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Shale Boom Goes Bust As Costs Soar

Tyler Durden's picture




 

"Traditionally we’ve been a financially conservative company," explains one fracking company, warning that "we’ve become more leveraged than we historically have been and we’ve become uncomfortable with that." This is the growing message from a shale boom that, as Bloomberg reports, is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground. As everyone chases the dream, well counts have soared and production per well has tumbled. "The list of companies that are financially stressed is considerable," warns one analyst as shale debt has almost doubled over the last four years while revenue has gained just 5.6% "not everyone is going to survive. We’ve seen it before."

 

 

As Bloomberg reports,

The U.S. shale patch is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground.

 

Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent.

 

“The list of companies that are financially stressed is considerable,” said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. “Not everyone is going to survive. We’ve seen it before.”

 

...

 

In a measure of the shale industry’s financial burden, debt hit $163.6 billion in the first quarter... companies including Forest Oil Corp. , Goodrich Petroleum Corp. and Quicksilver Resources Inc. racked up interest expense of more than 20 percent.

And here comes the vicious circle...

Drillers are caught in a bind. They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.

...

“Interest expenses are rising,” said Virendra Chauhan, an oil analyst with Energy Aspects in London. “The risk for shale producers is that because of the production decline rates, you constantly have elevated capital expenditures.”

...

While borrowing to spend is typical of start-up companies, it’s not always sustainable. Forest Oil, where interest expense totaled 27 percent of revenue in the first quarter, in February reported disappointing well results, and warned that it might run afoul of its debt agreements.

...

“Traditionally we’ve been a financially conservative company,” said Bruce Vincent, president of Houston-based Swift. “We’ve become more leveraged than we historically have been and we’ve become uncomfortable with that.”

So is there a limit to what excessively low credit risk premia will stand? Is there a limit to what the market will bear? It seems so... but the day of creative destruction in America appears to be over as nothing has consequences. The best case sceanrio is some major shakeout in the "black gold" rush, leaving stronger sustainable companies non-reliant on ultra-low interest rates to maintain their business model (or else energy prices must soar to maintain these companies)... be careful what you wish for from the Fed.

 

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Wed, 05/28/2014 - 17:19 | 4803072 sunny
sunny's picture

NOT POSSIBLE!  Mauldin in a recent KWN interview assured us all that we have all the petrochemical energy we need to be totally energy independent and an exporter as well.  Surely, he wouldn't be fibbing to us would he?

Wed, 05/28/2014 - 17:25 | 4803089 Fuh Querada
Fuh Querada's picture

Joan Maudlin obtained that information in one of his high- powered conferences with U.S. Senators where they also informed him of efforts to reduce the debt ceiling. Still waiting for EURUSD parity that he predicted was imminent in 2009. The guy is a buffoon.

Wed, 05/28/2014 - 17:29 | 4803104 Stackers
Stackers's picture

If you've read Mauldins book "End Game" then you would know he is no fool. He's just is an optimist when it comes to listening to the buffoons in power. Like Schiff he constantly gets the "broke clock" lable.

Wed, 05/28/2014 - 17:46 | 4803170 Keegan11
Keegan11's picture

Semantics

Wed, 05/28/2014 - 18:11 | 4803262 ZerOhead
ZerOhead's picture

True words spoken by an anti-semantite...

Wed, 05/28/2014 - 19:19 | 4803490 max2205
max2205's picture

Company officers are milking every dime to their salary bknjs and options. 

 

They know its time to get it before it blows up

Wed, 05/28/2014 - 17:53 | 4803200 CrashisOptimistic
CrashisOptimistic's picture

 

Well, you look up his academic background, and then after you exclaim THAT DOESN'T MATTER . . . quietly decide if you care what he thinks.

 

Never mind here it is

BA Rice University Master's Degree Southwestern Baptist Theological Seminary Before wiki removed his entry my recall was the BA had nothing to do with finance, and if it did, it's a BA and not a BS so non quantitative.
Wed, 05/28/2014 - 18:15 | 4803273 SRSrocco
SRSrocco's picture

WHAT A SHOCKER...

Shale heading for trouble?  Who would have THUNK.  I guess it might have something to do with the fact that BREAK-EVEN for the typical shale gas player is about $7MMbtu.... according to energy analyst, Art Berman.

We got a year or two before the PHAT SHALE LADY SINGS.  After that, there's no HOPIUM left to keep BAU- Business As Usual going.

I hope Americans placed their bets wisely.

 

Wed, 05/28/2014 - 18:21 | 4803288 cossack55
cossack55's picture

oops

Wed, 05/28/2014 - 18:42 | 4803362 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Shale heading for trouble?  Who would have THUNK.

I know, right?! I mean, this dilemma was never written about on the internet over the last greater than four years by Jim Kunstler or Chris Martenson or on The Oil Drum or on any other site at all! It was unpossible to predict.

