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# US Shale Oil Revolution News

#### Vorpal

Drillinginfo said:
AUSTIN, TX, April 04, 2019 (GLOBE NEWSWIRE) -- Drillinginfo, the leading energy SaaS and data analytics company, reported today that U.S. oil and gas M&A deal values have plunged to a record 10-year low in the first quarter of 2019. A slump that began in late 2018 has carried over into the new year and the $1.6 billion in Q1 deals is down 91 percent from Q4 2018, and down 93 percent compared to Q1 2018. The slump follows the$82 billion in deals in 2018 that set a four-year record high.
...
Remaining consistent with Drillinginfo analysts predictions at the start of the year, a confluence of factors drove deal values down, including the rapid 40 percent drop in oil prices in late 2018. The primary contributing factor appears to be Wall Street’s pressure to deliver on free cash flow and weak equity and debt markets available to fund deals. Meanwhile, private equity – which has in recent cycles stepped in as an opportunistic buyer to take advantage of pullbacks by public E&Ps – has largely sat on the sidelines.
...
Ultimately, 2019 could be a watershed year for U.S. shale. If free cash flow is reliably demonstrated, Wall Street’s approval is likely to return along with capital for deals. Given the current backlog of assets, there could be a rapid return of activity once the outlook improves.
That's an order of magnitude drop in mergers and acquisitions.

How are the companies doing?

Sanchez Energy, once trading at $38 per share, was delisted from NYSE late Feb for repeatedly failing to meet$1/share [Chron, now trading at 11¢ as of today. By intended drilling activity, measured in number of permits, this was the #2 company in Eagle Ford, compared to EOG's #1 [ref], the latter also leading by production, according to some] reporting on Permian's loss being Eagle Ford's gain last fall.

Companies compared to Oct 2018 peak, except Laredo Petroleum late Sep 2018:
 Company OctPeak Jan19 Now Oct↦Now MktCap Sanchez Energy - - 0.11 **** -99% LPI Laredo Petroleum 8.80 3.74 3.12 -65% 0.746B OAS Oasis Petroleum 14.22 5.54 6.15 -57% 1.99B SM SM Energy 33.47 15.34 15.96 -52% 1.81B WLL Whiting Petroleum 54.51 22.21 27.69 -49% 2.57B CPE Callon Petroleum 12.84 6.55 7.50 -42% 1.71B CLR Continental Res. 71.79 41.96 47.79 -33% 18.09B WRD Wildhorse Res. 23.72 17.38 16.97 -28% 1.73B CXO Concho Res. 159.96 106.69 118.11 -26% 23.29B EOG Resources 132.35 90.61 97.84 -26% 56.27B PXD Pioneer Nat. Res. 187.92 134.30 164.94 -12% 28.00B Main Oil Companies: CVX Chevron Corp 126.82 110.69 117.08 -8% 224.25B BP 46.99 38.59 43.30 -8% 114.94B XOM Exxon Mobil Corp 86.51 69.69 80.49 -7% 338.52B

SRSrocco, which describes this situation as a bloodbath, also points out that despite being an apparently comparable to the main oil companies, had a negative cash flow for a long time.

Wall Street Journal said:
Shale Companies, Adding Ever More Wells, Threaten Future of U.S. Oil Boom: Newer wells drilled close to older wells are generally pumping less oil and gas and could hurt output, leading frackers to cut back on the number of sites planned and trim overall production forecasts ... Shale companies’ strategy to supercharge oil and gas production by drilling thousands of new wells more closely together is turning out to be a bust. What’s more, the approach is hurting the performance of older existing wells, threatening the U.S. oil boom and forcing the maturing industry to rethink its future.
..
Newer shale wells drilled close to older wells are generally pumping less oil and gas than the older wells, according to early corporate results. Engineers warn the new wells could produce as much as 50% less in some circumstances. ... The newer shale wells often interfere with the output of older wells, because blasting too many holes in dense rock formations can damage nearby wells and lower the overall pressure, making it harder for oil to seep out. The moves could potentially cause permanent damage and lower the overall amount recovered from a reservoir.
In other words, the new wells drink the milkshake of the old ones, as can be seen visually from the ever-increasing steepness of oil production by year of first flow:
Related news:
Bloomberg said:
Infected U.S. Shale Oil Is Being Turned Away by Asian Buyers
As various types of crude pass through the supply chain from inland shale fields spanning Texas to North Dakota, they risk picking up impurities before reaching Asia -- the world’s biggest oil-consuming region. Specifically, refiners are worried about the presence of problematic metals as well as a class of chemical compounds known as oxygenates, which can affect the quality and type of fuel they produce.

