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Shale’s Debt-Fueled Drilling Boom Is Coming To An End

Shale’s Debt-Fueled Drilling Boom Is Coming To An End

Marcellus shale

The financial struggles of the U.S. shale industry are becoming increasingly hard to ignore, but drillers in Appalachia are in particularly bad shape.

The Permian has recently seen job losses, and for the first time since 2016, the hottest shale basin in the world has seen job growth lag the broader Texas economy. The industry is cutting back amid heightened financial scrutiny from investors, as debt-fueled drilling has become increasingly hard to justify.

But E&P companies focused almost exclusively on gas, such as those in the Marcellus and Utica shales, are in even worse shape. An IEEFA analysis found that seven of the largest producers in Appalachia burned through about a half billion dollars in the third quarter.

Gas production continues to rise, but profits remain elusive. “Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters,” the authors of the IEEFA report said.

Of the seven companies analyzed, five had negative cash flow, including Antero Resources, Chesapeake Energy, EQT, Range Resources, and Southwestern Energy. Only Cabot Oil & Gas and Gulfport Energy had positive cash flow in the third quarter.

The sector was weighed down but a sharp drop in natural gas prices, with Henry Hub off by 18 percent compared to a year earlier. But the losses are highly problematic. After all, we are more than a decade into the shale revolution and the industry is still not really able to post positive cash flow. Worse, these are not the laggards; these are the largest producers in the region.

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

The U.S. Shale Industry Hit A Brick Wall In 2019

The U.S. Shale Industry Hit A Brick Wall In 2019

The Great U.S. Shale Industry Machine is finally running out of steam.  What looked very promising for the shale industry in 2018 seems incredibly bleak this year.  And, if the situation doesn’t turn around quickly for the shale industry, 2019 might turn out to be the year that production ultimately peaks in the United States.

There several factors that have negatively impacted the U.S. Shale Industry in 2019; the compounded annual decline rate, the massive debt–inability for shale companies to raise money, and the stunning amount of new wells necessary to increase overall production.  While shale experts are knowledgeable of the typical 60-70% first-year decline rate of shale wells, not much is mentioned about the “compounded annual decline rate.”

The chart above shows that as overall Shale oil production increases, the decline curve becomes steeper. U.S. shale oil production in the top four fields hasn’t increased all that much because the nearly 6,000 wells brought online so far this year had to offset the stunning 2 million barrel per day decline from the production in 2018.

The next series of charts, from Shaleprofile.com, will show why the U.S. Shale Industry has hit a brick wall.  The first chart shows the number of wells added each year in the top four shale fields:

The four top U.S. shale fields are the Bakken, Niobrara, Permian, and Eagle Ford.  In 2017, the shale industry added 7,636 wells, 9,953 wells in 2018, and 5,924 wells by August 2019.  According to Shaleprofile.com, there are still 82 wells not accounted for yet in 2019.  So, the total for the first eight months of 2019 is 6,006.

If we look at the Well Profiles part of the chart, we can clearly see that when the increase in the number of wells in 2015 and 2016 started to taper off, overall production plateaued and declined. 

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

Art Berman: Exposing The False Promise Of Shale Oil

Art Berman: Exposing The False Promise Of Shale Oil

Estimates of recoverable oil are proving wildly wrong
Art Berman, geological consultant with over 37 years experience in petroleum exploration and production, returns to the podcast this week to debunk much of the hopium currently surrounding America’s shale oil output.

Because the US is pinning huge hopes on its shale oil “revolution”, so much depends on that story being right. Here’s the narrative right now:

  • The US, is the new Saudi Arabia
  • It’s the swing producer when it comes to influencing the price of oil
  • The US will be able to increase oil production for decades to come
  • New technology is unlocking more oil shale supply all the time

But what if there’s evidence that runs counter to all of that?

We’re going to be taking a little victory lap on this week’s podcast because The Wall Street Journal has finally admitted that shale oil wells are not producing as much as the companies operating them touted they would produce — which is what we’ve been saying for years here at PeakProsperity.com, largely because we closely follow Art’s work:

The Wall Street Journal did some research and they got the general point that the wells are not as good as advertised.

But what they missed is just how much farther off many of these reserves are than even the discounted reserves that they’ve reported.

Bottom line: if the understatement is only 10%, that’s a rounding error and it’s not that much of an issue to the average person. But I’ve been trying for a decade to get the number that I independently develop to get anywhere close to the published numbers. In most cases, I can only get near 60% or 70% of them. So, the gap, I think is much more substantial.

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

Art Berman: Like It Or Not, The Future Remains All About Oil

Vladimir Yudin | Dreamstime.com

Art Berman: Like It Or Not, The Future Remains All About Oil

And competition for it is heating up 

Art Berman, 40-year veteran in the petroleum production industry and respected geological consultant, returns to the podcast this week to talk about oil.