I hope Americans placed their bets wisely.

If your definition of wisdom includes spending every last dime (including the money for food, rent, gas, utilities, and debt service) on lottery tickets and a pack of smokes, then yes, most Americans have placed their bets wisely.

Wed, 05/28/2014 - 20:47 | 4803759 samsara
samsara's picture

I first read about Peak Oil 2002ish at www.FromTheWilderness.com then on to www.dieoff.com . When oil was less than $30 a barrel. THEN on to www.TheOilDrum.com when it first went up. Read thousands of pages of brilliant stuff by very knowledgable writers over that time.

So, Yes many of us saw this coming. Laughed at, ridiculed, called Doomers, all of it.

So, It's funny just watching for the last ten years as it SLOWLY rolled over King Hubbard's peak.

Heard every possible "But They.... " excuse along the way.

Not a single god damn policy change.

We will keep doing what we are doing until we can't. Then we won't.

It's too late now. BUT, it did enable me to sell my house at the peak in 2004, AND Au/Ag. Were $400/$7. at the time so, heh, that worked out.
(Oh, and ammo and delivery devices were cheaper and easy to get then too....)

So to the Cornucopians from those years.... Suck it.

Thu, 05/29/2014 - 01:00 | 4804476 daveO
daveO's picture

Oil's up 3x's since then. Not counting Chinese demand growth, US debt has soared since then. Shale gas would've never made sense had the FED not orchestrated total theft(zero interest). Call them Federal Reserve malinvestment employees, not oil field workers. 

Wed, 05/28/2014 - 19:24 | 4803501 sushi
sushi's picture

Don't worry.

We can always export to Ukraine and earn big bucks.

 

Wed, 05/28/2014 - 21:23 | 4803901 Rock On Roger
Rock On Roger's picture

Aye, and you've been writing that for quite awhile.

There is lots of other gas though, it's just not sexy.

And it is not in United States of America.

 

 

Wed, 05/28/2014 - 19:07 | 4803450 Remington IV
Remington IV's picture

Buffoon is .... good

Wed, 05/28/2014 - 17:32 | 4803116 Jumbotron
Jumbotron's picture

Energy Returned On Energy Invested (E. R. O. R. I.)

'Nuff sed.

Wed, 05/28/2014 - 17:38 | 4803127 NidStyles
NidStyles's picture

I don't buy it when I know that he wage rates are heavily inflated up there, and a lot of money is likely just thrown away thanks to the bureaucrats.

 

There is more going on than a simplistic equation that ignores human action.

Wed, 05/28/2014 - 17:51 | 4803194 Jumbotron
Jumbotron's picture

Wages have absolutely NOTHING to do with the facts.  Shale energy has peaked.  The number of wells has gone up every year.  They have never been higher.  More are going up evey day.  Yet, we have no more shale energy than before.

Try again.

Wed, 05/28/2014 - 18:15 | 4803275 SAT 800
SAT 800's picture

Sounds reasonable to me.

Wed, 05/28/2014 - 18:00 | 4803224 NidStyles
NidStyles's picture

Wages are a huge part of costs, and ignoring them along with ignoring the bureaucrat slice of the pie is simply ignoring reality. 

It's telling that you tools keep ignoring that every measure of this is done as a measure of cost in US DOLLARS. It tells me that there is an establishment hack out there getting paid to strategize a way to control the production of energy, and likely is metering the output. The Soviets did the same thing.

 

You college kids keep pushing the same BS meassage that the administration and the Academics are pushing. Why is that after everything that has happened you haven't pulled your head out of your ass long enough to see what is going on around you?

Wed, 05/28/2014 - 18:07 | 4803253 Jumbotron
Jumbotron's picture

<slap on the forehead>

Look....at....the...FUCKING GRAPH !!!!!!!!

NO...MORE...SHALE...ENERGY....EVEN....WITH.....MOAR....WELLS !!!!

 

ARRRRRRRRRGHHHHHH......how can you be so FUCKING BLIND AND STUPID !!! ????

Wed, 05/28/2014 - 18:09 | 4803258 Jumbotron
Jumbotron's picture

AND NOT ONLY THAT.....IT'S NOT EVEN GOOD OIL THEY ARE PULLING OUT OF THE ROCK.

IT'S KEROGEN MAINLY....AND IT HAS TO BE CHEMICALLY MASSAGED INTO SOMETHING THAT OTHER PETROLEUM BASED PRODUCTS CAN BE DERIVED FROM.

Wed, 05/28/2014 - 18:19 | 4803286 CrashisOptimistic
CrashisOptimistic's picture

Shale oil is not kerogen.  Shale oil is API 39ish and though may be light on certain fractions, it's right and proper oil.

Oil shale is kerogen.

Worst labels for clarity possible: oil shale vs shale oil.

Wed, 05/28/2014 - 20:14 | 4803646 Mad Muppet
Mad Muppet's picture

But, but ..............does shale oil come from oil shale? I'm soo confused.

