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Prior to the pandemic-induced downturn in world oil production, U.S. oil production growth was responsible for 98 percent of the increase in world production in 2018 (as reported in 2019). Almost all of that growth resulted from rapid increases in shale oil production which accounted for 64 percent of U.S. production (as of 2021).

Fast forward to today when OilPrice.com has declared that “The U.S. Shale Boom Is Officially Over.” The reasons cited mostly have to do with management “discipline” regarding capital expenditure in favor of shareholder payouts and complaints about “anti-oil rhetoric” and “regulatory uncertainty.”

But there might just be another reason for the slowdown in shale oil production in the United States: There isn’t as much accessible and economical shale oil underground as advertised. Earth scientist David Hughes laid out his case for this view in his “Shale Reality Check 2021.” (For a summary of Hughes’ report, see my piece from December 2021 entitled, “U.S. shale oil and gas forecast: Too good to be true?”)

There may be other sources of oil worldwide that will somehow make up for the significantly lower growth in U.S. shale oil production. But no other source seems set to provide the kind of growth U.S. shale oil provided, that is, 73.2 percent of the global increase in oil production from 2008 through 2018.

The world has actually been getting along with less oil for some time now. World oil production proper (crude oil including lease condensate) peaked on a monthly basis in November 2018 at 84.58 million barrels per day (mbpd). In August 2022 production was 81.44 mbpd. That’s after a pandemic-induced shock that saw production fall to 70.28 mbpd in June 2020.

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Why Isn’t U.S. Shale Production Soaring?

February 17, 2022

Why Isn’t U.S. Shale Production Soaring?

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.

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Bakken Summary

August 7, 2021

Bakken Summary

The North Dakota area of the Bakken LTO basin has accessible data from the ND Department of Natural Resources, Oil and Gas Division. Production here seems to be past peak and in general decline. The data presented here is therefore more a historical perspective than of much interest in predicting issues that may have significant impact for the future. However it may give some indication on what to expect in the Permian basins, the only ones left in the US that may have capacity to increase production. The Texas RRC does also produce good data but a global data dump produces files that are too big for my computer to handle and splitting into smaller subsets is too man-hour intensive for me to pursue.

Production Across the Area

These charts show how the oil production has changed every three years by range (almost equivalent to lines of longitudes) and township lines (latitudes). These lines run every six miles and the area they contain is called a township, consisting of 36 square mile sections (that’s the simplified explanation, earth’s curvature and irregular land features make things a bit more complicated).

The production shapes indicate that there aren’t core (tier 1) areas with surrounding poorer quality areas. There is a single, small central peak area (I think geologists might call this a bright spot) and the reservoir quality declines steadily to the edges of the basin, outside of which there is no meaningful production and never will be no matter what oil prices, technology improvements or USGS fantasies come along.

The chart below shows the production over the whole area for April 2021, looking towards the north-west…

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Has OPEC finally won the war against shale oil?

July 20, 2021

Has OPEC finally won the war against shale oil?

I have maintained for the past six years that a key goal of OPEC has been to so demoralize investors in shale oil that they stop sending money to the companies that drill for it. As I’ve written previously, I believe that OPEC’s contest with the shale oil industry is “part of a broader strategy meant to maximize Saudi revenues as production in the kingdom hovers at an all-time high over the next decade before beginning a decline.” It now appears that OPEC may have finally won its war against shale.

Investment in shale oil companies has finally collapsed—even as oil prices levitate. It has been a long time coming. The industry would like you to believe that it is now showing “restraint” in its capital spending. But, to use a dieting analogy, there is a big difference between watching what you eat and having your jaw wired shut—involuntarily in this case. The industry has experienced the equivalent of the latter in the capital markets.

What has amazed all of us who watched this battle play out is that OPEC didn’t win sooner. The relentless tolerance for losses among investors was beyond belief. And, when those investors returned in force after a brief vacation during the oil price bust in 2015, we skeptics grew concerned that rational thought had been eliminated from the universe.

