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Texas Hit Hard By Shale Slowdown

Texas Hit Hard By Shale Slowdown

Texas Shale Slowdown

Texas’ economy is perhaps the most vulnerable to oil price swings given its leading role in the country’s oil industry. Recently, as prices have remained low, talk has begun about the outlook for the state’s economy.

According to a recent Reuters report, for example, smaller independent oil and gas producers in the Lone Star State are struggling to get loans from banks as the latter become increasingly wary of the ability of the borrowers to return the money when the time comes.

Jobs in the Texas oil and gas industry are falling, too. The Houston Business Journal reported this month that September saw a 1,100 decline in the number of jobs in the mining and logging sector—the category that includes oil and gas jobs. Over the 12 months from September 2018, the state’s oil and gas industry added just 1,700 new jobs, which was the lowest number of new job additions to any Texas industry over the same period, data from the Texas Workforce Commission showed.

Yet not everyone is worried. The University of Houston Energy Fellows, for instance, wrote in an article for Forbes that “the alarm bells are premature.” While the experts that make up the group acknowledge there are plenty of reasons to be worried about the economy of Houston—the article focuses on the city—oil prices are not among them.

The trade war with China and the anticipation of a global economic slowdown caused by it is a top concern for any economy and Houston is no exception. Political economic problems in Europe are also a cause for worry. Yet, according to the University of Houston Energy Fellows, bankruptcies in the Houston oil and gas industry are only slightly higher this year than last, and the credit crunch energy independents are facing now is “far from comparable to 2015-16.”

 …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

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 brought on in 2018 peaked in December at 2,136,000 barrels oil per day (bopd) or 2,136K bopd, and declined to 1,056K bopd 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…

Oil Price Correction Triggers Shale Meltdown

Oil Price Correction Triggers Shale Meltdown

Bakken rig

It was a rough week for the U.S. shale industry.

A series of earnings reports came out in recent days, and while some drillers beat expectations, there were some huge misses as well.

Concho Resources, for instance, saw its share price tumble 22 percent when it disclosedseveral problems at once. Profits fell by 25 percent despite production increases. Concho conceded that it would slash spending and slow the pace of drilling in the second half of the year.

It also said that one of its projects where it tried to densely pack wells together, which it called “Dominator,” the results were not as good as they had hoped. The project had 23 wells, but production disappointed. The “30 and 60 day production rates were consistent with our other projects in that area, but the performance has declined,” Leach said. So, the company will abandon the densely packed well strategy and move forward with wider spacing.

In the second quarter the company had 26 rigs in operation, but that has since fallen to 18. At the start of the year, the company had 33 active rigs.

“We made the decision to adjust our drilling and completion schedule in the second half of the year to slow down and not chase incremental production at the expense of capital discipline,” Concho’s CEO Tim Leach told analysts on an earnings call. He said the company’s aiming for “a free cash flow inflection in 2020.”

The company reported a net loss of $792 million for the first six months of 2019. As Liam Denning put it in Bloomberg Opinion: “It’s sobering to think that Concho, valued at more than $23 billion in the spring of 2018 and having since absorbed the $7.6 billion purchase of RSP Permian Inc., now sports a market cap of less than $16 billion.”

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

U.S. Shale Is Doomed No Matter What They Do

U.S. Shale Is Doomed No Matter What They Do

Shale drillers

With financial stress setting in for U.S. shale companies, some are trying to drill their way out of the problem, while others are hoping to boost profitability by cutting costs and implementing spending restraint. Both approaches are riddled with risk.

“Turbulence and desperation are roiling the struggling fracking industry,” Kathy Hipple and Tom Sanzillo wrote in a note for the Institute for Energy Economics and Financial Analysis (IEEFA).

They point to the example of EQT, the largest natural gas producer in the United States. A corporate struggle over control of the company reached a conclusion recently, with the Toby and Derek Rice seizing power. The Rice brothers sold their company, Rice Energy, to EQT in 2017. But they launched a bid to take over EQT last year, arguing that the company’s leadership had failed investors. The Rice brothers convinced shareholders that they could steer the company in a better direction promising $500 million in free cash flow within two years.

Their bet hinged on more aggressive drilling while simultaneously reducing costs. Their strategy also depends on “new, unproven, expensive technology, electric frack fleets,” IEEFA argued. “This seems like more of the same – big risky capital expenditures.”

