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Is EIA Data Disguising A Disastrous Decline In U.S. Shale?

Is EIA Data Disguising A Disastrous Decline In U.S. Shale?

The Trump administration claims that the U.S. is “transitioning to greatness,” and that energy companies are going to see “massive gains.” U.S. Secretary of Energy Dan Brouillette says there is “stability” in the oil market, and that economic activity will “explode” on the other side of the pandemic.


Dan Brouillette✔@SecBrouillette

Thanks to the leadership of President @realDonaldTrump, the transition to greatness is well underway, and our economy along with our U.S. energy companies are going to see massive gains on the other side of this pandemic.

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Meanwhile, back in reality, U.S. oil production continues to decline as drillers shut in wells and cut back spending. Output has already declined by 1.1 million barrels per day (mb/d), and more losses are likely. New data from Rystad Energy predicts U.S. oil production declines of roughly 2 mb/d by the end of June.

“Actual production cuts are probably larger and occur not only as a result of shut-ins, but also due to a natural decline from existing wells when new wells and drilling decline,” Rystad said in a statement.

Energy expert Philip Verleger, in an article for Energy Intelligence reports that the magnitude of output declines is much larger. His latest research shows that production as of May 10 is down by almost 4 million bpd from its peak as the below chart shows.

Source: PK Verleger LLC

To be sure, the U.S. government is doing quite a bit to try to bailout the oil industry. A new report finds that some 90 oil and gas companies will benefit from the Federal Reserve’s corporate bond buying program. The Trump administration is also quietly reversing environmental protections on the oil and gas industry.

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

This Energy Analyst Says the Oil Sands Are ‘Done’

This Energy Analyst Says the Oil Sands Are ‘Done’

COVID-19 is making many bearish about bitumen. Deborah Lawrence’s past pessimism has proven unpopular, and correct.

deborah-lawrence2.jpg
Deborah Lawrence, formerly Deborah Rogers, warned of the shale gas and oil crashes, and called Teck Frontier’s proposed new oil sands mine ‘uncommercial even at relatively high oil prices’ years before it was cancelled. Photo: submitted.

Deborah Lawrence used to be a stockbroker with Merrill Lynch. Over the past decade, the independent economic analyst has developed a reputation for telling oil investors what they don’t want to hear.

In 2009, she started warning that the financial model for shale oil fracking companies doesn’t make any sense. Lawrence began analyzing financial data for Chesapeake Energy after the oil and gas company began drilling near her farm in Texas. She discovered that the company, and many others in the industry, were going through cash and accruing debt at alarming rates.

“I think we have a big problem,” she told a colleague at the Federal Reserve Bank of Dallas, where she was then an advisory committee member. But finding a larger audience proved difficult. The so-called “shale revolution” was transforming the U.S. into the world’s biggest oil producer and everyone from oil executives to state leaders to Wall Street bankers wanted a piece of it.

“I kept saying, look, ‘There’s no free cash flow and it keeps deteriorating every year I look at this,’” Lawrence recalled in an interview with The Tyee. So she contacted business outlets like the Wall Street Journal. “I sent them stuff for so long with all the underlying documentation and they were like, ‘Oh no, shales are gonna save us forever.’”

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

THE END OF A U.S. OIL GIANT: ExxonMobil’s Days Are Numbered

THE END OF A U.S. OIL GIANT: ExxonMobil’s Days Are Numbered

ExxonMobil, the largest oil company in the U.S. and a direct descendant of John D. Rockefeller’s Standard Oil, days are numbered.  The once-great profitable oil giant is now borrowing money just to pay dividends.  How long can this charade go on?

Good question.  Now, some may believe that ExxonMobil was forced to borrow money to pay dividends due to the collapse in oil prices as a result of the global contagion.   However, the company hasn’t been able to pay shareholder dividends from its cash from operations over the past four quarters, even with much higher oil prices.

The leading culprit as to why ExxonMobil lacks the available cash to pay dividends stems from the lousy economics of its U.S. oil and gas wells, especially the company’s shale oil portfolio.  Ever since ExxonMobil ramped up its domestic shale oil production, that’s when the financial troubles at the company began to intensify.

