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Page added on November 26, 2014

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19 US Shale Areas That Are Suddenly Endangered, “The Shale Revolution Doesn’t Work At $80”

19 US Shale Areas That Are Suddenly Endangered, “The Shale Revolution Doesn’t Work At $80” thumbnail

Despite the constant blather that lower oil prices are “unequivocally good” for America, we suspect companies working and people living these 19 Shale regions will have a different perspective…

 

Drilling for oil in 19 shale regions loses money at $75 a barrel, according to calculations by Bloomberg New Energy Finance. Those areas pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo Inc. and company presentations.

 

“Everybody is trying to put a very happy spin on their ability to weather $80 oil, but a lot of that is just smoke,” said Daniel Dicker, president of MercBloc Wealth Management Solutions with 25 years’ experience trading crude on the New York Mercantile Exchange. “The shale revolution doesn’t work at $80, period.”

zerohedge



27 Comments on "19 US Shale Areas That Are Suddenly Endangered, “The Shale Revolution Doesn’t Work At $80”"

  1. dolanbaker on Wed, 26th Nov 2014 5:21 pm 

    Just goes to show that the “bumpy plateau” was maintained by an extended period of high prices and is likely to be ended by an extended period of lower prices.

    The next question has to be; when the next “energy crunch” happens, as it surely will due to a near certain reduction in supply over the next year or so.

    How much oil will be produced and what will its highest price be? I expect that both figures will be lower than the previous price and production records.

  2. coffeeguyzz on Wed, 26th Nov 2014 5:38 pm 

    I think an awful lot of people may be in for a surprise come this time next year. The latest confluence of emerging technologies in the field is enabling a doubling/tripling of the current number of stages in the wellbore of the shale operators. (80 to +100 stages/well will become commonplace). Of much more significance, the output per well is increasing by 25 to 39% according to top tier companies such as EOG.
    Not only will this obviously help the operators as they are contending with lower prices, a vast expanse of known hydrocarbon-laden acreage will become viable for development.

  3. Dave Thompson on Wed, 26th Nov 2014 6:03 pm 

    The cracks begin to appear.

  4. MSN fanboy on Wed, 26th Nov 2014 7:01 pm 

    Am I the only one here that’s getting slightly nervous?

    It appears shortonoils thermodynamic depletion argument may be correct… maybe.

    You better not be right short, as your ETP model suggests a quick collapse die off.

    We may actually be nearing the end of the last boom 🙁

    Its all downhill…

  5. shallowsand on Wed, 26th Nov 2014 7:05 pm 

    Break even on this stuff is all over the place. Makes sense. My investment is in one stripper field and even in it LOE varies quite a bit from lease to lease.

    Just look at the production figures on the state websites. There are some tremendous wells, some real duds, and many in between. A lot of commentators speak of “harvesting oil” from shale, which to me implies there is little variability. I read this for awhile and assumed maybe this was correct. I therefore assumed it must be pretty easy to determine a break even figure. Then I spent some time looking at the actual numbers.

    For example, EOG and Whiting have had many highly productive wells in the Bakken which have cumulative production over 500,000 barrels. On the other hand, it appears many wells will have trouble getting to 100,000 in 60 months, which means they will likely never payout absent a long term price spike.

    It appears the Eagle Ford and Permian are the same. Yes, an average can be computed and they have been. In each instance, it appears that on average, these plays will not payout within a reasonable period, if at all, at WTI sub75.

    I have no doubt there have been many technological improvements that have and will improve EUR. However, if the oil isn’t there, no amount of technology will cause it to suddenly appear. Yes, if EOG has a great location and boosts EUR from 900,000 to 1,200,000 through new technology, that is a big deal. But that same technology isn’t going to make a sub 100,000 well a million barrel well. This is an oversimplification, but it is the way this simple person sees it.

    This ramp up in US production and subsequent crash in price mirrors 1986 IMO. I just hope the price doesn’t fall as far, and it doesn’t last as long. If it is we are looking at a bottom of about $30 WTI and then bouncing around between there and about $60 WTI until 2026. That will really stink for all oil producers. I doubt any technology will be able to overcome those economics without the location being tremendous to begin with.

