Big hat tip to Wall Street Journal’s energy reporter Erin Ailworth, from whose article I borrowed heavily to write this post. She is based in Houston, and her full article can be viewed on the link below.
Fracking 2.0: Shale Drillers Pioneer New Ways to … – Wall Street Journal
A few years ago, when the global market on oil prices started to head south from over a $100 a barrel, the administrator, Sir James Quinn (who received his knighthood from the Irish owner of a pub in Wildwood NJ, heh) of this distinguished site and I got into an animated discussion about fracking for oil and natural gas. It was fun, mainly because I beat on him like a rented mule while arguing that fracking was good for America’s independence from foreign sources of oil, and Sir James argued that market forces on the decreasing price of oil would eventually destroy those energy industries heavily involved and heavily indebted in fracking for oil in America. Our discussion occurred when I believe oil had tanked to around $60 a barrel.
Well, it kept going south until it hit something in the high $20s per barrel. By then, I started to think that maybe Sir James had a point, and I had lost a ton of money on an oil partnership. He was certainly correct about market forces because over 200 (!!!!) oil companies and oil equipment suppliers have filed for bankruptcy since 2014. Yikes.
But the price of oil slowly rebounded to a more stable plus or minus $50 a barrel, where it sits today. And along comes a fracking industry innovator, Houston-based EOG Resources aka “the Apple of oil.” EOG’s CEO is Bill Thomas, a geologist. Gasp. What a concept – a geologist running a fracking company. And Thomas doesn’t even have a secretary. Outside his office sits an assistant, another geologist, who pours through drilling data which comes in daily from the company’s divisions operating in its drilling areas.
EOG has developed a proprietary application known as iSteer, which consists of a device located behind the drilling bit that sends data (rock density, drill trajectory, etc) to an office which crunches the data and can redirect the drill bit to places where pockets of oil rich deposits are located. Amazing.
And guess what? It works like a charm. EOG is producing as much oil today as it did in 2014, and it is doing it with a budget reduction of 67% in less than three years. Cheaper oil, yes, but also much cheaper costs. EOG is operating in the best locations for fracking: Bakken (North Dakota), Permian (west Texas), and Eagle Ford (south Texas). Last fall it bought Yates Petroleum for $2.6 billion and thus Yates’ oil leases on 310,000 acres in the Permian Basin.
EOG isn’t the only fracking innovator. Also playing in the sandbox are sound energy companies like Chesapeake Oil and Pioneer Natural Resources. There are still critics who maintain that oil will need to stabilize a bit higher at $55-60/barrel to keep fracked oil competitive with vertical drilling. Well, we shall see. Innovation has moved the goal line for profitable fracking way back from the days when critics placed it in the $80-85/barrel market price range. Sir James was one such critic, and even he has to be impressed with the technology that has advanced the fracking industry and kept it alive and kicking.
Please provide me the name of one pure fracking company making a profit.
Talk is cheap. Frackers keep pumping at $50 a barrel to generate some cash flow to try and make their massive debt payments.
I know maff is hard for ex-spooks, but you’ll learn eventually.
There was another avid reader who was knighted by the owner of an inn. He was nuts maybe but at least he dared to dream the impossible dream.
Old Quinn seems to have lost his Sancho Panza; Stuck having taken an Irish leave.
Below the Mason/Dixon line we don’t get knighted,we just send off to Kentucky,pay a fee and they send us a Colonel’s certificate.
I love fracking
Next the old spook will be telling us about all of his great stock investments that paid him big dividends……….twenty years ago.
Nice try SSS, no cigar.
BL
The eagle landed. Thanks.
My pleasure Admin.
My guess is that whatever the ultimate ‘breakeven point’ for America’s frackers turns out to be fracking will be profitable over the long term. Oil remains the central energy commodity and thus fracked oil does not compete against solar, wind, coal or gas in the energy mix but against the cost of production of alternative sources of oil.
With global demand in the neighborhood of 90 million barrels per day and with there being no producers who can sustain production much less grow it at sub $50/bbl levels the price will have to rise to make fracking profitable. You just can’t drill in the Russian arctic and pipe the oil 4000 miles to Europe or drill in deep water off Angola, Brazil or even the GOM for less than you can produce fracked oil in the US.
If oil prices stay at sub sustaining levels other producers will drop out until it rises. Iran or Saudi Arabia might be able to ‘produce’ oil at $20 or $30 dollars per barrel but they cannot expand production nor can their governments meet their fiscal and social requirements at those or current levels.
An additional point. We need to have an adjustable ‘oil import fee’ to allow US oil producers to capture any difference between the Brent price and the WTI price. Lets say a tanker full of Nigerian or Venezualan crude can save $ 5/bbl in transportation costs by making delivery to a Gulf of Mexico refinery over delivering it to Rotterdam. Well, that ‘bonus’ should not go to the shipper ,a Nigerian prince, Maduro or a Wall St. speculator. The US should slap a $4 tax on that shipment to keep US prices up but still below those in Rotterdam.
Seriously, I thought this thread was called “Freaking, Alive and Well”.
I thught it would be about Hillary supporters lising their minds, or somesuch.
Nope, just SSS peeing in Admin’s soup. This could get fun!
Admin
You appear to have an enormous blind spot regarding domestic production of fossil fuels. I approach this subject, and study it thusly, on a national security basis. It is critical, and I use that word in its most literal sense, to the maintenance of our highly advanced society and the defense of same, down to and including the security of you and your family …. and mine.
I have acknowledged in my article that you were right about market forces correcting the exuberance of investing in the fracking industry. Can you acknowledge that the diminishing numbers of players left standing in that volatile landscape will eventually win and play a major and unsung role in making our nation stronger?
