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The Latest Red Flag For U.S. Shale

Production

The U.S. shale industry has had a rough few weeks, with a growing number of reports suggesting that the industry is facing much more financial trouble than many analysts had expected. Now, a new report adds further evidence to the notion that shale is losing its luster in a $50 per barrel market, with producers forgoing shale in favor of older wells.

U.S. shale was thought to be the most competitive source of oil out there, and indeed the industry appears to be ramping up production at today’s prices. Shale had adapted to a $50 per barrel market, producers had streamlined operations to make them almost resemble an assembly line, and in a volatile and unpredictable market, the short-cycle nature of shale drilling made it one of the least risky options for drillers.

But in just a few weeks’ time, investors are starting to ask major questions about the viability of shale drilling at such a large scale.

A couple of notable things have occurred in the past month or so. Pioneer Natural Resources, a top Permian producer, raised concerns when it told investors that its Permian shale wells were coming up with a higher natural gas-to-oil ratio than expected, a potentially worrying sign. The company also reported that it had trouble with some of its wells, forcing it to delay some completions.

Separately, Goldman Sachs reported that top investors are souring on U.S. shale E&Ps, with poor performances leading investors to search for ways to “reallocate capital” elsewhere in the energy space. That is big red flag for the shale industry, which is still struggling to consistently post profits despite the highly-touted cost reductions over the past few years.

But the newest sign of trouble comes from the Wall Street Journal, which just reported that more oil producers are shunning shale drilling and using their scarce dollars to reinvest in older conventional wells. “As crude prices languish under $50 a barrel, and with increasing costs for land, labor and infrastructure, some shale fracking operations are starting to look expensive,” the WSJ reported.

The WSJ says that although Wall Street has showered the shale industry with billions of dollars in capital, and although that has led to a surge in oil production, shale producers by and large are still not profitable. At today’s prices, the WSJ says, “most producers are losing money on every barrel they pump.”

As a result, some oil companies are returning to conventional wells – long thought to be much less attractive today than new shale drilling – and trying to tap them again to squeeze out more oil. The cost to drill a conventional well is a fraction of that for a shale well – $1 million per well versus upwards of $8 million. But those types of wells, in many cases, were taken offline decades ago during periods of low oil prices and declining production.

However, technology has advanced quite a bit since some of these older wells were last online. A couple of companies profiled by the WSJ are tapping old wells outside of Los Angeles, Fresno, and in Oklahoma, Louisiana and parts of Texas. These wells produced a handful of barrels per day, but tapping them again with new drilling techniques allow drillers to squeeze out something like 100 barrels per day, a profitable play considering the low investment required.

One company told the WSJ that the old well essentially breaks even at $15 per barrel.

Part of the problem for U.S. shale is that it is showing some bubble-like symptoms. Land prices have soared in the Permian as so many top shale producers shifted their resources to West Texas in the past few years. Even the oil majors started to scale down their billion-dollar investments in places like Canada’s oil sands, or major LNG export terminals, or offshore drilling, instead reallocating capital to the Permian.

While land prices are inflated, the supply of oilfield services has also tightened significantly. A shortage of fracking crews and other equipment and services has also contributed to higher production costs as well as delays.

The result is rising costs for shale at a time when production problems are also starting to crop up. All the while a long list of companies are still not profitable, despite succeeding in boosting production.

The contrarian strategy, then, seems to be returning to old conventional wells, even small ones, and trying to eke out a few more barrels.

With all of that said, retapping old wells probably won’t lead to a rush of new supply since we are stilling talking about relatively small numbers. But it’s a striking development that some ancient wells are getting a second look by companies falling out of love with U.S. shale.

Nick Cunningham OilPrice.com



81 Comments on "The Latest Red Flag For U.S. Shale"

  1. Davy on Wed, 23rd Aug 2017 6:21 pm 

    Makat, you have been to Manila, Tokyo airport, and Hong Kong for some shopping…LOL. You don’t know much about Asia either. Asia and the US have negatives. I acknowledge both places have negatives. You are an extreme anti-American Asiaphile. That says it all in a nut shell. You are selling an emotional agenda. Onlooker is siding with balance and the truth. You are the one making this into a competition when it is only reality. Reality does not have sides.

