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David Hughes’ Shale Reality Check 2019
David Hughes’ Shale Reality Check 2019
1.9 million. 13 trillion. 10 billion. These are the numbers that jumped off the page when I read PCI Fellow David Hughes’s latest “shale reality check” report on the U.S. government’s forecasts of domestic oil and gas production. To elaborate, these forecasts mean that by 2050:
- 9 million new oil and gas wells will need to be drilled;
- $13 trillion will need to be spent to drill all those wells; and
- 10 billion barrels of tight oil production will be “missing” from shale plays to meet the reference case forecast for cumulative production.
These are just some of the crazy numbers behind the Energy Information Administration’s (EIA) latest forecasts for U.S. oil and gas production through 2050.
Every year, the EIA releases a new forecasts of domestic energy in the coming decades. These forecasts—specifically the “reference case”—are virtually taken to the bank by policymakers, investors, and the mainstream media as the most likely scenario of future production, consumption, and prices.
This despite the fact that they are very often wrong and vary tremendously from year to year. Or the fact that for several years now David Hughes has published “reality checks” on the forecasts of tight oil and shale gas production (extracted through “fracking”) found in the Annual Energy Outlook—reality checks that have consistently shown that the EIA’s projections are, to be polite, extremely optimistic.
Hughes’s latest report evaluates the EIA’s reference case forecasts for the top tight oil and shale gas plays (accounting for roughly 90% of production) against:
- current and historical production;
- the number of producing wells;
- the decline rates for wells and fields;
- the distribution of wells in terms of their quality;
- definition of the relatively limited “sweet spot” areas in each play; and
- the projected number of wells, well density, and money required to meet the EIA’s forecasts.
…click on the above link to read the rest of the article…
Secret Survey: U.S. Shale In A State Of ‘Deep Anxiety’
Secret Survey: U.S. Shale In A State Of ‘Deep Anxiety’
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.
A slowdown in drilling is an even larger problem for oilfield services companies, who provide the equipment, manpower and drilling services that oil companies need. A producer may be able to do more with less, but that “less” falls on the service providers, who have been hit hard. The Dallas Fed said that the business activity in the oilfield services sector fell to -21.8 in the third quarter, down from 6.6 in the second.
Another reading demonstrated the pain for oilfield services. The Dallas Fed’s “equipment utilization index” plunged to -24 from 3, and the figure for the third quarter was the lowest since the oil market’s nadir in 2016.
Problematic for shale drillers is that costs still grew, although at a much slower rate. The “input cost” index stood at 5.6 in the third quarter, an indication of slowing cost increases compared to the 27.1 reading in the second quarter. But the bad news for the industry is that the reading was still in positive territory.
Employment is also weakening. The employment index fell to -8.0 from -2.5, meaning that the Permian likely saw job losses for the second quarter in a row.
…click on the above link to read the rest of the article…
Report: ‘No Evidence That Fracking Can Operate Without Threatening Public Health’
Report: ‘No Evidence That Fracking Can Operate Without Threatening Public Health’
More than 1,500 scientific studies on the health and climate impacts of fracking prove its dangerous effect on communities, wildlife and nature.
In 2010 when I first started writing about hydraulic fracturing — the process of blasting a cocktail of water and chemicals into shale to release trapped hydrocarbons — there were more questions than answers about environmental and public-health threats. That same year Josh Fox’s documentary Gasland, which featured tap water bursting into flames, grabbed the public’s attention. Suddenly the term fracking — little known outside the oil and gas industry — became common parlance.
In the following years I visited with people in frontline communities — those living in the gas patches and oilfields, along pipeline paths and beside compressor stations. Many were already woozy from the fumes or worried their drinking water was making them sick. When people asked me if they should leave their homes, it was hard to know what to say; there weren’t many peer-reviewed studies to understand how fracking was affecting public health.
Those days are over.
In June the nonprofits Physicians for Social Responsibility and Concerned Health Professionals of New York released the sixth edition of a compendiumthat summarizes more than 1,700 scientific reports, peer-reviewed studies and investigative journalism reports about the threats to the climate and public health from fracking.
The research has been piling up for years, and the verdict is clear, the authors conclude: Fracking isn’t safe, and heaps of regulations won’t help (not that they’re coming, anyway).