Two refiners in South Korea -- the top buyer of U.S. seaborne supply -- have rejected cargoes in recent months due to contamination that makes processing difficult. Growing North American output from dozens of fields pushes everything from highly-volatile oil to sticky residue through shared tributaries and trunk pipes. Smaller carriers then take cargoes from shallow-water ports to giant supertankers in the Gulf of Mexico for hauling to far-away buyers.[/code]

#### Eliar

##### Well-known member
LeL here we were laughing at Venezuela pissing off the only people that could proccess the soup they call oil and as it turns out much of the American shale oil is even worse!?

#### Aaron Fox

##### SB's Minor Junker Descendant and Hunter of Nazis
Author
LeL here we were laughing at Venezuela pissing off the only people that could proccess the soup they call oil and as it turns out much of the American shale oil is even worse!?
Eh, from what I can understand Venezuela oil is actually that poor as crude. Shale Oil is really in it's infancy and has it's own problems...

#### Vashon

##### Active member
Banned
LeL here we were laughing at Venezuela pissing off the only people that could proccess the soup they call oil and as it turns out much of the American shale oil is even worse!?
We had found lots of uses for those impurities. That Shale Oil is hard to export means its only market is the US, which, well, kind of helps with the whole "energy independence" thing.

also, this was actually expected, and Lord Zeihan, Paid be thy Name, has been covering this. All the hard stuff has been done, so now whats left is streamlining. The Supermajors are about to come in and snap everything up.

##### Well-known member
Gold Supporter
Wall Street Journal said:
Shale Companies, Adding Ever More Wells, Threaten Future of U.S. Oil Boom: Newer wells drilled close to older wells are generally pumping less oil and gas and could hurt output, leading frackers to cut back on the number of sites planned and trim overall production forecasts ... Shale companies’ strategy to supercharge oil and gas production by drilling thousands of new wells more closely together is turning out to be a bust. What’s more, the approach is hurting the performance of older existing wells, threatening the U.S. oil boom and forcing the maturing industry to rethink its future.
..
Newer shale wells drilled close to older wells are generally pumping less oil and gas than the older wells, according to early corporate results. Engineers warn the new wells could produce as much as 50% less in some circumstances. ... The newer shale wells often interfere with the output of older wells, because blasting too many holes in dense rock formations can damage nearby wells and lower the overall pressure, making it harder for oil to seep out. The moves could potentially cause permanent damage and lower the overall amount recovered from a reservoir.
This highlights one of the chief issues I have with the profit motive and capitalism in general. The impetus for greater profit in as short a time as possible sometimes leads to really, really obvious waste and misallocation of resources. If we employed an entirely rational method for extracting oil, we would try and use the method which led to the least wastage while still extracting it in an economically-viable period of time. Obviously, if the most efficient method was to withdraw a thimbleful at a time, that wouldn't be very useful, either. Time is valuable, too.

#### Vashon

##### Active member
Banned
This highlights one of the chief issues I have with the profit motive and capitalism in general. The impetus for greater profit in as short a time as possible sometimes leads to really, really obvious waste and misallocation of resources. If we employed an entirely rational method for extracting oil, we would try and use the method which led to the least wastage while still extracting it in an economically-viable period of time. Obviously, if the most efficient method was to withdraw a thimbleful at a time, that wouldn't be very useful, either. Time is valuable, too.
Oh that graph isn't even the worst of it. Thousands of tons of Natural gas is produced as a byproduct, but several states, including my home, havn't built out the gas pipelines. So massive amounts of natural gas is being utterly and totaly wasted. If we had moved a portion of our vehicle fleet over to natural gas like was advocated way back in the day, we could double dip into the shale oil boom by using both the oil and the gas to fuel vehicles, or just the gas and store the oil, instead of flaring a million tons of gas.