EQT’s former CEO Steve Schlotterbeck recently made headlines when he called fracking an “unmitigated disaster” because it helped crash prices and produce mountains of red ink. “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change,” Schlotterbeck said at an industry conference in June. Related: Will The U.S Gas Glut Cap Oil Production?

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

Here’s Putin’s Answer To The U.S. Shale Boom

Here’s Putin’s Answer To The U.S. Shale Boom

Yamal LNG

Last week saw Japan’s Mitsui and Japan Oil, Gas and Metals National Corporation agree to buy a 10% stake in Novatek’s Arctic LNG (liquefied natural gas) 2 project for an officially undisclosed price, although Russia’s President Vladimir Putin independently stated that the investment would be around US$3 billion. The fact that Putin himself commented on the deal underlines how important the exploration and development of the Arctic region is for the Russian state as a source of potentially vast new oil and gas resources and the accretion of further geopolitical influence, akin to the game-changing shale industry for the U.S. Russia’s current development of the Arctic region is centred around the Yamal Peninsula and led principally Novatek but further developments are in the offing from Gazprom and Gazprom Neft, even in the face of current and future U.S. sanctions.

Novatek’s main Arctic project, the Yamal LNG (unofficially referred to as ‘Arctic 1’) last week announced that it produced 9.0 million tons of LNG and 0.6 million tons of stable gas condensate in the first half of this year, with all three LNG trains running above the 5.5 million tons per annum (mtpa) nameplate capacity over that period. This resulted in 126 LNG tanker shipments being dispatched in the six month period via trans-shipment from the ice-class LNG carriers to conventional vessels in Norway and delivered onto the global markets, mostly to Russia’s key target markets in Asia. Overall, the Yamal LNG project consists of a 17.4 mtpa natural gas liquefaction plant comprised of three LNG trains of 5.5 mtpa each and one LNG train of 900 thousand tons per annum, utilising the hydrocarbon resources of the South-Tambeyskoye field in the Russian Arctic.

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

Is US Shale Cannibalizing Itself?

Is US Shale Cannibalizing Itself?

Shale

U.S. oil production continues to grow, but the shale industry is in the midst of a deceleration as low oil prices and a financial squeeze slow the pace of drilling.

The U.S. added 246,000 bpd of fresh supply in April, the latest month for which data solid is available. That put to rest concerns that the industry was in the midst of contraction, after production fell in January and February (some of which was due to offshore maintenance). Even as the rig count continues to fall, production grinds higher.

The EIA expects output to grow by another 70,000 bpd in July, with the Permian alone adding 55,000 bpd.

But the rate of growth is slowing. In April, production was up 1.6 million barrels per day (mb/d) compared to the same month a year earlier. By any measure, that is a massive increase. But it is down sharply from the nearly 2.1 mb/d year-on-year increase seen in August 2018, which looks set to be the peak in terms of the pace of growth.

U.S. oil production is not in danger of outright decline, not for the foreseeable future. But growth is clearly slowing. The U.S. could add 1.3 mb/d of new supply this year, according to an average of forecasts from multiple analysts, compiled by Reuters. That figure would be down from 1.5 mb/d of additional supply that came online in 2018. Related: Another Beneficiary Of The OPEC Deal Emerges

Financial stress is spreading, and top industry executives in Texas are arguably at their gloomiest in years. Consolidation and bankruptcies could pick up pace in the next few months, a bankruptcy attorney told Reuters.

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

SHALE STOCK LOSES 99% OF ITS VALUE: Investor Warning For The Future Of The Industry?

SHALE STOCK LOSES 99% OF ITS VALUE: Investor Warning For The Future Of The Industry?

If you think the carnage taking place in the shale oil companies is nearly over, you couldn’t be more wrong.  I believe the bloodbath in the shale oil stocks has only just begun.  Once we see the majority of shale stocks trading on the pink sheets as penny stocks will we finally close the book on the Greatest Energy Ponzi Scheme in history.

I first wrote about the “Disconnect” between the major oil companies share prices versus the shale stocks in my article, THE BLOODBATH IN U.S. SHALE STOCKS CONTINUES: Worst Is Yet To Come.  In that article, I showed how several of the major oil companies’ stock prices had corrected back close to their highs set in October 2018.  However, the shale stocks never really recovered and are still considerably lower than their peaks set last year.