The best way to compare ExxonMobil’s U.S. Upstream (oil and gas wells) performance, BEFORE and AFTER SHALE, is to go back to 2004.  Even though the oil price fell considerably in Q1 2020, it was higher than the oil price in 2004.  For example, ExxonMobil’s U.S. Upstream Sector earned $4.9 billion in 2004 with an average oil price of $41.51 compared to a $704 million loss on a $42.82 oil price:

Furthermore, look at the U.S. oil production differences between 2004 and Q1 2020.  According to ExxonMobil’s 2006 Annual Report, the company’s average U.S. oil production in 2004 was 414,000 barrels per day (bd) versus 699,000 bd in Q1 2020.  Even with higher oil production and similar oil price, ExxonMobil’s U.S. Upstream Earnings in Q1 2020 were dismal in comparison.  Moreover, the company invested $1.9 billion in CAPEX for all of 2004 on its U.S. oil and gas wells compared to the $2.8 billion just for Q1 2020.

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

THE DEATH OF THE BAKKEN HAS ARRIVED: Oil Production Down 30%

THE DEATH OF THE BAKKEN HAS ARRIVED: Oil Production Down 30%

With North Dakota Bakken oil production down more than 30%, the death of the mighty shale region has begun.  There is no way for the companies producing shale oil in the Bakken to recover from this global contagion overnight collapse.  Yes, it virtually happened overnight.  Since March 1st, the Bakken has seen at least 400,000 barrels per day of production shut-in.

What took three long years for the companies in the Bakken to increase production from the lows in 2016, vaporized in just the past two months. Unfortunately, shutting in horizontal fracked wells is the worst thing a company can do.  Why?  When a horizontal well is prematurely shut-in, it causes a lot of problems that are expensive to remedy when restarting the well.  So, many of these wells may be shut-in for good.

According to the Reuters article, ‘Like watching a train wreck’: The coronavirus effect on North Dakota shale oilfields:

Output has dropped by at least 400,000 bpd since March 1, nearly a third of the state’s around 1.4 million bpd output before the crisis. State officials expect the volume shut in to rise further.

“This is truly unprecedented,” said Lynn Helms, director of North Dakota’s Department of Mineral Resources, the state regulator overseeing oil production. In the days following the price collapse, oil companies sent teams out to shut wells.

Field inspectors, who work with the state’s 20 largest operators, had dire news for Helms, the worst of it from Continental Resources (CLR.N), the state’s largest operator. By April 21, about 95 percent of Continental’s production in the state had shut down.

Continental on average produced about 188,000 boepd in North Dakota Bakken during fourth quarter 2019, with about 1,540 net producing wells as of year end, according to company data. Other large producers in the state were also shutting down. Oasis Petroleum (OAS.O) was halting all drilling in the Bakken, where it pumped about 80,000 boepd at the end of 2019.

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

Permian Bankruptcies Could Fuel A Buying Spree For Big Oil

Permian Bankruptcies Could Fuel A Buying Spree For Big Oil

The United States shale revolution is over. Production in the Permian Basin, which spreads across West Texas and Southeast New Mexico, has been slowing for months, but the novel coronavirus took things from bad to much, much worse for U.S. shale. The oil price shock that followed the spread of the COVID-19 pandemic, combined with a massive global oil glut spurred by a spat between with learning OPEC+ member countries of Russia and Saudi Arabia, drove West Texas Intermediate oil prices down to a previously unthinkable -$37.63 a barrel earlier this month.  While shale prices have since moderately rebounded, the Permian Basin is still in bad shape. The oil fields that made the United States the biggest crude oil producer in the world is now seeing tens of thousands of fired and furloughed employees as the region is rocked by a sweep of bankruptcies across the shale sector. Last week CNBC reported that “the oil industry shakeout is just beginning with more production cuts and bankruptcies ahead,” detailing that “U.S. oil companies are already paring back spending and closing wells, but wild trading in the futures market was a warning to curb production now because the world at some point will not be able to store any more supply.”

Just because the U.S. oil industry has hit a rough patch, however, doesn’t necessarily mean that the West Texas shale play is all played out. In fact, it stands to reason that, as competition dries up and blows away like so many tumbleweeds, Big Oil may step in and buy up faltering shale independents. 

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

The Shale Suffering Has Only Just Begun

The Shale Suffering Has Only Just Begun

Oil Demand

A few weeks before the summer driving season begins, U.S. gasoline consumption has plummeted to levels last seen in the late 1960s, due to the lockdowns to contain the spreading of the coronavirus.

With demand for motor fuel plunging, refiners are cutting crude processing, and crude oil storage capacity in America is filling fast. The glut is set to worsen in the coming weeks, and storage capacity at Cushing, Oklahoma, could be full by the middle of May, analysts say.  

