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A Survival Guide For 2019

A Survival Guide For 2019

How to safely navigate the ‘Year Of Instability’ 

As the first month of the year concludes, it’s becoming clear that 2019 will be a very different kind of year.

The near-decade of ‘recovery’ following the Great Financial Crisis enjoyed a stability and tranquility that suddenly evaporated at the end of 2018.

Here in 2019, instability reigns.

The world’s central banks are absolutely panicking. After last year’s bursting of the Everything Bubble, their coordinated plans for Quantitative Tightening have been summarily thrown out the window. Suddenly, no chairman can prove himself too dovish.

Jerome Powell, the supposed hardliner among them, completely capitulated in the wake of the recent -15% tantrum in stocks, which, as Sven Henrich colorfully quipped, proved what we suspected all along:

The global tsunami of liquidity (i.e. thin-air money printing) released by the central banking cartel has been the defining trend of the past decade. It has driven, directly or indirectly, more world events than any other factor.

And one of its more notorious legacies is the massive disparity and wealth and income resulting from its favoring of the top 0.1% over everyone else. The mega-rich have seen their assets skyrocket in value, while the masses have been mercilessly squeezed between similarly rising costs of living and stagnant wages.

How have the tone-deaf politicians responded? With tax breaks for their Establishment masters and new taxes imposed on the public. As a result, populist ire is catching fire in an accelerating number of countries, which the authorities are anxious to suppress by all means to prevent it from conflagrating further — most visibly demonstrated right now by the French government’s increasingly jack-booted attempts to quash the Yellow Vest protests:

Meanwhile, two other principal drivers of the past decade’s ‘prosperity’ are also suddenly in jeopardy.

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

Has U.S. shale oil entered a death spiral?

Has U.S. shale oil entered a death spiral?

The bad news coming out of the shale oil fields of America could all be put down to slumping oil prices. That is certainly a big factor. But as investment professionals like to say, when the tide goes out, we all find out who’s been skinny-dipping.

The pattern of negative news from shale country is not just related to price, however. Oil production, it seems, is being overstated industry-wide by 10 percent and 50 percent in the case of some companies, according to The Wall Street Journal.

The CEO of one of the largest players in the industry, Continental Resources, predicted that growth in shale oil production could fall by 50 percent this year compared to last year. In reality, we should expect worse as the industry for obvious reasons tends to exaggerate its prospects.

The place where the damage to investors has become severe is in private equity firms who hold a large portion of the shale oil industry’s high-yield debt. The plan for the firms was always to unload the debt on somebody else when better opportunities presented themselves. But the firms overstayed their welcome and are having a hard time even finding a bid in the market for these bonds.

With the big Wall Street players now questioning the value of their existing investments in shale oil, the industry is finding it hard to raise money. Not a single bond sale has come off since November in an industry which must continuously raise capital to survive.

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

U.S. SHALE OIL INDUSTRY: Not In The Business To Make Money, But To Take Money

U.S. SHALE OIL INDUSTRY: Not In The Business To Make Money, But To Take Money

The U.S. Shale Oil Industry has been a financial trainwreck since day one.  And, with nearly $300 billion in public and private debt racked up by the shale industry since its inception, that hasn’t stopped investors from throwing good money after bad to continue the biggest energy Ponzi scheme in history.

Unfortunately, the worst is still yet to come because the industry hasn’t provided the market with analysis on what happens to the shale oil companies and investors holding their debt when production finally peaks forever.  I don’t believe the market has any idea just how quickly and violently the U.S. Shale Oil Industry could implode.  Get ready for the Sun to Set on the U.S. Shale Oil Industry.

Veteran oil analyst, Art Berman, mentioned in his interview on Peak Prosperity that he believes the oil industry “IS DONE.”  He also explains why the U.S. Shale Industry is not in the business of making money, but rather, taking money.  I highly recommend “ALL,” my followers to listen to the interview below as it confirms the dire energy predicament we face:

In my last video update, DOW, GOLD & SILVER: Markets Disconnect In 2019, I explained the following image below which is a typical shale well completion layout and the tremendous amount of equipment needed to frac and produce shale oil and gas.  What we need to understand about shale industry is that it consumes so much more energy (capex, equipment & labor) to produce oil, there is less available net energy to provide real economic growth.  Furthermore, a larger segment of the economy is driven by the enormous amount of shale energy activity that when it falls back into a recession-depression, it will have a much more negative impact on the U.S. economy.