Here is the chart from that article linked above:

Even though many of the shale stocks shown in this chart have seen their prices move higher since I posted it in the middle of March, they are still well off their highs. For example, Whiting Petroleum peaked at $55 in October and is currently trading at $27.  Thus, it is still 50% off its peak last year.  Furthermore, Oasis trading at $6.60 is still 53% off its high of $14.

However, there are some outliers like Pioneer.  Pioneer hit $190 back in October 2018 and was only trading at $140 in mid-March.  So, it was still well off its October peak.  Although over the past month, Pioneer is now trading at $175, so it’s not too far from its previous high.   While Pioneer’s share price is behaving much better than Whiting, Continental, Oasis, and Callon, I believe there is a huge “PERMIAN PREMIUM” being paid by investors who have more money than sense.

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

Oil Prices Spike On Shale Slowdown

Oil Prices Spike On Shale Slowdown

Shale tower

The collapse of oil prices late last year, along with pressure from shareholders, has led to a slowdown in the U.S. shale industry.

The EIA released new monthly data on March 29, which revealed a decline in output of about 90,000 bpd between December and January, evidence that shale drillers slammed on the breaks after oil prices fell off a cliff in the fourth quarter. The 90,000-bpd decline came after a rather meager 35,000-bpd increase the month before, which was the weakest increase in months.

But the U.S. shale industry is facing more headwinds than just a temporary dip in oil prices. Shareholders have run out of patience with unprofitable drilling, and are demanding returns, which is tightening the screws on less competitive companies and forcing spending cutbacks across the board. More worrying for the industry is a growing recognition of the “parent-child” well problem – the unexpected poor performance of subsequent wells drilled in close proximity to the original “parent” well.

These obstacles are beginning to pile up. Schlumberger and Halliburton, the two top oilfield services companies, have predicted that shale drillers will be forced to collectively cut spending by more than 10 percent this year.

The slowdown could put some bullish pressure on the oil market, already suffering from outages in Venezuela, Iran and coordinated cuts from OPEC+. While U.S. inventories rose unexpectedly last week, much of the increase can be chalked up to turmoil in the Houston Ship Channel following a major fire at a petrochemical facility.

Indeed, some analysts see significant stock declines in the next few weeks. “The most visible inventory levels in the world…will fall victim to a potent mix of Venezuelan supply disruptions, a Houston Ship Channel chemical spill, and an uptick in refining runs,” Barclays wrote in a note on March 29. The investment bank sees WTI rising to an average of $65 per barrel this year. 

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

Spending Boost Fails To Raise Production In The Permian

Spending Boost Fails To Raise Production In The Permian

Midland

The U.S. shale industry is gearing up to spend more this year, despite assurances to maintain capital discipline.

In the second quarter, shale companies signaled their intention to lift capex. Part of the reason is that costs are on the rise, so some drillers have to spend more to produce the same amount of oil and gas. That was an unexpected development, and one that shareholders are not happy about.

A survey of 33 shale companies by Rystad Energy found that while the group revised up spending by about 8 percent, they only increased their expected production levels for this year by 1.4 percent. “This disconnect might suggest that the shale industry requires more capital than before to achieve healthy production growth,” Rystad said in a new report.

There are some signs that the Permian, for instance, is running into some productivity problems, raising the possibility that the highly touted “efficiency gains” over the past few years are reaching their limit.

On the other hand, the industry is also spending more because they have plans to increase drilling activity, which could lead to higher output next year. “[W]hile a part of increased spending is due to service cost inflation, a significant part of the incremental budget is also planned to be used for additional drilling throughout 2H 2018 to support more intensive completion activity and production growth in 2019,” Rystad Energy said in its report.

The largest spending increase came from companies focused on the Permian basin, which is not surprising given both the frenzied pace of drilling in West Texas as well as the reports that the basin is suffering from bouts of cost inflation. Occidental Petroleum stood out from the bunch, with an announced increase in spending by $900 million.

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

Top U.S. Shale Producers Soaring Debt Service Guts Profits

Top U.S. Shale Producers Soaring Debt Service Guts Profits

The massive debt accumulated by the U.S. Shale Industry is now decimating company profits.  As company debts and interest rates rise, these shale producers interest expense also continues to increase.  Debt service is not only cutting into company profits, but it also takes a great deal of oil and gas production to cover this expense.