  2. Makati1 on Wed, 23rd Aug 2017 6:26 pm 

    Hello, is that sarcasm? LOL But you are not far off the mark.

    The median age in the Ps is 24.
    The US median age is 38.

    The over 65 in the Ps is 5%.
    The US over 65 is 15%

    http://www.worldometers.info/world-population/philippines-population/
    http://www.worldometers.info/world-population/us-population/

    I prefer to live in a place that is growing and free, not dying and a police state.

  3. Makati1 on Wed, 23rd Aug 2017 6:38 pm 

    Davy, you have ZERO knowledge of where I have been. You like to think you do and try to make the others here believe it, but you don’t. Not even close.

    You also have a very narrow vision of the world although you profess to know it all. You pretend to be open-minded about the US but you are not. You mind is closed on that topic. You want to believe your bullshit because you are trapped there and the brainwashing is too deep. You say that when the SHTF you will move to Italy. You will not find it any different there than in the US. Both are in the shitter and being flushed by TPTB. IF you can even get there at that time. I doubt it.

    You have no sense of “realty”, only Davy’s World. Keep trying to sell your bullshit, but you will fail. In the end. I will be in the right place for the future and you will be in that decaying, self-destructing, drugged up, obese, dumbed down, fascist place once called “America”.

  4. Davy on Wed, 23rd Aug 2017 6:39 pm 

    How about some of this sarcasm makat:

    The current population of the Philippines is 104,008,194 as of Wednesday, August 23, 2017, based on the latest United Nations estimates.
    The total land area is 298,192 Km2 (115,133 sq. miles)

    http://www.worldometers.info/world-population/philippines-population/

    The current population of the United States of America is 326,806,279 as of Wednesday, August 23, 2017, based on the latest United Nations estimates.
    The total land area is 9,155,898 Km2 (3,535,111 sq. miles)

    http://www.worldometers.info/world-population/us-population/

  5. Davy on Wed, 23rd Aug 2017 6:44 pm 

    Makat, I thought I was on your ignore list or was it most commented on list, I lose track.

    “You say that when the SHTF you will move to Italy.”
    Nope, I said it was an option. I plan on staying with the family not leave them like you did.

    Makat, I read over your comment and you said absolutely nothing. It was just drivel. Try again and make some sense. You dementia is showing.

  6. GregT on Wed, 23rd Aug 2017 7:05 pm 

    Onlooker,

    Vitriolage, the act of throwing acid, originated in Europe. It wasn’t until the latter part of the 20th century that it began to be carried out in Asia. Today, Britain may have the highest incidence of vitriolage in the world. The majority of victims are men.

    https://www.theguardian.com/commentisfree/2017/feb/11/acid-attacks-victorian-britain

  7. GregT on Wed, 23rd Aug 2017 7:07 pm 

    And if you read the article, there were just over 400 reported incidents in 2015. Quite a bit more than the 59 reported that same year in Bangladesh.

  8. Makati1 on Wed, 23rd Aug 2017 7:11 pm 

    Davy: First. Land area means shit. Climate is tops these days. What good is land if the climate is chaotic and events ruin crops or prevent them from producing up to normal amounts? What is the growing season if you get hot spells in the winter and it kills the fruit trees ability to blossom? Or you get early frost and it destroys your crop just before harvest? Ask the farmers in the Dakotas about climate and drought. Or the Californians. Or anyone who lives in a single crop climate when that climate shifts.

    There is a lot of land here not being used but will be as young Filipinos leave their jobs in the cities and move back to the countryside. Our farm is one of those areas. In fact many square miles around it are now beginning to be occupied and farmed. That is typical in the Ps. And, did you know that you can live on just coconuts alone? It would get very boring, but it would be better than nothing. And they are everywhere. It is a weed tree here. Then there are wild bananas, etc. No, I will not starve or freeze to death. You might. Every day here is between 72F and 92F. Sunshine and occasional shower or thunderstorm. No frost, snow, ice, or 100F+.

