Guest Post: About That Shale Oil & Gas Miracle

Submitted by Jim Quinn of the Burning Platform blog,

Not a day goes by without a story in the MSM by some industry shill like Daniel Yergen about the imminent energy independence of the Great American Empire. Shale oil and gas will revolutionize the American energy prospects. We have hundreds of years of oil and gas under our feet. We will be a net exporter in the next few years. A glorious future awaits. Politicians tout the billions of barrels to be extracted from Bakken, Eagle Ford and the hundreds of untapped shale formations across the country. Wall Street puts out glowing investment analysis papers promoting the latest IPO. There’s just one little problem. It’s all hype.

Royal Dutch Shell is one of the biggest corporations in the world, with financial resources greater than 99% of all the organizations on earth. Their CEO probably knows a little bit more about oil exploration than the Wall Street systers and CNBC bimbos. His company has poured $24 billion into shale exploration in the U.S. It has been a huge failure. They have already written off $2.1 billion. They are trying to sell huge swaths of land in the Eagle Ford area. They are losing money in the shale oil and gas business. If Shell can’t make it profitable, who can?

The flow rates are too low. The extraction costs are too high. Companies will only invest in ventures where they have a reasonable chance to make money. Shell is a rational company, led by a rational man. He says they can’t make money. Of course, if oil prices reach $150 and natural gas prices reach $8, then companies can make money. All of the cheap easily accessible oil and gas have been accessed. Only the expensive hard to access oil and gas are left. The shyters never mention these facts when they tout our future energy independence.

Reality is a bitch. The truth will set you free.


Peter Voser says he regrets Shell’s huge bet on US shale

By Guy Chazan

Peter  Voser said the failure of Royal Dutch Shell’s huge bet on US shale was a  big regret of his time as chief executive of the company.

Speaking to the Financial Times three months before he is due to step down,  Mr Voser also described the technical setbacks Shell has suffered in its  exploration campaign off the coast of Alaska as one of his greatest  disappointments in the job.

Shell has invested at least $24bn in so-called unconventional oil and gas in  North America. But it is a bet that has yet to pay off. Its North American  upstream business has struggled to turn a profit and in August Shell announced a  strategic review of its US shale portfolio after taking a $2.1bn impairment. “Unconventionals did not exactly play out as planned,” Mr Voser said.

He will be replaced next year as head of Europe’s largest  oil company by market value by Ben  van Beurden, the company’s current head of refining and marketing.

A Swiss national, Mr Voser was part of the executive team that steadied Shell  in the aftermath of a reserves misreporting scandal in 2004 that rocked investor  confidence in the company.

As CEO from 2009, he is credited with overhauling the company’s notoriously  complex structure and delivering some of the largest projects in Shell’s  history, including a $19bn gas-to-liquids plant in Qatar.

He also reaffirmed Shell’s status as one of the leading  innovators in the oil industry by moving ahead with the world’s first  floating liquefied natural gas project.

But his last months in the job were tarnished by Shell’s setbacks in the US.  Like other majors, it entered the American shale sector late in the game and was  accused by some investors of overpaying for assets. Its earnings were then hit  when a supply boom pushed US gas prices to 10-year lows.

As well as its $2.1bn  writedown, mostly related to its US tight oil assets, Shell also said its US  exploration and production business was lossmaking and would likely remain so to  the end of the year and possibly beyond.

Just last month, Shell said it had put its acreage in the  Eagle Ford shale in Texas up  for sale, as part of a strategic review of its US shale portfolio.

Mr Voser said Shell’s Upstream Americas business was in the red because of a “strategic decision to slow down” on shale in the face of low gas prices. “Therefore you are hit with more than $3bn of depreciation whilst you don’t have  the revenues against it,” he said.

He also acknowledged that exploration results in the US shales had been  disappointing. “We expected higher flow rates and therefore more scalability for  a company like Shell,” he said.

Shell’s US unconventional oil and gas operation was an “emerging strategic  business which needs attention, needs fixing over the next two, three, four  years”. He said an expected increase in the company’s tight oil production in  the US “will help us get into a more reasonable profit and cash position in the  future”.

Mr Voser also said rhetoric about the US shale revolution being exported to  other countries was “hyped”, and that the rest of the world was in an early “exploration phase” which could yield “negative surprises”.

He singled out China, where Shell has drilled 22 wells, as one of the most  prospective countries for shale gas, but warned that costs there were higher  than in the US.

Mr Voser acknowledged problems in Alaska, where Shell has spent nearly $5bn  on an offshore exploration campaign but has yet to complete a single well, amid  regulatory and technical problems.

He pointed to the failure of a containment dome, a piece of equipment  designed to catch any oil leaking on to the seabed, which was damaged during  testing last year.

“That was a big disappointment to me personally,” he said. The incident  forced Shell to delay its drilling plans, and Mr Voser said the company still  didn’t know “if we’ll go back [into Alaskan waters] in 2014 or 2015”.