary. I think the fundamental picture is still really strong. The market’s getting a bit dislocated right now based on a risk-off sentiment.“ Essner went on to note the 500,000-bpd fall in production in Venezuela and speculated that it could fall by another half a million barrels daily by end-2018. If this happens, he said, U.S. shale drillers would not be able to ramp up production quickly enough to meet growing demand.

Indeed, Venezuelan production has been sliding inexorably, and chances are that it will continue to fall until the year’s end, at least. However, U.S. drillers have increased their daily production since the start of the year by 1.28 million bpd already, if we are to believe EIA’s weekly production estimates and monthly reports, which have historically proven to be quite accurate.

So, that’s 1.28 million bpd more over five months. Even if the EIA is erring on the positive side, the increase in U.S. production could be around 1 million barrels daily, which would be enough to offset a Venezuelan production decline of the same proportions.

…click on the above link to read the rest of the article…

Art Berman: Think Oil Is Getting Expensive? You Ain’t Seen Nothing Yet.

June 2, 2018

Art Berman: Think Oil Is Getting Expensive? You Ain’t Seen Nothing Yet.

A global supply crunch approaches…

After issuing clear warnings on this program that sub-$50 oil prices were going to be short-lived, oil expert and geological consultant Art Berman returns to the podcast this week to explain why today’s $70 oil prices will go higher — likely much higher — and start materially contricting world economic growth.

Art explains how the current glut of oil created by the US shale boom — along with high crude output by both OPEC and non-OPEC producers — is a temporary anomaly. Fundamentally, we are not finding nearly as much oil as we need to continue the trajectory of the global demand curve. And at the same time, we’re extracting our reserves at a faster rate than ever. That’s a mathematical recipe for a coming supply crunch — it’s not a matter of if, but when:

The price of oil has gone up 30%+ percent just here in the last year alone. There are some very good reasons for that.

In the United States, we’ve been drawing down our reserves, our inventory and the amount of oil we have in storage, consistently since February of 2017. We’re going into the 15th month of drawing from storage each week because we’re not producing enough to meet the need.

To those paying attention: the United States is right now producing more oil than it ever has in its history. We are a million barrels a day higher than the peak in 1970 — the one that King Hubbert got in trouble for warning about. We’re higher by 50,000 or so barrels per month of production. Yet, here we are, still sucking oil out of storage. What does that tell you? There is only one way to interpret that: We are using more than we are producing.

…click on the above link to read the rest of the article…

Permian Growth Is Reaching Its Limits

May 24, 2018

Permian Growth Is Reaching Its Limits

The Permian isn’t just suffering from a bottleneck for oil, but also for natural gas.

In 2016, for instance, gas flows leaving the Permian typically clocked in at about 3.6 billion cubic feet per day (Bcf/d), according to S&P Global Platts. That number has ballooned to 6.3 Bcf/d as of May 2018.

Obviously, the surge in gas flows from the Permian is the result of a massive increase in gas production. Gas output has surged more than 135 percent since 2013 and is expected to rise to just shy of 10.5 Bcf/d (including natural gas liquids) in June 2018. The problem is that the region’s ceiling on takeaway capacity stands at about 7.3 Bcf/d.

Skyrocketing natural gas production has unsurprisingly weighed on regional prices. According to S&P Global Platts, natural gas prices at the Waha Hub in West Texas traded at an 8-cent per MMBtu discount to Henry Hub two years ago, but that discount widened to about $1/MMBtu this month.

With so much gas on their hands, Permian drillers have resorted to higher rates of flaring. The Environmental Defense Fund estimates that top Permian producers are flaring as much as 10 percent of their gas. “This flaring is so extreme, it can be seen from space,” EDF says. “In 2015 alone, enough Texas Permian natural gas was flared to serve all of the Texas household needs in the Permian counties for two and a half years.”

S&P Global Platts reported that gas flows to Mexico have increased over the past few weeks, relieving some pressure. But infrastructure within Mexico hasn’t been able to keep up with the supply of gas north of the border, so some of the pipelines are under-utilized. In any event, the gas volumes moving to Mexico will be swamped by new supply coming online in the Permian. At some point, the glut of gas could force curtailments in drilling.

…click on the above link to read the rest of the article…

THE SHALE OIL PONZI SCHEME EXPLAINED: How Lousy Shale Economics Will Pull Down The U.S. Economy

May 19, 2018

THE SHALE OIL PONZI SCHEME EXPLAINED: How Lousy Shale Economics Will Pull Down The U.S. Economy

Few Americans realize that the U.S. economy is being propped up by the Shale Oil Industry. However, the shale oil industry is nothing more than a Ponzi Scheme, so when it collapses, it will take down the U.S. economy with it. Unfortunately, the reason few Americans understand how lousy the economics are in producing shale oil and gas is due to the misinformation and propaganda being put out by the industry and energy analysts.

