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With oil prices threatening to break $100 this year, many observers are confused by the lack of a U.S. shale boom.
The major reason that U.S. shale companies are reluctant to boost production at all costs is that they need to keep shareholders happy first and foremost.
Other issues include cost inflation and the shrinking number of sweet spots for them to tap.

A lot of news has been coming lately from the U.S. shale patch. Output in the Permian has broken records for two months in a row. The Energy Information Administration has forecast that the U.S. total could also break a record this year, thanks to higher prices.

But is this news good enough?

The rig count is on the rise; there is no question about it. Output is also on the rise. Yet, according to industry executives, this does not necessarily equate to a return to business as normal. On the contrary, it seems that most of the industry is determined to stick to its financial discipline and keep returning cash to shareholders instead of boosting production.

In an interview with the Financial Times, the chief executive of Devon Energy said that shareholders are, on the whole, still skeptical about production increases, and companies are heeding this sentiment.

“In the back of everyone’s minds is, ‘When is it going to be [production] growth? . . . We have investors saying ‘My gosh, if not now, when?’” Rick Muncrief told the Financial Times. “But for every one saying that, there’s at least one other if not two others waiting to say, ‘Gotcha! We knew that discipline would be shortlived.’ We have learned our lesson,” he added.

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

Daily on Energy: Texas debates mandating oil production cuts

April 15, 2020

Daily on Energy: Texas debates mandating oil production cuts

TEXAS DEBATES PRODUCTION CUTS: Texas can lead in producing a “real” U.S. oil production cut to save the shale industry, Scott Sheffield, CEO of Pioneer Natural Resources, argued Tuesday in calling for the state to take action to force companies to hold back their production for the first time since 1973.

Sheffield opened all-day testimony before the Texas Railroad Commission, which is considering imposing “pro-rationing” on oil companies in the largest-producing state. The measure would require drillers to reduce their production by certain percentages until it no longer exceeds market demand.

Pioneer is one of two Austin-based companies with Parsley Energy that has called on the Texas oil regulator to act, despite the overwhelming opposition from large oil majors, refiners, and the trade groups that represent them, who fear a mandate would upset the free-market system in the U.S.

Sheffield, in strikingly blunt comments, suggested the financial problems of shale producers existed before the current crisis driven by the coronavirus, as companies took on too much debt amid the shale rush and produced more than the market demanded.

“No one wants to give us capital because we have all destroyed capital and created economic waste,” Sheffield said. But he said regulators could bring the market back in balance when it’s needed most.

What’s a ‘real’ oil cut?: Sheffield said the OPEC+ plus agreement to cut oil production nearly 10 million barrels per day, coupled with some 5 million barrels per day in market-driven cuts from G-20 countries like the U.S., won’t be sufficient to compensate for the lost demand from the coronavirus.

“Texas can lead in getting a real G-20 cut of 5 million, not a fake 5 million barrels per day,” Sheffield said.

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

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

November 14, 2019

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

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

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

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

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

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

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

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

More Than 50% Of The Mighty Permian’s 2018 Oil Production Has Vaporized

October 4, 2019

More Than 50% Of The Mighty Permian’s 2018 Oil Production Has Vaporized

As dark clouds gather on the financial horizon, big trouble is brewing in the U.S. Shale Oil Industry. While most Americans are focused on the Mainstream media’s coverage of the ongoing Washington D.C. circus, the real threat to the domestic economy lies in the country’s oil heartland. And, if we look at what is taking place in the United States’ largest shale oil region, the signs are troubling.

The Permian Oil Basin in Texas and New Mexico accounts for nearly half (46%) of the total U.S. shale oil production. According to the data from Shaleprofile.com, Permian’s oil production peaked in May at 3.43 million barrels per day. Due to the massive decline rate, production in the Permian has stalled this year.

The chart below shows the Permian oil production declining even though more wells continue to be brought online. Unfortunately, there aren’t enough wells being added to offset the tremendous decline rate. You will notice how quickly the oil production that was added in 2018 (Light Blue color) has declined in just half a year:

To give you a better idea of the huge decline rate in Permian oil production, let’s only focus on 2018 and 2019 in the following charts. But, before doing so, I wanted to let everyone know that this information would not be possible without the data from Shaleprofile.com. I highly recommend that you check out Shaleprofile.com and consider subscribing to the service if you want to be able to access more details in the shale industry. It’s worth its weight in gold.

