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Page added on September 27, 2016

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US Shale Firms Are Ready to Pump More

Production

When oil prices began to plunge two years ago due to a global glut of crude, experts predicted U.S. shale producers would be the losers of the resulting shakeout.

But the American companies that revolutionized the oil and gas business with hydraulic fracturing and horizontal drilling are surviving the carnage largely unbowed.

Though the collapse in prices caused a wave of bankruptcies, total U.S. oil production has only fallen by about 535,000 barrels a day so far this year compared with 2015, when it averaged 9.4 million barrels, according to the latest federal data.

As the oil markets ponder where production will resume when prices pick back up, one clear answer has emerged: America. Goldman Sachs forecasts the U.S. will be pumping an additional 600,000 to 700,000 barrels of oil a day by the end of next year—making up for every drop lost in the bust.

Few predicted that in the fall of 2014, when Saudi Arabia signaled that it wouldn’t curb its output to put a floor under crude prices. Oil pundits concluded that a brutal culling would force higher-cost players known as marginal producers—a group that includes shale drillers—out of the market.

But the greatest consequence of the Saudi decision and subsequent price drop is that it has delayed costly oil megaprojects, from deep-water platforms off Angola to oil-sands mines in Canada.

“The U.S. isn’t the marginal barrel but the most flexible,” said R.T. Dukes, an analyst at Wood Mackenzie. “We’ll be the fastest to snap back.”

More than 100 North American energy producers have declared bankruptcy during this downturn, but even companies working through chapter 11 keep pumping oil and gas. Many exit bankruptcy stronger thanks to a balance sheet that has been wiped clean. SandRidge Energy Inc., which filed in May, will exit next month after erasing nearly $3.7 billion in debt.

Many shale operators are still struggling at current prices, drilling at a loss and tapping Wall Street for new infusions of cash. But the strongest producers, including EOG Resources Inc. and Continental Resources Inc., soon will be able to generate enough money to pay for new investments and dividends—as well as boost production—even at low prices, analysts say.

U.S. production began inching up in July, shortly after oil prices rebounded to $50-a-barrel territory. Producers quickly put 100 rigs back to work this summer.

The ramp-up spooked the market, sending oil prices plunging 20% back toward $40. They have recently rebounded back to about $46.

The gyrations will continue for months as shale producers go back to work, said Eric Lee, an analyst at Citibank, who predicts crude will stabilize around $60 a barrel in late 2017.

ENLARGE

Though oil storage tanks around the world are brimming, new sources will be needed soon because older oil fields decline by 5% a year and global demand continues to rise 1.2% a year. Demand will break through the 100 million barrel-a-day mark by 2020, according to the International Energy Agency.

The looming gap between supply and demand is one reason the easy money that fueled the American drilling boom hasn’t dried up, said Lewis Hart, senior vice president of corporate advisory and banking for Brown Brothers Harriman in New York.

Even as banks and other traditional lenders tighten their purse strings, alternative sources of money are cropping up, from private-equity funds to distressed-debt specialists.

“The very existence of that capital means prices are likely to be lower for longer, because it compounds the supply problem,” Mr. Hart said.

Jesse Thompson, an economist with the Federal Reserve Bank of Dallas, said this oil bust is different from the downturn that crippled American producers in the 1980s.

Back then, Saudi Arabia initially shut down production as it tried to put a floor under prices, then changed course and began selling crude into an already glutted market. By 1986, the world’s oil supply capacity was 20% higher than demand, Mr. Thompson said. He estimates that today, the world is oversupplied by about 1%.

A big reason U.S. oil production has been so resilient is that U.S. producers found ways to cut costs and enhance efficiencies during the lean years. Those innovations are now poised to propel the industry’s resurrection.

In May,  Halliburton Co. helped tap the longest shale well on record—26,641 feet deep and another 18,544 feet long—for Eclipse Resources Corp. in Ohio, 130 miles south of Cleveland.

That well was fracked—the process of injecting water, chemicals and sand to coax out oil and gas—an extraordinary 124 times. Typical shale wells are fracked between 30 and 40 times, up from just nine fracks in 2011 at the start of the oil boom, according to Drillinginfo, a data provider for the energy industry.

To put that engineering feat in Manhattan perspective, that is equivalent to burrowing down to the depth of 15 World Trade Centers at One World Trade Center, turning 90 degrees and drilling underground 3.5 miles to Grand Central station. Eclipse saved 30% by supersizing the well, said Chief Operating Officer  Tom Liberatore.