  6. oilystuff on Wed, 26th Nov 2014 7:11 pm 

    You are worried, just like I am; its hard not to be worried. Having been thru this a lot my advise it to tune out all the noise and remember about the only thing in life you can count on, is that you can’t count on much of anything. Don’t sell your stuff. Hang in there, someday not too long off you will be very glad you stayed the course. If there is any doubt which direction oil prices will go from here someday, please go to your nearest interstate highway this holiday season and take a look.

  7. Makati1 on Wed, 26th Nov 2014 7:20 pm 

    Take em down now! Well, at least let most of them die out over the next year as bankruptcy takes hold in the tar sands and fraking fields. Only by force will BAU be contracted to a livable level. The beginning of the end of the ponzi scheme called the Stock Market?

  8. GregT on Wed, 26th Nov 2014 7:23 pm 

    “If it is we are looking at a bottom of about $30 WTI and then bouncing around between there and about $60 WTI until 2026.”

    Our scientific community has already told us that we need to REDUCE fossil fuel consumption by some 70% by 2030, if we hope to stay below a 2 degree C rise in global mean temperature. Low oil prices are very bad for our future. A 2 degree rise gives us a 50/50 chance of initiating a runaway greenhouse event, or, catastrophic climate change.

    TEOTWAWKI if were are fortunate, planetary extinction if we aren’t. Either way, not exactly intelligent..

  9. Makati1 on Wed, 26th Nov 2014 7:38 pm 

    Happy Thanksgiving to All! May your day be filled with happiness, love and all the other good things of life.

  10. shallowsand on Wed, 26th Nov 2014 8:14 pm 

    No reason to sell now. Just have to ride it out. 140 to 30 was survived. 8-10 bucks a solid year was survived. Some of them been going up and down over 100 years. They’ve seen a lot of history and hopefully will see a lot more. Figure if Saudi will eventually cut if collapse like 2008-2009.

    Will feel bad for the workers, especially those who pulled up stakes and moved to the coldest place in the lower 48 if this turns into bad one.

  11. buddavis on Wed, 26th Nov 2014 9:07 pm 

    I know very little of most of those “shale plays”, but the one I do have first hand knowledge about, the “Brown Dense”, does not work at $150 oil, much less $75.31.

    There have been several wells from a handful of companies, public and private, with no successes. the gas and crude is sour, and the gas market in South Arkansas is horrible.

    Makes me question the rest of the information.

  12. Norm on Wed, 26th Nov 2014 9:12 pm 

    Think about it. So many different ways to produce the oil, at so many different prices. But there is only one world oil price. Go figure. t the one price, some producers make a killing. Others go bankrupt. At that one price. Maybe there ought to be several different oil prices.

  13. shallowsand on Wed, 26th Nov 2014 9:26 pm 

    Norm. There are several different prices. Go to Plains Marketing, LP website and look at the daily price bulletin. And that is just for US lower 48. Furthermore, anyone who sells more than 25 or so bbl per day is able to receive a volume bonus.

    Also, Plains is one of tens, if not hundreds of crude oil purchasers in US, who cut all kinds of deals on price.

    Also, at another level is WTI, Brent, OPEC basket, etc.

    Admittedly, all of it has been tanking and almost all of it is based off either WTI or Brent.

    Bud. I like you question breakeven prices of anything, especially where there is minimal production history to go on. I initially thought shale was different, not having paid much attention, but hearing a lot of manufacturing hype.

    Just have to see who is right I suppose.

  14. buddavis on Wed, 26th Nov 2014 9:31 pm 

    shallow

    Southwestern is out of the Brown Dense now after drilling their wells. EOG had no success to speak of. Nor Whiting. I know of 2 independents who drilled wells in the play, a hundred miles apart, and both of them were economic failures. If the break-even for the Brown Dense was $75, they would still be leasing and drilling. They aren’t and have not for the last year and a half, at least.

    This post looks like someone combed through quarterly conference calls for a couple publicly traded companies and did not follow up to see where things were headed.

  15. keith on Wed, 26th Nov 2014 10:26 pm 

    If none of these operations falter during prolonged low oil prices, then we will know, without a doubt, that it is a ponzi scheme based on money printing and zero interest rates. Let’s watch, it will be educational.

