About that American oil independence narrative. Dead shale walking. The debt saturated shale oil companies are filing bankruptcy on a weekly basis and the trend will only accelerate from here as their hedges expire and oil prices continue to fall. You can stick a fork into the shale oil/gas miracle. I can’t remember who predicted this over a year ago.
Guest Post by Art Berman
Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.
Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.
To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the USA is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.
The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.
None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.
Figure 1. Horizontal Wolfcamp-Spraberry & Leonard-Bone Spring play location map, Permian basin.
Source: Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)
Reality Check: The Claims vs. Proven Reserves for the Permian Basin
Pioneer claims more than 10 billion barrels for its Spraberry-Wolfcamp position, and EOG claims 2.35 billion barrels for its Bone Spring and Wolfcamp plays.
Let’s put that in context.
Total proven crude oil and condensate reserves for the United States as of the November 2015 EIA report are 39.9 billion barrels. So, these two companies claim that they have reserves or resources of more than one-quarter of all U.S. reserves in 3 plays in the Permian basin. According to the same EIA report, the Permian basin has less than three-quarters of a billion (722 million) barrels of proven tight oil reserves.
Right.
Pioneer’s claim is by far the more preposterous of the two but it wasn’t very long ago (May 2014) that EOG CEO Bill Thomas told investors that his company wasn’t really all that into the Permian basin. Pioneer CEO Scott Sheffield has been making statements for a few years about the Spraberry that ought to give his company’s General Counsel heart seizures.
“The Spraberry Wolfcamp could possibly become the largest oil and gas discovery in the world.”
It is incredible that analysts have not challenged Sheffield’s claim over the last two years that the Spraberry is second only to the Ghawar Field (Saudi Arabia) as the world’s largest oil field.
What exactly do analysts analyze, anyway?
WTI at $35, yeah. Canadian tar sand oil is selling at around $20, which is why Alberta’s economy is already in the toilet.
The Saudi glut is painful, even to them. They’re burning through their reserves at a great rate, since they need $90/bbl oil to balance their budget.
Oil has always been boom or bust for as long as I can remember.
And I’m pretty old.
And political manipulations of it -both national and international- have always been a part of the boom and bust cycle.
I doubt that is going to change as long as petroleum remains the basis of our civilization, and I doubt there is anything the environmental leftists will allow that will replace it.
My tromping grounds. It is bad here. Oilfield traffic has slowed dramatically. The struggle is real and theft is rising
The stuff produced from fracking is kerogen which can only be distilled to produce condescends and gasoline. It contains 15 to 20% condescends while WTI and Brent contain about 10% condescends. The Canadian tar sands Bitumen will only distill from the upper end of the distillation process, asphalt and heavy oils. The Bitumen is too thick to be pumped and is diluted with from 20 to 40% kerogen or tight light oil.
Refineries are increasingly rejecting blends of heavy crude + condensate that technically meet API gravity ceiling of 42 but are deficient in middle distillates like diesel.
Now that Congress has passed a law allowing for the export of crude maybe we can foist the blends and LTO off on foreigners.
Honest Question for all you economic wiz kids. Why is there an oil glut to begin with? Low consumption or to much production ? Maybe something else ?
bb
Both. You have a global recession reducing demand. China had been the driver in oil consumption and they have slowed dramatically. The $100 oil made the Canadian oil sands and the US Shale profitable, so a huge amount of capital investment was poured in to ramping up that production. The Saudis have now ramped up production to destroy the US shale industry, while hurting the Iranian and Russian economies. It’s working, but they have also destroyed their own financial picture. I think their plan is to wait for enough shale companies go belly up and see shale oil production collapse and then they’ll cut production and try to get the price back up to at least $90.
bb, I think the whole thing was to get investors to take the risk. They did and found the oil and developed the wells. Financial types conspire with Arabs to bankrupt the investors. Then they buy up all the assets for pennies on the dollar .(with zirp loans of make believe money)
The suckers are broke,the bankers own the resources, here comes $5.00 gasoline. Pretty good plan wasn’t it.