I am quite surprised how bank analysts and brokerage firms can continue to fund the shale oil and gas or advise clients to purchase stock when the industry is behaving just like the Bernie Madoff Ponzi Scheme. The only big difference is that the U.S. Shale Industry is a Ponzi at least four times greater than Madoff’s $65 billion fiasco.

I decided to discuss in detail why the U.S. Shale Oil Industry was a Ponzi Scheme in my newest video. I provide some interesting charts that explain how the huge decline rates and massive debt are going to bring down the industry, much quicker than the market realizes.

In the video, I show just how quickly two of the largest U.S. shale oil fields decline. The chart below was developed by Enno Peters at the ShaleProfile.com website. The Permian, the largest shale basin in the United States, decline rate was a stunning 60% in just two years. Thus, the companies producing oil in the Permian are forced to spend boatloads of Captial Expenditures (CAPEX) to grow or just maintain production:

…click on the above link to read the rest of the article…

This Federal Policy Enabled the Fracking Industry’s $280 Billion Loss

May 14, 2018

This Federal Policy Enabled the Fracking Industry’s $280 Billion Loss

Most people probably aren’t familiar with the acronym ZIRP. It stands for zero interest rate policy and is the policy that unintentionally created the American fracking bubble — just one of its many consequences.

And while most people may not know much (if anything) about ZIRP or the Federal Reserve (Fed), it is likely that they are aware of the impact this policy has on their own lives.

Do you have money in your checking account? Are you lucky enough to have savings? Have you noticed how you don’t make any interest on that money and haven’t for almost 10 years?

You can thank the Fed and ZIRP for that. One of the results of the Fed’s zero interest rate policy is that the average American saver ends up with close to zero interest on their money in the bank. This is one of the reasons that ZIRP is often described as a wealth transfer from American savers to debtors. Because the shale industry is deeply in debt, these companies directly benefit from this arrangement.

Below is a chart of rates for certificates of deposit (CD) since 1980 — historically a safe investment that gave people a decent return on their savings.

Since 2010, if you put your money in a CD, you would not even be keeping up with inflation due to the low interest rate. That isn’t supposed to be how it works.

And as this next chart shows, historically that hasn’t been how it works. The graph below is the federal funds rate since 1950 (this is the interest rate that banks charge each other to lend excess cash overnight). It’s very clear that starting in 2008, the chart flatlined (due to ZIRP) and stayed that way for years — something that had not happened before.

…click on the above link to read the rest of the article…

The efficiency of US shale oil drilling and production

May 14, 2018

The efficiency of US shale oil drilling and production

Posted on May 14, 2018 by Euan Mearns

In my recent Oil Production Vital Statistics post, commenter rjsigmund posted a link to this EIA update on shale oil production efficiency which in my opinion contains some astonishing data on how the industry has drilled better and better wells, year on year, for a decade. US production is heading higher. At the same time turbulence has gripped the global oil market sending Brent above $77 / barrel as fresh sanctions loom for Iran and Venezuelan production continues to free fall.

What is shale oil?

First a very brief update on what we mean by shale oil and how it is produced. Oil and gas is formed in the Earth’s crust when organic rich source rocks become deeply buried (>3000 m depth), heated (>100˚C) and squeezed. Some of this oil escapes from the source rock and migrates upwards where some of it is trapped in porous sandstones or limestones. This conventional oil or gas was accessed for decades using vertical or sub-vertical wells (Figure 1) and would flow freely to surface under its own buoyancy pressure.

In “shale oil” (also known as light tight oil – LTO), it is the low permeability source rocks themselves that are the drilling target. Oil does not flow freely for these rocks and requires the assistance of hydraulic fracturing (fracking). The default operational mode is to drill a long horizontal well, fracture it and pump it full of proppant (normally sand) that keeps the fractures open allowing the oil or gas to flow out (Figure 1). The main shale oil and gas basins of the USA are shown in Figure 2.

Figure 1 Cartoon showing conventional gas being accessed by a vertical well and shale gas being accessed by a sub-horizontal well.

