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Is the U.S. Fracking Boom Based on Fraud?

Is the U.S. Fracking Boom Based on Fraud?

typewriter reading 'fraud'

In a 2016 interview with Fraud Magazine, former Enron CFO Andrew Fastow explained what he thought made him so successful while at the former energy corporation that’s now infamous for financial scandal.

“I think my ability to do structured financing, to finance things off-balance sheet and to find ways to manipulate financial statements — there’s no nice way to say it. Like I said at the conference, I was good at finding loopholes.”

As Fastow explained, in finance, the difference between a loophole and fraud isn’t always easy to identify. And that may be something the U.S. fracking industry is working to its advantage.

Fastow, the convicted fraudster, does admit that what they did at Enron misled investors. “We created something that was monstrously misleading, but any one of those deals alone wasn’t necessarily considered fraudulent,” he said.

Fast-forward to today and a different part of the energy industry: The U.S. shale oil and gas industry has lost more than a quarter trillion dollars since 2007, while being sold to investors as an economic boom, even at oil prices much lower than those of recent years. Does that financial mismatch seem misleading? Or perhaps, familiar?

In an unexpected twist, Fastow now gives talks to the energy industry on ethical leadership.

Sounding the Alarm

Bethany McLean was the first reporter to question whether Enron was a financially sound company in a 2001 article for Fortune magazine. McLean went on to co-author the book The Smartest Guys in the Room, which documented the fall of Enron due to its fraudulent practices, including the ones Fastow engineered.

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

THE ENERGY DISASTER KICKING INTO FULL GEAR: World Is Totally Unprepared For What’s Ahead

THE ENERGY DISASTER KICKING INTO FULL GEAR: World Is Totally Unprepared For What’s Ahead

There’s more evidence finally surfacing in the media of the dire energy predicament the world is now facing.  The negative ramifications of peak oil and the falling EROI were going to hit the world economy within the next 2-5 years, but the global contagion has sped up the process considerably.  Unfortunately, the world will never return back to the energy consumption and GDP growth experienced in 2019.  I believe the peak of unconventional oil production has finally arrived… FOREVER.

Here are a few highlights describing the ongoing ENERGY DISASTER taking place

U.S. Bakken Oil Production Peaked Oct 2019 While Setting A New Record In Wastewater Production

According to Shaleprofile.com, the Bakken’s production peaked in October 2019 at 1,506,358 barrels per day (bd) and fell to 1,462,025 bd in December.  When the data comes out for Mar-Apr-May, I believe that Bakken’s oil production will begin to drop off considerably.

Furthermore, even without the global virus destroying oil demand, the Bakken was going to peak shortly due to a key indicator… a tremendous increase in the amount of associated wastewater production.  Surging wastewater production is a bad sign signaling reservoir depletion.  Using the data from the North Dakota Department of Mineral Resources, the Bakken is now producing nearly 1.5 barrels of wastewater for each barrel of oil:

In January 2016, the Bakken was producing 115% more wastewater than oil, but that has surged to 149% during January 2020. While oil production increased by 8.2 million barrels (per month) since January 2016, wastewater surged by an additional 23.2 million barrels (per month).

The Death of the Bakken has finally arrived.  Due to the collapse in U.S. oil consumption, I see a huge decline in Bakken oil production over the next three quarters.

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

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

Saudi Arabia Starts All-Out Oil War: MbS Destroys OPEC By Flooding Market, Slashing Oil Prices

With the commodity world still smarting from the Nov 2014 Saudi decision to (temporarily) break apart OPEC, and flood the market with oil in (failed) hopes of crushing US shale producers (who survived thanks to generous banks extending loan terms and even more generous buyers of junk bonds), which nonetheless resulted in a painful manufacturing recession as the price of Brent cratered as low as the mid-$20’s in late 2015/early 2016, on Saturday, Saudi Arabia launched its second scorched earth, or rather scorched oil campaign in 6 years. And this time there will be blood.

Following Friday’s shocking collapse of OPEC+, when Russia and Riyadh were unable to reach an agreement during the OPEC+ summit in Vienna which was seeking up to 1.5 million b/d in further oil production cuts, on Saturday Saudi Arabia kick started what Bloomberg called an all-out oil war, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible.

In the first major marketing decision since the meeting, the Saudi state producer Aramco, which successfully IPOed just before the price of oil cratered…

… launched unprecedented discounts and cut its April pricing for crude sales to Asia by $4-$6 a barrel and to the U.S. by a whopping $7 a barrel in attempts to steal market share from 3rd party sources, according to a copy of the announcement seen by Bloomberg. In the most significant move, Aramco widened the discount for its flagship Arab Light crude to refiners in north-west Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the Brent benchmark. 

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

Oil Prices To Skyrocket If U.S. Shale Stalls

Oil Prices To Skyrocket If U.S. Shale Stalls

Oil Prices

A collapse of production in Venezuela, aggressive production curtailments from OPEC+, relatively strong demand and an economy humming along – and oil prices are still sharply below the highs seen last year.