The fast demand destruction in the pandemic threatens to fill up storage across America soon, forcing oil prices lower and forcing oil producers to idle more rigs and curtail more production than initially thought.  

Total U.S. petroleum consumption stabilized in the latest reporting week to April 17 at 14.1 million barrels per day (bpd), up slightly from the 13.8 million bpd estimated consumption in the previous week, which was the lowest weekly consumption level in EIA’s statistics dating back to the early 1990s.

But crude oil and gasoline inventories continued to jump while crude refinery inputs continued to drop, according to EIA’s latest inventory report from this week.

U.S. crude oil refinery inputs averaged 12.5 million bpd during the week ending April 17, which was 209,000 bpd less than the previous week’s average. Refineries continued to cut run rates and operated at 67.6 percent of their capacity. To compare, refiners would typically operate at more than 90 percent capacity just ahead of the summer driving season. But this year, the summer driving season is postponed and is expected to be very weak.

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

FIRST SHALE OIL DOMINO TO FALL: More to Follow

FIRST SHALE OIL DOMINO TO FALL: More to Follow

In a stunning news release, Continental Resources, the largest shale producer in the Bakken, is shutting in most of its production in the region.  That is one hell of a lot of output to shut-in as Continental Resources was producing over 200,000 barrels per day in the Bakken at the end of 2019.

From the data on Shaleprofile.com, Continental Resources had over 2,200 wells in the North Dakota and Montana Bakken producing oil and gas during February this year.  How many wells will Continental’s Harold Hamm shut in the Bakken??  And how many will be brought back online, at to what cost, when the market recovers??

According to Reuters, Continental Resources halts shale output, seeks to cancel sales:

April 23 (Reuters) – The largest oil producer in North Dakota has halted most of its production in the state, notifying some customers it would not supply crude at current pricing, according to people familiar with the matter.

Continental Resources Inc, the company controlled by billionaire Harold Hamm, stopped all drilling and shut in most of its wells in the state’s Bakken shale field, said three people familiar with production in the state. North Dakota is the second-largest oil-producing state in the United States after Texas.

This is terrible news for the U.S. Shale Oil Industry because $200 billion in debt is due over the next four years.  How are they going to repay this debt if shale companies stop drilling and shutting in production??

If we look at the top five shale oil producers in the Bakken, Continental Resources was clearly ahead of the pack:

This chart from Shaleprofile.com shows that Continental Resources produced more than 200,000 barrels per day in the Bakken at the end of 2019.  Hess, which is the second-ranked company, followed by a wide margin at 145,000 barrels per day.  Interestingly, the third-largest producer in the Bakken is Whiting Petroleum that just filed for Bankruptcy on April 1st.

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

U.S. Shale Braces For Brutal Earnings Season

U.S. Shale Braces For Brutal Earnings Season

U.S. Shale

A lot of big names will report third quarter earnings this week, and the results are expected to be worse than the same period in 2018.

The timing comes as the shale sector is facing somewhat of a reckoning. After years of price volatility – with more downs than ups – oil prices have failed to return even remotely close to pre-2014 levels. For several years, shale E&Ps took on debt and issued new equity, promising investors that they would profit both from a rebound in prices and from rapid production growth.

They delivered on gains to output, but not on profits. At some point in the last year, investors really began to lose faith. Oil stocks have been the worst performers in the S&P 500 this year.

The latest release of earnings will probably do little to quell unease from big investors. Oil and natural gas prices have dropped this year, by about 17 percent and 31 percent, respectively. Job cuts have returned and bankruptcies are on the rise again.

The oil majors are pressing forward with their aggressive shale development plans. That may prevent a noticeable decline in production. But their earnings – many of the majors report this week – are expected to be down roughly 40 percent from a year ago, which will raise some tough questions.

Some of the largest banks have slashed their credit lines to smaller shale E&Ps. According to Reuters, JPMorgan Chase, Wells Fargo and the Royal Bank of Canada are among some of the lenders that have reduced the amount of credit they are offering to drillers.

The so-called credit redetermination period happens twice a year, and banks tend to offer financing based on a company’s reserves. Lower prices lower that assessment because some reserves become uneconomic to produce. As a result, the ability to access financing becomes more restricted.

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

Unsettled Weather

Unsettled Weather


After leaving the Bahamas for dead, Hurricane Dorian barely grazed the US mainland en route to the Canadian shoals of oblivion, perhaps saving America’s insurance industry. But the steamy west coast of Africa is hurling out a cavalcade of replacements as the high season for Atlantic storms commences, so better keep the plywood sheets at hand. Lots of things are looking stormy around the world just now: nations, markets, politics — everything really except all three divisions of the American League… yawn….