Wed, 05/28/2014 - 18:11 | 4803263 James_Cole
James_Cole's picture

You're looking at it way too narrowly Jumbo, there's an easy fix. Just switch the lines on the graph and boom problem solved! I'm confident gs can get one of their lackeys to achieve this. 

Wed, 05/28/2014 - 19:30 | 4803517 sushi
sushi's picture

Excellent point.

The other fact everyone overlooks is that they have some great strppers up in Williston.

You don't get that kind of action unless someone is dead serious about something.

 

Wed, 05/28/2014 - 18:15 | 4803267 NidStyles
NidStyles's picture

You trust the same assholes that charge you how much for a barrel of Oil? That is my point. 

 

The moron is the person that doesn't ask questions when presented with data from a SINGLE source. 

 

We as in you and me have no clue whether this data is accurate or even honest. We simply have only this specific data that tells us what is going on. 

Wed, 05/28/2014 - 19:08 | 4803454 Remington IV
Remington IV's picture

well said

Wed, 05/28/2014 - 20:04 | 4803626 Jstanley011
Jstanley011's picture

That's not what that graph shows at all. It shows that barrels per well have leveled off (not "tumbled") while the number of wells continues to rise.

Great headline, btw:

"SHALE BOOM GOES BUST"

Caused by what?

"RELENTLESS SPENDING."

Roflmao...

Thu, 05/29/2014 - 01:13 | 4804497 NidStyles
NidStyles's picture

Some people just do not get logic, and honestly I know dick about the oil industry, but I can see BS when I see it.

 

Wed, 05/28/2014 - 19:14 | 4803470 Amish Hacker
Amish Hacker's picture

The real winners will turn out to be---surprise, surprise--- the banks. The drillers' nightmare---a debt load that has doubled in 4 years---is a dream come true for the banks, since those loans are their rapidly-growing assets.

Thu, 05/29/2014 - 01:05 | 4804483 daveO
daveO's picture

You're fighting a losing battle, here, I'm afraid. No one wants to think about the astronomical wages involved(brought to us by the FED-led malinvestment). They also don't like talking about how Brazil gets by on cane (ROEI of about 8, I think). The End is Near! The Sky's Falling! If it bleeds, it leads. 

Wed, 05/28/2014 - 18:02 | 4803234 sessinpo
sessinpo's picture

sunny    NOT POSSIBLE!  Mauldin in a recent KWN interview assured us all that we have all the petrochemical energy we need to be totally energy independent and an exporter as well.  Surely, he wouldn't be fibbing to us would he?

----

There is a big difference in having the energy in the ground and being a prudently run company that extracts it. For example, the same could be said for solar. But countless solar panel companies have  gone under and there is no shortage of the sun. But some wcompanies will survive. This happens in many industries.

Wed, 05/28/2014 - 18:24 | 4803300 cossack55
cossack55's picture

I certainly hope you are not relying on Al Gore for proof of sun shortage.

Wed, 05/28/2014 - 19:08 | 4803457 Remington IV
Remington IV's picture

In Al ...we .... trust ???

Wed, 05/28/2014 - 18:13 | 4803269 SAT 800
SAT 800's picture

5.6% growth; twice as much debt; sounds okay. What could go wrong?

Wed, 05/28/2014 - 20:57 | 4803803 Canadian Dirtlump
Canadian Dirtlump's picture

Provided it is wet gas with distillate it should be profitable but as i posted earlier this week i am seeing on the ground reports of wells in normally good areas having trouble completing horizontal legs and fracs failing due to tight strata.

We are at a crossroads in nat gas price. I know of more than a few conventional gas players  ( low pressure coalbed methane ) who would be very active if gas prices went up a buck recall they just drill vertical.

At this natgas price coal makes as much or more sense than gas  for power generation and we have no infrastructure to export so the situation gets complicated. The fact that we read earlier this week that there are millenial knobs joining the fray virtually guarantees a calamity short term at least.

When i started in the pipeline industry 12 years ago we did no oil and all gas. Now we do no gas and all oil. The reality is that within a price range of say between 4.50 and 6 bucks for gas we have an increasing number of players who cannot make it but lots who can. That being the case i cant see prices going that high since there is no lucid export route and an at best infant nat gas surface use. I know of several well funded conventional gas juniors with shut in production due to price.

So between a burgeoning supply and a north american power grid that CAN use it based on price i cant see anything but a range of price until something happens.

Also, saskatchewan has mandated that very soon nat gas gets gathered instead of flared and therefore as the bids for the gas plants come in my front door I can tell you supply will not be a constraint.

More nat gas is flared than is captured so ignoring these declines the supply of domestic gas ( albeit unclear ) is much higher than it is now.

We can talk about a collapse in drilling and production but the facts are if we captured all the nat gas we drilled our reserves would make a hoarder blush.