    Second, there has been no ‘list’ for many months. Or didn’t you notice. I Would prefer to counter your bullshit, when I have time. Like this AM. lol

  9. Makati1 on Wed, 23rd Aug 2017 7:14 pm 

    Davy, your comment about dementia is another putdown because you cannot refute my comments with any proof otherwise. Typical. YOU need help, not me. I’m more sane than you will ever be.

  10. GregT on Wed, 23rd Aug 2017 7:15 pm 

    And if you read the article, there were just over 400 reported incidents in 2015. Quite a bit more than the 59 reported that same year in Bangladesh.

    In contrast, in the USA, there are 3 women killed by an intimate partner each and every day, and 9 women murdered in total, each and every day.

  11. Boat on Wed, 23rd Aug 2017 7:41 pm 

    Kenz300 on Wed, 23rd Aug 2017 12:02 pm

    “So how do Tar Sands in Canada survive? They don’t”.

    If you followed oil you would know that tar sand production is growing and projected to keep growing through 2020. And doing that without new big discoveries.

  12. GregT on Wed, 23rd Aug 2017 8:36 pm 

    “And doing that without new big discoveries.”

    The Alberta Tar Sands were discovered by the white man in 1715 Boat. First Nations were likely using them for thousands of years before that.

  13. GregT on Wed, 23rd Aug 2017 8:49 pm 

    With Some Tar Sands Oil Selling at a Loss, Why Is Production Still Rising?

    Canadian oil producers can’t address the downturn by slowing production without huge losses, so they now sell at a loss economically and for the climate.

    https://tinyurl.com/ldm8cb8

  14. Boat on Wed, 23rd Aug 2017 9:37 pm 

    greggiet,

    Tar sand projects can have 30 year plus time frames.

  15. GregT on Wed, 23rd Aug 2017 9:41 pm 

    Clean water crisis threatens US

    “The United States is on the verge of a national crisis that could mean the end of clean, cheap water.”

    “Hundreds of cities and towns are at risk of sudden and severe shortages, either because available water is not safe to drink or because there simply isn’t enough of it.”

    “The situation has grown so dire the U.S. Office of the Director of National Intelligence now ranks water scarcity as a major threat to national security alongside terrorism.”

    https://tinyurl.com/zpovrdj

  16. GregT on Wed, 23rd Aug 2017 10:02 pm 

    Boat,

    If we keep producing and burning the tar sands, in 30 years time the world won’t be a very hospitable place anymore.

    Leave fossil fuels buried to prevent climate change, study urges

    “New research is first to identify which reserves must not be burned to keep global temperature rise under 2C, including over 90% of US and Australian coal and almost all Canadian tar sands”

    https://tinyurl.com/y86o9zex

  17. Boat on Wed, 23rd Aug 2017 10:11 pm 

    greggiet,

    Your from Canada, shut it down. If wishes and hopes were cherries and nuts, we could all have a merry Christmas.

  18. Makati1 on Wed, 23rd Aug 2017 10:33 pm 

    Boat, it is supporters like you that keep the cancer companies in business. YOU are to blame more than GregT or me or anyone. Without the investors there would be no petro companies. So … the sooner the US financial crash comes the better for the rest of us. I hope it happens soon.

    BTW: It’s “you’re” not “your”. Difficult to be respected if you don’t know proper English.

  19. GregT on Wed, 23rd Aug 2017 10:41 pm 

    Boat,

    Over 70% of Alberta Tar sands are foreign owned. Mostly by American companies.

  20. GregT on Wed, 23rd Aug 2017 10:56 pm 

    And Boat,

    I don’t believe in Santa Claus.

  21. Boat on Wed, 23rd Aug 2017 11:06 pm 

    mak,

    Like I care a flying f–k what you think to be honest. Any anti American will reap what they sow. Your right up there with Trump in my respect category. Your dumb ass cancer theme is a perfect example, like you live a non ff life. B lamers are nothing but hypercritical losers.

  22. Boat on Wed, 23rd Aug 2017 11:11 pm 

    greggiet,

    Whats wrong with you, even Muslims believe in Jesus.

  23. Boat on Wed, 23rd Aug 2017 11:15 pm 

    mak,

    Your wrong, I support an electric society. I have explained this to you before. Your a habitual lair.