The world is in a nervous place these days The US is something like the world’s crazy old auntie, whom everyone else would like to lock in the attic. Except she happens to be cradling a bazooka, so they’ll go on trying to ignore her a while longer, hoping she doesn’t launch any rockets at the neighbors.

Britain courts chaos in its attempt to keep staving off the Brexit quandary, which itself seems to promise a hearty dose of chaos as thousands of unresolved trade issues threaten the country’s economic future walking out on Europe. The majority who voted Brexit feel that the EU is already crushing them under bureaucratic diktat and immigration quotas. New Prime Minister Bo-Jo has tried one ploy after another in his quest to reach the Halloween Brexit ramp. Everyone is ganging up on him, even his own brother, Jo Johnson, who has quit the cabinet and is ditching his seat in parliament. Bo-Jo wants to call an election because there is no one else to take his place, and many of those piling on him also detest the opposition Labor Party leader, Jeremy Corbyn. Events are outrunning anybody’s ability to see what happens next. Street violence is not out of the question.

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

Bizarro World: The Herd Has Truly Gone MadYou’re not crazy. The world we now live in is

Bizarro World: The Herd Has Truly Gone MadYou’re not crazy. The world we now live in is

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

~ Charles Mackay (1841)

Like me, you may often feel gobsmacked when looking at the world around you.

How did things get so screwed up?

The simple summary is: the world has gone mad.

It’s not the first time.

History is peppered with periods when the minds of men (and women) deviated far from the common good. The Inquisition, the Salem witch trials, the rise of the Third Reich, Stalin’s Great Purge, McCarthy’s Red Scares — to name just a few.

Like it or not, we are now living during a similar era of self-destructive mass delusion. When the majority is pursuing — even cheering on — behaviors that undermine its well-being. Except this time, the stakes are higher than ever; our species’ very existence is at risk.

Bizarro Economics

Evidence that the economy is sliding into recession continues to mount.

GDP is slowing. Earnings warnings issued by publicly-traded companies are at a 13-year high. The most reliable recession predictor of the past 50 years, an inverted US Treasury curve, has been in place for the past quarter.

Yet the major stock indices hit all-time highs earlier this week. And every one of the 38 assets in the broad-based asset basket tracked by Deutsche Bank was up for the month of June — something that has never happened in the 150 years prior to 2019.

It has become all-too clear that markets today are no longer driven by business fundamentals. Only central bank-provided liquidity matters. As long as the flood of cheap credit continues to flow (via rock-bottom/negative interest rates and purchase programs), keeping cash-destroying companies alive and enabling record share buybacks, all boats will rise.

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

Shale oil and gas: Destroying capital one well at a time

Shale oil and gas: Destroying capital one well at a time

Recently, the former CEO of the largest shale gas producer in the United States told a roomful of conference goers what any competent financial analysis would have revealed many years ago: the shale oil and gas industry as a whole has been destroying capital since its inception.

“The fact is that every time they put the drill bit to the ground, they erode the value of the billions of dollars of previous investments they have made,” said Steve Schlotterbeck, former head of natural gas behemoth EQT, at a petrochemical industry conference. “It’s frankly no wonder that their equity valuations continue to fall dramatically.”

But, the real news here is not that the shale oil and gas industry has from its beginning been destroying capital one well at a time. It’s that a major industry insider freed from the constraints of his former job has admitted it.

Schlotterbeck calculates that the industry as a whole has destroyed 80 percent of its value since 2008. It turns out that the so-called shale revolution is a revolution as much in investor stupidity as it is in technology, a technology that can’t seem to produce actual industry profits. The former CEO added that there have been 172 bankruptcies among exploration and production companies engaged in the shale oil and gas business just since 2015.

Now the significance of this message is as much where it was said as who said it. Schlotterbeck was addressing attendees of the Northeast Petrochemical Exhibition & Conference in Pittsburgh in mid-June. The predominant buzz at the conference was a plan to turn Pennsylvania and Ohio, which sit above large shale gas resources, into a petrochemical and plastics center similar that which exists on the U.S. Gulf Coast.

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

TROUBLE AT THE BAKKEN: Oil Production Finally Peaking?

TROUBLE AT THE BAKKEN: Oil Production Finally Peaking?

Is the mighty Bakken Shale Oil Field finally peaking?  Well, according to the data from the folks at the North Dakota Department of Mineral Resources, oil production in the Bakken has been flat for the past six months.  And, to make matters worse, production has been flat even though oil prices increased from a low of $42 in January to the mid $60’s in April.