The fact that we havent pushed nat gas as a surface fuel and or made means for export is idiotic but absolutely unsurprising.

 

Wed, 05/28/2014 - 21:47 | 4803957 Marco
Marco's picture

CNG only really works for trucks because of the energy/volume ... to make natural gas useful as fuel for cars a major breakthrough in gas to liquids is necessary.

Even then, proven reserves in BOE are only 2x times that of oil. If we did everything with gas we would just start to very quickly run out of that instead of oil (at current levels of economic activity, which might collapse sooner than the reserves).

Wed, 05/28/2014 - 22:07 | 4803976 Canadian Dirtlump
Canadian Dirtlump's picture

No. It works for trains too and as you say lng vs cng is a major coup. There is finally diesel nat gas hybrids and getting trains and heavy trucks on nat gas would be a game changer. Again if we had an export market for our gas the economics would change because the price would change.

 

As for reserves I can't have faith in govt estimates as we flare as much gas as we capture ignoring future conventional and unconventional sources. I said before that in canada we have alberta which gives oil companies a 2 week flare permit after which they have to gather vs. saskatchewan which has no gas gathering infrastructure but rather small well tie ins to 400bbl tanks for oil while the gas goes to heaven.

 

As this changes, and if gas prices go up things change. Like I said before if the gas we flare wastefully already could do some good before it gets burned we win. If we get an infrastructure where gas an oil are used as a surface fuel, we win.

 

Hell I'm no pinko but I would support fleet, heavy and rail traffic be regulated to use gas / diesel hybrids. Again at this point we flare as much as we sell as far as I know.

Thu, 05/29/2014 - 09:41 | 4805304 Marco
Marco's picture

Sorry, that was my Eurocentricity talking (ie. electric trains).

Wed, 05/28/2014 - 17:21 | 4803081 buzzsaw99
buzzsaw99's picture

27% of revenue soon to be 107% of revenue

Wed, 05/28/2014 - 18:07 | 4803241 ZerOhead
ZerOhead's picture

So you are basically saying that as long as they reduce the interest costs on their debt by 75% or so... and drill 4X as many wells as they have now... they should pretty much be able to break even until the oil runs out in a couple of years provided someone else pays for the eventual clean-up.

Sounds good to me...

Wed, 05/28/2014 - 18:25 | 4803306 cossack55
cossack55's picture

SuperFund, baby.  They can just throw it in with the WIPP and Hanaford site cleanups (well, in about 1000 years for WIPP).

Wed, 05/28/2014 - 17:23 | 4803082 samsara
samsara's picture

Well color me fuckin surprised.

All right from the gallery, "There's lots of gas if THEY only let us...."

The Bakkens will save us...

Wed, 05/28/2014 - 21:04 | 4803832 Canadian Dirtlump
Canadian Dirtlump's picture

Is your guys' bakken mostly gas? Serious question because the bakken my company works in, in saskatchewan, is all oil and every cube of gas is flared into the air at best. This is changing soon which will only increase supply with no drilling.

Wed, 05/28/2014 - 17:23 | 4803088 readyforit
readyforit's picture

You were advised thusly.

--Kuntsler

Wed, 05/28/2014 - 17:56 | 4803223 Jumbotron
Jumbotron's picture

To the downvoters....

http://www.woodstockx.com/2014/03/29/the-coming-shale-gas-bust-by-james-...

And this reprint from 2005.....yes.....2005....the same year that his book "The Long Emergency" came out.

http://www.resilience.org/stories/2005-03-24/long-emergency

And here is his chart showing the Long Emergency.....

https://1.bp.blogspot.com/--W8mdCVwsM0/TdvLq26vSpI/AAAAAAAAATg/whcFEClwj...

 

You WERE advised thusly.

Wed, 05/28/2014 - 17:32 | 4803108 cowdiddly
cowdiddly's picture

My next door neighbor is a horizontal driller. He told me about 3/4ths of the wells his company has drilled this year are aimed right down the edge of property lines. Now when you frack a well drilled down a property line it cracks the underlying rock a great distance from the underlying well bore. So what is effectively being done is they are stealing the gas of anothers property that they do not have an oil lease on and the real owner is never compensated. The other 1/4, he said are fringe showboat wells drilled to try to unload the lease/field on another bigger sucker.

Wed, 05/28/2014 - 17:55 | 4803208 Againstthelie
Againstthelie's picture

And with their chemicals they destroy water reservoirs, which increases revenue for Nestle and water sellers and those who can't afford to buy water or don't know what what they are drinking, are becoming sick and also are turning into great reveneue creators for Big Pharma and the "health"care industry.

A real great NWO business!

Wed, 05/28/2014 - 18:28 | 4803316 cossack55
cossack55's picture

WaterFX.com

 

I like this company.  If I were ever fool enough to enter what used to be a market, I would seriously look at these guys.