…click on the above link to read the rest of the article…
LOUSY SHALE ECONOMICS: Financial Troubles Continue At ExxonMobil
LOUSY SHALE ECONOMICS: Financial Troubles Continue At ExxonMobil
After reporting lower than expected earnings, ExxonMobil’s stock price sold off on Friday. The company blamed poor performance on reduced production volumes and a weaker oil price. However, the real culprit will turn out to be Exxon’s big move into the Great U.S. Shale Oil Ponzi Scheme.
As I mentioned in my recent article, EXXONMOBIL U.S. OIL & GAS FINANCIAL TRAIN-WRECK: Producing Shale Is Destroying Its Bottom Line, the company will continue to spend a great deal of capital with little financial reward. So, it wasn’t a surprise to see Exxon’s Q1 2019 earnings decline by $3.6 billion compared to the previous quarter… even though U.S. oil production had increased.
While weaker earnings were experienced across all of the company’s sectors, upstream (oil & gas wells), downstream (refining and marketing products) and chemical, the big RED FLAG was in the U.S. oil and gas sector. According to Exxon’s Q1 2019 Earnings Release, the company invested $2.5 billion in CAPEX (capital expenditures) on its U.S. oil and gas wells, to earn a paltry $96 million in earnings:
Now, compare the miserable U.S. upstream earnings to Exxon’s International upstream earnings of $2.78 billion on $2.8 billion of capital expenditures. ExxonMobil will likely invest close to $10 billion in CAPEX on just its U.S. upstream sector (spent over $5 billion of CAPEX past two quarters) this year, and if oil prices fall, it will impact their earnings quite negatively.
This next chart shows how much money Exxon is investing in its U.S. oil and gas sector each quarter:
We can see that Exxon ramped up capital expenditures in its U.S. oil and gas properties (mostly shale) significantly since the beginning of 2018. Over the past year, the company has spent $8.8 billion to increase production by 77,000 barrels per day.
…click on the above link to read the rest of the article…
Will the Oil Patch Bust Trigger Recession?
Will the Oil Patch Bust Trigger Recession?
This seemingly inexhaustible credit line is now drying up, with severely negative consequences for oil producers with debt that’s coming due.
Could the oil patch bust triggered by oil plummeting from $100/barrel to $50/barrel kick the U.S. into recession? Longtime correspondent B.C. recently observed: The question is whether the incipient recession in the energy and energy-related transport sectors is sufficient this time around to be the proximate cause of a US/global recession and real estate bust.
To help answer the question, B.C. sent this FRED chart of key measures of economic activity in Texas, America’s GDP and industrial production and the price of oil. The chart may look busy but the key indicators are oil (the blue line that fell off a cliff and has formed a fish hook), the red line (GDP adjusted for inflation, i.e. real GDP), the dotted line (industrial production) and the remaining two lines that reflect the leading indicators and economic activity in Texas.
Six months into the energy bust, the leading index for Texas has hit the zero line, U.S. industrial production has rolled over but real GDP hasn’t budged. So far, the impact of dramatically lower oil revenues has been limited to the oil patch, but the potential for contagion is still present.
As B.C. noted:
The last time the energy sector experienced a similar bust as is emerging today and clearly evident in Texas was in 1985-86, which occurred coincident with the crash in the price of oil and the onset of the S&L Crisis.
However, the US economy overall did not experience recession, but Industrial Production (manufacturing) decelerated to around 0% even as real GDP did not get close to “stall speed”, owing primarily to the effects of Baby Boomers entered the phase of life for peak spending and household formation.
Also, it did not hurt that the constant-US$ price of oil fell from $37 to $16 (similar scale as the recent drop from $100+ to $50/barrel) and the price of gasoline to below $2/gallon.
…click on the above link to read the rest of the article…
Why a UK shale gas industry is incompatible with the 2°C framing of dangerous climate change
Why a UK shale gas industry is incompatible with the 2°C framing of dangerous climate change
This piece is a response to Professor Robert Mair’s Royal Society science policy blog, “Hydraulic fracturing for shale gas in the UK – an opportunity to shape a constructive way forward” (In Verba, 26th Jan):
Professor Mair’s Royal Society post suggests that the development of a UK shale gas industry is compatible with the UK’s climate change targets. I suggest this conclusion is premised on a partial and overly simplistic interpretation of the UK’s muddled climate change obligations.
Shale gas within domestic carbon budgets
The development of a UK shale gas industry may be compatible with the UK’s domestic carbon budgets – just.
These budgets are however premised on a high probability of exceeding the 2°C threshold between acceptable and dangerous climate change and on a highly inequitable allocation of the global carbon budget to the UK.
