Venezuela and the slow down of US Shale ?

Discussion in 'Economics' started by Stockolio, Jan 29, 2019.

  1. It is indeed interesting timing... I think with American oil firms likely doing 50/50 with Venezuela oil firms when ever Maduro is ousted, will keep the price of oil artificially low mainly for political reasons, interesting articles about US Shale well ponzi

    Tens of thousands of shale oil wells drilled prior to 2014 now make less than 30 BOPD of rod lift and the number of all wells (2009-2018) that produce less than 50 BOPD on rod lift is alarming (, IHS). "Terminal" decline rates range from 10% annually to even 15% or higher in the Permian (EIA). There are excellent comments of, Bakken, that suggest increased productivity is not resulting in higher EUR's or greater recovery factors of OOIP. The Eagle Ford is over the hump and on the down hill slide.

    The EIA and others suggest that annualized decline in American shale oil basins is 3MM BOPD and it is currently taking 75% of wells drilled in the US (10,000 +/-) to simply offset this decline each year. To do this the shale oil industry has, and will continue to have to outspend revenue by relying heavily on credit/debt.

    Productivity is not the same as profitability and shale oil extraction is a business. For the business to succeed and be sustainable, it must be profitable. The shale oil industry has NEVER been profitable. It must pay down its massive long term debt. The weighted price of WTI (Cushing) for 2018 was $69 and change; if you can't grow production, deleverage debt, show profit and pay dividends to shareholders at those kind of prices, you don't belong in the oil business. SEC K's will be out soon; we'll see.

    The scam was to dump the fracking companies on unsuspecting pension funds, and run off with the profits before the big collapse but the information is already leaking out. Those shale fields are big but unfortunately they are just chock a block full of shale and the oil exists in the gaps between the rubble and there is not much oil there. Add in something like 6 to ten times the drilling for each well, the horizontal drilling radiating out from the centre and they are real expensive, huge debts, hidden behind new production as existing production fails, the race to drill wells faster than existing ones fail
    sle likes this.
  2. Banjo


    Junk bond ETF's are loaded with shale, ~ 15-20% if memory serves. At some point, dependent on geo/political events unfolding, properly constructed options of HYG, JNK will earn.
  3. JNK is 83 %, HYG is 85 % Industrial Junk
  4. JSOP


    Why can't people just get with the program? Oil is dead!!! Alternative energy is the future!! Instead of stubbornly investing still in oil, why can't they pull the resources out and invest them in various forms of alternative energy instead??
  5. bone

    bone ET Sponsor

    Venezuelan and Mexican crude is quite sour (high sulfur content) and viscous. You can probably count on one hand the number of refineries who have the catalytic equipment to crack it. It lowers refinery throughput significantly and is very hard on equipment and maintenance crews. There were some power plants in the US that burned it - but they have either shut down or converted over to Natural Gas combustion.

    The only practical way to profitably refine Venezuelan and Mexican crude is to cut it with Light Sweet American, Canadian, or North Sea Brent stocks.

    I would also question the considerable capital investment required to bring existing derelict Venezuelan oil equipment and plants back to feasible production standards. How does that compare to fracking costs per barrel ?
    Sig likes this.
  6. bone

    bone ET Sponsor

    1. Electric cars will be natural gas powered for fifty more years.

    2. Renewables will never be able to replace fossil fuels entirely.
    Last edited: Jan 29, 2019
  7. Banjo


    Thanks for crude commentary bone.
  8. JSOP


    Renewables *now* will never be able to replace fossil fuels entirely.
  9. bone

    bone ET Sponsor

    "Not only does production in the Appalachia Region continue to grow unabated, but the associated gas (co-produced with oil) in the Permian Basin has started to have a large impact on the natural gas market over the past year or so."

    "I will close by pointing out that the Appalachia Region produced 13 Bcf/d – the current level of production in the Permian – in 2013. Permian Basin gas production isn’t growing quite as quickly as that in the Appalachia, but the resource potential suggests that both oil and gas production in the Permian will continue to grow for a number of years."
    #10     Jan 29, 2019