 …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…

The Shale Oil Revolution Actually Reflects a Nation in Decline

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The Shale Oil Revolution Actually Reflects a Nation in Decline

Faster consumption + no strategy = diminished prospects

Here in the opening month of 2019, as the US consumes itself with hot debate over a border wall, far more important topics are being ignored completely.

Take US energy policy. In the US press and political circles, there’s nothing but crickets sounding when it comes to serious analysis or any sort of sustainable long-term plan.

Once you understand the role of energy in everything, you can begin to appreciate why there’s simply nothing more important to get right.

Energy is at the root of everything. If you have sufficient energy, anything is possible. But without it, everything grinds to a halt.

For several decades now the US has been getting its energy policy very badly wrong.  It’s so short-sighted, and rely so heavily on techno-optimism, that it barely deserves to be called a ‘policy’ at all.

Which is why we predict that in the not-too-distant future, this failure to plan will attack like a hungry wolfpack to bite down hard on the US economy’s hamstrings and drag it to the ground.

Shale Oil Snafu

America’s energy policy blunders are nowhere more obvious than in the shale oil space, where it’s finally dawning on folks that these wells are going to produce a lot less than advertised.

Vindicating our own reports — which drew from the excellent work of Art Berman, David Hughes and Enno Peters’ excellent website — the WSJ finally ran the numbers and discovered that shale wells are not producing nearly as much oil as the operators had claimed they were going to produce:

Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast

Jan 2, 2019

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

Fracked Shale Oil Wells Drying Up Faster than Predicted, Wall Street Journal Finds

Fracked Shale Oil Wells Drying Up Faster than Predicted, Wall Street Journal Finds

Pumpjacks in Permian Basin outside Midland, Texas

In 2015, Pioneer Natural Resources filed a report with the federal Securities and Exchange Commission, in which the shale drilling and fracking company said that it was “drilling the most productive wells in the Eagle Ford Shale” in Texas.

That made the company a major player in what local trade papers were calling “arguably the largest single economic event in Texas history,” as drillers pumped more than a billion barrels of fossil fuels from the Eagle Ford.

Its Eagle Ford wells, Pioneer’s filing said, were massive finds, with each well able to deliver an average of roughly 1.3 million barrels of oil and other fossil fuels over their lifetimes.

Three years later, The Wall Street Journal checked the numbers, investigating how those massive wells are turning out for Pioneer.

Turns out, not so well. And Pioneer is not alone.

Those 1.3 million-barrel wells, the Journal reported, “now appear to be on a pace to produce about 482,000 barrels” apiece — a little over a third of what Pioneer told investors they could deliver.

In Texas’ famed Permian Basin, now the nation’s most productive shale oil field, where Pioneer predicted 960,000 barrels from each of its shale wells in 2015, the Journal concluded that those “wells are now on track to produce about 720,000 barrels” each.

Not only are the wells already drying up at a much faster rate than the company predicted, according to the Journal’s investigative report, but Pioneer’s projections require oil to flow for at least 50 years after the well was drilled and fracked — a projection experts told the Journal would be “extremely optimistic.”

Fracking every one of those wells required a vast amount of chemicals, sand, and water. In Karnes County, Texas, one of the two Eagle Ford counties where Pioneer concentrated its drilling in 2015, the average round of fracking that year drank uproughly 143,000 barrels of water per well.

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

Evidence Mounts For Shale Slowdown

Evidence Mounts For Shale Slowdown

frack crew

There is a growing pile of evidence pointing to a slowdown in the U.S. shale industry, as low prices take their toll.

The rate of hydraulic fracturing began to decline in the last four months of 2018, a sign that U.S. shale activity began to slow even before the plunge in oil prices. According to Rystad Energy, the average number of fracking jobs declined to 44 per day in November 2018, down from an average of between 48 and 50 for the five-month period between April and August 2018.

“After reaching a peak in May/June, fracking activity in the Permian Basin has gradually decelerated throughout the second half of 2018,” Rystad Energy senior analyst Lai Lou said in a statement.

“Looking at preliminary data for November, we see evidence that seasonal activity deceleration has likely started in all major plays except Eagle Ford,” Lou added. “There has been a considerable slowdown in Bakken and Niobrara in November, our analysis shows.” Rystad said that much of the slowdown can be attributed to smaller companies.

