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Page added on October 1, 2015

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US Shale Oil too Expensive, Peaks 1H 2015

US Shale Oil too Expensive, Peaks 1H 2015 thumbnail

According to EIA data, monthly US crude oil production peaked in April 2015 at 9.6 mb/d.

Fig 1: US crude oil production to June 2015

http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm

The above graph shows that US crude production increased by around 4 mb/d between mid 2011 and mid 2015, mostly from shale oil which took off – with a delay – when oil prices exceeded US$ 80-90. That stellar growth has come to an end, also with a delay, after oil prices plummeted.

Let’s zoom into the period starting with January 2014:

Fig 2: US incremental crude production Jan 2014 – Jun 2015

The April 2015 peak was caused by higher GOM production resulting from production start-ups after lifting the drilling moratorium in 2010. Shale oil peaked one month earlier, after the winter drop. However, month by month production can change and future revisions of data are likely due to reporting delays. What is more important than the month of peaking is the fact that US oil production stopped growing.

(Note: Incremental production is calculated as production minus the minimum production in the period under consideration. The sum of the minimum production is the base production)

North Dakota

As an example, the following graphs show the peaking in the Bakken oil field.

Fig 3: North Dakota oil production

https://www.dmr.nd.gov/oilgas/stats/statisticsvw.asp

Fig 4: Bakken production from EIA’s drilling productivity report

http://www.eia.gov/petroleum/drilling/

Fig 5: Bakken monthly production changes

This graph shows that in March 2015 production from new wells dropped below the replacement requirements given by decline in old wells, causing the peaking of production.

Drilling Rig Count

Fig: 6 US oil drilling rig count

Fig 7: Offshore drilling rigs by region

http://www.eia.gov/todayinenergy/detail.cfm?id=23032

In August 2015, the number of active GOM offshore rigs had fallen by 46% over one year, much more than the global average of 20% (from 377 to 304).

Shale oil bubble flying high

Fig 8: CAPEX by type of oil

http://www.oilandgas360.com/schlumberger-q115-draws-praise-from-analysts/

83% of cash flow for servicing debt

Using data up to the 2nd quarter of 2015, the EIA analysed 44 US onshore companies contributing 2.7 mb/d to crude oil production growth. They had negative free cash flows (difference between operating cash flow and capital expenditure) since 2011:

Fig 9: US onshore companies free cash flow

http://www.eia.gov/petroleum/weekly/archive/2015/150910/includes/analysis_print.cfm

That the 1H 2015 result was not worse has likely to do with a reduction in CAPEX which was 12% for international oil companies in 4Q 2014.

With low oil prices, servicing debt has become a major problem for these oil producers. 83% of cash flow (curve, RHS) is used for debt repayments (blue negative columns, LHS):

Fig 10: Cash flow for US onshore producers

http://www.eia.gov/petroleum/weekly/archive/2015/150910/includes/analysis_print.cfm

This means less money is available for dividends, investments in new wells and contingencies.

Shale oil companies are particularly hard hit as their wells decline very fast in the first 2 years. The following graph is from a slide show (Sep 2015)

The North American Unconventional Revolution & The 2014-2015 Oil Price Collapse

by Art Berman who specializes in monitoring US shale oil companies.

Fig 11: CAPEX to cash and debt to cash ratios for 14 selected US companies

Fig 12: Cost per barrel oil equivalent for 3 US companies

http://www.artberman.com/wp-content/uploads/The-Shale-Revolution-The-Current-Oil-Price-Collapse-21-Sept-2015-copy.pdf

The unconventional oil spike sits on top of a bumpy production plateau in the rest of world, where crude production in 2014/15 was just 1 mb/d higher than in 2005, the year when the peaking started.

Fig 13: Incremental US shale oil and tar sands vs RoW

Conclusion:

The world lives on borrowed oil. And on borrowed time because we don’t know how long this debt/oil blend will last.

Crude Oil Peak



14 Comments on "US Shale Oil too Expensive, Peaks 1H 2015"

  1. makati1 on Thu, 1st Oct 2015 8:19 pm 

    Hopefully, not for much longer.

  2. paulo1 on Fri, 2nd Oct 2015 7:08 am 

    Cornies and hypsters will simply say, “when the price rises, Yankee ingenuity will produce more oil”.

  3. Cloud9 on Fri, 2nd Oct 2015 7:21 am 

    Expect the same kind of recovery we had leading up to the 08 spike. The economy is like a ball rolling down a stair case. With each drop their will be a bounce with less of the economy coming back after each step down. At some point, we reach Liebig’s Law of the Minimum and we will have systemic collapse. How many more cycles of contraction this will take is anybody’s guess. Japan has held on for a very long time, but, we are not Japan. We on the other hand are the Balkans, held together by the most tenuous of glues consisting of nothing more than systemic fraud.

  4. Hello on Fri, 2nd Oct 2015 11:51 am 

    Plenty of oil, still. Unfortunately.

    The economy can easily pay 200 or 300$ for oil. What’s bad for the economy is not high prices, but roller coasters.