…click on the above link to read the rest of the article…

The Secret of the Great American Fracking Bubble

April 18, 2018

The Secret of the Great American Fracking Bubble

Natural gas drilling well pad in Wyoming

What was McClendon’s secret? Instead of running a company that aimed to sell oil and gas, he was essentially flipping real estate: acquiring leases to drill on land and then reselling them for five to 10 times more, something McClendon explained was a lot more profitable than “trying to produce gas.” But his story may serve as a cautionary tale for an industry that keeps making big promises on borrowed dimes — while its investors begin losing patience, a trend DeSmog will be investigating in an in-depth series over the coming weeks.

From 2008 to 2009, Chesapeake Energy’s stock swung from $64 a share under McClendon to around $17. Today, it’s worth just $3 a share — the same price it was in 2000. A visionary when it came to fracking, McClendon perfected the formula of borrowing money to drive the revolution that reshaped American energy markets.

An Industry Built on Debt

Roughly a decade after McClendon’s rise, the Wall Street Journal reported that “energy companies [since 2007] have spent $280 billion more than they generated from operations on shale investments, according to advisory firm Evercore ISI.”

As a whole, the American fracking experiment has been a financial disaster for many of its investors, who have been plagued by the industry’s heavy borrowing, low returns, and bankruptcies, and the path to becoming profitable is lined with significant potential hurdles. Up to this point, the industry has been drilling the “sweet spots” in the country’s major shale formations, reaching the easiest and most valuable oil first.

…click on the above link to read the rest of the article…

Bahrain Discovers Largest Oil Field With 80 Billion Barrels In Reserves

April 5, 2018

Bahrain Discovers Largest Oil Field With 80 Billion Barrels In Reserves

Bahrain officials have revealed that the tiny gulf kingdom has discovered some 80 billion barrels of shale (otherwise known as tight) oil – the kingdom’s largest oil and gas find ever. The field also discovered 14 trillion cubic feet of natural gas beneath an existing field.

Oil Minister Sheikh Mohammed bin Khalifa Al Khalifa said the kingdom has not yet determined how much of the oil can be easily extracted, according to the Associated Press.

The oil fields were discovered in the offshore Khalij al-Bahrain Basin, which covers some 770 square miles in the shallow waters off Bahrain’s west coast.

The underwater shale would dwarf the country’s existing reserves.

According to figures from the US Energy Administration, Bahrain currently pumps about 45,000 barrels a day from its Bahrain Field. It also shares income from a deposit with Saudi Arabia that produces about 300,000 barrels a day.

“Initial analysis demonstrates the find is at substantial levels, capable of supporting the long-term extraction of tight oil and deep gas,” the Sheikh said.

He added during the news conference, which was held in Manama on Wednesday, that Bahrain’s National Oil and Gas Authority hoped to lure foreign oil and gas firms to develop the field where the reserves were found, per the BBC.

Bahrain has been pumping oil since 1932 and was among the first Arab Gulf states to extract oil.

According to the Guardian, industry consultants DeGolyer and MacNaughton (Demac) have worked with Bahrain to evaluate the newfound reserves.

“Demac evaluated the reservoir and test data, evaluated volumetric and recovery potential, and provided reports documenting both prospective and contingent resources. This is a project which breaks new ground for the industry,” a spokesperson said.

…click on the above link to read the rest of the article…

Shale Pioneer Issues Warning To US Drillers

March 7, 2018

Shale Pioneer Issues Warning To US Drillers

U.S. shale has effectively upended the oil industry, with predictions that total U.S. oil production will surpass Saudi Arabia’s output this year, in turn rivalling Russia’s to become the preeminent global producer. From its position of being dependent on, and subordinate to OPEC, the U.S. has seemingly become the big bad wolf. Through a catalogue of tactical errors and misplaced belief in its own muscle, the mighty brick edifice of OPEC has begun to look more like a bundle of sticks.

The International Energy Agency (IEA) forecasts that the U.S. will become a net energy exporter by the late 2020s, but how accurate is that forecast, and to what extent is it mere hyperbole? In October last year there were already caveats about the nature of U.S. shale, with some warning that aggressive expansion was leading to rapid initial growth that would ultimately peak too soon. Mark Papa, former head of EOG Resources (NYSE: EOG) raised the question of flatlining output in the face of the doubling of the oil rig count, “(h)ow can a rig count be double and yet production be stagnant?”

Figures have also been influenced by the rapid pace of technological development, a pace which has itself plateaued. Robert Clarke, WoodMac research director for Lower 48 upstream, said that “(i)f future wells … are not offset by continued technology evolution, the Permian may peak in 2021”. IEA forecasts then, may be based on rapid growth and technological development that simply isn’t sustainable.