The drilling data echoes that of the Dallas Fed, which reported last week that drilling activity began to slow in the Permian in the fourth quarter. Whether measuring by production, employment, business activity, equipment usage rates – a wide variety of data from the shale industry points to an unfolding slowdown.

Moreover, independent data also suggests that a lot of shale drillers are not profitable with oil prices below $50 per barrel. Breakeven prices on the very best wells can run in the $30s or $40s per barrel, but industry-wide all-in costs translate into much higher breakeven thresholds. The rig count has also already plateaued after growing sharply in the first half of 2018.

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

“Energy Dominance,” what does it mean? Decoding a Fashionable Slogan

“Energy Dominance,” what does it mean? Decoding a Fashionable Slogan

“Now, I know for a fact that American energy dominance is within our grasp as a nation.” Ryan Zinke, U.S. Secretary of the Interior (source)

“All Warfare is Based on Deception” Sun Tzu, “The Art of War”

Over nearly a half-century, since the time of Richard Nixon, American presidents have proclaimed the need for “energy independence” for the US, without ever succeeding in attaining it. During the past few years, it has become fashionable to say that the US has, in fact, become energy independent, even though it is not true. And, doubling down on this concept, there came the idea of “energy dominance,”introduced by the Trump administration in June 2017.  It is now used at all levels in the press and in the political debate.

No doubt, the US has good reasons to be bullish on oil production. Of the three major world producers, it is the only one growing: it has overtaken Saudi Arabia and it seems to be poised to overtake Russia in a few years. (graphic source).

This rebound in the US production after the decline that started in the early 1970s is nearly miraculous. And the miracle as a name: shale oil. A great success, sure, but, if you think about it, the whole story looks weird: the US is trying to gain this “dominance” by means of resources which, once burned, will be forever gone. It is like people competing at who is burning their own house faster. What sense does it make?

Art Berman keeps telling us that shale oil is an expensive resource that could be produced at a profit only for market conditions that are unrealistic to expect. So far, much more money has been poured into shale oil production than it has returned from the sales of shale oil.

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

New Data Suggests Shocking Shale Slowdown

New Data Suggests Shocking Shale Slowdown

Shale rig

U.S. shale executives often boast of low breakeven prices, reassuring investors of their ability to operate at a high level even when oil prices fall. But new data suggests that the industry slowed dramatically in the fourth quarter of 2018 in response to the plunge in oil prices.

A survey from the Federal Reserve Bank of Dallas finds that shale activity slammed on the brakes in the fourth quarter. “The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained positive, but barely so, plunging from 43.3 in the third quarter to 2.3 in the fourth,” the Dallas Fed reported on January 3.

The 2.3 reading is only slightly positive – zero would mean that business activity from Texas energy firms was flat compared to the prior quarter. A negative reading would mean a contraction in activity.

The deceleration was true for multiple segments within oil and gas. For instance, the oil production index fell from 34.8 in the third quarter to 29.1 in the fourth. The natural gas production index to 24.8 in the fourth quarter, down from 35.5 in the prior quarter.

But even as production held up, drilling activity indicated a sharper slowdown was underway. The index for utilization of equipment by oilfield services firms dropped sharply in the fourth quarter, down from 43 points in the third quarter to just 1.6 in the fourth – falling to the point where there was almost no growth at all quarter-on-quarter.

Meanwhile, employment has also taken a hit. The employment index fell from 31.7 to 17.5, suggesting a “moderating in both employment and work hours growth in the fourth quarter,” the Dallas Fed wrote. Labor conditions in oilfield services were particularly hit hard.

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

IEA Chief: U.S. Oil Output To Near Saudi+Russian Production By 2025

IEA Chief: U.S. Oil Output To Near Saudi+Russian Production By 2025

Offshore rig

Total U.S. oil production around 2025 will almost equal the combined production of Russia and Saudi Arabia, Fatih Birol, the Executive Director of the International Energy Agency (IEA), told Turkish state-run Anadolu Agency on Friday.

The huge growth in U.S. shale production will completely change the balance of oil markets, Birol told the news agency.

The IEA’s Oil 2018 report from earlier this year sees the United States dominating the global oil supply growth over the next five years.