  5. SugarSeam on Fri, 2nd Oct 2015 12:50 pm 

    suggesting the economy can easily pay for $200 oil is one of the dumbest things uttered in the history of comment sections ever.

  6. Cloud9 on Fri, 2nd Oct 2015 1:22 pm 

    First comes the contraction then comes the printing. I have fifty trillion in Zimbabwe dollars and it won’t buy a stick of gum.

  7. Hello on Fri, 2nd Oct 2015 3:33 pm 

    Suger:

    Thank you for your compliment.
    Dumb is usually labeled what one don’t understand.

  8. GregT on Fri, 2nd Oct 2015 4:07 pm 

    “Dumb is usually labeled what one don’t understand.”

    Not in this case.

  9. jjhman on Fri, 2nd Oct 2015 5:53 pm 

    It takes a lot more analysis than simple one liners to define exactly what kind of western economy can survive on $300 oil.

    We certainly don’t have now the kind of economy we had in 1971 when I got my BS degree. Even in a recession the air was full of long term optimism. I doubt many people could afford to drive the cars we had back then with today’s oil prices. Yet a lot of people think they are well off with Toyota Corollas and Ford Escorts as long as they have a smart phone and a 60 inch TV.

    Are we better off? Sometimes it seems like it, but my daughter is having an awful time getting a job even though she has an MS degree and, here in California, apparently no one can afford the house they live in.

    With some seasoning we can live, and live well, with a great deal less wealth and $200 oil will indeed mean less wealth. Will it mean the end of the current paradigm of consumption and growth, more consumption and more growth?

    Well eventually it will.

  10. Go Speed Racer on Fri, 2nd Oct 2015 8:52 pm 

    It will be good when the economy collapses. All the fat Anericans will become skinny again.

  11. makati1 on Sat, 3rd Oct 2015 12:05 am 

    Go Speed, …or dead. Most likely the latter as most are diabetic or have heart problems from their obesity and poor health habits.

  12. Davy on Sat, 3rd Oct 2015 7:21 am 

    JJ, it depends on how you define “seasoning”. In some cases you may be right. I am living well. I got off the train and I parked. I am not banking on a future I was told was coming. I did well for myself so I have had some time to prep. This may buy me a few months or more. The more I prep the more I understand just how difficult poverty will be. I am planning on my life getting tough in months not years.

    All my luxuries like coffee and green tea will be increasingly scarce. Buying on Amazon and at Costco will not be the same. Discretionary driving will change. Restaurants and “food of any kind at any time” will soon be greatly changed. Across the board poverty is ahead. The luxury of poverty may not last long before we are destitute. How did you like that incongruous juxtaposition luxury and poverty? This is what life is going to be about. Your seasoning is going to include paradoxes, catch 22’s, and incongruous juxtapositions.

    A vast majority of the global population is not doing well now and was not even doing well pre 08 crash. In this post 08 crash even more have joined that club of disenfranchised as population continues to explode. Those of us like you and I can live well for a time if you rearrange your expectations and lifestyle. Live with less with the understanding the effects of poverty are ahead. Scarcity, food insecurity, and lack of consumables will reduce our comfort levels. There is no one on this board that can escape that.

    In the third world we will see terrible situations of hunger and mayhem. I laugh when these third world lovers claim the simple man will do fine and the rich westerner will suffer because the “Third Worlder” is already poor. Yes, that would work if there was not something called population overshoot. These poor people especially in Asia and Africa cannot just expect to do OK because they are already poor. Things will not stay the same for them. They will go from poor to destitute. There may be tough survivors that survive the die off but going into the descent there will be little that being already poor will help with.

    In the rich west we have consumption overshoot. In that case JJ, you and I will be made poor and suffer the consequences. What are your plans for food insecurity and fuel scarcity? We may have less population pressures but we are definitely exposed from having a delocalized local supported from a vast global. The rich west cannot survive whole with a collapsing third world. I am not going to say just as exposed as the third world at least in the beginning. There is more cannibalization available where societies are already rich but that has limits.

    It is going to come down to food in the end. Is your local food stable now? Will it be food stable in a descent? Most “Third Worlders” are currently food insecure with overpopulation. This will not end well for them. The west is in better shape in some areas but large urban areas will be difficult to keep supplies with food and fuel in shortages.

    JJ, $200 oil is an illusion. The economy cannot function properly now with $40 oil let us forget $200 oil. Sure oil will likely panic spike up significantly but not $200. The question should be broad based deflation. Can we survive broad based deflation? For a time as we cannibalize our society at all levels but that cannot end well. The best I can say for your “seasoning” is if you want to go stoic, spartan, and humbled and like it then yes you can live well.

  13. Hello on Sat, 3rd Oct 2015 7:28 am 

    200$ and 300$ is not an illusion. It makes for a perfectly viable economy you can hardly distinguish from the current one. What kills the economy is the rollercoaster. One year it’s 150 the next it’s 50. Uncertainty kills investments.

  14. Davy on Sat, 3rd Oct 2015 8:11 am 

    Hello, you are hilarious sometimes. In three sentences you tried to explain oil and its price.

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