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Oil well

U.S. shale oil producers have so far held up admirably, hanging on for dear life amidst the biggest oil demand collapse in history. American producers continued to pump at record highs in March, even after dozens of drillers laid out blueprints to limit production.

But with U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest pandemic in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins.

Oil production in the country tumbled sharply to 12.2 million bpd in the third week of April, a good 900,000 bpd less than the record peak of 13.1 million bpd recorded just a month prior. That’s a 7% production cut in the space of only a few weeks and the lowest level since July.

A lot more could be on the way.

More Production Cuts

Oklahoma-based Continental Resources (NYSE:CLR), the company controlled by billionaire Harold Hamm, has ceased all its shale operations in North Dakota and shut in most wells in its Bakken oil field totaling roughly 200,000 bpd.

The company, though, has refused to sell its contracted oil to pipelines at negative prices by declaring force majeure.

Continental has defended its stance by pointing out that the coronavirus outbreak has “…brought about conditions under which force majeure applies” while adding that selling its oil at negative prices constitutes waste.

Continental made the risky gamble of betting that economic growth would lift prices and, therefore, left itself heavily exposed to low oil prices by failing to employ the industry’s usual playbook of hedging future production with derivatives.

Continental is in good company, though.

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

The Shale Suffering Has Only Just Begun

April 26, 2020

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…

Only 5 Shale Drillers Are Still Profitable At $31 Oil

March 10, 2020

Only 5 Shale Drillers Are Still Profitable At $31 Oil

Most shale oil wells drilled in the United States are unprofitable at current oil prices, Rystad Energy has warned. The Norwegian consultancy said, as quoted by Bloomberg, that drilling new wells would be loss-making for more than 100 companies.

Just five shale drillers—Exxon, Chevron, Occidental, and Crownquest—can drill new wells at a profit at $31 per barrel of West Texas Intermediate.

The problem is the nature of shale oil wells: while quick to start production and expand it, they are also quick to run out of oil, so drillers need to keep drilling new ones to maintain production, which is what U.S. shale patch players have been doing for years. However, this has affected investor returns, Bloomberg notes, and now it is affecting spending plans.

“Companies should not be burning capital to be keeping the production base at an unsustainable level,” Tom Loughrey from shale oil data company Friezo Loughrey Oil Well Partners LLC told Bloomberg. “This is swing production — and that means you’re going to have to swing down.”

The situation is more positive for drilled but uncompleted wells, according to Rystad. The consultancy said yesterday that as much as 80 percent of DUCs in the U.S. shale patch have a breakeven price of less than $25 per barrel of WTI. Yet this is dangerously close to current prices.

If nobody blinks in this supply war, prices may have to go this low in order to properly reduce production and get supply-demand back in balance,” Rystad’s head of shale research, Artem Abramov, said in the news release.

“This could turn out to be one of the greatest shocks ever faced by the oil industry, as coronavirus containment measures will add to the headache of producers fighting for market share. And OPEC has clearly stated that it won’t be coming to the rescue in the second quarter of 2020,” he also said.

The Great American Shale-Oil Bust Turns into Massacre

March 10, 2020

The Great American Shale-Oil Bust Turns into Massacre

Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.

It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out a statement that it would have to delay its monthly Energy Outlook to figure in all the chaos: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”

Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:

Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.

Today, there are only two trades listed on FINRA-Morningstar, but they were big trades, with institutional investors unloading them for whatever they could get. So the price today collapsed by 34% from the close on Friday, and by 39% over the past three trading days, to 61 cents on the dollar:

Shares of Chesapeake Energy, a former shale oil-and-gas giant, particularly focused on natural gas, plunged 28% today, from nearly nothing to almost nothing, closing at $0.16. The company has been dilly-dallying around near the bankruptcy-filing counter for years, without having filed yet, as investors continued to feed it fresh cash and agreed to haircuts and restructure its debts. But that fresh-cash option appears to be off the table.

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

The Bakken Hit A New Record In 2018, But It’s A Bad Sign For The Industry

March 5, 2019

The Bakken Hit A New Record In 2018, But It’s A Bad Sign For The Industry

The insanity continues in the United States second largest shale oil field as the fundamental economics go from bad to worse. While it is true that the shale industry doesn’t look as dire as it did back in 2016 when oil prices fell off a cliff, I can assure you the worst is yet to come. Unfortunately, the market is blind to the biggest Ponzi Scheme in history, because wisdom and reason have disappeared from the energy industry years ago.