OPEC capacity will grow only modestly by 2023, while most of the growth will come from non-OPEC countries, led by the United States, “which is becoming ever more dominant in the global oil market,” the IEA said.

Driven by light tight oil, U.S. production is seen growing by 3.7 million bpd by 2023, more than half of the total global production capacity growth of 6.4 million bpd expected by then. Total liquids production in the United States—including conventional oil, shale, and natural gas liquids—will reach nearly 17 million bpd by 2023, “easily making it the top global producer, and nearly matching the level of its domestic products demand,” the IEA said in March this year.

“The United States is set to put its stamp on global oil markets for the next five years,” Birol said back then.

The U.S. is currently pumping oil at record levels of more than 11 million bpd, while Russia and Saudi Arabia—which also hit record highs in October and November, respectively—will curtail 230,000 bpd and 322,000 bpd of their production in the first six months of 2019, respectively.

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

Shale Oil Keeps Growing on Trees

The United States Geological Society (USGS) today released a report stating there is an estimated 46.3 billion barrels of theoretical, technically recoverable, as yet undiscovered light tight oil reserves in the Wolfcamp, Bone Springs and Avalon shaley carbonate formations in the Delaware Basin of West Texas. Shale oil, it seems, keeps growing on trees.

There are lot of “qualifications” to this estimate but it will nevertheless cause people’s panties to get plum bunched up, including the President of the United States who believes we are sitting on the Atlantic Ocean of light tight oil in America, so much so we no longer even have to worry about conserving the stuff anymore.

What price of oil will it take for all this imaginary oil to actually be recovered in the Delaware Basin? Well, the USGS does not bother itself with that kind of small stuff. Taxpayers pay for it to make wild ass guesses and that’s that.

Art Berman reviewed the study in detail to determine the USGS itself estimates it will take 318,000 wells to recover this oil, costing over $3.0 trillion. Some of the USGS EUR estimates for various benches in their assessment will only be economical at oil prices above $150 per BO.

Where  that money is going to come from beats the hell out of me. The US shale oil industry has drilled almost 70,000 shale wells the past decade all across America and is hammering its sweet spots in the major shale oil basins. It has recovered a little less than 10 billion barrels of oil  so far  (EIA, DI, IHS, shaleprofile.com). The shale oil industry  is somewhere around $300 billion in long term debt, so it essentially has not even paid for what its already produced.

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

Shale Growth Could Slow On Oil Price Meltdown

Shale Growth Could Slow On Oil Price Meltdown

Oil

Can the U.S. shale boom continue if WTI stays mired below $50 per barrel?

Much has been made about the dramatic cost reductions that shale drillers have implemented over the past few years, with impressive breakeven prices that should ensure the drilling frenzy continues no matter where oil prices go. On earnings calls with investors and analysts, shale executives repeatedly trumpeted extremely low breakeven prices.

However, those figures are at times cherry-picked or otherwise misleading. They fail to include the cost of land acquisition and other costs, or they simply reflect cost structures in only the very best acreage.

The sudden meltdown in prices – oil fell nearly 8 percent on Tuesday – could put renewed scrutiny on the point at which many shale wells breakeven.

The problem for a lot of companies is that they are not necessarily earning the full WTI price. Oil in West Texas in the Permian Basin continues to trade at a steep discount relative to WTI, even as the differential has narrowed in recent months. With WTI at roughly $47 or $48 per barrel, oil based in Midland is trading below $40 per barrel, the lowest point in more than two years, according to Bloomberg.

Bloomberg NEF data provides more clues into the complex “breakeven” debate. Wells located in the Spraberry (within the Permian basin) can breakeven when prices trade between $32 and $47 per barrel. Digging deeper, Bloomberg NEF notes that some of the best wells can break even in the low $30s, but the worst quartile of wells breakeven at an average of $65.54 per barrel.

In other words, a large portion of wells in the Permian – which, to be clear, is often held up as the best shale basin in the world – is currently unprofitable, given WTI priced in the high-$40s per barrel.

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

Shale Under Pressure As Oil Falls Below $50

Shale Under Pressure As Oil Falls Below $50

fracking operation

The OPEC+ cuts still are not doing very much to boost oil prices, dashing hopes for many U.S. shale producers. With companies in the process of formulating their budgets for 2019, the prospect of $50 oil sticking around raises questions about the heady production figures expected from the shale patch.