Wed, 05/28/2014 - 22:08 | 4804008 falconflight
falconflight's picture

So sorry, but even the Commissars of the EPA cannot prove any water adulteration as a result of fracking.  I count 11 herd mentalities and 2 independent thinkers at this time.  Go suck off a Sierra Club pig :)

Thu, 05/29/2014 - 07:05 | 4804786 Againstthelie
Againstthelie's picture

And since the Commissars also have allowed Monsanto's GMO garbage it's also safe.

And nuclear power plants are totally safe, too.

And how in the world can poisonous layer breaking chemicals have an impact on water, if they are pumped into the ground. Impossible!

Sheeple.

 

 

Wed, 05/28/2014 - 17:55 | 4803210 CrashisOptimistic
CrashisOptimistic's picture

Interesting.

BTW frack distances are variable.  Figure on 1200 feet.

Wed, 05/28/2014 - 18:08 | 4803256 James_Cole
James_Cole's picture

There's a great oil baron of old times (can't recall the name) who put it quite succinctly. Bit technical but gets the point across:

"I DRINK YOUR MILKSHAKE!"

Thu, 05/29/2014 - 00:59 | 4804473 thisisjustarand...
thisisjustarandomusernameicreatedforzerohedge's picture

i was hoping someone said this lol

Wed, 05/28/2014 - 18:33 | 4803328 jerry_theking_lawler
jerry_theking_lawler's picture

I did my stink doing horizontal work back in the mid-90s....I thought the 'owners' of the well had to prove the reservoir dimensions and pay all involved where the reservoir was being pulled from?..? Sure there is some oil field legal begal here who can clarify....

Thu, 05/29/2014 - 10:05 | 4805412 thunderkiss
thunderkiss's picture

I'm not a legal begal in that area but I can tell you that at least here in Texas, drillers cannot drill down a property line without "pooling" the adjacent land.  The Texas Railroad Commission would not approve that.  As an example, my father has some land in the Eagle Ford and a portion of his land was pooled in with others on a well that Conoco is drilling, yet when you look at the plans they submitted to the railroad commission, the drill site is 3/4 of a mile away and the pipe won't even be going under his land.   So the above comment is either bullshit or they live in a state with very unsophisticated regulations.

Wed, 05/28/2014 - 21:09 | 4803847 thestarl
thestarl's picture

Shell and BHPBilliton spring to mind here.Whilst Shell has bailed out BHPBilliton has had to substantially write down their shale assets.

I think BHPBillitons Shale play probably had a major bearing on ex CEO Marius Kloppers and ex head of petroleum Mike Yeagher being shown the door.

Wed, 05/28/2014 - 17:30 | 4803109 samsara
samsara's picture

As I said before, "If it costs you a buck to make a buck, You Didn't make a buck"

EROEI

It's the law.

(Law of Thermodynamics)

Wed, 05/28/2014 - 17:38 | 4803130 NidStyles
NidStyles's picture

It's the law in nature, not in Human Action.

Thu, 05/29/2014 - 00:33 | 4804437 Matt
Matt's picture

For example, if I borrow a dollar, use that dollar to make a dollar, then just don't repay the loan, I made a dollar.

Thu, 05/29/2014 - 01:14 | 4804499 NidStyles
NidStyles's picture

No, you stole a dollar.

Wed, 05/28/2014 - 17:57 | 4803228 Againstthelie
Againstthelie's picture

And if it costs you less then a buck and you make a buck, and it costs the following generation a buck to deal with the problems: who cares in Capitalism?

Wed, 05/28/2014 - 19:11 | 4803465 Remington IV
Remington IV's picture

good strategy

Wed, 05/28/2014 - 17:31 | 4803111 Magooo
Magooo's picture

Mauldin is a clown - he uses a photo of himself that is 20 yrs old - and he brags about how he's in this place and that place.

 

Total jackass

 

 

Wed, 05/28/2014 - 17:38 | 4803132 pitz
pitz's picture

Not only that, but he was claiming the US would be energy independant in a couple years.  Not even the slightest chance of that happening.  Pretty out of touch, even for a Texan.

Wed, 05/28/2014 - 17:56 | 4803218 CrashisOptimistic
CrashisOptimistic's picture

See my note above on his degrees.

Wed, 05/28/2014 - 17:32 | 4803115 RaceToTheBottom
RaceToTheBottom's picture

They should just apply to be Banks.  BINGO fixed.

Wed, 05/28/2014 - 17:47 | 4803175 Save_America1st
Save_America1st's picture

I'll bet ya 'ol "Bath House" won't step up and take credit for this shit, bitchez.  When it was booming it was all to his credit according to him...and of course...those companies didn't build that...obammy and the master minds made all that happen...until it crashes and then he'll be nowhere to be found...except at the bath house, of course...