#### Vorpal

Instead, the US strategy is to produce LNG and export. Since it winds up more expensive than other sources of gas, this must be forced, which is the root of a chunk of geopolitical conflicts today.

#### Wakko

##### Well-known member
Instead, the US strategy is to produce LNG and export. Since it winds up more expensive than other sources of gas, this must be forced, which is the root of a chunk of geopolitical conflicts today.
I've looked up average imported gas prices in Europe for 2018. IIRC: US LNG was $8 per MMBtu, Gasprom piped gas was$7 per MMBtu (production price is under $1), Novatek LNG was$3.15 per MMBtu* Therefore I call the recent push to build LNG terminals in Europe Nord Stream 3.

* hard to believe, here's the source. Extraction price c10, liquefaction price c50...

#### Aaron Fox

##### SB's Minor Junker Descendant and Hunter of Nazis
Author
Instead, the US strategy is to produce LNG and export. Since it winds up more expensive than other sources of gas, this must be forced, which is the root of a chunk of geopolitical conflicts today.
The thing with LNG transport is that it's fuck expensive to transport across water (not as bad as over land, but still, if you can't have pipelines everywhere, it'll get expensive), due to the required infrastructure. What Obama was trying to do was get that infrastructure up and running in Europe...

#### Wakko

##### Well-known member
The thing with LNG transport is that it's fuck expensive to transport across water (not as bad as over land, but still, if you can't have pipelines everywhere, it'll get expensive), due to the required infrastructure. What Obama was trying to do was get that infrastructure up and running in Europe...
The push for US LNG had one other component in it - keeping Russia from developing its Arctic LNG production by export ban on Western LNG technology to Russia in 2014. That has failed, Novatek was able to source the tech elsewhere, and now there is also indigenous Russian tech - the 4th line at Yamal LNG is Russian. It has lower production capacity than the other lines because so far Russia is missing an indigenous 100MW gas turbine, but that is a question of a couple of years (PAO Kuznetsov has an RTD project which is going for a 110MW prototype at the end of 2019 and both Siemens and GE are working in cooperation with Russian companies on 100% localization of their technology).
The result is that the LNG infrastructure in Europe is helping Russia to provide gas to Europe even in places where Gasprom's pipelines don't reach (Spain, Italy, Portugal, UK...) Last year Europe bought more LNG from Russia than from US (and so did China). Market is a b**ch...

#### Vorpal

Last week, China slapped down a 25% tariff on US LNG, increased from 10%, which will come into effect on June 1. Since LNG prices in Asia are higher than in Europe and China is the fastest-growing LNG market, US LNG might normally be expected to be profitable there; however, the tarrifs would essentially annihilate China's imports from the US.
Reuters said:
[2019 May 13] So far this year, only two LNG vessels have gone from the United States to China, versus 14 during the first four months of 2018 before the start of the 10-month trade war.
...
Between February 2016, when the United States started exporting LNG from the Lower 48 states, and July 2018, when the trade war started, China was the third biggest purchaser of U.S. shipments of the supercooled fuel. So far this year, China is not even in the top 15.

“I expect they will have a hard time landing a tanker carrying U.S. LNG in China if they impose a 25 percent tariff on it,” said Jack Weixel, senior director at IHS Markit’s PointLogic analytics arm.
The short-term effect on US producers probably won't be particularly large because the prior tariffs already greatly limited the acessibility of US LNG to the Chinese market. However, funding for LNG development depends a lot on long-term investment and thus securing such contracts, the competitors naturally consider this good news:
Sydney Morning Herald said:
[2019 May 20] In 2018, China imported 23 million tonnes of LNG from Australia, about 42 per cent of the country’s total LNG exports. China was expected to import about 3 million tonnes of LNG from the US this year, before the tariffs.
...
Chinese LNG demand is forecast to soak up much of the increase, as it leaps from 53 million tonnes in 2018 up to about 93 million tonnes in 2025, making it the world’s largest gas importer.
...
“Overall, this is a positive for the marketing of Australian LNG," Mr Kavonic said. US LNG is a competitor to Australia, so the tariffs work to take Australia's main competitor out of the market. If you're a Chinese buyer looking to sign a 20-year deal then you're going to be wary of these [political] risks." [Credit Suisse energy analyst Saul Kavonic]
Russia's Power of Siberia pipeline, which has an gas liquification terminal, is expected to start delivery to China in December.