I applaud these imaginative entrepeneurs who soldier on to secure our country. And just to put my money where my mouth is, I’m going to buy EOG stock. Heh.
Seriously? Check their financials for YE 2016. (Too early for Q1 2017)
The P/E is almost negative 50.
They have enough cash on hand to meet the last annual loss, kinda. Link: https://finance.yahoo.com/quote/eog/financials?ltr=1
I’ll admit that their balance sheet shows more assets than liabilities (by a goodly margin) but I don’t have time to research how much of that is “blue sky”. I’m suspecting a good amount of it based upon prior experience with resource stocks. (The big one here is, I suspect, valuation of leases based upon stated [read, “unproven”] reserves at a higher price than is recent historical experience.
In any event, if they run short of cash, they’re still toast. I’m guessing your risk profile is just different than mine.
Da P
Great buy SSS. EOG doesn’t have a PE ratio because you need earnings to have a PE ratio. About 5 minutes of research will provide a few inconvenient facts for you:
Revenue has fallen from $16.7 billion in FY14 to $7.5 billion in FY16 – nice trend!!!
They have ONLY lost $5.6 BILLION in the last two years. – OUCH!!!
They have negative free cash flow, only $1.6 billion of cash, AND they owe $6.6 billion of debt in the next 12 months. Sounds promising.
I’d bet the house on this investment SSS. It’s a no-brainer. Perfect for you.
The stupid, it burns.
I rest my case……..
2 short articles here-neither are about fracking but this thread is still getting posts so I’m putting them here–
Comey’s Twitter Account Unmasked By A Reporter Using Metadata
http://www.blacklistednews.com/How_A_Little_Metadata_Made_It_Possible_To_Find_FBI_Director_James_Comey%27s_Secret_Twitter_Account/57639/0/38/38/Y/M.html
Congress Okays Non Consentual Medical Experiments
http://www.blacklistednews.com/New_Law_Means_You_Could_be_the_Subject_of_a_Vaccine_or_Medication_Experiment_Without_Your_Informed_Consent_%28VIDEO%29/57629/0/38/38/Y/M.html
Admin
You don’t get it, do you? It’s all about stats, isn’t it? Nowhere do you acknowledge that the fracking industry has reduced our nation’s dependence on foreign oil by a stunning 100%. Just over a decade ago, we produced 25% of our domestic oil consumption, and the remaining 75% from such “stable” sources as the Middle East, Nigeria, and Venezuela.
Today, it’s 50% domestic production, and nearly all of it due to fracking. With the XL pipeline approval to our dear friends in Canada (history’s best neighbor) and the massive oil reserves of billions of barrels projected in the Permian, Powder River, Delaware, Bakken and many other US areas, our nation can achieve total oil independence within a decade.
Yet you continue to hide your head in the sand over some negative stats about our country’s most innovative pioneers in fracking. I call bullshit. EOG will survive and thrive. So will other bold pioneers in the fracking industry. Domestic oil production is not a 100 yard dash, it’s a marathon. At the finish line, you and your children better hope I will be proven right. It’s that crucial.
SSS – I will piss in your soup for the moment.
If you reduce something by 100%, that means you entirely eliminate it.
You say above the US went from 75% dependent to 50% dependent.
That is only a reduction in dependence of 33 1/3 % (reduced 25 out of 75% = 1/3). It is not a 100% reduction.
However, if you had said that the US had increased its domestic production by 100% you would be correct (25% to 50% is a 100% increase).
Carry on.
SSS is rolling. Nice work.
SSS
You don’t get it. I’ve never been against fracking. It will provide a decent amount of supply at the right price. That price will be over $80 per barrel in the long run. The glut being produced now will drive prices down below the level needed to sustain the industry again. More fracking companies will go bankrupt. Rinse and repeat.
On what basis do you declare EOG will thrive? The $5 billion of losses over the last two years or the $6 billion of debt due in within 12 months that they don’t have the cash to pay?
Curious minds want to know about this investment of a lifetime.
Looks like I generated some life out of the old man. Get out there and golf.
Some cocks in the barnyard, cannibals, going at it.
Would be better if you could see each others point of view rather than ripping the other apart.
Small pond, boys. Remember we are on The Burning Platform.
If there is no fuel does not matter how much money one has.
If I could get a well and collect the drip, I would be happy with that, and a French Maid.
Ha.
Oldtoad – you must be new here. Ripping each other apart is mandatory.
And that is not ripping each other apart. That is nothing but a gentle caress. You will understand when you see real ripping apart being done.
It would seem that fracking is completely unnecessary. The whole thing appears to be just another scam, another cog in the machine which is fueled by the long litany of extremely lucrative untruths being promoted by the powers that be. (I’m tempted to say like the holohoax, but I won’t since I see Llpoh is lurking and I don’t want to be called mean names).
Read the book:
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Read it online: http://www.reformation.org/energy-non-crisis.html
Or watch the author give a lecture on the subject:
The limiting factor on profitability isn’t input of money but energy return on investment.
There is probably a lot of waste in oil consumption right now.
When I was a kid, I lived five miles outside the city limits and could ride a bicycle to town if I really wanted to (Boy Scout bike hikes were usually twenty miles or more, so five was nothing). Imported oil consumption = 0.
Nowadays, every teen over sixteen years has a CAR, provided by his parents, it seems. If they want to go to the mall, they collect a couple of friends and drive off. Is that really a good use for oil? Even if they can afford it?
We are going to price irresponsibility out of the market, but it may take a while and deplete far too many barrels before it happens.