…click on the above link to read the rest of the article…

North America’s Next Big Shale Play

February 2, 2018

North America’s Next Big Shale Play

The oil price crash of 2014 not only weighed on Canada’s oil sands industry, but it also directed more company investment into shorter-cycle shale projects in the U.S. at the expense of more capital- and energy-intensive oil sands production in Canada.

While the oil sands will continue to be a growth story thanks to investments made before the downturn, Canadian energy officials and many oil companies — both Canada-based and supermajors — are increasingly looking to explore and drill in the two largest shale formations, Duvernay and Montney, estimated to hold billions of barrels of light tight oil and trillions of cubic feet of gas.

Currently, Canada’s shale oil production is around 335,000 bpd, according to estimates by energy consultancy Wood Mackenzie, quoted by Reuters. This is some 8 percent of total Canadian production, which the National Energy Board (NEB) says was nearly 4.2 million bpd in 2017. Wood Mackenzie expects shale oil production to rise to 420,000 bpd in a decade.

Some two-thirds of Canada’s oil production comes from oil sands. In 2017, Canadian oil sands production is expected to have exceeded 2.6 million bpd, according to IHS Markit. Production is expected to continue to grow, thanks to investments made prior to the oil price crash, while future investment is “to remain lower than historical levels”, the data and analysis provider said in a report earlier this week.

Investment in new oil sands production capacity has dropped by two-thirds since the oil price crash — from more than $30 billion to just over $10 billion estimated for 2017 — and may fall further this year before starting to recover, IHS Markit says.

…click on the above link to read the rest of the article…

THE U.S. SHALE OIL INDUSTRY: Swindling & Stealing Energy To Stay Alive

December 27, 2017

THE U.S. SHALE OIL INDUSTRY: Swindling & Stealing Energy To Stay Alive

While the U.S. Shale Energy Industry continues to borrow money to produce uneconomical oil and gas, there is another important phenomenon that is not understood by the analyst community. The critical factor overlooked by the media is the fact that the U.S. shale industry is swindling and stealing energy from other areas to stay alive. Let me explain.

First, let’s take a look at some interesting graphs done by the Bloomberg Gadfly. The first chart below shows how the U.S. shale industry continues to burn through investor cash regardless of $100 or $50 oil prices:

The chart above shows the negative free cash flow for 33 shale-weighted E&P companies. Even at $100 oil prices in 2012 and 2013, these companies spent more money producing shale energy in the top four U.S. shale fields than they made from operations. While costs to produce shale oil and gas came down in 2015 and 2016 (due to lower energy input prices), these companies still spent more money than they made. As we can see, the Permian basin (in black) gets the first place award for losing the most money in the group.

Now, burning through investor money to produce low-quality, subpar oil is only part of the story. The shale energy companies utilized another tactic to bring in additional funds from the POOR SLOBS in the retail investment community… it’s called equity issuance. This next chart reveals the annual equity issuance by the U.S. E&P companies:

According to the information in the chart, the U.S. E&P companies will have raised over $100 billion between 2012 and 2017 by issuing new stock to investors. If we add up the funds borrowed by the U.S. E&P companies (negative free cash flow), plus the stock issuance, we have the following chart:

…click on the above link to read the rest of the article…

Will Canada’s Latest Boom in Tar Sands Oil Mean Another Boom for Oil-by-Rail?

December 22, 2017

Will Canada’s Latest Boom in Tar Sands Oil Mean Another Boom for Oil-by-Rail?

Oil by rail accident, with tank cars burning, near Gogama, Canada in 2015

Nothing seems able to derail the rise in Canadian tar sands oil production. Low prices, canceled pipelines, climate realities, a major oil company announcing it will no longer develop heavy oils, divestment, and now even refusals to insure tar sands pipelines have all certainly slowed production, but it is still poised for significant growth over the next several years.

In March an analyst for GMP FirstEnergy commented, “It’s hard to imagine a scenario where oilsands production would go down.”

But with pipelines to U.S. refineries and ports running at or near capacity from Canada, it’s hard to imagine all that heavy Canadian oil going anywhere without the help of the rail industry.

“The oilsands are witnessing unprecedented growth that we now peg at roughly 250,000 barrels per day in 2017 and 315,000 bpd in 2018, before downshifting to roughly 180,000 bpd in 2019,” says a new report from analyst Greg Pardy of RBCDominion Securities.

However, much like shale oil in the U.S., increased production doesn’t necessarily mean increased profits. The Wall Street Journal recently reported that since 2007 investors have spent approximately a quarter trillion dollars more on shale production than those investments have generated.