“You can stick a fork into the shale oil/gas miracle. I can’t remember who predicted this over a year ago.”
—-Admin
Stuff it.
“It ain’t
SSS
Please enlighten me as to how shale oil and gas will be produced at $25 oil and sub $2 gas prices?
How are your high dividend funds doing bucko?
Fucking auto post again.
“It ain’t over till it’s over.”
—-Yogi “SSS” Berra
SSS can’t figure out the comment system, but he’s an expert on shale oil.
LMFAO
@ Admin
Despite recent focus on the downward momentum, Credit Suisse global energy research analysts predict a recovery for prices in the second half of next year. “The ingredients are there: Oil demand is growing and supply is rolling over,” they explained in a note. “The wildcards that could inflict further pain are higher OPEC growth than our forecasts, or economic retrenchment.”
“How are your high dividend funds doing bucko?”
—-Admin
My investment portfolio is doing just fine. Cap gains back in the black overall, dividends and interest holding steady. I’m an extremely conservative and patient investor. Thanks for asking.
SSS quotes a Wall Street shyster predicting something which matches his book. Well, that pretty much puts me in my place. Who could ever question the opinion of a Wall Street douchebag?
I’m sure SSS is gathering the demand and supply data to back up his bullshit opinions.
Administrator says:
“SSS can’t figure out the comment system, but he’s an expert on shale oil.”
I think it’s a malfunctioning touchpad on my laptop, but none of the disabling instructions I can find fit the menu tabs available on my laptop. It’s a goddamned CIA conspiracy, IMHO. Heh.
Jim, overthecliff nails it. Remember goldman’s motto, “don’t be the first one through the door”, (that’s the guy who gets the bullet in the face). Shale oil will be very profitable at a much lower price, it will just have different (bankster) owners.
I figure it is the U.S. and the Saudis getting at Putin and Putting those evil oil folks out of business in the U.S.
There are so many ways to change things.Hydrogen? NG? Heck trucks should be commercial vehicles only,piss poor daily transportation is what they are. I filled up for 1.19 a gallon with my grocery store discount last night. I had a buck a gallon off.Later i saw gas at 2.00. I figure oil will go back up next spring. By then many will be bankrupt,Just like the Saudis want.
Starfcker & SSS have the math skills of retarded shit eating monkey. You make bloviating nonsensical declarations with no basis in reality or facts.
Shale oil has been known about for decades. Why wasn’t it being fracked then? It wasn’t economically feasible to retrieve it.
Do you boneheads understand the concept of EROEI? The amount of investment and energy required to retrieve a barrel of shale oil is HUUGE, to quote your bloviating bullshit artist Trump.
A half dozen shale oil companies have gone belly up in the last few months. The entire oil industry is massively reducing capex and firing tens of thousands of workers. Unless oil suddenly rebounds to near $100 per barrel, the shale oil production will continue to plummet.
Starfcker fancies himself a maff expert, but can’t even grasp this simple supply and demand scenario.
So it goes.
SSS
Give me the names of some of your funds. I’d like to invest in them too.
Admin- Starfcker and SSS used up all of their fingers and toes and at that point were completely lost in the maff side of the conversation.
Jim, the oil industry is reducing CAPEX, because the infrastructure has already been built, at full price. All the geology has been done, at full price. All of the support structure, roads, housing, transport, etc, has been built at full price, through the miracle of counterfeit money. Those rigs aren’t going away. Sure, the independents are choking on debt, and plenty will go belly up, and all that debt dissappears with them, leaving a much lower cost structure for the new bankster owners
Bea, shush. Go find a mirror, “PREZ-EE-DENT TRUMP”
starfcker
You are so full of shit. A shale oil well depletes by 90% in two years. Brand new wells with new equipment must be drilled continuously just to maintain the status quo of production. Are you so narrow minded and incapable of grasping the facts that you actually believe your bullshit narrative? As usual, you present ZERO data to back up your diarrhea of the mouth.
These aren’t your grandfather’s wells where you set up a drilling rig and it pumps for the next twenty years.
