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Revisiting the Shale Oil Hype: Technology versus Geology
Revisiting the Shale Oil Hype: Technology versus Geology
The press has been all abuzz the past few weeks speculating on what the drop in oil prices will mean for U.S. shale oil (tight oil) production. Pundits have been falling over themselves quoting various estimates of the breakeven cost of production in this play or that, and rushing to be the first to declare a peak in the Bakken, Eagle Ford, Niobrara or wherever. The Baker-Hughes rig count, which comes out every Friday, has become a must-read for people who probably had never heard of it a few months ago. Even the U.S. Energy Information Administration (EIA), based on estimates, suggests production is declining in three big shale oil plays.
The industry, on the other hand, has been more circumspect. They point to productivity gains being made in drilling and completion technology that lower costs, and suggest they are developing a backlog (aka “fracklog”) of wells that have been drilled but not completed, hanging in abeyance for the inevitable oil price rise (half or more of the cost of completing a well is the fracking). Keeping a stiff upper lip in the face of harsh pricing realities, many companies are telling investors that despite slashing capital expenditures on drilling and exploration (in some cases by more than 40%), production will be maintained and even rise. Others, such as Whiting, are putting themselves up for sale or, in the case of Quicksilver, declaring bankruptcy.
In my Drilling Deeper report published last October I stuck my neck out and made projections of future production by play based on drilling rates and well quality, not price, although price and drilling rates are closely linked. This was based on an analysis of all well production data by play which showed:
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Subsidy Spotlight: Publicly Funding a Utah Disaster in the Making
Subsidy Spotlight: Publicly Funding a Utah Disaster in the Making
A green stegosaurus graces the logo of Uintah County, Utah, a gateway to the famed Dinosaur National Monument, where breathtaking landscapes and fossils preserved in sandstone attract thousands of visitors every year.
That logo has taken on new meaning over the past decade as prehistoric remains have attracted a different crowd. Now oil and gas executives are flocking to the Uinta Basin in Eastern Utah, as new technologies––and support from the government––offer the dubious possibility of digging up the region’s vast deposits of oil shale and tar sands.
Canadian production of tar sands on a massive scale has familiarized the American public with the petroleum substance that’s comprised of sand, clay, water, and bitumen which, after several rounds of energy-intensive refining, can be turned into fuel that burns dirtier than conventional crude oil, releasing more carbon, heavy metals, and sulphur in the process.
But tar sands production has never happened on a commercial scale within the United States, and less attention is paid to domestic reserves––even though several tar sands mining projects have been in the works for a number of years.
…click on the above link to read the rest of the article…
Oil’s Crash Is the Canary In the Coal-Mine for a $9 TRILLION CRISIS | Zero Hedge
Oil’s Crash Is the Canary In the Coal-Mine for a $9 TRILLION CRISIS | Zero Hedge.
The Oil story is being misinterpreted by many investors.
When it comes to Oil, OPEC matters, as does Oil Shale, production cuts, geopolitical risk, etc. However, the reality is that all of these are minor issues against the MAIN STORY: the $9 TRILLION US Dollar carry trade.
Drilling for Oil, producing Oil, transporting Oil… all of these are extremely expensive processes. Which means… unless you have hundreds of millions (if not billions) of Dollars in cash lying around… you’re going to have to borrow money.
Borrowing US Dollars is the equivalent of shorting the US DOLLAR. If the US Dollar rallies, then your debt becomes more and more expensive to finance on a relative basis.
There is a lot of talk of the “Death of the Petrodollar,” but for now, Oil is priced in US Dollars. In this scheme, a US Dollar rally is Oil negative.
Here’s the US Dollar:
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