Wed, 05/28/2014 - 17:53 | 4803204 Jack Burton
Jack Burton's picture

Shale gas and oil is not a political or religious issue, though many people talk about shale fracking as if it were a religion an issue of political ideology. None of this is true. It is a simple matter of market forces. Cost of production versus oil/gas prices. Cost of production means everything, capital, labor, equipment, clean up, legal costs etc. etc.  The market will decide if Shale production is a miracle that will make America energy independent or a costly flash in the pan good only for a few years of profitable production followed by decline.

We all know it takes capital to frack, because costs of production are very high. We all know what goes into fracking a well, and how that well does not provide a pool of oil to pump for deacdes. Shale energy is a totally different thing, and subject to finance capital more than any other oil or gas production.

I never argue of fracking will save America and make us great energy exporters, only the MARKET can decide that, and it is already showing it hand.

Wed, 05/28/2014 - 18:04 | 4803238 Gumbum
Gumbum's picture

Americans have been sold a dream.

Now comes the waking up part...

Wed, 05/28/2014 - 18:05 | 4803240 CrashisOptimistic
CrashisOptimistic's picture

"We all know it takes capital to frack, because costs of production are very high."

 

Do we?

The most efficient guys in those fields are fighting for 8-9 million dollars per well.  Those are the showcase wells.  Most are 10 million.

From day 1 of starting to drill a well to the end of its 1st year of oil flow, about 2000 seperate truck trips have to go 15 miles each way carrying stuff to the well, and then carrying oil from the well.  2000 truck trips in year 1.

What are they carrying?  2ish million pounds of water.  5+ million pounds of proppant.  Several tens of thousands of pounds of drill pipe.  And then the fracking pump is hauled in.  This is on dirt roads.  There are no asphalt roads to each well when you drill 200 per month.  If it rains, you pay the people to wait for it to stop muddying the roads.  If it snows, you pay the people to wait for it to stop.  If it is ultra cold, you wait for the damn water to be liquid.

Then you seperate the water that comes back up from the oil and NGLs and condensate and the outright gas that flows up.  You are clean enough not to put the water in the truck with the oil, but you probably are a bit lax about the condensate or NGLs.  Then the truck hauls that to the railcar and presto, BOOM.  The NGLs have a lower ignition temp than crude.

That's what it costs to get a lousy 600 barrels/day from a well, that will be 300 bpd at the end of the year.

Contrast that with a normal well of 1920 that was drilled with a 30 foot high wooden structure down a few thousand feet and flowed 4,000 bpd for years.

Wed, 05/28/2014 - 18:06 | 4803245 Jumbotron
Jumbotron's picture

Hey boss ?

Yeah ?

What's that cloud over the horizon I see ?

Reality.  Now go back to work while you can.

Wed, 05/28/2014 - 18:25 | 4803308 CrashisOptimistic
CrashisOptimistic's picture

The key to your comment is that there are a lot of people involved. 

Oil booms would not be called a boom if some magic elixer were poured in the hole and got 100X more oil to flow in a pipe already emplaced.

Oil booms are only booms if a lot of people show up (paying income tax to fund local govt paper pushers).

Wed, 05/28/2014 - 18:26 | 4803312 Kayman
Kayman's picture

CrashisOptimistic

When it rains you can buy swamp mats and throw them away when you're finished or buy/rent rig mats.  Either way, it is expensive to get around.

Ultimately fracked oil and gas should be looked at like uranium fuel with a half-life. You generally get half next year of what you got this year. Another illusion.

Wed, 05/28/2014 - 18:13 | 4803250 Againstthelie
Againstthelie's picture

Like the market decides that nuclear power is profitable because future generations have to burden the problems?

The real costs of fracking cannot be measured, because the impact on the ground water reservoirs is unknown.

And how could the destruction of water reservoirs for future generations be judged by the market?! Since when has the market EVER judged sustainability?!

Where does this market religion come from? In history there is not a single example, that the market cares about future generations.

The market judges only one thing: PROFITABILITY. Now. For me.

If the RISKS for future generations would need to be covered and paid off, then fracking would be totally unprofitable, just like nuclear power or GMOs.

But it seems that libertarians first need to learn it the hard way:

Only after the last tree has been cut down

Only after the last river has been poisoned

Only after the last fish has been caught

Then will you find that money cannot be eaten.

Wed, 05/28/2014 - 18:40 | 4803355 Rooster68
Rooster68's picture

-- and after the last bald eagle has been chewed up by a wind generator

Wed, 05/28/2014 - 21:10 | 4803856 Hubbs
Hubbs's picture

Revisiting my trip to Easter Island 9 years ago. To the last tree, then starvation, some say even cannibalization.

Wed, 05/28/2014 - 18:15 | 4803271 Serfs Up
Serfs Up's picture

I never argue of fracking will save America and make us great energy exporters, only Geology can decide that, and it is already showing it hand.

FTFY

/You're welcome.