It’s not the independents going belly up. Chesapeake is headed towards bankruptcy. Are they a tiny player starfcker. NO. They were the biggest fucking player in the entire industry. Shell and BP have abandoned all their shale oil plays.
You just sound more ridiculous every time you respond. Facts are meaningless to people who believe storylines. I guess that’s why you believe in that idiot Trump.
I think I’ll take the over 36 in 2016. How about you starfcker?
Just a 40% writedown in reserves. Sounds promising.
http://www.breitbart.com/big-government/2015/12/10/shale-oil-drillers-write-40-oil-reserves/
PRODUCTION COLLAPSED BY 5% IN JUST 3 MONTHS WHEN OIL WAS SELLING FOR $50 PER BARREL. IT WILL SURELY INCREASE NOW THAT OIL IS $35 PER BARREL. FACTS ARE SO INCONVENIENT TO STORYLINES.
Just how fast is the U.S. shale industry falling apart? It may be faster than you realize.
In the last few months alone, the amount of oil being produced in the U.S. has fallen like a rock. With few new wells being drilled (compared to during the shale boom), the trend will likely continue well into 2016. And that trend could change the energy industry dramatically over the next few years.
The U.S. Energy Information Administration reports U.S. field production of crude oil every week, and the reports haven’t been pretty the last few months. The most recent reading of 9.16 million barrels per day is half a million barrels per day less than the peak of 9.61 million barrels per day during the week of June 5.
As even the strongest players in U.S. shale drilling start to see declines in production and losses mount, the problem becomes even more apparent. The U.S. shale oil industry is collapsing fast. It may only be a matter of time before it’s remembered as another boom-and-bust cycle in energy.
http://www.fool.com/investing/general/2015/11/22/look-at-just-how-fast-us-oil-is-collapsing.aspx
Just those tiny independents. Right starfcker?
http://seekingalpha.com/article/3708836-chesapeake-energy-haunted-by-a-bad-deal-bankruptcy-looms
Soon as the Russians throw in the towel, oil will rise to $150 pb overnight. That is if they can break Putin’s back with lost oil revenue.
Admin
Walgreens (up over 100% of cost basis plus 1.71% dividend yield), USAA tax-exempt bond fund (paying 2.4%), Johnson&Johnson (up 70% over cost), and Philip Morris (up 167% over cost and a whopping 4.66% dividend yield).
As I said, patience. If you weren’t so mean to me, I’d tell you more. Heh.
SSS
How about your energy high dividend yield funds? I thought you boasted about those a while back. Am I wrong?
Jim, I’m too lazy today to bicker. I’ll see if I can put together an article this week and we can have at it then. It’s not just energy that the banks use these tactics on.
starfcker
I’m not bickering. I’m obliterating you with facts. Your response is to post some marketing bullshit from Dick Cheney’s Halliburton about generic crap.
THE FACT is that a shale oil well depletes by 90% in two years on average.
If fracking was still so profitable, why has Halliburton’s stock dropped from $73 to $33 in the last 16 months? That’s only a 55% drop. How come they’ve managed to LOSE $600 million in the last 3 quarters? Yes fracking is doing wonders for this enormous company.
Give it up starfcker. You are out of your league.
Halliburton says wells are good for 20-50 years. http://www.halliburton.com/public/projects/pubsdata/Hydraulic_Fracturing/fracturing_101.html
One down, One to go………Admin’s superior brain gets the best of Starfucker.
Exactly how is it that the us is going to export oil when it imports 8 million barrels per day? Must be some of that no-child-left-behind math.
Bea, remember this. Jim wins when the economy collapses and rand paul assumes the presidency (trump will drop out, at freefall speed) the mighty starfcker wins when president trump turns the economy on a dime. Seen any polling data lately?
Trump should hire maff genius starfcker as his budget director. That would be funnier than watching the three stooges. Starfcker’s belief in Trumps’s abilities is a wonder to behold. If starfcker lived in Germany during the 30’s he would have been a Hitler worshipper.