After the price of oil fell from its previous $100+/bbl highs to under $30/bbl in 2015, many declared dead the concerns raised by peak oil theorists. Headlines selling the “shale miracle” have sought to convince us that the US will one day eclipse Saudi Arabia in oil production. In short: cheap, plentiful oil is here to stay.

How likely is this?

Not at all, warns Berman. World demand for oil shows no signs of abating while the outlook for future production looks increasingly scant. And the competition among nations for this “master resource” will be much more intense in future decades than we’ve been used to:

Since the 1980s, we simply have not been replacing reserves with new discoveries. So how does that work? Well, obviously, we’ve got a lot of oil on production and in reserves, so we’re essentially drawing down our savings account if you want to think about it that way. You can do that for a long time if you’ve got a whole lot of money in your savings account, and we as a planet do. But you can’t do it forever.

Eventually, you either have to stop spending as much so you don’t draw down your savings, or you need to put some money back in the account. And it doesn’t seem like we’re doing much of either, and haven’t been doing much of either for a long time. So the concern is tremendous, at least, in my estimation(…)

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

Canada’s Largest Shale Play Is Gaining Momentum

Canada’s Largest Shale Play Is Gaining Momentum

Oil

The National Energy Board of Canada released a resource assessment today, examining the Duvernay Shale of Alberta.

Deposited during the Devonian Period, the Duvernay Shale is located throughout central Alberta, running from Grande Prairie almost to Calgary. Located near, and in some locations directly below the Montney, the Duvernay is part of the larger Western Canadian petroleum system.

(Click to enlarge)

Source: National Energy Board

The NEB estimates that the Duvernay’s marketable resources are 76.6 Tcf of gas, 6.3 billion barrels of NGLs and 3.4 billion barrels of crude oil. “Marketable resources” represent the total amount of petroleum that can be recovered from the formation, not the actual reserves nor the original hydrocarbon in place.

(Click to enlarge)

Source: National Energy Board

According to Reuters, this makes the Duvernay the largest resource of unconventional crude oil and condensate in Canada. However, the Duvernay’s natural gas reserves are exceeded by two other basins in Canada. The Montney wears the crown with the largest natural gas resource, 449 Tcf recoverable. Following the Montney is the Liard Basin with 216 Tcf, located in British Columbia, the Yukon and the Northwest Territories.

(Click to enlarge)

Source: National Energy Board

Best rock lies in western Duvernay, around Whitecourt, Alberta

In its assessment, the NEB split the Duvernay into two plays, the East Shale Basin and the West Shale Basin. The West Shale Basin is the larger of the two by a significant margin, and holds a much larger area of sufficient quality that it was assessed. Other locations were not assessed because “they were considered unlikely to be developed; such as where the Duvernay Shale is less than 10 m thick, is under pressured, where its mapped in-place gas contents are less than 50 m3 of volume per m2 of area, and where oil contents were more than 2000 barrels per million cubic feet of gas (i.e., there is too little gas in the reservoir to help drive the oil out).”

 

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

U.S. Shale’s Most Productive Play May Peak By 2021

U.S. Shale’s Most Productive Play May Peak By 2021

Midland

The world’s top shale play, the Permian, has shown remarkable resilience amid the lower-for-longer oil prices. Permian production has grown and should continue its rise into the foreseeable future.

Technological advances spurred the rapid rise of the Permian, but as drillers are set to continuously develop the hottest U.S. shale play, they may soon start to test the region’s geological limits.

If E&P companies can’t overcome the geological constraints with tech breakthroughs, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices, energy consultancy Wood Mackenzie said in an analysis this week.

According to EIA’s September Drilling Productivity Report, the Permian will pump 2.580 million bpd of oil this month. Crude oil output is set to rise by another 55,000-bpd next month, to 2.635 million bpd. The Permian, as usual, contributes the most to the expected production growth out of the top U.S. shale plays.

Wood Mackenzie’s report, “Geology vs. technology: how sustainable is Permian tight oil growth?”, modeled three scenarios for the Permian’s production. Under the reference-case scenario, Permian production is set to rise to more than 5 million bpd in 2025. Peak production could increase by 500,000 bpd over WoodMac’s base case in a modeling scenario where new technology adoption accelerates more aggressively, the consultancy said. However, “downside risks related to tighter well spacing and well-on-well interference could bring peak Permian production forward by 4 years compared to the upside case—putting more than 1.5 million b/d of future production in question,” Wood Mackenzie reports.

The analysis points out that many other shale plays prove that the initial years of development are typically the easiest. In order to keep well performance on par with the initial flows, drillers need more tech breakthroughs “to keep their barrels at the bottom of the cost curve.”

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

Bakken(ND) Light Tight Oil – Update with Sep – 15 NDIC Data

Bakken(ND) Light Tight Oil – Update with Sep – 15 NDIC Data

After years of following developments in extraction of light tight oil (LTO) in the Bakken, the oil price, studying actual well production data from the North Dakota Industrial Commission (NDIC) and the SEC 10-Q/Ks filings for several companies heavily exposed to the Bakken, a quote from Shakespeare’s Macbeth comes to the fore of my mind:

All causes shall give way: I am in blood

Stepp’d in so far that, should I wade no more,

Returning were as tedious as go o’er:

                                              (Macbeth: Act III, Scene IV)

For me the Macbeth quote very much sums up the predicament many Bakken LTO operators now find themselves in.

