[AirlinePilot]

There is an important dynamic with regards to the Great Frack which needs to be reviewed every time we talk about it. The flexibility of the industry to rapidly increase production once the price signals can support it is going to be hampered in the future.

The initial Boom of fracking was supported in no small part by what can only be described as a flood of nearly free money being provided by QE and the government response to a near collapse of the backing and financial sectors after 2008. We are nearing the end game of one of the biggest credit bubbles blown in recent human history. When (and I do believe it WILL happen) prices begin to rise enough to support the next (SMALLER) fracking boom, the ability to ramp production quickly will not exist as it did 5-6 years ago due to the inability of companies to quickly and cheaply finance recapitalization as they did during the first cycle. The cheap or almost free money wont exist and the trepidation caused by this latest "bust" in oil price will make it far more problematic to rebuild the infrastructure and manpower to get back to where we were. The risk vs reward involves much more downside risk than it did last go around IMHO.

Interesting times. Watching the rest of the world decline or remain flat suggests that anything fracking can add will be more of a too little, too late proposition given the global picture moving forward. Ive always been like Rockdoc...a longer bumpy plateau is seeming to be the real image of PO. My ideas about it have definitely changed and fracking has had a lot to do with that. At some point we will no longer benefit from US LTO and where we go from there will depend in large part on some very tenuous and politically unstable countries contribution to global supply.

One should ask themselves at what point do groups like ISIS et al realize that the way to hurt the great Infidel is to shut off or severely hamper our flow of oil? I am quite frankly surprised we have made it this far without them figuring this out!

[Pops]

$this->bbcode_second_pass_quote('AirlinePilot', 'T')he cheap or almost free money wont exist and the trepidation caused by this latest "bust" in oil price will make it far more problematic to rebuild the infrastructure and manpower to get back to where we were.

[ROCKMAN]

"Billions of dollars of dilutive equity". Do folks here understand what this means? No one is giving/lending this huge influx of capex to the industry: companies are selling off a portion of themselves at a HUGE DISCOUNT to what they were recently worth. As they point out Weatherford...from the full article: "Weatherford, the world’s fourth-largest oilfield services provider, was the latest to throw its hat in the ring, offering 100 million shares at $5.65 a share". Do you folks realize that this chunk of the company was worth $2.4 BILLION LESS THAN 2 YEARS AGO. And they are selling it for $566 MILLION today. IOW they are selling off a chunk of the company at a 77% discount.

And why would someone buy their stock at this price: the expectation that the new money will lead to growth. But here's the problem with that assumption: the future value of the company will hang completely on oil field activity. Same difference with Marathon: the future value of their new stock offerings will depend on heir profitability in the future. For both companies there is no guarantee it will happen. But the influx will have an immediate benefit to both companies: they can live off these monies while waiting for the situation to improve significantly in a relatively short amount of time. And if it doesn't work ot? No big deal: both companies swapped pieces of their companies that will be worth even less in the future then they are today.

Oddly it reminds me of the fools that rushed in to the US shale play by paying Petrohawk $12 BILLION for its Eagle Ford acreage. A great deal for Petrohawk: they gave up acreage that never lived up to the value BHP Billiton put on it. And that was during the high oil price period...not today. From the day BHP closed that deal their stock value fell...eventually losing $100 BILLION in value. So maybe someday Weatherford and Marathon will be worth a lot more then those new shareholders are paying for their piece of the pie today. OTOH that was BHP's plan from the start also. LOL

[AirlinePilot]

Tudor, Pickering, and Holt&Co. ......Houston based OIL INVESTOR BANK.......what else do you think they are going to say?????

[Pops]

$this->bbcode_second_pass_quote('AirlinePilot', 'T')udor, Pickering, and Holt&Co. ......Houston based OIL INVESTOR BANK.......what else do you think they are going to say?????

[Tanada]

After all the discussion we had he about the Red Queen's Race back in 2012-2014 I came to the conclusion that no matter what in geologic terms fracking will be a decade scale flash in the pan. There just isn't enough LTO out there to exploit at high production rates for very long. The current crash/reset might stretch that flash out to 15 or perhaps even 20 years counting from 2009, but I would be very surprised if it lasts that long. There are far too many factors chipping away at the base of the global supply, how much of the world now is in terminal decline? You can only delay the inevitable, you can not avoid it forever.

[Plantagenet]

$this->bbcode_second_pass_quote('Tanada', 'A')fter all the discussion we had he about the Red Queen's Race back in 2012-2014 I came to the conclusion that no matter what in geologic terms fracking will be a decade scale flash in the pan. There just isn't enough LTO out there to exploit at high production rates for very long. The current crash/reset might stretch that flash out to 15 or perhaps even 20 years counting from 2009, but I would be very surprised if it lasts that long. There are far too many factors chipping away at the base of the global supply, how much of the world now is in terminal decline? You can only delay the inevitable, you can not avoid it forever.

[Subjectivist]

Gail Tverberg just put up a post closely related to this,

$this->bbcode_second_pass_quote('', 'b')ecome a problem. As the world becomes more divided into “haves” and “have-nots,” falling ability to repay a debt becomes more of a problem. To some extent, this happens at the individual level, with auto loans, student debt, and mortgages. If commodity prices fall or stay too low, it happens to commodity producers, including oil producers. It also happens to countries, especially to those who are dependent on commodity exports.