  16. Perk Earl on Wed, 26th Nov 2014 11:44 pm 

    http://www.bloomberg.com/energy/

    If it’s hard to make a profit at 80, what about at the new lower oil price at the link above?

    WTI down .86 to 72.83
    Brent down 1.14 to 76.61
    Seventy six.sixty one? Ah, hello!

  17. Makati1 on Wed, 26th Nov 2014 11:46 pm 

    BTW: Don’t read this if you are American, until after the holiday.

    http://www.globalresearch.ca/american-thanksgiving-a-pure-glorification-of-racist-barbarity/5359622

    Or this:

    http://www.globalresearch.ca/the-myth-of-thanksgiving/5416448

    they could ruin your day…with the truth.

  18. pinkdotR on Thu, 27th Nov 2014 7:09 am 

    Without $110 oil the shale revolution would never have started. Without the shale revolution there would not be $75 oil today. If the revolution does not work any more at today’s price what are your guesses for tomorrow?

  19. Davy on Thu, 27th Nov 2014 7:37 am 

    I don’t think technology is the key factor at this point with other forces taking over influence. We have hit diminishing returns to technology with the advent of the debt bubble and steady economic depletion of oil’s value to the economy in an economy approaching limits of growth. We appear to be on a bumpy plateau and near a tipping point. IOW this is a zone between a vicious circle and a virtuous circle. One trend positive the other negative. This could also be pictured as a bumpy growth and bumpy descent zone.

    We are near an energy and debt intersection or inflection zone. Technology and debt have in the past combined in positive reinforcing ways hence economic growth and increasing complexity. We are near a point where the application of technology mainly through debt creates new problems and increasing difficulties. This is classic diminishing returns we are finding in tandem with oil and the economy. Debt in the economy and technology in the oil sector are now feedback loops with a momentum away from equilibrium. The equilibrium would be normal sustainable economic growth with stable or increasing economic value of oil to the economy. We need ever higher applications of debt and technology to offset an ever decreasing oil energy value. In the economy we have a debt bubble that must have ever increasing amount of debt to sustain the core debt.

    This cycle is being broken and most clearly visible with price pressure. Oil and debt are two primary drivers in the economy and they are drivers in the oil sector. We have been on a bumpy plateau where the iterations of the price and debt are reinforcing the successive cycles. This momentum has maintained this bumpy plateau and at some point the iterations will likely drive a descent. We are seeing diminishing returns break this cycle with economic issues related to debt. Technology is highly influenced by debt.

    If the debt bubble is destabilizing we will likely see a bumpy descent of this economic relationship. Technology will be abandoned from a lack of debt and lower prices. The usual price reactions from supply and demand will influence this process but only within this vicious circle of debt/technology and energy value. The primary forces are diminishing returns of the application of debt and diminishing returns of the economic value of the oil produced. Technology is hostage to these two forces.

  20. Perk Earl on Thu, 27th Nov 2014 10:07 am 

    “The primary forces are diminishing returns of the application of debt and diminishing returns of the economic value of the oil produced. Technology is hostage to these two forces.”

    That about sums it up, Davy. Meanwhile just as it seemed like oil price had stabilized at about 80 for Brent, oil price has dropped these past two days since OPEC’s decision to not reduce production. Yesterday’s price drop was over 2 bucks.

    http://www.bloomberg.com/energy/

    WTI -2.07 to 71.62
    Brent -2.15 to 75.60

    I think OPEC & Russia now clearly see this as their opportunity to greatly reduce North American non-conventional sources, realizing they need to keep the low price pressure on to nail the coffin shut. The question in part is how much damage does it do to those oil exporting economies while the price is lower than their budgetary needs?

    Next stop down would be WTI going sub 70 & Brent sub 75 (which it’s only 61 cents from doing). Seeing WTI at sixty something will be an eye opener!

    This oil price descent is starting to have eyes, if you know what I mean. It’s like how low can liquid energy go?!

  21. Ralph on Thu, 27th Nov 2014 10:25 am 

    WTI below $70.
    Brent below $75.

  22. Ralph on Thu, 27th Nov 2014 10:26 am 

    Correction.
    Make that Brent below $73.