So, something seriously wrong is going on in North Dakota.  What a difference in the Bakken’s recent oil supply compared to the field’s heyday when production surged from 300,000 barrels per day in 2011 to over 1.1 million barrels per day in 2014.  Furthermore, the oil price the shale companies in the Bakken are receiving is now $48 a barrel versus the West Texas Intermediate price of $57.

If we look at the past seven months, the North Dakota Bakken has only added 36,000 barrels per day (bd) of new oil production compared to 114,000 bd during the same period last year:

As we can see in the chart above, the output from Sep 2017 to Apr 2018 enjoyed an upward trend, while the Sep 2018-Apr 2019 has been flat.  You can see this better in Enno Peters chart from ShaleProfile.com.  I highly recommend followers check out his site as he provides updates on the top shale oil and gas fields in the United States using state data from over 100,000 wells.

These charts from ShaleProfile.com show the annual change production by different colors.  Here we can see that Bakken oil production increased steadily from 2011 to 2014, plateaued in late 2014 and 2015, declined in 2016, raised in 2017-2018, and has plateaued once again in 2019. The likely culprit for the plateau in Bakken oil production has to do with the lower oil price and the reduction of investment funds available to the shale companies that continue to spend more money than they make.

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

Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines

Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines

The global economy would be in serious trouble if it weren’t for the rapid growth of U.S. shale oil production.  Since the 2008 financial crisis, U.S. shale oil production has increased by more than 6 million barrels per day.  Without these additional barrels of oil, the massive money printing and asset purchases by the central banks would not have been as successful in propping up the economy and markets.

We must remember this simple fact; energy drives the markets, not finance. Finance steers the market.  So, for the economy to expand, there must be oil production growth.  However, it would be unwise for the market-economy to rely upon the U.S. shale industry as the leading driver of global oil production growth for the foreseeable future.

Why?  Well, there are several reasons, but let’s first look at how much the increase in U.S. shale oil production has accounted for the rise in global oil supply since 2008. Of the 9.6 million barrels per day (mbd) of global oil production growth 2008-2017, the United States supplied two-thirds or 6.3 mbd of the total:

Interestingly, global oil production minus the United States and Canada didn’t increase in 2009, 2010 or 2011.  There was a small bump up in 2012 and finally by 2105-2017 did global oil production minus the U.S. and Canada increase by 1.7 mbd.  Now, let me repeat that.  If we add up ALL THE OTHER COUNTRIES in the world producing oil, the net increase from 2008 to 2017 was only 1.7 mbd. Thus, of the total 9.6 mbd of global oil production growth 2008-2017, the U.S. (6.3 mbd) and Canada (1.6 mbd) accounted for 82% of the total.

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

Does Chevron know exactly what shale oil and gas are worth?

Does Chevron know exactly what shale oil and gas are worth?

Welcome to the bidding war that didn’t happen. The decision last week by international oil giant Chevron Corp. to leave its takeover bid for shale oil and gas-heavy Anadarko Petroleum Corp. unaltered in the wake of a higher offer from rival bidder Occidental Petroleum Corp. surprised some who had expected a back and forth escalation between the two competitors.

Chevron’s CEO told Bloomberg, “Winning in any environment doesn’t mean winning at any cost.” Chevron’s hesitancy to pay up for Anadarko’s assets suggests a measured assessment about what Anadarko might deliver, one tempered by emerging political developments and perhaps a less sanguine view about the durability of the shale boom.

Anadarko, after all, has considerable operations in Colorado which recently enacted a billincreasing the ability of municipalities to curtail oil and gas development, authorizing more stringent air quality monitoring and rules, and turning the commission which was tasked with “fostering” oil and gas development into one which actually regulates it. That spells less oil and gas development in a state that has been critical to Anadarko and to the shale boom.

The promoters of shale oil and gas investment are pretending as if the kind of backlash which happened in Colorado could not occur elsewhere. Don’t count on that being the case.

Beyond this, energy writer Nick Cunningham summarizes the most recent update of prospects for shale hydrocarbons released by a skeptical Post Carbon Institute. Issues identified by the institute way back in 2012 have continued to unfold as foretold. All the technological improvements since then are only hastening the day when production will turn down according to the report’s author. Simply put, production from oil and gas shale deposits is being “frontloaded.”

 …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…

Olduvai IV: Courage
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Olduvai II: Exodus
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