Let’s look at the Permian oil production just for 2018. Permian oil production for 2018 peaked in December at 2,136,000 bopd or 2,136K bopd, and declined to 1,056K by July 2019. That is a STUNNING 50.5% decline in just seven months:

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

Shale Growth Could Slow On Oil Price Meltdown

December 20, 2018

Shale Growth Could Slow On Oil Price Meltdown

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…

U.S. Shale’s Glory Days Are Numbered

October 17, 2018

U.S. Shale’s Glory Days Are Numbered

There are some early signs that the U.S. shale industry is starting to show its age, with depletion rates on the rise.

A study from Wood Mackenzie found that some wells in the Permian Wolfcamp were suffering from decline rates at or above 15 percent after five years, much higher than the 5 to 10 percent originally anticipated. “If you were expecting a well to hit the normal 6 or 8 percent after five years, and you start seeing a 12 percent decline, this becomes more of a reserves issue than an economics issue,” said R.T. Dukes, a director at industry consultant Wood Mackenzie Ltd., according to Bloomberg. As a result, “you have to grow activity year over year, or it gets harder and harder to offset declines.”

Moreover, shale wells fizzle out much faster than major offshore oil fields, which is significant because the boom in shale drilling over the past few years means that there is more depletion in absolute terms than ever before. A slowdown in drilling will mean that depletion starts to become a serious problem.

A separate study from Goldman Sachs takes a deep look at whether or not the shale industry is starting to see the effects of age. The investment bank says the average life span for “the most transformative areas of global oil supply” is between 7 and 15 years.

Examples of these rapid growth periods include the USSR in the 1960s-1970s, Mexico and the North Sea in the late 1970s-1980s, Venezuela’s heavy oil production in the 1990s, Brazil in the early 2000s, and U.S. shale and Canada’s oil sands in the 2010s. Each had their period in the limelight, but ultimately many of them plateaued and entered an extended period of decline, though some suffering steeper declines than others. Supply Soars

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

The Fracking Industry Is Cannibalizing Its Own Production, Increasing Spill Risks

August 14, 2018

The Fracking Industry Is Cannibalizing Its Own Production, Increasing Spill Risks

In the climactic final scene in There Will Be Blood — arguably the greatest movie about the oil industry — the main character played by Daniel Day Lewis explains how he sucked the oil from a neighbor’s land by using horizontal drilling. To help his neighbor understand what has happened, he explains it by saying he took a very long straw and “Drank your milkshake!”

Well guess what is happening with the fracking revolution that is built on the concept of horizontal drilling? Not only are oil producers drinking each other’s milkshakes, they are drinking their own, and in the process losing even more money and raising the odds of dangerous environmental risks.

And unlike in the movie where the main character knew what he was doing, the modern fracking industry really has no clue what to do about the problems caused by the combination of horizontal drilling and greed.

Frac Hits, aka Child Wells

The first thing to understand is that this is simply a problem of the industry being greedy. The oil producers are drilling too many wells in close proximity to one another, and when they frack the newer wells — known as child wells — those “bash” or “hit” the older wells and cause problems.

In a typical frack site, the production begins with a first test well, which is known as the parent well. The wells drilled in proximity to the parent well are called child wells.

What is happening is that not only are the child wells cannibalizing the production of the existing parent well, but when the child wells are fracked they can create “frac hits” that damage the parent well.

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

U.S.-China Trade War Will Hurt Shale Drillers

June 20, 2018

U.S.-China Trade War Will Hurt Shale Drillers

President Trump is back on his warhorse called Tariffs, yesterday announcing he was considering the introduction of a 10-percent levy on Chinese goods worth US$200 billion. The latest escalation in the tariff exchange, however, is a little bit different than all the others so far. It’s different because it came after Beijing said it intends to slap tariffs on U.S. oil, gas, and coal imports.

China’s was a retaliatory move to impose tariffs on US$50 billion worth of U.S. goods, which followed Trump’s earlier announcement that another US$50 billion in goods would be subjected to a 25-percent tariff starting July 6. And that’s not all. Now, Trump has said if China does not change its “unfair practices related to the acquisition of American intellectual property and technology” new tariffs on another US$200 billion worth of Chinese goods will follow.

This sounds like a never ending game of chicken with the stakes close to becoming ridiculous. Yet the threat to U.S. oil exports to China is not at all ridiculous: it is very real and should worry drillers.