  23. Solarity on Thu, 27th Nov 2014 1:35 pm 

    An omniscient concept in finance states that so long as a product can be sold above its direct cost, it contributes to asset increase (or liability decrease). The numbers quoted above (also for various countries) include normal debt service (or service on sunken costs) as part of the break-even claims. But the direct cost of production is significantly lower than the amounts stated, and producers will continue pumping until the price drops below their direct cost.

  24. Perk Earl on Thu, 27th Nov 2014 4:30 pm 

    Ralph, yeah here’s the minus numbers for the day’s trading so far:

    WTI -4.64 to 69.05
    Brent -5.17 to 72.58

    I haven’t seen a bigger one day price plunge wise since this whole oil price decline began. For Brent to lose over 5 bucks a barrel in one day is astounding after all the other price drops so far.

    This is getting crazy!

  25. Dave on Thu, 27th Nov 2014 4:39 pm 

    What I’ve said all along. Right now North America and South America for that matter, have phenomenal oil reserves only when the price of oil is at rather fantastic levels. At some of the prices people are suggesting, shale oil, tar sands, heavy Venezuelan oil and even ultra deep off-shore all look like losers. That suggests lower prices are a very temporary phenomenon IMHO. Meanwhile, the renewables continue to get cheaper in real terms.

  26. Kenz300 on Fri, 28th Nov 2014 7:57 am 

    Risky oil plays are just that……….RISKY………..

    At these prices do you need a new pipeline from Canada?

  27. rockman on Fri, 28th Nov 2014 10:40 am 

    Davy – “I don’t think technology is the key factor at this point with other forces taking over influence.” Exactly the point some of us have been pushing. There have been some improvements in tech and procedures during the last few years. But nearly all the shale wells drilled in recent years could have been done just 7 years ago with the same technology that’s available today. But the inflation adjusted price of $72/bbl at the time wasn’t enough to kick the effort off.

    But that doesn’t mean the shales will immediately fall off the cliff at today’s prices. First, companies have hundreds on $millions tied up in undrilled leases. Since most are pubcos with significant value booked for those leases they’ll not write them off until forced to. Also, being pubcos, they are already seeing stock prices fall. To maintain as much value as possible they need to show they still have viable wells to drill…even if in reality many of those undrilled locations aren’t all that viable. But those companies are going to get a break from the service companies…the ones that actually drill and frac those wells. They have invested $billions in new equipment to meet the original booming demand. And their prices reflected that high demand.

    But with a decrease in drilling activity those companies will immediately suffer significant loses in cash flow. There’s a good reason Halliburton just gobbled up Baker Hughes: months ago all the service companies saw the current situation developing. Going forward the service companies will be focused solely on market share and cash flow. Prices will fall accordingly. I wouldn’t be surprised if an Eagle Ford well drilled/frac’d 6 months ago will cost 15% to 30% less 6 months from now. And undrilled leases nearing their expiration: operators will go to those mineral owners and propose lowering the royalty on their lease in exchange for drilling a well. If they mineral owner doesn’t agree the operator drops the lease and the land owner gets nothing. I’ve personally done the same on dozens of leases during a price collapse in the past.

    And then there’s the BIG IF: companies will still have some financial incentive to keep drilling…IF they have the capex to do so. Which will be a function of cash flow – (debt service + overhead). That’s where the real shake out will show up. The Rockman’s owner, who had never chased the shales due to insufficient profitability, still has more capex then Dog. So we might take advantage of those terminally wounded shale plays and buy their assets cheap. And might even drill/frac a few shale wells given lower front end and operational costs. There are going to be viable shale locations at $70/bbl or less. The question will be who has the money to drill them.

    Some of the best ROR’s the Rockman has ever generated in his 40 years have been at the bottom of a price collapse. As I’ve said before: the price of oil/NG doesn’t determine a company’s profitability: it’s the difference between the price they sell it for vs what it cost to get it out of the ground. During a major price collapse that cost to drill often plummets further than the price of oil/NG. What plummets are the number of players in the game. For the survivors life can be very sweet. Just like a collapsed real estate market: if you have the money it turns into a feeding frenzy.

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