Wed, 05/28/2014 - 17:57 | 4803225 Spungo
Spungo's picture

Global recession is probably bad for oil prices, so that means declining revenue. It also seems possible that interest rates will rise. Even small rises in interest rates could bankrupt a lot of these companies. We can try this again when oil prices are higher. Much higher.

Wed, 05/28/2014 - 18:04 | 4803233 Jumbotron
Jumbotron's picture

"I never argue of fracking will save America and make us great energy exporters, only the MARKET can decide that, and it is already showing it hand."

But market cheerleaders plus the energy industry and their lobbyists and their political whores in D.C. ARE arguing that fracking will save America and make us great energy exporters.....thus distorting the MARKET.

So what does that say about the almighty and wise...M A R K E T ?

Here's a little agitprop that has been swallowed by the M A R K E T

https://www.youtube.com/watch?v=32VgYHuj_mk


Wed, 05/28/2014 - 18:03 | 4803235 Doom and Dust
Doom and Dust's picture

Shale boom = QE

Wed, 05/28/2014 - 18:06 | 4803248 debtor of last ...
debtor of last resort's picture

Shill oil is what it is; a shill.

Wed, 05/28/2014 - 18:25 | 4803302 TheFourthStooge-ing
TheFourthStooge-ing's picture

"Traditionally we’ve been a fracking company," explains one financial company, warning that "we’ve become more leveraged than we historically have been and we're looking for bagholders as we wind down our Greater Fool strategy."

Wed, 05/28/2014 - 18:26 | 4803311 The man with po...
The man with pointy horns's picture

Hmm, I made a prediction last year that oil output at Bakken was only remaining the same because new wells were being developed at a near exponential rate. I stand validated...

 

Wed, 05/28/2014 - 21:30 | 4803916 phaedrus1952
phaedrus1952's picture

You are perhaps misreading that chart as it shows the AVERAGE output per well, which includes the wells from years ago as well as the earlier 2007-2009 wells which were drilled/completed hastily as the companies needed to produce SOME oil to protect their leases (Held By Production - HBP). The chart thus indicates that the 2,000 wells/year from the last year or so are actually quite productive. As per the chart at the end of 2013, the 7,000 Bakken wells - averaging 4,000/month total the 28 million barrels the Bak produced that month.

The output from the Bakken, Eagle Ford and Niobrara is actually increasing monthly at a high rate. 

So much of the info from the article - as well as from the comments - are either flat out inaccurate or contextually presented to give a false picture.   Almost laughable that Goodrich was mentioned as they may have just pulled off a double coup of cracking the code in the Tuscaloosa Marine Shale after buying (I'm sure by borrowing the 30 million) to obtain huge acreage.

EOG has stated they will not drll/complete wells unless they feel they can get a 60% return first year.  A lot of the Permian guys are doing nothing without a 40% or so return.  All just unbelievable numbers in this industry.

Four years of debt is almost trivial when one considers that has been barely the entire lifecyle of this whole new way of effectively extracting hydrocarbons ... and it is starting to spread world-wide.  Even the shallow water Gulf guys are going back into their mainly sand-bounded reservoirs and - with horizontal drilling - recovering significant returns. 

The Coiled Tubing completion/stimulation that Whiting just announced weeks ago is almost doubling the previous flows. Some industry professionals say this new iteration will allow companies to re-enter wells multiple times over the coming years(decades?) to continuously, economically, re-stimulate. The early shale gas wells near Ft Worth - often cited by the skeptics for their short life span - are even now being re-fraced with flows near 100% their original IPs.

You all want to learn of something that may surprise?  Check out what our Canadian friends are doing up north with their in-situ techniques.  The production now using cyclic steam and the new wonder of wonders - SAGD - is a million barrels a day ... same as the Bakken and Eagle Ford and no one even talks about it.

This whole 'shale revolution' topic seems to have devolved into some sort of quasi religious matter.   Strange.

 

Wed, 05/28/2014 - 22:01 | 4803990 falconflight
falconflight's picture

Nice post.  It certainly is nothing new that independent O&G companies are highly leveraged.  Further, it's nothing new that this industry has experienced many boom and bust periods.  

Wed, 05/28/2014 - 23:32 | 4804300 Oliver Klozoff
Oliver Klozoff's picture

Sounds like you're in the choir.

Thu, 05/29/2014 - 02:23 | 4804580 The man with po...
The man with pointy horns's picture

Given the rapid depletion rates, at least 800 new wells need to be opened to maintain current production. My mistake was saying that production was remaining the same, since really it is increasing at a slower rate to the rate of increase of total number of wells. So really production costs are only going to go up and up since you have more and more wells which get rapidly depleted, while to make the whole operation profitable even more new wells need to be added.

But that gives companies an even smaller amount of time before eventually the whole venture becomes unprofitable since the shale oil is being extracted at a near exponential pace. This ain't like the good old days where depletion rates were much lower...