  24. GregT on Wed, 23rd Aug 2017 11:26 pm 

    Christmas is a pagan holiday, and has nothing to do with anybody called Jesus.

  25. GregT on Wed, 23rd Aug 2017 11:27 pm 

    Boat,

    Makati1 is an American.

  26. GregT on Wed, 23rd Aug 2017 11:35 pm 

    “Your right up there with Trump in my respect category.”

    So now you think that Makati is on par with the President of the United States of America?

    Geez Boat, make up your mind man.

  27. Davy on Thu, 24th Aug 2017 12:31 am 

    “Over 70% of Alberta Tar sands are foreign owned. Mostly by American companies.”

    Got references for mostly? What percent is mostly? Many American companies are Canadian owned partially through Canadian investors. Last I heard Canada is a sovereign nation and capable of control over its resources. Canada has ultimate responsibility for tar sands. Canadians made a huge profits selling their companies during the bursting fossil fuel bubble. I love when Canadians blame the world and especially Americans for the tar sands. What a friggen joke.

  28. Davy on Thu, 24th Aug 2017 12:34 am 

    “YOU are to blame more than GregT or me or anyone.”

    Give me a break makat. You both are to blame as much as anyone else on this board.

  29. Makati1 on Thu, 24th Aug 2017 1:21 am 

    Davy and Boat, two rotten peas in an American pod. Both of you are frustrated and scared shitless that I am correct and you are hitting back with marshmallows like name calling and putdowns instead of facts, because there is nothing positive about the FSA these days to support your ideas. The last years of a dying empire.

    No, Davy, I am NOT equally to blame. I left the FSA 10 years ago. I do not support the Fascist States of America with taxes. I do not vote. I do not own anything in the US to be controlled by the government. I am free. I do not own a car or use a gas vehicle except on rare occasions. I am done flying to the FSA so my fuel use is about that of the average Filipino. Less than two cups per day. You use more than that in your lawn mower.

    It is you flag waving, greedy, capitalist patriots that deserve exactly what is coming. The FSA’s 70+ years of murder, plundering and terrorism is coming home. It is about time you feel the pain you have visited on others around the world. Time you are forced t live on your <5% of the resources, not the 25+% you currently do. The rest of the world will cheer when that happens.

  30. Makati1 on Thu, 24th Aug 2017 1:41 am 

    BTW: 1 gallon of oil equals about 14 kWh, so I am just over 4 cups (1/4 gallon) of petroleum energy use per day at this point. When I get on the farm, that will drop drastically. Soon, I hope.

    https://www.eia.gov/electricity/annual/html/epa_07_03.html
    https://www.eia.gov/tools/faqs/faq.php?id=667&t=2

    Do the math… lol

  31. Davy on Thu, 24th Aug 2017 2:31 am 

    “Both of you are frustrated and scared shitless that I am correct”
    What would that be? What are you correct about? Everything you talk about is correct? Yea, sure. LOL

    “No, Davy, I am NOT equally to blame.”
    Sure you are equally to blame makat. Deny your social security and put your money where your mouth is. You can’t run from your sins makat. Your generation ruined this world. Two cups a day fuel is that what Filipino’s use. LOL. Maybe poor ones but you live in one of the most densely populated cities in the world requiring huge amounts of energy and resources. I think you are trying to factor in all those really poor Filipinos to make up a per capita embellishment. You are losing it makat. Who cares about the P’s. The place has about the same impact as my state with a similar GDP but 16 times the population. I don’t constantly hype my state. I am a little embarrassed about my state but the good side of that is people fly over me or move through to the south or west keeping populations from growing too much. I like space. Maybe that is why you are so testy lately not enough space. You need to get over to the fantasy farm soon.

    “It is you flag waving, greedy, capitalist patriots that deserve exactly what is coming.”
    Dumbass what is coming? Inquiring people would like to know. Lol

    “The FSA’s 70+ years of murder, plundering and terrorism is coming home.”
    You were here for 60 of it so guilty as charged. You need to be lynched for your sins, makat. Another lol

    “It is about time you feel the pain you have visited on others around the world.”
    Makat, are you upset because it sounds like it. Poor guy need blood pressure meds or something. Do you have your diaper on I bet you are leaking.

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