For example, 16 of the top U.S. shale energy companies racked up a hefty $5 billion interest payment.  The company with the highest annual interest expense is Anadarko Energy at a stunning $932 million in 2017:

Devon Energy came in a distant second at $514 million while Chesapeake took the third spot at $425 million.  The 16 shale energy companies shown on the right-hand side of the chart are listed from highest to lowest annual interest expense for 2017.  And, it is a simple rule-of-thumb that the higher the annual interest expense, the higher overall debt on the company’s balance sheet.

Anadarko has such a high annual interest expense ($932 million) because it holds over $15 billion in debt.  Devon Energy had the second highest interest expense in 2017 due to its $10+ billion in debt.  However, Devon has recently sold assets and paid down its debt and lowered its interest expense considerably.  Furthermore, Chesapeake is paying $425 million a year to service its $9+ billion in debt.

It is quite remarkable that these 16 shale energy companies forked out $5 billion to service their debt last year.  The debt service is an expense that impacts the company’s net income profits.

For example, Anadarko posted a loss of $456 million in 2017.  However, they paid $932 million in interest expense last year.  If Anadarko didn’t have an interest expense, their $456 million loss would have been a $479 million net income profit.  So, these 16 companies lost $5 billion in potential profits because they have to service their skyrocketing debts.

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

The Leveraged Economy BLOWS UP In 2018

The Leveraged Economy BLOWS UP In 2018

Enjoy the good times while you can because when the economy BLOWS UP this next time, there is no plan B.  Sure, we could see massive monetary printing by Central Banks to continue the madness a bit longer after the market crashes, but this won’t be a long-term solution.  Rather, the U.S. and global economies will contract to a level we have never experienced before.  We are most certainly in unchartered territory.

Before I get into my analysis and the reasons we are heading towards the Seneca Cliff, I wanted to share the following information.  I haven’t posted much material over the past week because I decided to spend a bit of quality time with family.  Furthermore, a good friend of mine past away which put me in a state of reflection.  This close friend was also very knowledgeable about our current economic predicament and was a big believer in owning gold and silver.  So, it was a quite a shame to lose someone close by who I could chat with about these issues.

While some of my family members know about my work, I don’t really discuss it with them.  If they ever have a question, I will try to answer it, but I found out years ago that it was a waste of time to try and impose my knowledge upon them.  Which is the very reason I started my SRSrocco Report website… LOL.  So, now I have a venue to get my analysis out to the public.  I don’t care about reaching everyone, but rather to provide important information to those who are OPEN to it.

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

THE U.S. SHALE OIL INDUSTRY: Swindling & Stealing Energy To Stay Alive

THE U.S. SHALE OIL INDUSTRY: Swindling & Stealing Energy To Stay Alive

While the U.S. Shale Energy Industry continues to borrow money to produce uneconomical oil and gas, there is another important phenomenon that is not understood by the analyst community.  The critical factor overlooked by the media is the fact that the U.S. shale industry is swindling and stealing energy from other areas to stay alive.  Let me explain.

First, let’s take a look at some interesting graphs done by the Bloomberg Gadfly.  The first chart below shows how the U.S. shale industry continues to burn through investor cash regardless of $100 or $50 oil prices:

The chart above shows the negative free cash flow for 33 shale-weighted E&P companies.  Even at $100 oil prices in 2012 and 2013, these companies spent more money producing shale energy in the top four U.S. shale fields than they made from operations.  While costs to produce shale oil and gas came down in 2015 and 2016 (due to lower energy input prices), these companies still spent more money than they made.  As we can see, the Permian basin (in black) gets the first place award for losing the most money in the group.

Now, burning through investor money to produce low-quality, subpar oil is only part of the story.  The shale energy companies utilized another tactic to bring in additional funds from the POOR SLOBS in the retail investment community… it’s called equity issuance.  This next chart reveals the annual equity issuance by the U.S. E&P companies:

According to the information in the chart, the U.S. E&P companies will have raised over $100 billion between 2012 and 2017 by issuing new stock to investors.  If we add up the funds borrowed by the U.S. E&P companies (negative free cash flow), plus the stock issuance, we have the following chart:

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

The Latest Red Flag For U.S. Shale

The Latest Red Flag For U.S. ShalePermian

The U.S. shale industry has had a rough few weeks, with a growing number of reports suggesting that the industry is facing much more financial trouble than many analysts had expected. Now, a new report adds further evidence to the notion that shale is losing its luster in a $50 per barrel market, with producers forgoing shale in favor of older wells.