Why did we think that? Because by that time the industry had already burned through hundreds of billions of investors’ dollars, dollars that merely subsidized petroleum consumers while enriching industry insiders. I am reminded of the joke about the business owner who explained that while he loses 5 cents on every sale, he makes it up in volume. Free cash flow numbers for the industry as a whole made it absolutely obvious that shale oil had been a money-loser for years. Why couldn’t investors see something that obvious?

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The Collapse Of U.S. Shale Oil Production Has Now Begun

December 22, 2020

The Collapse Of U.S. Shale Oil Production Has Now Begun

It’s Official. The collapse of U.S. shale oil production has begun. The mighty Shale Oil BOOM has now finally turned into a BUST. While the pandemic shutdowns sped up the process, the collapse of the U.S. shale industry was going to occur, regardless. According to the U.S. Energy Information Agency, shale oil production will continue to decline below 7.5 million barrels per day in January.

At the peak last year, the top five shale oil fields combined production reached nearly 9.2 million barrels per day. Since the shutdowns during March-April, many of the companies curtailed shale oil production. However, all of these wells have now been brought online, but the massive decline rate is kicking in due to a lack of drilling and completion activity.

As we can see in the chart below, shale oil production in these five fields fell from 9.16 million barrels per day during the peak in 2019 to 7.27 million barrels per day forecasted next month (January).

In a little more than a year, the combined shale production from these five fields declined by 1.9 million barrels. The data in the chart above is shown in thousand barrels per day. According to Shaleprofile.com, these five fields add more than 11,000 new wells in 2019. In looking at the new well trend data for Jan-Oct 2020, I would be surprised to see more than a total of about 5,000 wells added this year.

While the Permian suffered the highest decline in shale oil production, the biggest loser in percentage terms was the Anadarko Field. Oil production from the Anadarko declined from 603,000 barrels per day (b/d) at the peak last year to a forecasted 363,000 bd in January. That’s a stunning 40% decline in a little more than a year.

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

Why Fracking Activity Hasn’t Increased As Oil Prices Recovered

August 16, 2020

Why Fracking Activity Hasn’t Increased As Oil Prices Recovered

It’s been a long dry spell in the Permian. Shale drilling and completions activity has collapsed to levels not seen since before 2000 (as far back as records are kept). That was the year shale activity first began to pick up from essentially nil and hit all-time peaks in 2008. With occasional ebbs and flows, it had gradually drifted down to the start of the current calamity, where active rigs stood at a somewhat healthy 805 rigs turning to the right.

Fracking has also taken a commensurate dive over the last eight months, defying the conventional wisdom that as prices began to improve, activity would increase. It hasn’t happened in either case. Why?

Driven by low prices not seen much in modern history, formerly high-flying shale drillers like Chesapeake Energy have gone bankrupt. The service providers who do the actual work like Halliburton, (NYSE:HAL), Schlumberger, (NYSE:SLB) have written off tens of billions worth of fracking-related equipment, closed facilities and laid off thousands of workers.

Much of the expansion from 2016 onward was fueled by growth at any cost mindset in the drillers, and aided by bankers willing to accept ever-increasing estimates for the value of reserves. In 2018 much of that laissez-faire mentality in the boardrooms of the drillers and in the vaults of the bankers came to an abrupt halt as profits and cash flow were demanded. That was the moment shale activity began to falter numerically, while at the same time, a miracle was taking place. Production grew from advances in technology and a deeper understanding of key reservoirs to record levels.

EIA-STEO

Peaking at nearly 13 mm BOE in March of this year, a failure of OPEC+ nations to agree on production cuts that same month, led oil to begin a precipitous decline in price.

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Trump’s Golden Era of Energy Is Turning to Lead

July 25, 2020

Trump’s Golden Era of Energy Is Turning to Lead

A drilling rig on a former ranch outside of Barstow, Texas, in the Permian Basin

It was just over a year ago that President Trump announced, “The golden era of American energy is now underway,” saying that his policies focused on exploiting oil, gas, and coal were “unleashing energy dominance.”