Even under such lax conditions (and hence a larger UK carbon budget) there is a significant risk that a new and large-scale UK shale gas infrastructure could become a stranded asset within a decade or so of major shale gas extraction.
…click on the above link to read the rest of the article…
Big Oil Slashing Spending Amid Low Prices
Big Oil Slashing Spending Amid Low Prices.
Oil prices continue to slide in mid-December, slumping towards another key threshold of $60 per barrel.
Oil prices hit a five-year low on December 10. While many major oil players have gone to lengths to assure markets that they can weather the price downturn – and indeed it is far from clear how long the current price collapse will last – low prices are clearly starting to have an impact on major investment decisions. Drilling permits dropped by 36 percent between October and November, and the number of rigs in operation continues to fall.
Many oil companies are beginning to pare back capital expenditures, reconsidering pouring billions of dollars into expensive projects that may or may not be profitable in the current environment.
ConocoPhillips announced on December 8 that it would slash capital expenditures in 2015 by 20 percent, dropping its spending budget to $13.5 billion. And in a sign that the oil price slump is starting to take a major toll on future investments, ConocoPhillips said that it would “defer significant investment” on its projects that are in their earlier stages, such as its fields in the Montney and Duvernay in Canada, along with its holdings in the Permian basin and the Niobrara.
Related: Who Comes Out On Top After Oil Pandemonium?
BP is also hoping to cut costs. It expects to lay off workers and trim spending, perhaps by as much as $2 billion. It is unclear how much spending the oil major already had planned to cut, as it continues to downsize after steep losses stemming from the Deepwater Horizon disaster in 2010, but a company spokesman said the drop in oil prices “has increased our focus on these activities.” In an investor presentation, BP said that it usually approves new projects when oil prices are at $80 or higher.
…click on the above link to read the rest of the article…
The Oil Market Actually Works, And That Hurts – The Automatic Earth
The Oil Market Actually Works, And That Hurts – The Automatic Earth.
Please allow me to revert back again a little to what I wrote earlier today in Will Oil Kill The Zombies? I think we need to be clear on what’s going on here. The oil market actually works. And that’s a rarity in today’s world of manipulated everything, of no mark to market, of huge stock buybacks financed by zero interest rates, you know the story.
We know that the market works because of for instance this article from CNBC:
Oil Pressure Could Sock It To Stocks
“Oil has pretty much spooked people,” said Daniel Greenhaus, chief global strategist at BTIG. “There just isn’t a bid. With everything in energy and the oil price collapsing as it is, who is going to step in and be a buyer now? The answer is nobody.”
b>”It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.”
“Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday.
“In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.
It’s not about where WTI and Brent are at any given moment. Even if WTI is down another 3.60% today so far at $57.79. Whatever WTI tells us, the real world out there trumps it by a mile and a half. The prices at which oil actually sells in the real world are way below WTO and Brent standards, a very big and scary development. There are tons of parties that will sell at any price they can get. There is no better way to drive prices down further, it’s a vicious circle down a drain.
…click on the above link to read the rest of the article…
Will Oil Kill The Zombies? – The Automatic Earth
Will Oil Kill The Zombies? – The Automatic Earth.
Oil producer Russia hikes rates to 10.5% as the ruble continues to plunge, while fellow producer Norway does the opposite, and cuts its rates, but also sees its currency plummet. As Greek stocks lose another 7.35% after Tuesday’s 13% loss on rumors about what the left leaning Syriza party will or will not do if it wins upcoming elections, and virtually anonymous Dubai drops 7.42%. We all know the story of the chain and its weakest link, and beware, these really still ARE global markets.
Meanwhile someone somewhere saved WTO oil from falling through the big, BIG, $60 limit for most of the day Thursday, and then it went south anyway. And that brings to mind the warnings about what would, make that will, happen to high yield energy junk bonds. Of which there’s a lot out there, but not much is being added anymore, that market has been largely shut to companies, especially in the shale patch. So how are they going to finance their fracking wagers? Hard to see.
And something tells me this Bloomberg piece is still lowballing the debt issue, though I commend them for making the link between shale and Fed ‘stimulus’ policies, something all too rare in what passes for press in the US these days.
Fed Bubble Bursts in $550 Billion of Energy Debt
The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights predicts the default rate for energy junk bonds will double to 8% next year. “Anything that becomes a mania – it ends badly,” said Tim Gramatovich, chief investment officer of Peritus Asset Management. “And this is a mania.”
I think it’s obvious that the default rate could be much higher than 8%.
…click on the above link to read the rest of the article…