The rise in the cost of oil extraction is another factor. As the cost of extraction begins to exceed the benefit of oil to the economy (assumed above to be $100 per barrel), the energy profit from oil is no longer sufficient to allow the economy to grow as in the past. Without economic growth, it becomes much harder to repay debt with interest.

[Pops]

90% of personal driving (or some large percentage) has no "economic return" at any price. It never did.

Those 37 miles we each drive every day are merely another consumption item, a convenience, like laundry soap in packets or ice cream on sticks.

That we chose to "consume" fewer miles at prices above $100 and the economy didn't collapse as predicted (or boom when the price fell) kinda extends the parameters of armageddon in my mind.

[ennui2]

$this->bbcode_second_pass_quote('Plantagenet', '
')If we get 15 or 20 years of additional growth in the oil supply beyond the 2005 peak in conventional oil, that will be great.

[ennui2]

$this->bbcode_second_pass_quote('Pops', '9')0% of personal driving (or some large percentage) has no "economic return" at any price. It never did.

Those 37 miles we each drive every day are merely another consumption item, a convenience, like laundry soap in packets or ice cream on sticks.

That we chose to "consume" fewer miles at prices above $100 and the economy didn't collapse as predicted (or boom when the price fell) kinda extends the parameters of armageddon in my mind.

[Pops]

I disagree with MQ on lots of stuff but for a long time I also thought $100 would be very bad, maybe way bad on the economy. Turns out not so bad, and, the return to cheaper not so great.

I am frankly surprised at how contained the effects has been limited to energy spending. High price caused a slump in car sales and driving and low priced caused an increase in car sales and driving. That is about it.

Obviously we are not in a permanent decline, and, there was some "bleeding" as higher energy prices took some money from other categories but not what I would have guessed for 4 years of the highest prices ever.

[Plantagenet]

Just as surprising as the fact that high gas prices didn't make the economy collapse is what's going on now.....i.e. the low oil prices and low gas prices at the pump we've got now aren't making the economy boom.

I was pretty sold on the idea that oil was so central to the operation of the economy that jolts in the price of oil would cause recessions and sustained low energy prices would stimulate growth.

I dunno......everything is just so screwed up now in the economy with zero interest rates, almost no GDP growth but full employment and a booming stock market. The old rules just don't apply.

Cheers!

[tita]

$this->bbcode_second_pass_quote('', '9')0% of personal driving (or some large percentage) has no "economic return" at any price. It never did.

[ROCKMAN]

T - "The current crash/reset might stretch that flash out to 15 or perhaps even 20 years counting from 2009". I have to assume you're talking about FUTURE NEW WELLS. Point of fact: virtually none of the unconventional wells drilled during the boom will be producing any meaningful in another 7 years or so. In reality that "flash" will disappear (as long as we don't see $80+/bbl oil) will be gone in another 3 or 4 years.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'T') - "The current crash/reset might stretch that flash out to 15 or perhaps even 20 years counting from 2009". I have to assume you're talking about FUTURE NEW WELLS. Point of fact: virtually none of the unconventional wells drilled during the boom will be producing any meaningful in another 7 years or so. In reality that "flash" will disappear (as long as we don't see $80+/bbl oil) will be gone in another 3 or 4 years.

[ROCKMAN]

T – I would say ‘wrong’…more a matter of degrees. First, companies didn’t hold back drilling those “super sweet spots” because the price of oil was too high. LOL. At current prices only the better prospects are still be drilled. But those were being drilled during the boom also so there’s no big inventory of them out there. And to a fair degree IMHO the drill rate has already ground down to a halt (remember a matter of degrees). So what’s different in the future (at current prices) to the situation 10+ years ago: we knew the oil was there and we had all the technology we have today? First, we had lower oil prices. Second, we didn’t have the oil patch suffering under the huge debt load it is today.

So will the Eagle Ford Shale still be contributing SOME production in 15 to 20 years? Why not: it was first produced in the 1940’s. And the Rockman drilled and frac’d his first EFS well over 25 years ago. Likewise the Bakken began producing over 60 years ago. But again we’re back to talking about the MAGNITUDE of such efforts…not whether they’ll be happening.

Consider how folks like to look way back at the demise of the whaling industry with respect fossil fuels. Yet even today whales are still being harvested. Just a matter of degrees. LOL.

As far as those sweet spots go it's really a continuous curve and not the step-like model you offer. But I'll add it's a very subjected call: there are shale wells being drilled today that will never recover the investment despite the fact their economic analysis said they would at current prices. Like sh*t, dry holes happen. LOL.

[Pops]

$this->bbcode_second_pass_quote('tita', '')$this->bbcode_second_pass_quote('', '9')0% of personal driving (or some large percentage) has no "economic return" at any price. It never did.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'P')oint of fact: virtually none of the unconventional wells drilled during the boom will be producing any meaningful in another 7 years or so

[ROCKMAN]

Doc - All true but it also depends on one's definition of "significant production". easy to say what we saw during the boom was a significant amount of production. Soif prices stay where they are today would you say shale production in 7 years would be significant compared to what we say by mid 2015?

Again, "significant" is in the eye of the beholder. For instance, if prices don't increase, will shale production in 7 years significantly reduce the amount of oil the US will need to import? At the height of the shale boom we still imported more then we produced. And imported around 3X as much as the shale production max. Would one say the shales are not producing a significant amount of oil if they are contributing to 10% or less of our consumption? IOW about 1.7 mm bopd? That's almost half of what the shales produced at the max.

Again as long as there's no hard definition of "significant" it remains a relative proposition.