What a difference a year makes. On July 10, the Financial Times ran an article with a headline that asked, “Is the party finally over for U.S. oil and gas?” And there is no doubt that it has been quite a party for the last decade. At least, for the fracking executives who have enriched themselves while losing hundreds of billions of dollars investors gave them to produce oil and gas. Meanwhile, profits never materialized.

Lately, prospects for the broader fossil fuel industry look more like lead than gold.

For starters, the oil and gas industry in America is facing an era of losses, bankruptcies, canceled projects, and declining demand. It is highly likely that history will show that this point in time was the beginning of the golden era of renewable energy and the decline of the fossil fuel industry.

Fracked Shale Oil and Gas Industry Failing

President Trump’s 2016 campaign was backed heavily by the oil and gas industry, with strong support from fracking CEOs like Continental Resources’ Harold Hamm. The story of record American oil production due to fracking was even being touted by President Obama, who rightfully took credit for the fracking boom that occurred on his watch. That’s despite President Trump recently taking credit for it as well.

But as we have documented over the last two years at DeSmog, the fracked oil industry has been a financial failure for more than the past decade. The industry produced record amounts of oil and gas but lost huge sums of money in the process. And now even industry leaders are admitting the U.S. oil industry has already peaked, a little more than a year after President Trump declared the beginning of the “golden era.”

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IT’S ALL DOWNHILL FROM HERE: U.S. Oil Production Peak Already In The Rear-view Mirror

July 24, 2020

IT’S ALL DOWNHILL FROM HERE: U.S. Oil Production Peak Already In The Rear-view Mirror

It’s a shame that the drive for U.S Energy Independence only lasted for about a year. Even worse, U.S. Shale Oil Industry responsible for the country’s energy independence is now in serious trouble as the companies have cut drilling by 75% while they are drowning in debt up to the eyeballs. This is a “No-Win” scenario. So, watch over the next 3-6 months as the mighty U.S. Shale Industry begins to implode in glorious 3D-Technicolor.

Amazingly, if it weren’t for the 135,000 shale wells drilled since 2007, U.S. oil production would have remained virtually flat. Yes, that’s correct. Just about all the U.S. domestic oil production growth from 2007 to 2019 came from shale oil (tight oil). Even though there was oil production growth offshore in the Gulf of Mexico, it offset the declines in the states.

According to the EIA, U.S. Energy Information Agency, U.S. shale oil production increased from 500,000 barrels per day (bd) in December 2007 to 8.3 million barrels per day (mbd) in December 2019:

As we can see, the Rest of the U.S. net production only increased by 0.1 mbd since 2007 while shale oil increased 7.8 mbd. Unfortunately, with the U.S. shale oil industry annual decline rate at nearly 50% per year, at some point, the DRILLING HAMSTERS were going to run out of reserves. While this may have been 1-2 years away, the global pandemic pulled the rug from underneath the U.S. Shale Industry.

While I commend that tens of thousands of workers that helped bring on this much-needed oil production, a 50% annual decline rate is not a long-term sustainable business model. Well, unless the Federal Reserve can print more oil reserves. That I would like to see.

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30% Of U.S. Shale Drillers Could Go Under

June 28, 2020

30% Of U.S. Shale Drillers Could Go Under

U.S. shale was one of the big losers of the Saudi-Russian price war that many saw as a war on U.S. shale. Producers scrambled to stay afloat as prices sank back to lows not seen since 2016, and they are still scrambling. Banks are giving them the cold shoulder, worried that many will not be able to pay their debts. Is there a way out? According to various forecasting agencies, there is, but it will take a while. A Bloomberg analysis of forecasts for the shale industry made by outlets such as the International Energy Agency, energy consultancy Rystad, IHS Markit, Genscape, and Enervus suggests shale will be back on its feet by 2023, with production back to over 12 million bpd.