Star- You better take that comedy act on the road before Admin comes back in to kick your ass again over the Trump as president crack. One ass whoopin in a day should teach you not to mess with Admin………Your out of your league, back under the porch.
SSS is vewy, vewy quiet about his high yield Energy fund, guess Admin wins that one too. Better luck next time Spooky ! 🙂
SSS
Walgreen’s down 16% since July
J&J down 4% YTD, wiping out your dividend yield
Philip Morris down 5% since 2013. It’s gone nowhere in over two years.
Please give me more.
Bea, I don’t like to fight with jim. But I wouldn’t be a pal if I didn’t help him along a little bit. Voting starts in 6 weeks. I’m not real familiar with freefall speed, and all, but seems to me the time for trump to quit is running out really fast. When he starts running the 50 state primary table, (6 weeks is only 43 days, bea, more maff) then what? And c’mon jim, the hitler card AGAIN? In a half hearted thread like this? Save some ammo, you’ve got 9 more years to hate on trump
Keep worshiping your idol starfcker. He will surely save you. Your maff computations were unequivocal. I love having you comment regularly. TBP needs the comic relief. I await your fracking article so I can learn something from the master of maff.
How can anybody take those two clowns serious, they pull complete BS out of their backsides and throw it up against the wall. A pathetic attempt to dazzle Admin with their (lack of) knowledge.
I’m going to take a position in oil and gas Stocks when they reach the bottom! Why do I think this will be a smart move? Because Fourth Turnings bring war, most likely this one will destroy Middle Eastern oil infrastructure and that’s one hell of a game changer! I want to invest in a domestic company that has plenty of conventional oil well’s pumping!
I more than welcome anyone to trash this idea!
Sensetti
Buy Chesapeake on margin. It’s dropped from $30 to $4 in the last year. How much lower can it go? It’s a screaming buy. Starfcker told me so. It’s a can’t miss.
Chesapeake is a basket case! I’ve known that for years. Their entire program was one giant financial engineering scheme! I have a good friend who’s a landman and he’s bought lease’s for Chesapeake at one time. We’ve had many discussions over Chesapeake’s operations!
Carl Icahn reduced his share of Chesapeake from 5.8% to 4.15%.
Icahn’s an amateur. starfcker is the maff genius. He says Chesapeake is a screaming buy. Just like Trump. Don’t you have any balls? It’s only money. Trump is going to make America great again. All investments will soar. Put you money where your mouth is.
Sensetti
Your Republican Senator voted for the bloated Omnibus spending bill. WTF? I thought Republicans were great.
Guess who voted against it? Rand.
Admin
I used the words “cost basis” and “patience” in my comments about Walgreens, Johnson&Johnson, and Philip Morris. Can you add the first to the second and appreciate the capital gains + dividends I’ve enjoyed, not to mention the increase on shares owned through dividend reinvestment? I’ve had those stocks for years, and they are winners for me. I could give a flying fuck what they’ve done lately. I’m still sitting on a tidy profit. Try Procter&Gamble and tell me how stupid that is.
I never said anything about high yield energy funds. My energy investments are totally in preferred common stocks (par value $25/share) issued by power companies, and the interest being paid ranges between 5 1/2% to just under 8%. Good for about $22,000 a year in interest. Not bad in today’s world of 0.1% interest paid on savings accounts. I have one of those, too. There’s 3 years worth of retirement income in there.
“How can anybody take those two clowns (starfckr and SSS) serious, they pull complete BS out of their backsides and throw it up against the wall. A pathetic attempt to dazzle Admin with their (lack of) knowledge.”
—-Bea Lever
Tell me again how clownish I look with my reply above to Admin. So bite me.
The Other Energy Bust—-Natural Gas Prices Fall To All-Time Inflation-Adjusted Low
by Wall Street Journal • December 18, 2015
By Timothy Puko
Natural-gas fell to the lowest ever inflation-adjusted price in its history of Nymex trading on Wednesday as extremely warm weather continues to limit demand.
Prices for the front-month January contract settled down 3.2 cents, or 1.8%, at $1.79 a million British thermal units on the New York Mercantile Exchange. That is the lowest settlement since March 24, 1999.