In a recent column, Reuters analyst Clyde Russell noted that U.S. oil imports into China account for a relatively tiny portion of the total, at 3.5 percent. However, for oil exporters, shipments to China account for 16 percent, both figures based on data from the first five months of 2018. Related: Oil Markets Turn Bearish Ahead Of OPEC Meeting

This is a discrepancy that should be alarming, despite belief among other analysts that U.S. drillers could just sell their barrels of cheap oil elsewhere. This is true, of course, oil is in universal demand. Yet it is also true that China is the biggest buyer, and as Russell put it, it would be easier for China to find new suppliers of crude than it would be for U.S. exporters to find new buyers.

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

Shale Bottlenecks Could Send Oil Prices Higher

June 4, 2018

Shale Bottlenecks Could Send Oil Prices Higher

Amid reports that OPEC will likely decide to start easing production quotas after June 22 and an IEA forecast that electric vehicles will displace 2.5 million bpd in crude oil demand by 2030, some analysts remain upbeat about the future of oil prices, citing transport constraints in the U.S. shale patch as well as companies’ prioritization of returning cash to shareholders over investing in new production.

CNBC recently quoted one such analyst, Tamar Essner from Nasdaq Corporate Solutions, as saying “I think it’s temporary. I think the fundamental picture is still really strong. The market’s getting a bit dislocated right now based on a risk-off sentiment.“ Essner went on to note the 500,000-bpd fall in production in Venezuela and speculated that it could fall by another half a million barrels daily by end-2018. If this happens, he said, U.S. shale drillers would not be able to ramp up production quickly enough to meet growing demand.

Indeed, Venezuelan production has been sliding inexorably, and chances are that it will continue to fall until the year’s end, at least. However, U.S. drillers have increased their daily production since the start of the year by 1.28 million bpd already, if we are to believe EIA’s weekly production estimates and monthly reports, which have historically proven to be quite accurate.

So, that’s 1.28 million bpd more over five months. Even if the EIA is erring on the positive side, the increase in U.S. production could be around 1 million barrels daily, which would be enough to offset a Venezuelan production decline of the same proportions.

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

Frac Sand Shortage Threatens Shale Boom

February 21, 2018

Frac Sand Shortage Threatens Shale Boom

Higher drilling costs could threaten the recent surge in United States shale production.

Halliburton said last week that its earnings could be negatively impacted because of bottlenecks related to the supply of frac sand used in shale drilling. The Wall Street Journal reported that Halliburton’s shares were briefly halted on February 15 after Halliburton’s CFO Chris Weber told an audience at the Credit Suisse Energy Summit that the company’s first quarter earnings could take a hit by a whopping 10 cents per share.

The reason, he said, was because of delays by Canadian rail companies that would slow the delivery of frac sand. Halliburton saw its shares drop by more than 2 percent on a day that saw broader gains to the S&P 500.

Frac sand is integral to growing shale production, increasingly so these days with more and more sand pumped down into a well. Shale drillers have credited the heavy doses of sand with squeezing out more oil and gas from the average well. Demand for frac sand surged from 34 million tons in 2012 to 61.5 million tons in 2014. Consumption fell in the ensuing years as drilling dried up when oil prices collapsed, but frac sand consumption surpassed previous highs in 2017 as drilling resoundingly came back.

In 2018, frac sand demand is expected to top 100 million tons, according to Rystad Energy. “Right now, the market is really stretched thin,” says Thomas Jacob, a senior analyst at IHS Markit, told the FT in December. “Everyone is running at full capacity.”

Much of the frac sand has come from places like Wisconsin, which produces “northern white sand” that is hard and round, helping to create porous fractures in shale wells. It is high quality, but expensive, particularly because it has to be shipped by rail to Texas shale fields.

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

OPEC Reports Lowest Oil Output In Six Months; Fears Shale Production Surge

December 13, 2017

OPEC Reports Lowest Oil Output In Six Months; Fears Shale Production Surge

True to its perpetually optimistic form, OPEC, which last month for the first time conceded the threat posed by rising US shale production…

… sharply raised its demand forecast for cartel oil in 2018, ahead of the OPEC meeting at the end of November.

And, according to OPEC’s latest market report for the month of December, demand is set to continue rising, with global oil demand projected to grow at around 1.53 mb/d in 2017, in line with last month’s forecast. China is projected to lead oil demand growth in the non-OECD, followed by Other Asia – which includes India – and OECD Americas. Which means that an unexpected Chinese landing, whether hard or soft, will have an adverse impact on oil in addition to all other commodities.