This is not a long time for a full recovery, really, especially given the current circumstances, including shut-in wells, abandoned drilling plans, tight cash, and, for many, looming bankruptcies.

As much as 30 percent of shale drillers could go under if oil prices fail to move substantially higher, Deloitte said in a recent study, as quoted by CNN. These 30 percent, the firm said, are technically insolvent at oil prices of $35 a barrel. Right now, West Texas Intermediate is higher than $35 but not by much. Oil is now trading closer to $35 than to $50—the level at which most shale drillers will be making money.

And they need to make money: banks have started cutting credit lines for industry players as they reassess their assets and the production that they promised would be realized from these assets. According to calculations by Moody’s and JP Morgan, cited by the Wall Street Journal, banks could reduce asset-backed loan availability for the industry by as much as 30 percent, which translates into tens of billions of dollars.

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U.S. Oil Dominance Is Coming To An End

June 20, 2020

U.S. Oil Dominance Is Coming To An End

U.S.’ energy dominance agenda is dead as the country’s shale industry is looking at a steep production decline.
The U.S. tight oil or shale rig count has fallen 69% this year from 539 in mid-March to 165 last week.
U.S. oil import dependence is set to grow in the next couple of years.

U.S. energy dominance is over. Output is probably going to drop by 50% over the next year and nothing can be done about it. It has nothing to do with the lack of shale profitability or other silly memes cited by people who don’t understand energy.

It’s because of low rig count.

The U.S. tight oil or shale rig count has fallen 69% this year from 539 in mid-March to 165 last week. Tight oil production will decline 50% by this time next year. As a result, U.S. oil production will fall from to less than 8 mmb/d by mid-2021.

What if rig count increases between now and then? It won’t make any difference because of the lag between contracting a drilling rig and first production.

The party is over for shale and U.S. energy dominance.

Energy Dominance is Over

Tight oil is the foundation of U.S. energy dominance. The U.S. has always been a major oil producer but it moved into the top tier of oil super powers as tight oil boosted output from about 5 to more than 12 mmb/d between 2008 and 2019 (Figure 1).

Conventional production has been declining since 1970. It fell from almost 10 mmb/d in 1970 to 5 mmb/d in 2008.

Figure 1. Tight oil is the foundation for U.S. Energy Dominance.

Conventional production has been in decline since 1970. Tight oil boosted U.S. production to more than 12 mmb/d in 2019.

Source: EIA and Labyrinth Consulting Services, Inc.

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The Unique Ways Oil Companies Are Looking To Avoid Bankruptcy

June 12, 2020

The Unique Ways Oil Companies Are Looking To Avoid Bankruptcy

Many U.S. shale firms have cruised through the past couple of years by borrowing money and drilling new wells, making the United States the world’s top crude oil producer. The strategy worked for a while, especially when oil prices were around $60 a barrel.

But this year’s oil price crash exposed the financial vulnerability of many U.S. shale companies who are now fighting for survival. All producers across the U.S. patch pulled back production volumes in April and May in response to the collapse in prices.

For some oil and gas firms, reduced capital budgets will not be enough to save them from defaulting on debt or seeking restructuring as cash flows are shrinking, while the window of access to capital markets and new debt remains, for the most part, closed.

Those firms who choose not to seek (or are not forced to seek) protection from creditors via Chapter 11 restructuring could look at other options to avoid bankruptcy, some of which may be a little unconventional.

Today, unconventional may be an understatement when it comes to describing the oil industry’s state of affairs. All options – regardless of how (un)common they are – are on the table for struggling oil producers.

Industry consolidation, private equity firms acquiring assets or distressed companies, banks ending up holding oil and gas assets, or power utilities buying their providers of energy could be some of the options that oil firms might consider, Suzy Taherian, who worked with Exxon and Chevron at the start of her career, writes in Forbes.