The industry’s cost-cutting has been painful for many. Nearly 160,000 energy employees have been laid off around the country, according to the latest tally by Graves & Co.

Even so, plenty of companies that didn’t accumulate debt or spend beyond their means during the boom years have the resources to take advantage of financial fallout from the downturn.

Albert Huddleston, founder and managing partner of Aethon Energy, said the Dallas-based producer spent more than $600 million on distressed oil-and-gas properties from Wyoming to Louisiana since prices started to fall in 2014.

“Can you kill off shale? The answer is no,” he said.

WSJ



17 Comments on "US Shale Firms Are Ready to Pump More"

  1. Cloggie on Tue, 27th Sep 2016 6:14 am 

    Oil is the energy of the US empire. It’s yesterday’s news. It’s useful to function as a bridge to the solar age but nothing more.

    Meanwhile in Germany a battle is raging about the construction of two giant underground electricity cables for transport of North Sea wind energy deep into central Europe:

    http://www.spiegel.de/wirtschaft/soziales/stromtrassen-hier-koennten-die-neuen-stromautobahnen-verlaufen-a-1114110.html

    Currently there are more turbines installed than infrastructure available to distribute the wind energy. The German government opted first for cheaper overland cables but there was a lot of resistance from the population.

    That’s a bill 3-8 billion euro higher or 10 euro/year/household.

  2. dave thompson on Tue, 27th Sep 2016 7:48 am 

    I could only just barely stand to skim over this WSJ propaganda piece, trying to convince investors that expensive shale oil is making a comeback.

  3. rockman on Tue, 27th Sep 2016 8:12 am 

    “…plenty of companies that didn’t accumulate debt or spend beyond their means during the boom years have the resources to take advantage of financial fallout from the downturn.” Yes indeed. Companies like Rockman’s that didn’t drill one shale well. Producing an existing well profitably (especially when one buys it for less than $20/bbl) isn’t the same as profitably drilling a well.

    And once again with operators becoming “more efficient” because of higher rates of new wells can also be described as operators not being as inefficient as they had been a couple of years ago.

    Kinda like a gambling addict bragging about the $10,000 he won on Sunday not mentioning the $30,000 he lost on Saturday. LOL.

  4. james l fisher on Tue, 27th Sep 2016 8:14 am 

    They have to keep pumping for all they are worth because the shale companies have lost so much money that they will never show a profit. The Backen oil field is in the red by 30 billion dollars, It will never show a profit. Any activity that can not show a profit will eventually stop.

  5. makati1 on Tue, 27th Sep 2016 8:15 am 

    So many dreams so little reality in the news these days. Lies, and false hope. Projects that have zero chance of ever happening but put out there to soothe the serfs and keep them from waking up. Bread and circus’. “And in the far ring, the two headed fusion reactor and its companions, wind and solar. Watch as they keep the dreamers believing in an impossible future.”

    Brought to you by the Wall Street Urinal.

  6. joe on Tue, 27th Sep 2016 10:04 am 

    I never saw so many journalist so intelligent in the oil specter Makes one wonder why they are journalist.

  7. ghung on Tue, 27th Sep 2016 11:15 am 

    Saudi Arabia cuts ministers’ pay by 20%

    “Perks for public sector employees will also be scaled back in one of the most drastic measures yet to save money at a time of low oil prices…
    https://www.theguardian.com/world/2016/sep/26/saudi-arabia-cuts-ministers-pay-by-20

  8. shortonoil on Tue, 27th Sep 2016 11:22 am 

    “I never saw so many journalist so intelligent in the oil specter Makes one wonder why they are journalist. “

    It is one of those very simple things even for a simple mind, and they still stumble on it. Shale is simply a very light hydrocarbon were more than 30% of it won’t make fuels. A large part of it has an API greater than 50:

    http://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/images/eneene/sources/petpet/ima

    That means that one third of their production is sold as feedstock material that does not bring a high enough price to cover its cost of production. Attempting to pay for a $5 to $10 million well with $27 production is a lost cause.

    As we have been saying for several years Shale simply does not provide enough energy to pay for itself. Since the economy is simply buying energy (disguised in a barrel) when an insufficient amount of it reaches the market, the economy slows, demand for oil slows, and the price falls. One connects the dots – one, two, three.