How can I say that? Well, I heard it from several oilmen that worked in the conventional oil industry… an industry that made good money, paid its bills, and didn’t go much into debt. They told me that the only way shale oil could work is if the company went public so it could raise money from some poor unworthy slobs they didn’t know in order to fund an uneconomic business model. These oilmen told me none of them would be crazy or stupid enough to go into the shale oil business. As veteran oil analyst Art Berman stated, “Why on earth would anyone want to invest in shale to at best, breakeven?”

So, the shale oil saga continues as the blind lead the blind. I know this because I have been fortunate enough to speak with someone in the shale industry and I continue to receive updates on just how bad the situation is unfolding. Sounds crazy, but there are a few very smart and clever people that know the disaster taking place in the shale industry, but not many.

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

Shale oil becomes shale fail (and a nice subsidy for consumers)

October 28, 2018

Shale oil becomes shale fail (and a nice subsidy for consumers)

I’m tempted to say the following to the writers of two recent pieces (here and here) outlining the continuing negative free cash flow of companies fracking for oil in America: “Tell me something I don’t already know.”

But apparently their message (which has been true for years) needs to be repeated. This is because investors can’t seem to understand the significance of what those two pieces make abundantly clear: The shale oil industry in the United States is using investor money to subsidize oil consumers and to line the pockets of top management with no long-term plan to build value.

There is no other conclusion to draw from the fact that free cash flow continues to be wildly negative for those companies most deeply dependent on U.S. shale oil deposits. For those to whom “free cash flow” is a new term, let me explain: It is operating cash flow (that is, cash generated from operations meaning the sale of oil and related products) minus capital expenditures. If this number remains negative for too long for a company or an industry, it’s an indication that something is very wrong.

Only nine of 33 shale oil exploration and production companies reviewed in the report cited above had positive free cash flow for the first half of 2018. This is even though prices had risen all the way from a low of around $30 in 2016 to the mid-$70 range by the middle of this year.

To get an idea of just how bad it has been even through periods when the price of oil averaged above $100 in 2011, 2012, 2013 and most of 2014, here are the annual free cash flows in dollars of those 33 companies combined since 2010 and they are all negative: -14 billion (2010), -21.9 billion (2011), -37.8 billion (2012), -16.8 billion (2013), -33 billion (2014), -34.4 billion (2015), -18.3 billion (2016), -15.5 billion (2017).

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

U.S. SHALE OIL INDUSTRY: Catastrophic Failure Ahead

October 23, 2018

U.S. SHALE OIL INDUSTRY: Catastrophic Failure Ahead

While the U.S. Shale Industry produces a record amount of oil, it continues to be plagued by massive oil decline rates and debt. Moreover, even as the companies brag about lowering the break-even cost to produce shale oil, the industry still spends more than it makes. When we add up all the negative factors weighing down the shale oil industry, it should be no surprise that a catastrophic failure lies dead ahead.

Of course, most Americans have no idea that the U.S. Shale Oil Industry is nothing more than a Ponzi Scheme because of the mainstream media’s inability to report FACT from FICTION. However, they don’t deserve all of the blame as the shale energy industry has done an excellent job hiding the financial distress from the public and investors by the use of highly technical jargon and BS.

For example, Pioneer published this in the recent Q2 2018 Press Release:

Pioneer placed 38 Version 3.0 wells on production during the second quarter of 2018. The Company also placed 29 wells on production during the second quarter of 2018 that utilized higher intensity completions compared to Version 3.0 wells. These are referred to as Version 3.0+ completions. Results from the 65 Version 3.0+ wells completed in 2017 and the first half of 2018 are outperforming production from nearby offset wells with less intense completions. Based on the success of the higher intensity completions to date, the Company is adding approximately 60 Version 3.0+ completions in the second half of 2018.

Now, the information Pioneer published above wasn’t all that technical, but it was full of BS. Anytime the industry uses terms like “Version 3.0+ completions” to describe shale wells, this normally means the use of “more technology” equals “more money.” As the shale industry goes from 30 to 60 to 70 stage frack wells, this takes one hell of a lot more pipe, water, sand, fracking chemicals and of course, money.

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

Gold, Silver, Shale Oil Industry & The Economy: My Interview With James Kunstler

August 16, 2018

Gold, Silver, Shale Oil Industry & The Economy: My Interview With James Kunstler

How insane are the markets today? Well, it’s always a pleasure to discuss this and other topics with James Howard Kunstler. Jim and I had a lively conversation about gold, silver, the shale oil industry and the overall economy in his most recent KunstlerCast. James is one of the few that understands the dire energy predicament we face.