U.S. shale was thought to be the most competitive source of oil out there, and indeed the industry appears to be ramping up production at today’s prices. Shale had adapted to a $50 per barrel market, producers had streamlined operations to make them almost resemble an assembly line, and in a volatile and unpredictable market, the short-cycle nature of shale drilling made it one of the least risky options for drillers.

But in just a few weeks’ time, investors are starting to ask major questions about the viability of shale drilling at such a large scale.

A couple of notable things have occurred in the past month or so. Pioneer Natural Resources, a top Permian producer, raised concerns when it told investors that its Permian shale wells were coming up with a higher natural gas-to-oil ratio than expected, a potentially worrying sign. The company also reported that it had trouble with some of its wells, forcing it to delay some completions.

Separately, Goldman Sachs reported that top investors are souring on U.S. shale E&Ps, with poor performances leading investors to search for ways to “reallocate capital” elsewhere in the energy space. That is big red flag for the shale industry, which is still struggling to consistently post profits despite the highly-touted cost reductions over the past few years.

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

Decline In U.S. Oil Production Accelerates

Decline In U.S. Oil Production Accelerates

New EIA data once again points to a deeper contraction than previously expected.

The revelation was initially revealed in late August, when the EIA reported that the United States produced much less oil than expected in the first half of 2015. On the whole, the country produced 40,000 to 100,000 fewer barrels than previously reported between January and May. The August report also showed that U.S. oil production peaked in April at 9.6 million barrels per day (mb/d), before falling to just 9.3 mb/d in June.

The declines suggested that the contraction in the U.S. shale industry was deeper than the world had initially thought. And one can only assume that the decline either kept up at a similar rate, or even accelerated in the intervening months since June.

The latest data from EIA confirms this trend. In its Short-Term Energy Outlookreleased on September 9, the EIA estimates that the U.S. oil industry lost another 140,000 barrels per day between July and August. That is a faster rate than the 100,000 barrels lost in June. Moreover, the agency predicts that output will continue to decline for another year until August 2016, before picking up again.

The U.S. is expected to produce 9.2 mb/d on average in 2015, which will drop to just 8.8 mb/c in 2016. Both of those figures are 0.1 mb/d lower than last month’s projection.

Related: 2020 Could Mark The Tipping Point For U.S. Solar

(Click to enlarge)

Related: The Oil Bust Is Great For Business Here

This contraction is one of the biggest determining factors to oil prices finding their footing. At its expected low point one year from now in August 2016, U.S. oil production will bottom out around 8.6 mb/d, about 1 mb/d below the peakreached this past April. That could go a long way to cutting into excess global oil supplies.

 

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

Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed’s Blessing

Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed’s Blessing

Two weeks ago, Morgan Stanley made a decisively bearish call on oil, noting that if the forward curve was any indication, the recovery in prices will be “far worse than 1986” meaning “there would be little in analysable history that could be a guide to [the] cycle.”

As we said at the time, “those who contend that the downturn simply cannot last much longer are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does.”

“At heart,” we continued, “this is a struggle between the Fed’s ZIRP and the Saudis, who appear set to outlast the easy money that’s kept US producers alive.” This is an allusion to the fact that the weakest players in the US shale industry – which the Saudis figure they can effectively wipe out – have been able to hold on thus far thanks largely to accommodative capital markets.

But persistently low crude prices – which, if you believe Morgan Stanley, are at this point driven pretty much entirely by OPEC supply – are taking their toll on producers the world over. That is, the damage isn’t confined to US producers.

In fact, the protracted downturn in prices is slowly killing the petrodollar and exporters sucked liquidity from global markets for the first time in 18 years in 2014. To let Goldman tell it, a “new (lower) oil price equilibrium will reduce the supply of petrodollars by up to US$24 bn per month in the coming years, corresponding to around US$860 bn” by 2018.

As Bloomberg noted a few months back, the turmoil in commodities has produced a “concomitant drop in FX reserves … in nations from oil producer Oman to copper-rich Chile and cotton-growing Burkina Faso.”

And don’t forget Saudi Arabia which, as you can see from the chart below, isn’t immune to the ill-effects of its own policies.

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

 

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