    Perhaps that is simply too confusing for the journalists?

    Then, perhaps they are being paid to write these stories; ” now, write a story about a giant who climbs up and down a bean stalk”. Your check is in the mail!

    http://www.thehillsgroup.org/

  9. Dutchwayne on Tue, 27th Sep 2016 11:34 am 

    The cost diagram used here and used by almost everyone misses a huge point. Shipping costs are not included and that is a huge equalizer. It costs between $12 to 16 per barrel to deliver Saudi Crude to the US refineries. Most US crude requires only $4-6 per barrel to ship it to refineries. Saudi crude still has an advantage at the gate to the refinery, but not much. There is also an additional cost that is ignored as well and that is the time value of the capital tied up in oil sitting for 3-4 months in a tanker in transit. Although not as high in today’s lower interest rates, there is still a cost of $2-3 per barrel plus insurance etc. The real truth that this writer comes close to getting is the US has a giant advantage as the biggest market for oil as well as a huge production base. It is unique in the oil world.

  10. Truth Has A Liberal Bias on Tue, 27th Sep 2016 12:19 pm 

    And some fucking retard posts a
    link so now the comments run off
    the page. Fucking retards!!

  11. Cloggie on Tue, 27th Sep 2016 12:28 pm 

    That f* retard is shortonoil, 11:22.

    Again, the forum software only wraps hyphens, not underscores or slashes.

    Truth must be reading from a phone, can read fine from my 10 inch iPad.

  12. Bob on Tue, 27th Sep 2016 3:17 pm 

    All the graphs here are meant to confuse. The barrels per day per rig looks good but they left out the declining production graph for these fields. The decline graphs would sober up an investor. The M&A spending graph shows a rising % of money going to oil. It doesn’t show the bankrupt oil companies going down. And then there is the break even price graph which doesn’t include any profit. You need to add $20 to the amounts to have a viable company. In short, this article is misleading (to say the least).

  13. Luther on Tue, 27th Sep 2016 6:48 pm 

    The well was not drilled to 26,641′ deep and then another 18,544′ out. That would be a total measured depth (TMD) of over 45,000′. The TMD of the well is 26,641′, which is still very impressive. I’m guessing that total departure from vertical is 18,544′ and that the actual horizontal portion of the lateral is a little less than that. The true vertical depth (TVD) of the well is probably actually closer to 9,000′. It’s a difficult to determine because the kick-off point and the build rate of the curve are not included in the article, and I realize that this really isn’t the point of the article. I point out the error in the way that the depths are reported because it tells me that the person that wrote this article didn’t research this enough to really understand the drilling part of the well. This makes me then question the validity of any of the other information in the article.

  14. rockman on Tue, 27th Sep 2016 10:53 pm 

    Luther – Some more details: cost $15.6 million. Estimated initial flow rate based on a 48 hour flow test: 5.6 mm cfpd + 1,200 bbls condensate per day.

    Assumptions: 25% royalty, 4% production tax, $2.50/MCF and $45/bbl

    Net daily income: NG: $9,900; condensate: $38,000. Total: $48,000/day.

    No decline: $17.5 million first 12 months. A 50% decline after 12 months: $13.1 million first 12 months.

    So if anywhere close to that paying out in about 15 to 16 months make this a pretty nice well. Of course being fracture production it won’t have as long a commercial life as it would in a conventional reservoir.

  15. rockman on Tue, 27th Sep 2016 10:57 pm 

    And it was an 18,544′ lateral. Impressive but not was much as the 30,000’+ laterals Maersk was drilling in a fractured reservoir in the Persian Gulf almost 10 years ago. Had plans to drill hundreds of them.

  16. Kenz300 on Wed, 28th Sep 2016 9:49 am 

    So how do Canadian Oil Sands continue to produce while losing money on every barrel of oil?

    If these low prices continue for another year will they go bust?

    How long can they continue to bleed cash?

  17. rockman on Wed, 28th Sep 2016 1:15 pm 

    “So how do Canadian Oil Sands continue to produce while losing money on every barrel of oil?” Easy answer: they aren’t “losing money” because production is still generating a positive cash flow. Just like a well that’s been drilled that will NEVER recover 100% of its cost can still be producing “profitably”…IOW a positive cash flow. If an oil sands operator has already sunk his capital in the infrastructure as long as it’s still netting income it will keep producing until it depletes.

    Starting up new operations is a completely differernt dynamic.

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