I started following James Kunstler after listening to an interview he had with Art Bell on Coast-To-Coast AM, back in 2005. James is way ahead of his time and in his book, “The Long Emergency” and in the video, “End of Suburbia” he describes what the world looks like after peak oil… and it isn’t pretty.

During our interview, James and I chatted about precious metals manipulation, the soon-to-be disintegrating shale oil industry, the insanely overvalued markets, peak oil, and many other topics. One of the more important items I brought up was the incorrect notion that the Central banks can continue to rig the markets indefinitely. They can’t.

And why is that? Because Central banks can’t continue to prop up the market with paper when the problem is one based on a limitation of PHYSICAL OIL. If the Central banks want to really solve our problems, they have to find a lot more oil… but there just really isn’t much left to find.

So, there lies the rub

To listen to my interview with James Howard Kunstler, please click on the link below:

KunstlerCast 306 — Gold, Silver, and Oil with Steve St. Angelo

Also, please check out James Kunstler’s website as he is a prolific writer and has many interesting books on his website.

VIDEO: John Oliver Urges Us to Wake Up to How Big Oil Is Killing People and Destroying North Dakota

October 12, 2015

VIDEO: John Oliver Urges Us to Wake Up to How Big Oil Is Killing People and Destroying North Dakota

In another informative and funny segment of HBO’s “Last Week Tonight,” John Oliver explores what has happened to North Dakota since the starts of its oil boom.

The Scariest Chart For America’s Shale Industry

January 12, 2015

The Scariest Chart For America’s Shale Industry

Back in early November, when we posted “If WTI Drops To $60, It Will “Trigger A Broader HY Market Default Cycle“, it was greeted with the usual allegations of conspiracy theorism, tin-foil hattery and pretty much everything else, except rebutting facts.

Two months later, it was none other than Goldman which threw in the towel on its call from July 28 of 2014 when it said that “the long-awaited global recovery appears to be getting on track, lifting commodity demand” and scrambled to explain overnight that nothing short of a mass default wave within the shale space will end the ongoing collapse in prices, which are driven not by supply/demand fundamentals but by ZIRP, and a generation of junk bond BTFDers, who can’t wait to invest in the latest 10%, 15%, 20% or higher “yielding” opportunity (ignoring that the issuer may default before even one coupon is paid). In other words, those bond holders who wish to blame someone for the collapsing prices of junk bonds, feel free to address them to Ben Bernanke and his successor, who have enabled insolvent companies to live long beyond their viable lifecycle thanks to a zero cost of capital and a generation of traders who no longer know risk.

This is how Goldman’s Currie tongue-in-cheekly explained this dilemma:

[U]nlike physical stress, how low prices need to go is dependent upon the producer’s view of the future and the persistence of the current low price environment. The lower and more persistent the producer views the future pricing outlook, the quicker the restructuring. Given the optimistic nature of the oil drilling business, producer views are unlikely to change until the environment becomes extremely hostile with prices low enough such that survival becomes questionable.

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

The American Consumer Calls The Top – The Automatic Earth

December 14, 2014

The American Consumer Calls The Top – The Automatic Earth.

Hey! Who said economics can’t be fun?! How is it not absolutely brilliant that in the face of a collapsing shale oil industry – or at least, for the moment, of its financing model -, and the worst week for the Dow since 2011, the Thomson Reuters/UofMichigan consumer sentiment index shows American consumers are more optimistic than they’ve been in 8 years, and that “more consumers volunteered good news than bad news than in any month since 1984″? 1984! How does one trump that as a contrarian signal? And that I don’t mean to sound funny: that is serious.

Of course it says something too about US media and their incessant messages about how well everything is going and how we’ve passed that corner the recovery was always just around, and what a boon the falling oil prices will be to spending over the holidays, and even if sales instead fell over Thanksgiving; surely that’s only because people were saving up their newly found extravaganza for the Christmas season. And obviously the Fed-sponsored distortions of all asset prices on the planet, homes, stocks, you name it, have a lot to do with stoking that optimism as well.

But the feat stands on its own two feet just as much. Americans are not just behind the curve, they positively confirm a top has been reached. If ever you needed a sign, here it is: “Their expectations run quite counter to recent price data.” That’s from Jason Lange for Reuters, but before he gets around to that, check out what some of the experts he cites have to say:

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

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