Gas prices have been falling precipitously in recent weeks because of the combination of record-high stockpiles and a December that could be the worst for heating demand in history. Prices have fallen 25% in just one month and have dropped 39% from their high in August. Wednesday settlement put gas below the inflation-adjusted low of $1.801 that had been in place since January 1992.
Gas did make a move up to small gains in after-hours trading, but many traders and brokers had little explanation for that rebound. The trader Marc Kerrest said he noticed prices and spreads moving higher for months far away, a sign front-month prices could follow. He closed out some of his bearish bets before settlement, he said.
“But in no way would I consider going [bullish on] gas just because of what it’s done,” in recent weeks, said Mr. Kerrest, who manages his own gas-focused fund, Cornice Trading LLC.
Warm weather in the U.S. caused by the El Niño weather phenomenon has sharply limited demand for the heating fuel this year. The natural-gas market is oversupplied, and some traders and analysts say the industry could run out of storage space for gas by mid-2016.
Production was so high and demand was so soft that storage levels likely shrank by just 41 billion cubic feet last week, according to the average forecast of 17 analysts, brokers and traders surveyed by The Wall Street Journal. That is only a third of their five-year average drawdown for the week. If the forecast is correct, stockpiles on Dec. 11 would have been 16% above levels from a year ago and 8.9% above the five-year average for the same week.
Forecasts called for even warmer weather. MDA Weather Services and Commodity Weather Group show temperatures more than 15 degrees Fahrenheit above normal that had been forecast for the Great Lakes region next week now spreading to cover nearly the entire East Coast and the South from Atlanta to San Antonio. Commodity Weather Group has been predicting a high of 70 degrees for New York on Christmas Eve.
With weather so warm and prices already so low, there may be no lower price to which gas can fall to draw more demand, said Scott Shelton, broker at ICAP PLC. That means prices have to fall so far that producers stop working.
But many have been caught in a cycle of debt, forced to keep producing even at a loss just to bring new revenue in the door that they can use to pay the debt bills that piled up from using loans to fuel their growth during the drilling boom. It isn’t clear how far prices would have to fall to get them to stop, Mr. Shelton said.
“This market is in real trouble,” Mr. Shelton said. “Just wait for the bankruptcies.”
SSS
The past don’t mean shit. It’s the present that matters. Don’t count the gains until you sell. Your investments are going down. That’s the fact. They are going to go down a lot more in the next year.
Please provide me with the names of those preferred stocks. I need to do my due diligence before buying. Are they unaffected by the energy market and interest rates? Inquiring minds want to know.
The only way Chesapeake could even be looked at as a potential buy is the Carl Ichan connection. Carl is backing Trump, if Trumps elected Carl’s investments may suddenly find favorable winds by coincidence of course.
Chesapeake is a basket case, I would never be able to understand all their financial shenanigans! So I’ll have to look elsewhere!
Admin @ SSS, w/ my answers in parens
Please provide me with the names of those preferred stocks. (No.) I need to do my due diligence before buying. (Get cracking.) Are they unaffected by the energy market and interest rates? (No and no. Preferred common stocks have fixed interest rates, but can be recalled at $25/share.) Inquiring minds want to know. (Inquire away.)
Thanks Admin ,Overthecliff and all others for responding. I just thought there might be a 800 pound gorilla in the room no one was able to see.I don’t know much about oil companies or their stock value. I guess I’ll stick to gold and silver.
SSS ,I sincerely hope your investments do well in the future .
Starfcker ,hang in there . This can be a tough place sometimes.
You guys settle down in there. Admin’s right.
Westcoaster says: “You guys settle down in there. Admin’s right.”
Admin and I got into a pissing contest less than a year ago about fracking when oil was around $50/bbl. It’s now over $15/bbl lower, so his argument about the fracking industry is stronger. Much stronger. It ain’t looking good. (Natural gas is another story.)
But I’m not settling down, and you’d better hope I’m right in the long run. Think about it. For yourself, your family, your community and your country.