Some potentially good news for US LNG is that the US successfully lobbied the EU to limit the the capacity of Nord Stream 2 to 50%, for now, while also preparing to sanction European companies to force the issue: Germany's Uniper and Wintershall, France's Engie, the Anglo-Dutch Royal Dutch Shell, and Austria's OMV [Reuters]. I admit a part of me wants this to happen just to see whether the EU will bend the knee.

#### Wakko

##### Well-known member
Some potentially good news for US LNG is that the US successfully lobbied the EU to limit the the capacity of Nord Stream 2 to 50%, for now, while also preparing to sanction European companies to force the issue: Germany's Uniper and Wintershall, France's Engie, the Anglo-Dutch Royal Dutch Shell, and Austria's OMV [Reuters]. I admit a part of me wants this to happen just to see whether the EU will bend the knee.
NS1 was originally also at 50%, but as the demand grew and there were no alternative suppliers, this was increased first to 80% IIRC and then to 100%. And since Germany is killing off its nuclear plants, demand will grow sharply. In a couple of years both NS and the Ukraine route can be at full capacity.

#### Vorpal

NS1 was originally also at 50%, but as the demand grew and there were no alternative suppliers, this was increased first to 80% IIRC and then to 100%. And since Germany is killing off its nuclear plants, demand will grow sharply. In a couple of years both NS and the Ukraine route can be at full capacity.
Yeah, there's a bunch of reasons for that ‘for now’, even beyond Germany's domestic energy policy. The original conception of Nord Stream was in part due to UK's declining gas fields; Nord Stream is ultimately connected to the UK through the NEL and BBL pipelines, and part of NS gas goes to the UK. And while NS can't send more gas to the UK without additional pipelines, the UK overall trend is still there, and joined by an even more dramatic event: Europe's largest gas field, Groningen, is being phased out and will be closed by 2030; its production in 2014 was roughly the same as one NS pipe (55 km³/a), but has gone down to 35 km³/a and decreasing.

I doubt that Ukrainian GTS will be operated at anywhere near full capacity without some very major change, perhaps the resurrection of Gazprom's old proposal of the GTS becoming owned by ⅓ Ukraine, ⅓ Europe, and ⅓ Russia. But the US has every reason to stop that from happening and probably the capability to do, and at this point, the GTS is in such a sorry state that nobody wants it at anywhere near what Ukraine is asking. Well, on a slightly longer time-scale, who knows.

#### Wakko

##### Well-known member
I doubt that Ukrainian GTS will be operated at anywhere near full capacity without some very major change, perhaps the resurrection of Gazprom's old proposal of the GTS becoming owned by ⅓ Ukraine, ⅓ Europe, and ⅓ Russia. But the US has every reason to stop that from happening and probably the capability to do, and at this point, the GTS is in such a sorry state that nobody wants it at anywhere near what Ukraine is asking. Well, on a slightly longer time-scale, who knows.
The "slightly longer time scale" is what I meant. I think in an old East European tradition, Ukraine's GTS will be milked until it will be completely useless. Then it will be sold for a fraction of the currently asked price to a consortium of investors which will have a long-term contract with Gazprom and which will overhaul the GTS. Another option is that it will be leased for a symbolic price (plus the overhaul) and for a fixed time, say 20 years or so. That would be much easier to sell to the public.

#### Vorpal

According to Rydstad Energy (energy consulting company from Norway), 90% of dedicated US shale oil companies (of 40 in sample) had a negative cash flow. Although purely in comparison to other quarters, this is not that low, but it comes at a time when Wall Street is sick of throwing down money for rosy promises.

However, Rydstad is more optimistic about second half of 2019, expecting oil prices pick up. Which they may, although it's against the goals of the current US administration, both domestically and geopolitically.

...