Figure 01: The above chart shows developments by vintage in LTO extraction from the Middle Bakken/ Three Forks/Sanish formations in Bakken (ND) as of January 2008 and of September 2015 [right hand scale]. The color grading shows extraction by month. Development in the oil price (WTI) black line is shown versus the left hand scale.

What this study/update present:

  • With the decline in the oil price the average well as from the 2012 vintage will struggle to reach payout and become profitable.
    (The oil price decline reduces the portion of the more recent wells that are on trajectories to reach payout and become profitable.)
  • The 2015 vintage follows the 2014 vintage closely, suggesting that around 20% of the wells of 2015 vintage are on a trajectory to reach payout and become profitable.
  • The underlying decline from the legacy wells is strong. The extraction from all the wells started between Jan 2008 and Dec 2014 declined by close to 440 kb (or about 41%) from Dec 2014 to Sep 2015.
  • Some of the early wells (2008 vintage) have been restimulated (refracked) and the effects are short lived and the economics of this looks questionable, at best.

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

Once Burned, Twice Shy? Utica Shale Touted to Investors As Shale Drillers Continue Posting Losses

For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another.

The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet.

“This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement – and go beyond – what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University’s Energy Institute, told the Associated Press.

But those considering investments based on the Utica’s potential may want to pause and consider the shale industry’s long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn.

The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons.

Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.

Burning Through Cash

Companies like Chesapeake Energy, the nation’s second largest producer of natural gas and one of the most aggressive advocates of the shale rush nationwide, have been hammered hard by low oil prices and high costs in 2015.

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

 

Greenwash: Shell May Remove “Oil” From Name as it Moves to Tap Arctic, Gulf of Mexico

Shell Oil has announced it may take a page out of the BP “Beyond Petroleum” greenwashing book, rebranding itself as something other than an oil company for its United States-based unit.

Marvin Odum, director of Shell Oil’s upstream subsidiary companies in the Americas, told Bloomberg the name Shell Oil “is a little old-fashioned, I’d say, and at one point we’ll probably do something about that” during a luncheon interview with Bloomberg News co-founder Matt Winkler (beginning at 8:22) at the recently-completed Shell-sponsored Toronto Global Forum.

“Oil,” said Odum, could at some point in the near future be removed from the name.

Odum’s comments come as Shell has moved aggressively to drill for offshore oil in the Arctic and deep offshore in the Gulf of Mexico, while also maintaining a heavy footprint in Alberta’s tar sands oil patch.

Shell Oil Greenwashing
Image Credit: Bloomberg News Screenshot

Shell also recently acquired BG (British Gas) Group, a company that owns numerous assets in the global liquefied natural gas (LNG) industry, transforming the company into what Forbes hailed as a “world LNG giant.”

Winkler quipped in Toronto that due to this major asset purchase, it might be more accurate to call Shell Oil, “Shell Gas.”

In October 2011, BG Group signed a major contract with the U.S.-based LNG giant Cheniere to ship its gas product obtained via hydraulic fracturing (“fracking”) to the global market. That LNG will begin to flow by the end of the year.

Just a week before Odum told Winkler that Shell may take “oil” out its company name, he appeared on Bloomberg News on the sidelines of the Aspen Ideas Festival to boast about his company’s big plans — plans to drill for oil in the deep offshore Gulf of Mexico Appomattox field. At Aspen, Odum called Appomattox a “world class oil and gas project.”

 

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

Shale sub-prime and the Ides of March

Shale sub-prime and the Ides of March

“Sub-prime” is the term by which became known the debt market segment that served low quality housing in the US. Essentially these were products supporting mortgages to low-middle class families, that in 2006/07, up against the simultaneous rise in interest rates and commodities prices, produced a wave of defaults that lead to the 2008 financial crisis.

The rise in petroleum prices was a key element to the 2008 crisis, but would eventually bring something positive to the US. Petroleum is usually extracted from large underground cavities known as reservoirs. However, it is formed at greater depth, within source rocks, where organic matter is slowly cooked by the internal heat of the planet until it degrades, first into petroleum and finally into gas. Prices persistently above 100 dollars per barrel meant that beyond traditional reservoirs it also became feasible to drill deeper for petroleum, down to source rocks and other rock formations of low permeability.

In 2010 the US Government and media thus embarked in a promotional campaign for source rock drilling, erroneously calling “shales” to these resources to ease the marketing. Vast amounts of money started flowing to the sector, the industry quivered with activity, plenty of new jobs were created and the country soon emerged from economic recession. The end result: in three years petroleum extraction in the US grew by 50%, returning to levels not seen since the 1980s.

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

 

 

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