Clearly the oil industry will keep pumping as much oil as they can even while losing large sums of money. And just like in the U.S., Canadian oil producers are facing significant economic challenges, which have caused some companies to get out of the business.

As a result of these challenges, forecasts for future tar sands production have fallen significantly. In 2013 the forecast for 2030 production was 6.7 million barrels per day. That has been revised down to 5.1 million barrels per day. While that is a sizable drop in expected future production, the industry will still be growing in the near future, and most of that oil will be exported to America.

…click on the above link to read the rest of the article…

Shale gas revolution did not last long for BHP – the Fayetteville story

December 16, 2017

Shale gas revolution did not last long for BHP – the Fayetteville story

BHP_ready_goodbye_US-shale http://www.naturalgasintel.com/topics/101-fayetteville-shale

We had these headlines a couple of months ago:

BHP’s $50 billion shale oil blunder

23/8/2017
BHP slapped $US4.75 billion ($6 billion) down on the table to buy the rights from Chesapeake Energy to around half-a-million acres of prospective shale gas reserves at Lafayette in Arkansas.
http://www.abc.net.au/news/2017-08-23/bhp-billion-dollar-shale-oil-blunder/8832698

‘They went too hard’ – BHP’s retreat wins plaudits

22/8/2017
Mr Mackenzie conceded BHP’s entry into the onshore US shale industry was “poorly timed, we paid too much” for the assets.
“We would like to get on with the exit from shale,” he said, adding that BHP would “be patient to make sure we restore value for shareholders”.
http://www.smh.com.au/business/mining-and-resources/they-went-too-hard–bhps-retreat-wins-plaudits-20170822-gy1jfq.html

This post’s focus is the Fayetteville shale gas in the US State of Arkansas. The following map is from a BHP investor presentation in February 2011, shortly before BHP bought shale gas acreage from Chesapeake in March 2011.

Fayetteville_map_2011 Fig 1: Location of the Fayetteville shale

http://www.bhp.com/media-and-insights/news-releases/2011/02/bhp-billiton-announces-acquisition-of-chesapeake-energy-corporations-fayetteville-usa-shale-assets

Let’s hit the road, on route 65 from Conway (Arkansas) towards Greenbrier where many new subdivisions were built like this one:

Greenbrier_subdivision Fig 2: Testifying to the newly found wealth – as long as it lasts.

You can buy 5 acre lots for US$ 80,000 and the average house costs just 140 grand.

5 kms north of Greenbrier we find BHP gas well Fielder 8-13 2-33H, carved out of a forest lot.

BHP_permit_41740 Fig 3: BHP gas wells in Fayetteville

BHP_Fayetteville_well_locations

Fig 4: BHP well locations in Fayetteville

The production history shows that BHP went into shale just 1 ½ years before the whole basin started to peak:

Fayetteville_shale_gas_production_2004-Jul2017 Fig 5: Fayetteville shale gas production up to July 2017
https://www.eia.gov/tools/faqs/faq.php?id=907&t=8

An undulating peak of production is clearly visible between mid 2012 and mid 2014

…click on the above link to read the rest of the article…

The Great Oil Swindle

December 16, 2017

silentera.com

The Great Oil Swindle

Is leading us to destruction

When it comes to the story we’re being told about America’s rosy oil prospects, we’re being swindled.

At its core, the swindle is this: The shale industry’s oil production forecasts are vastly overstated.

Swindle: Noun – A fraudulent scheme or action.

And the swindle is not just affecting the US. It’s badly distorted everything from current geopolitics to future oil forecasts.

The false conclusions the world is drawing as a result of the self-deception and outright lies we’re being told is putting our future prosperity in major jeopardy. Policy makers and ordinary citizens alike have been misled, and everyone — everyone — is unprepared for the inevitable and massive coming oil price shock.

An Oil Price Spike Would Burst The ‘Everything Bubble’

Our thesis at Peak Prosperity is that the world’s equity and bond markets are enormous financial bubbles in search of a pin. Sadly, history shows there’s nothing quite as sharp and terminal to these sorts of bubbles as a rapid spike in the price of oil.

And we see a huge price spike on the way.

As a reminder, bubbles exist when asset prices rise beyond what incomes can sustain. Greece is a prime recent example. In 2008 when the price of oil spiked to $147/bbl, Greece could no longer afford imported oil. But oil is a necessity so it was bought anyway, their national balances of payments were stressed to the point that they were exposed as insolvent and then their debt bubble promptly and predictably popped. The rest is history. Greece is now a nation of ruins and their economy might as well be displayed alongside the Acropolis.

…click on the above link to read the rest of the article…

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