Bonus: this has been linked elsewhere, but the new US Dept of Energy article issolid gold (emphasis mine):
DoE said:
“Increasing export capacity from the Freeport LNG project is critical to spreading freedom gas throughout the world by giving America’s allies a diverse and affordable source of clean energy. Further, more exports of U.S. LNG to the world means more U.S. jobs and more domestic economic growth and cleaner air here at home and around the globe,” said U.S. Under Secretary of Energy Mark W. Menezes, who highlighted the approval at the Clean Energy Ministerial in Vancouver, Canada. “There’s no doubt today’s announcement furthers this Administration’s commitment to promoting energy security and diversity worldwide.”

“Approval of additional LNG exports from Freeport LNG furthers this Administration’s commitment to promoting American energy, American jobs, and the American economy. Further, increased supplies of U.S. natural gas on the world market are critical to advancing clean energy and the energy security of our allies around the globe. With the U.S. in another year of record-setting natural gas production, I am pleased that the Department of Energy is doing what it can to promote an efficient regulatory system that allows for molecules of U.S. freedom to be exported to the world,” said Assistant Secretary for Fossil Energy Steven Winberg, who signed the export order and was also in attendance at the Clean Energy Ministerial.
10/10 marketing. US LNG is best, unlike totalitarian molecules of oriental despotism.

#### Rufus Shinra

##### Well-known member
According to Rydstad Energy (energy consulting company from Norway), 90% of dedicated US shale oil companies (of 40 in sample) had a negative cash flow. Although purely in comparison to other quarters, this is not that low, but it comes at a time when Wall Street is sick of throwing down money for rosy promises.

However, Rydstad is more optimistic about second half of 2019, expecting oil prices pick up. Which they may, although it's against the goals of the current US administration, both domestically and geopolitically.

...

Bonus: this has been linked elsewhere, but the new US Dept of Energy article issolid gold (emphasis mine):

10/10 marketing. US LNG is best, unlike totalitarian molecules of oriental despotism.
Quick, Robin, to the bat-spectrometer! We can finally isolate freedom's composition!

But then, doesn't it come from the country that isolated culture and intelligence in melanin? Damn, these motherduckers are good in chemistry.

#### Wakko

##### Well-known member
Freedom gas sounds pretty ominous. Other people have used gas for their geopolitical goals before, and it wasn't pretty.
I wonder if Mr.Menezes and Mr.Winberg know how bulls**t they sound, or if they're so far gone that they really believe it.

#### Rufus Shinra

##### Well-known member
Freedom gas sounds pretty ominous. Other people have used gas for their geopolitical goals before, and it wasn't pretty.
I wonder if Mr.Menezes and Mr.Winberg know how bulls**t they sound, or if they're so far gone that they really believe it.
Well, gotta cook your freedom fries with something, right?

#### Lerticus

##### Senile Old Coot
According to Rydstad Energy (energy consulting company from Norway), 90% of dedicated US shale oil companies (of 40 in sample) had a negative cash flow. Although purely in comparison to other quarters, this is not that low, but it comes at a time when Wall Street is sick of throwing down money for rosy promises.

However, Rydstad is more optimistic about second half of 2019, expecting oil prices pick up. Which they may, although it's against the goals of the current US administration, both domestically and geopolitically.
The 'Muricans are trying to live the capitalist dream (specifically the tech sector capitalist dream). Fuck your workers, fuck the company, let the top management get fat on their salaries, and try to make yourself as attractive as possible so as to sell off your dying company to a conglomerate (while hiding all the poison pills, because also fuck those conglomerates).

The end game is to trick a large oil producer into gobbling up all the small and cost inefficient companies, with the promise that adding scale will make everything profitable. So far no one is biting. The major reason is that no one in the international markets is being stupid enough to lock themselves into long-term supply contracts with producers that are willing to produce at a loss. Either the contract is signed and the company goes out of business, or your new partner will find a way to become profitable at your expense. Plenty of countries are willing to buy cheap oil, but they are not going to join a suicide pact and discard all their existing supply chains in the hope that US shale is someday going to show profitability. Also, the US has shown themselves to not be a good actor in fair trade, so becoming entirely reliant on them for critical oil supply (even if they promise to be able to flood the markets with cheap oil indefinitely) is not at all desirable.

#### Ravan

##### Gone
Use duck fat, everything tastes better with duck fat.
I’ve actually had that. Duck fat french fries with rosemary and parmesan are nice.