Of course the problem is not supply, its satisfying demand at ever increasing prices to justify ever more expensive extraction methods.

Thu, 05/29/2014 - 04:42 | 4804677 thestarl
thestarl's picture

What your Canadian friends are doing up north is nothing short of an environmental catastrophe on an unprecedented scale.

 

Wed, 05/28/2014 - 18:55 | 4803414 JailBanksters
JailBanksters's picture

Where's my Oil dude

Dude, where's my Oil

Wed, 05/28/2014 - 19:09 | 4803459 swmnguy
swmnguy's picture

It looks like Capital depletion is wreaking havoc in the Bakken, raising the CROCI near enough to 1:1 to ruin anybody who isn't among the biggest companies in the world.  I'm wondering what the EROEI trend is looking like.  Money is, as we all know, fungible, especially where energy and insiders are concerned.  But when it takes a barrel of oil's worth of energy to extract a barrel of oil, that can't be faked.

Wed, 05/28/2014 - 20:11 | 4803648 thamnosma
thamnosma's picture

There have been quite a few energy analysts who have been stressing just this issue -- that the shale "boom" is just that, a "boom" without sustainability, that the energy input costs are very high compared to the energy harvested.

Wed, 05/28/2014 - 20:15 | 4803662 Goldilocks
Goldilocks's picture

Tropic Thunder (5/10) Movie CLIP - Never Go Full Retard (2008) HD
http://www.youtube.com/watch?v=X6WHBO_Qc-Q (2:42)

Wed, 05/28/2014 - 20:27 | 4803699 Hubbs
Hubbs's picture

Having to hype ethanol and fracking for our energy is the equivalent of seeing the canary dying in the coal mine for the end of cheap, easy to extract oil....or make that energy of any kind for that matter, unless a Manhattan type project that produces nuclear energy from Thorium or Fusion miraculously comes to our rescue.
Until that white knight comes to our rescue, forget about solar, hydrogen power, etc. Nothing comes close to the BTUs from a gallon of petro that could be collected as it squirted out of the ground after a random swing by a pick axe in the old Texas oil fields.

Wed, 05/28/2014 - 20:58 | 4803808 samsara
samsara's picture

Yes the sweet, low sulphur crude is gone. The Champagne of oil.

Now we have tar sands and shale.

We are down to the cooking Sherrie, and Sterno kids.

But we still have the rubbing Alcohol left. (That's burning tires and digging up asphalt for heat).

Good news is that in all those parking lots of unsold cars.... We have a lot of both.

So, Bon Appetite Shriners, Drink up.
,

Thu, 05/29/2014 - 00:48 | 4804456 Matt
Matt's picture

ITER TOKOMAK will begin proof of concept work that fusion can be used to produce more power than it consumes in ~13 years. If it works, who knows, we may have some nice new reactors in 30 to 50 years, if there is resources available at that time to build them.

Wed, 05/28/2014 - 20:27 | 4803700 Mad Muppet
Mad Muppet's picture

As to the fracking chemicals and the water supply: I was in the Bakken in  the late 70s/early 80s. I'm back there now. Two towns of which I know had decent if not great water, prior to fracking...Williston, and Tioga. Williston now gets their water from the Missouri River (from wells before), and pipelines are being built to carry water 50 miles from Williston to other towns. The water in Tioga is brown and terribly nasty. I, for one am convinced that fracking has already ruined the water. Because I've seen it with my own eyes.

Wed, 05/28/2014 - 21:27 | 4803906 Hubbs
Hubbs's picture

Hah! and to think that Williston tried to recruit me as a physician 2 yrs ago.The number of DUIs at 10 AM is as great as 1:00AM! And you thought those old western mining towhen went bust in a hurry!? Williston will be a high speed film version of the Detroit crap out.. all the buildings and torn up drilling sites left behind by the prospectors will leave those stuck there asking themselves: WTF just happened?

Wed, 05/28/2014 - 23:02 | 4804201 Space Animatoltipap
Space Animatoltipap's picture

And when a company wants to start mining gold all environmentalists including the Animal Farm government directly are out in full force. 

Wed, 05/28/2014 - 22:59 | 4804186 Space Animatoltipap
Space Animatoltipap's picture

Shale is pale and more or less a hoax. 

Thu, 05/29/2014 - 09:26 | 4804276 Flakmeister
Flakmeister's picture

We are nowhere near the EROEI event horizon.... 

The Red Queen is yet another reason low interest rates are here to stay for the foreseeable future...

There is a stealth deflation is occuring in the energy sector where money goes to die to merely keep standing still. Since 2005 there has been $3.5 trillion CAPEX shoveled into legacy oil system with no rise in production....l 

Thu, 05/29/2014 - 06:49 | 4804766 Wahooo
Wahooo's picture

Oh please. You can look at any industry and find over-leveraged companies. Maybe they'll go belly up, maybe not.

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