The IEA expects U.S. oil production to grow by 1.3 million barrels per day (mb/d) in 2019. But oil prices could significantly impact those projections. “Total U.S. shale oil growth is highly sensitive to WTI prices in the $40-60 range,” Morgan Stanley wrote in a December 13 note. The investment bank said that shale producers are growing more sensitive to prices below $60 but less sensitive to price spikes above $60. “If WTI remains around current levels (~$50/bbl), US growth should start to slow.”

The investment bank said that larger companies, such as ConocoPhillips or Occidental Petroleum, are less sensitive to price swings than smaller E&Ps. On the other hand, some companies could begin to slow production if prices linger at low levels. Morgan Stanley pointed to Apache Corp., Murphy Oil, Newfield Exploration, Oasis Petroleum, Whiting Petroleum and Chesapeake Energy. “With low oil prices, we see these companies slowing production growth in 2019 to spend within cash flow (or minimize outspend), [free cash flow] levels fall or turn negative, and leverage metrics move higher.”

Other analysts also see price sensitivity from the shale sector. “We expect 5-10% capex growth on average at $59 WTI, which should yield production growth of nearly 1.3mn b/d,” Bank of America Merrill Lynch wrote in a note. “However producers may budget for lower oil prices given the recent decline in prices and increase in uncertainty.”

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

Peak Diesel or no Peak Diesel? The Debate is Ongoing

Peak Diesel or no Peak Diesel? The Debate is Ongoing

In a recent post, Antonio Turiel proposed that the global peak of diesel fuel production was reached three years ago, in 2018. Turiel’s idea is especially interesting since it takes into account the fact that what we call “oil” is actually a wide variety of liquids of different characteristics. The current boom of the extraction of tight oil (known also as “shale oil”) in the United States has avoided, so far, the decline of the total volume of oil produced worldwide (“peak oil”).

Shale oil has changed a lot of things in the oil industry, but it couldn’t avoid the decline of conventional oil. That, in turn, had consequences: shale oil is light oil, not easily converted to the kind of fuel (diesel) which is the most important transportation fuel, nowadays. That seems to have forced the oil industry into converting more and more “heavy” oil into diesel fuel but, even so, diesel fuel is becoming gradually more scarce and more expensive, to the point that its production may have peaked in 2015. In addition, it has created a dearth of heavy oil, the fuel of choice for marine transportation. In short, the famed “peak oil” is arriving not all together, but piecemeal — affecting some kinds of fuels faster than others.

Turiel’s proposal has raised a considerable debate among the experts, with several of them challenging Turiel’s interpretation. Turiel himself and Gail Tverberg (of the “our finite world” blog) discussed the validity of the data and their meaning. Below, I reproduce the exchange with their kind permission. As you will see, the matter is complex and at the present stage it is not possible to arrive at a definitive conclusion. 

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

Big Oil Doubles Down On Shale Despite Price Drop

Big Oil Doubles Down On Shale Despite Price Drop

big oil shale

It’s the time of the year when oil companies start announcing their budgets for next year and besides a steady albeit guarded optimism, one thing stands out: oil majors are doubling down on their shale endeavors.

Chevron, ConocoPhillips, and Hess Corp all announced their capex plans for next year in the last few days and all three have big plans for U.S. shale. In fact, Conoco said it would allocate half of its budget on onshore operations in the United States, while Hess Corp said the bulk of its US$1.89 billion production growth budget, or US$1.425 billion, would be poured into the Bakken play.

Chevron has  earmarked US$3.6 billion for expanding its production in the Permian and another US$1.6 billion will be invested in other shale plays in the United States. That makes a total of US$5.2 billion for U.S. shale, which is substantially higher than this year’s budget of US$4.3 billion.

Anadarko, which made its 2019 spending plans public last month, said it planned to allocate more than two-thirds of its 2019 budget to shale operations, with a particular focus on the Delaware Basin in the Permian and the DJ basin in Colorado.

According to Bloomberg, shale has become “a safe haven” for Big Oil amid the recent increased volatility in prices. The argument is that shale production costs are much lower than a few years ago and combine with the opportunity for a steady production increase and quicker returns than conventional projects.

The recent assessment of the U.S. Geological Survey of the recoverable reserves in the Wolfcamp basin must have added fuel to Big Oil’s shale enthusiasm.

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

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