#### Wakko

##### Well-known member
Interesting things are happening in the world of oil. As the US shale oil gets lighter and ligher the more it's extracted, new brands are being created which are being traded with a discount even to the already seriously discounted West Texas Intermediate:
Can Shale Survive Low Oil Prices? | OilPrice.com
The rig count continues to fall. In the week ending on June 7, the U.S. oil rig count plunged by 11, falling to 789. The rig count has declined by roughly 11 percent, or 100 rigs, from a recent peak reached last November. In the Permian basin, where much of the action is, the rig count fell by more than 9 percent over that timeframe, from 493 to 446.

Complicating matters further for Texas shale drillers is the increasing shift of the oil slate to lighter forms of crude. Oil coming out of the ground in West Texas was light to begin with, but as drillers begin to shift increasingly from the Midland to the Delaware basin, oil is becoming lighter and lighter.

The refineries along the Gulf Coast are not equipped to handle oil that light. It is typically mixed in with other streams to create WTI, but rising volumes of ultra-light oil are forcing changes. Instead, the industry is beginning to separate out oil of different qualities, forming new grades, as Reuters reports. In addition to WTI, markets are opening up for West Texas Light (WTL) and even West Texas Condensate (WTC). These newer, lighter grades are trading for discounts, which means that some companies are selling their product for prices well below the prevailing WTI price.
The reason for the discounting of the lighter grades seems to be US rafineries' inability to properly process it, without mixing it with heavier oil (which used to come from Venezuela, but with the sanctions now comes more and more from Russia).

This alone isn't very good for US shale, but what is now happening (of the "what's happening?!?" variety) is that, it seems, Russia doesn't want to cut production any further in order to prop up oil prices: OPEC’s Struggle To Avoid $40 Oil | OilPrice.com Russian President Vladimir Putin seemed to fuel speculation of a rift in Vienna in comments to Interfax news last week. “Of course Saudi Arabia wants oil prices to remain higher,” the Interfax news agency quoted Mr. Putin as saying. “But we have no such need due to the more diversified nature of the Russian economy.” How have the mighty fallen... in 2014, when the Saudis decided to bring down US shale, they've lowered the price to$25/barrel, without even trying to consult Russia. Russian economy took a serious hit - much more serious than from the sanctions that also started around the same time. Now it's 5 years later, Russia has some RUB 8 trillion in its National Wealth Fund*, its budget is built around $42 oil, and it can easily weather a couple of years of$30 oil. Who cannot do that is Saudi Arabia (it needs \$80 oil for its budget to break even), who is now desperately trying to bring Russia on board with further production cuts.
The logical conclusion would be that Russia is trying to push the Saudis into investing more into Russian energy and infrastructure projects. But how will such a fall of oil prices, if it indeed happens, influence the investors who are already pretty unhappy about US shale results? This could be a mighty kick into Donald's family jewels...

* MinFin's statistics still show the number RUB 3.8 trillion, without last year's ample revenue, but since there's now talk what to do with the sum above the mandated 7% GDP that has to be stored in liquid assets (which would be about RUB 7 trillion), it would seem that the transfer already took place and the transferred sum should be about RUB 4.5 trillion.

#### Lerticus

##### Senile Old Coot
Don't anyone try and delude yourselves into thinking that the only rigs going under are shale producers. The extended depressed prices are having their effect on all US production, with an annual reduction in rig count of more than 8% year over year.

As mentioned in the above article, there is also a problem in receiving heavy crude. The end result is looking to either be a larger share of imports (a kick in the nutsack to the "we can be independent of outside energy" propaganda machine), the US domestic industry spending hundreds of billions of dollars on retrofits to refineries so they can handle the lighter oil (which is far cheaper, so operating margins will be reduced in addition to the financial strain of revamps), a major bottleneck occurring where refiners will stop accepting ultralight crude without an increased flow of heavy imports, or a combination of the former points.

End result: US oil production is fucked without outside sources propping up their industry (and when the US is becoming an unreliable trade partner, who is really going out of their way to help sustain low global oil prices which reduce their own revenue streams?). It is a bubble ready to burst, with either shale collapsing and/or refining costs skyrocketing with the low crude costs making the processes unsustainable.