To be sure, oil has bounced just about to the highest level since November, and a confluence of bullish forces seem to be pushing prices in an upward direction. But in years past, news that an oil producer like Venezuela suddenly saw production fall from over 1 million barrels per day (mb/d) down to 500,000 or 600,000 bpd overnight would have sent prices skyward. Now crude jumps by a buck or so.

The reason for the relative restraint is that the market has been anticipating U.S. shale production to grow at an unchecked rate. In January, the EIA predicted the U.S. would average 12.1 mb/d of oil production this year. A month later, the agency revised that forecast up by a massive 300,000 bpd to 12.4 mb/d. It was a familiar narrative. U.S. shale continues to exceed prior expectations.

However, the EIA just downgraded its forecast for the first time in six months. The latest Short-Term Energy Outlook sees output averaging 12.3 mb/d. It’s a rather minor downward revision, but the direction is important. 

The series of spending cuts by U.S. shale producers may actually slow down the drilling machine. “This is just the beginning,” Phil Flynn, senior market analyst at Price Futures Group Inc., told Bloomberg. “The reality of the situation is that a lot of these guys are not making money and are having a hard time keeping these production levels up. Any pullback is going to make it harder to keep that upward trajectory of oil production moving higher.”

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

Shale Growth Is Nearing An Inflection Point

Shale Growth Is Nearing An Inflection Point

Pioneer drilling

Drilling activity has plateaued in much of the U.S., with the rig count zig-zagging well below the peak from last November.

The rig count often rises and falls in response to oil prices, but on a several-month lag. It takes some time before oil companies make drilling decisions in response to major price movements. As such, the price meltdown in the fourth quarter of 2018 is still working its way through the system.

But the U.S. shale industry has already begun to tap the brakes. Total U.S. oil rigs are stood at 853 for the week ending on February 22, down from a peak of 888 in November. In particular, the Permian – often held up as the most profitable and prolific shale basin – has seen the rig count decline to a nine-month low.

Production continues to rise, to be sure, but the growth rate could soon flatten out. “We estimate that the y/y change in US oil drilling will, for the first time since 2016, turn negative by late May, should the current trend of gentle declines continue,” Standard Chartered analysts led by Paul Horsnell wrote in a note.

(Click to enlarge)

At the same time, oil prices are rising again, and are up roughly 25 percent since the start of the year. If WTI tops $60, many shale drillers could find themselves feeling confident all over again, and could pour money and rigs back into the field.

That said, multiple drillers have laid out more conservative and restrained drilling programs, facing pressure from shareholders not to overspend. According to Bloomberg and RS Energy Group, U.S. E&Ps have trimmed their spending plans by 4 percent on average, while at the same time they still expect production to grow by 7 percent.

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

Wall Street Loses Faith In Shale

Wall Street Loses Faith In Shale

Wall st

To Wall Street, the shale industry has lost a lot of its allure. A decade’s worth of promises have failed to materialize, and Big Finance is cutting some of its ties with smaller shale drillers who have not delivered.

The Wall Street Journal reports that the shale industry only saw $22 billion in new bond and equity deals, down by more than half from 2016 levels, which was a much worse time for the market.

The steep decline in new debt and equity issuance is a sign that major investors are no longer rushing to finance unprofitable shale drilling. It’s worth noting that this is a new development. For years Wall Street financed unprofitable drilling, holding out on the promise that rapid production growth would eventually pay off.

Shale wells suffer from precipitous decline rates, with as much as three quarters of a well’s total lifetime production coming out in the first year or two. After an initial burst of output, shale wells enter a steep decline.

Of course, this has been known since the beginning and Wall Street has long been fully aware. But major investors hoped that shale companies would scale up, achieve efficiencies and lower breakeven prices to the point that they could turn a profit.

However, that has not been the case. While there are some drillers that are profitable, taken as a whole the industry has been cash flow negative essentially since its beginning in the mid-2000s. For instance, the IEA estimates that the shale industry posted cumulative negative free cash flow of over $200 billion between 2010 and 2014. 

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

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

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

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

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

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

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

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

Oil Markets Could See Deficit In 2019

Oil Markets Could See Deficit In 2019

valve Iraq

The oil supply surplus is “starting to reverse,” according to a new report from Bank of America Merrill Lynch.

The investment bank noted that oil prices had collapsed in late 2018 not only because of an oversupply problem, but also because of other “non-fundamental factors,” including the selloff of long positions by hedge funds and other market managers, as well as by fear and uncertainty in broader financial markets. Still, the bottom line was that the oil market saw a glut once again emerge in the fourth quarter.