Separately, in 2018, world oil demand is expected to grow by 1.51 mb/d according to the latest OPEC forecast. OECD will contribute positively to oil demand growth, adding some 0.28 mb/d, whereas the bulk of the growth will come from the non-OECD with 1.23 mb/d of potential growth. For 2018, the main assumptions behind the forecast are firm economic growth, lending support to industrial and construction fuels in both OECD and non-OECD. Expansion in the transportation sector is expected to provide the bulk of oil demand growth. Growth in petrochemical demand is projected to be one of the fastest-growing contributors in US, China, South Korea and the Middle East. As such, world oil demand growth is estimated at 1.51 mb/d in 2018, compared to 1.26 mb/d in the initial forecast.

More important than demand, however, was the November supply of OPEC oil, which declined by 133.5K to below 32.5 million bbl, a fresh six month low if only 195K bbl lower than last year’s output, confirming that ahead of last year’s production cut agreement, OPEC furiously ramped up production effectively offsetting the subsequent output limit.

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

US shale oil peak in 2015

March 30, 2016

US shale oil peak in 2015

The recent EIA drilling productivity reports show a peaking of shale oil production in the main production regions. https://www.eia.gov/petroleum/drilling/

Fig 1: Bakken production change from old/new wells

The 1st panel shows that the number of drilling rigs has dropped sharply but the initial well production per rig has increased from 450 b/d to 750 b/d. The 2^nd panel depicts the monthly production decline in old wells, which has stabilized at around 60 kb/d. This is the volume needed to keep production flat but the 3^rd panel shows that new wells offset only about half of the decline. That is why in panel 4 overall production declines.

Fig 2: History of production change

We see that in 2015 production from new wells declined abruptly. The intersection point with old wells corresponds to the peak in production. The old wells decline has moderated suggesting that more and more old wells have entered their phase of final, flat production at very low levels.

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

Bakken Flat but the EIA Predicts Decline

September 16, 2015

Bakken Flat but the EIA Predicts Decline

The North Dakota Industrial Commission has published the July production data forThe Bakken and for all North Dakota.

Bakken production was down 5,430 barrels per day while all North Dakota was down 9,410 bpd.

Here is a more amplified view of what has happened during the last 12 months.

Bakken barrels per day per well has been falling faster than for all North Dakota. This is because a lot of very low producing conventional wells are being shut down.

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

This Is Why A Serious Decline In U.S Shale Plays Is Not Far Away

July 25, 2015

This Is Why A Serious Decline In U.S Shale Plays Is Not Far Away

The plunge in oil prices last year led many to say that a decline in U.S. oil production wouldn’t be far behind. This was because almost all the growth in U.S. production in recent years had come from high-cost tight oil deposits which could not be profitable at these new lower oil prices. These wells were also known to have production declines that averaged 40 percent per year. Overall U.S. production, however, confounded the conventional logic and continued to rise–until early June when it stalled and then dropped slightly.

Anyone who understood that U.S. drillers in shale plays had large inventories of drilled, but not yet completed wells, knew that production would probably rise for some time into 2015–even as the number of rigs operating plummeted.

Shale drillers who are in debt–and most of the independents are heavily in debt–simply must get some revenue out of wells already drilled to maintain interest payments. Some oil production even at these low prices is better than none. Only large international oil companies–who don’t have huge debt loads related to their tight oil wells–have the luxury of waiting for higher prices before completing those wells.

The drop in overall U.S. oil production (defined as crude including lease condensate) is based on estimates made by the U.S. Energy Information Administration (EIA). Still months away are revised numbers based on more complete data. But, the EIA had already said that it expects U.S. production to decline in the second half of this year.

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

Petroleum Truth Report: David Hughes Weighs In on The Fracking Fallacy Debate

December 29, 2014

Petroleum Truth Report: David Hughes Weighs In on The Fracking Fallacy Debate.

In the current debate about the Nature article “The Fracking Fallacy,” the discussion has focused on estimates of cumulative production of shale gas plays by the Energy Information Administration (EIA) and The Bureau of Economic Geology at the University of Texas (UT/BEG).

David Hughes provides another estimate in his recent post “Fracking Fracas: The Trouble with Optimistic Shale Gas Projections by the U.S. Department of Energy,” a summary of his comprehensive study of all U.S. shale plays Drilling Down published by The Post Carbon Institute.

The Fracking Fallacy debate is important because it casts doubt on the reliability of government estimates of our natural gas supply. If U.S. gas production is in decline by the early 2020s as described in the Nature article, or sooner as I suspect, then important policy decisions about the export of natural gas and the retirement of coal-fired electric power plants have been based on questionable information.

Cumulative production estimates are interesting but do not address the economics of shale plays. Proven reserves provide a more meaningful estimate because they supposedly represent volumes of oil and gas that can be produced commercially at a particular price.

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

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