Mergers & Acquisitions Hit By Uncertainty

U.S. shale firms have fewer financing options now than they did in the 2015-2016 downturn. Thus could drive consolidation in the industry with some attractive M&A opportunities emerging, according to Robert Polk, principal analyst with Wood Mackenzie’s U.S. Corporate Research team, covering Lower 48 independents.

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BIG TROUBLE FOR THE BIG THREE U.S. OIL COMPANIES: Financial Disaster In Its Domestic Oil & Gas Sector

May 23, 2020

BIG TROUBLE FOR THE BIG THREE U.S. OIL COMPANIES: Financial Disaster In Its Domestic Oil & Gas Sector

There’s no better way to describe what is taking place in the U.S. Big three Oil Companies domestic oil and gas sector than a complete and utter financial disaster. Honestly, I am not exaggerating. The only place ExxonMobil, Chevron, and ConocoPhillips are making decent money is in their non-U.S. or International oil and gas sector.

While it’s no secret that the U.S. shale oil industry continues to be a trainwreck, the damage is now spreading deep into the financial bowels of the Big Three Oil Majors. Unfortunately, the largest, ExxonMobil, has the worst-performing domestic oil and gas sector in the group. So, it’s no surprise that ExxonMobil was forced to borrow money just to pay dividends. I posted this chart in my last article on ExxonMobil:

As you can see, ExxonMobil’s long-term debt over the four-quarters (Q2-2019 to Q1 2020) increased nearly the same amount as the shortfall between the dividend payouts and the free cash flow.

However, if we look at the Big Three as a group, Q1 2020 wasn’t pretty at all. The next chart combines ExxonMobil, Chevron, and ConocoPhillips Upstream Earnings and Capital Expenditures (CAPEX) from their U.S. sector versus their non-U.S. or International sector. The upstream sector refers to the company’s oil and gas wells.

The Big Three suffered a net $900 million earnings loss from their U.S. upstream sector while spending a whopping $5.6 billion ($5,591 million) in CAPEX. Now compare that to the combined non-U.S. or International upstream earnings of $4.3 billion based on investing $4.6 billion in CAPEX.

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The Wave Of Shale Well Closures Has Finally Begun

May 1, 2020

The Wave Of Shale Well Closures Has Finally Begun

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.

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Permian Bankruptcies Could Fuel A Buying Spree For Big Oil

April 29, 2020

Permian Bankruptcies Could Fuel A Buying Spree For Big Oil

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

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

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US May Pay Shale Drillers Billions To Leave Oil In The Ground

April 15, 2020

US May Pay Shale Drillers Billions To Leave Oil In The Ground

If one listened to the US president, or any other member of OPEC+ in the past few days, this weekend’s history production cut deal (which we said was not nearly enough to offset the plunge in global demand), would have been sufficient to push the price of oil by $10/per barrel or more. Instead, after spiking last Thursday as high as $36 as triggerhappy algos were fooled by OPEC+ jawboning, Brent is down as much as 25% in the past 4 days.

Meanwhile, realizing that the US has become ground zero for excess oil production, and is unwilling – or unable – to cut output, thus shooting itself in the foot, on Tuesday Scott Sheffield, CEO of Pioneer Natural Resources, argued that Texas can lead in producing a “real” U.S. oil production cut to save the shale industry, and called for the state to take action to force companies to hold back their production for the first time since 1973.

Alas, with billions of junk bonds at stake and a lot of private equity vested interests assuring that the “spice flows” that is unlikely to happen. So on Wednesday, with US producers seemingly at an impasse and with Trump terrified that a wave of Texas defaults could doom his reelection chances as millions of shale workers are out of a job, Bloomberg reported that the Trump administration was considering paying U.S. oil producers to leave crude in the ground to help alleviate a glut that has caused prices to plummet and pushed some drillers into bankruptcy.

According to the report, the Energy Department has drafted a plan to compensate companies for sitting on as much as 365 million barrels worth of oil reserves and counting it as part of the U.S. government’s emergency stockpile. West Texas Intermediate crude oil futures rose fractionally, about 20 cents to $20.42, on the news.

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

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