However, “now the 1.3mn b/d surplus in 4Q18 is starting to reverse,” Bank of America Merrill Lynch analysts wrote in a January 10 note. In fact, the bank says that the OPEC+ cuts could translate into a “slight deficit” for 2019. “With investor positioning reflecting a bearish set-up, Brent prices have already bounced back above $60/bbl, and we retain our $70/bbl average forecast for 2019,” BofAML wrote.

Oil price forecasts vary quite a bit, but a dozen or so investment banks largely agree that the selloff in late December, which pushed Brent down to $50 per barrel, had gone too far. BofAML is betting that Brent rises back to $70 per barrel.

However, the investment bank issued a rather significant caveat. This assessment is based on the assumption that the global economy does not take a turn for the worse. BofAML analysts said that Brent could plunge as low as $35 per barrel if global GDP growth slows from 3.5 percent to 2 percent.

At this point, it is anybody’s guess if the global economy slows by that much, but there is a growing number of indicators that at least suggests such a deceleration is possible. The recent data from China showing a shocking slowdown in both imports and exports is discouraging.

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

The Shale Oil Revolution Actually Reflects a Nation in Decline


The Shale Oil Revolution Actually Reflects a Nation in Decline

Faster consumption + no strategy = diminished prospects

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

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

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

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

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

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

Shale Oil Snafu

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

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

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

Jan 2, 2019

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

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

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

Pumpjacks in Permian Basin outside Midland, Texas

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

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

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

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

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

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

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

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

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

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

Evidence Mounts For Shale Slowdown

Evidence Mounts For Shale Slowdown

frack crew

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

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

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

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

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

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

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

New Data Suggests Shocking Shale Slowdown

New Data Suggests Shocking Shale Slowdown

Shale rig

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

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

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

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

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

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

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

Shale Under Pressure As Oil Falls Below $50

Shale Under Pressure As Oil Falls Below $50

fracking operation

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

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

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

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

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

Oil Price Slide Puts The Brakes On U.S. Shale Growth

Oil Price Slide Puts The Brakes On U.S. Shale Growth

oil rig

While U.S. President Donald Trump continues to call on OPEC to keep oil prices low, because “The World does not want to see, or need, higher oil prices!”, one corner of the world may need WTI prices higher than the current low $50s to keep pumping crude at the record pace it has been doing so far this year—the U.S. shale patch.

The recent price slide, by around 30 percent from four-year highs in early October, has brought down WTI Crude prices dangerously close to the wellhead breakeven prices in many U.S. shale areas.

The lower prices may lead to a slowdown in drilling activity and lower investments in the shale patch, U.S. oil industry executives and analysts say.

U.S. shale drilling may soon start to show slowdown in activity, Gary Heminger, Chairman and CEO at Marathon Petroleum Corporation, told FOX Business on Wednesday.

“If you look at the Canadian producers, when you’re looking at the wide spreads of the Western Canadian Select versus WTI, you look at some of the real cost to get some of the crude out of the Bakken because the pipelines are full – I think we are going to start seeing a slowdown in drilling if they don’t see some prices turn around,” Heminger warned, but noted that he doesn’t expect the slowdown to be “dramatic”.

The U.S. shale patch has managed to significantly cut wellhead breakeven prices since the oil price crash of 2014. Yet, its capital expenditure plans for 2019 may be derailed by $50 oil—a reality few had conceived of just two months ago, when the market was spooked by Iranian oil supply plunging to zero, or at least to much lower than the currently some 1.2 million bpd still being exported out of Iran.

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

U.S. Shale Struggles As Oil Prices Drop

U.S. Shale Struggles As Oil Prices Drop


The explosive production growth in the U.S. shale patch has surprised even the most optimistic forecasters, but the huge jumps in output belies and obscures the financial state of the industry, which is a bit more complicated than the production figures might suggest.

Shale companies scrambled to cut costs during the oil market downturn between 2014 and 2017, and they successfully lowered their breakeven prices significantly. When OPEC+ agreed on its initial production cut deal, which started at the beginning of 2017, the higher prices that resulted from the agreement allowed U.S. shale to rebound in a big way. Surging production over the past two years suggested that the shale industry was stronger than ever.

This year was supposed to be the year that the money started rolling in – with cost cuts in hand and higher oil prices lifting all boats, shale drillers were supposed to be in the clear. But profits have been elusive.

To be sure, some companies have posted significant earnings. The oil majors, in particular, are earning more money than they have in a long time. But the bulk of the shale industry is still struggling. According to the Wall Street Journal, the 30 largest shale companies earned a rather marginal $1.7 billion combined in 2017.

The latest meltdown in prices, however, puts a lot in the industry right back into hot water. The problem is that despite boasts of low breakeven prices, many shale companies have failed to take a comprehensive look at the all-in costs of producing oil, as the Wall Street Journal points out.

It wasn’t uncommon over the last few years to hear shale executives brag about how their wells were profitable even with oil under $40 per barrel. But often those figures didn’t include the cost of land acquisition, or transportation.

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

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