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Page added on November 1, 2015
Harsh realities finally push US champions of shale oil into retreat
Prolific output from US shale formations in recent years have thrown the world oil market off balance. But a long market slump is now forcing shale producers to retreat.
US crude oil output hit a 44-year peak of 9.6m barrels a day in April then began to decline. By summer next year it will have fallen by a tenth, the US Energy Information Administration (EIA) forecasts.
It took months for US supplies to finally reverse in response to the tumble in oil prices that started in mid-2014. If prices creep higher again, any rebound in shale production will come with a similar lag, analysts say.
The US shale energy industry has made a stunning contribution to the oil market glut. Of the nearly 5m b/d in net global crude oil supply added between 2009 and 2014, 3.3m b/d was from the US, EIA data show. World supply stood last year at 93m b/d. Most new US supply flowed from states such as North Dakota and Texas, where drillers used improved drilling techniques to extract oil from previously difficult shale rocks.
After the rapid fall in the price of crude from mid-2014, analysts were at first surprised that US shale operators did not immediately capitulate by cutting production. Output continued to climb towards its peak in April this year even though drillers began to stop some rigs the previous October, according to Baker Hughes, the oilfield services company. There were several reasons for this state of affairs. Some investors betting on an oil price rebound were content to extend capital to beleaguered drillers on advantageous terms. Some shale producers had also managed to hedge their revenues to protect against declines in revenues caused by a fall in the price of crude.
Frackers also extracted more oil out of each well they drilled, with innovations including the funnelling of more sand into drilling holes to prop open rocks. In North Dakota’s Bakken shale region, new oil production per rig has risen by 43 per cent in the past year, according to EIA.
James Volker, chief executive of Whiting Petroleum, a leading Bakken producer, told a conference in early October: “So while we’re slamming on the brakes here and while we’ve reduced our drilling rig count from 24 in the middle of last year to eight today, we were nevertheless able to set production records.”
Finally, shale companies’ costs have declined between 20-30 per cent as they negotiate better terms with contractors keen to keep their equipment in use.
This has kept some operators afloat despite lower oil prices. However, the longer the slump persists, the tougher life has become for operators. While wells in the best areas can break even with oil at $30 a barrel, some marginal ones require prices of $70 or higher. As a result, producers are turning away from marginal areas and leaving some drilled wells uncompleted for now. Producers under financial pressure have in some cases decided to reduce capital spending. As a result, shale production is now falling.
The next victims of lower prices in North America will be projects with longer investment timescales than shale, such as those in the Gulf of Mexico and the oil sands of Canada. Billions of dollars of cutbacks in these areas will be felt later in the decade, analysts say.
Should there be a sudden rise in the price of crude, the shale industry could once again be spurred into increasing supplies. The question for oil analysts is how quickly this might happen.
In the short term the backlog of drilled but uncompleted wells — known as Ducs — could be brought into service fairly quickly. However, it takes months to drill new wells. Given this time lag and the unpredictability of supply disruptions across the world, a smooth return of shale output is not guaranteed.
Much will depend on the path of supply elsewhere, including Iran as it returns to the market after reaching a deal on its nuclear programme with western powers. Also uncertain is whether the Opec cartel will sustain its current policy of supplying unlimited volumes to put pressure on higher-cost producers such as US shale.
In spite of offering a path to energy self-sufficiency, the fate of the shale sector lies in the hands of foreign rivals.
30 Comments on "Harsh realities finally push US champions of shale oil into retreat"
rockman on Sun, 1st Nov 2015 5:17 pm
So much BS…where to start? LOL. Not cutting back production was a “surprise”? Why: in entire history of the oil patch for the most part companies have never reduced production from existing wells in the face of falling prices. Actually more common for some companies to squeeze it out a little faster. And once again thd ignorance of not recognizing the lag time between a rig count and first production. And no: companies are not on average producing more oil from new wells: the are producing a higher average per well drilled because they stopped drilling the poorer prospects.
IN AGGREGATE shales wells are increasing production much less the a year ago. The AVERAGE INITIAL PRODUCTION might be a bit better but total is much less because few wells are being drilled now.
And for Dog’s sake stop with the drilled and unfrac’d fairy tail. I’ve yet to see one DOCUMENTED statistic supporting such claims. Those wells are like Big Foot: some insist they exist and have seen “proof” yet no one can point out one. LOL.
And these folks ignore the big next shoe to drop: the expiration of hedges which have garnered some operators twice the current oil price. And then there’s the 3rd big shoe to drop for all the pubcos: reseetting the book value of their proven reserves as per the SEC guidelines. This will have a huge negative impact on stock values and credit lines for many pubcos.
Boat on Sun, 1st Nov 2015 8:42 pm
Rock,
And for Dog’s sake stop with the drilled and unfrac’d fairy tail. I’ve yet to see one DOCUMENTED statistic supporting such claims. Those wells are like Big Foot: some insist they exist and have seen “proof” yet no one can point out one
Think the U.S. is awash in crude now? Thank the fracklog that it’s not worse.
Drillers in oil and gas fields from Texas to Pennsylvania have yet to turn on the spigots at 4,731 wells they’ve drilled, keeping 322,000 barrels a day underground, a Bloomberg Intelligence analysis shows. That’s almost as much as OPEC member Libya has been pumping this year.
The number of wells waiting to be hydraulically fractured, known as the fracklog, has tripled in the past year as companies delay work in order to avoid pumping more oil while prices are low. It’s kept crude off the market with storage tanks the fullest since 1930. The fracklog may slow a recovery as firms quickly finish wells at the first sign of higher prices.
http://www.bloomberg.com/news/articles/2015-04-23/u-s-shale-fracklog-triples-as-drillers-keep-oil-out-of-market-i8u004xl
rockman on Sun, 1st Nov 2015 9:33 pm
Boat – I must thanks you for proving my point so convincingly. First, Bloomberg present zero documentation of their numbers. For all you can tell they had a 10 yo child make them up.
But what the hell…lets accept them as fact. In every one of the curves they posted the inventory of drilled but uncompleted (DUC’s) wells was growing at the same time oil prices were at record levels. Everyone: waste a little of your time and open the Bloomberg article. Look at the Eagle Ford in particular. First, according to them, the oil patch completed more wells in 2013 then it drilled, right? That’s what the curve shows doesn’t…negative DUC count? Second, 80% of their current DUC count in the EFS were drilled before the price collapse. So again: why would a company spend $5 million to drill a well and not spend another $3 million to complete it when oil prices were high? The stupidty should smack you right between the eyes. Even the almighty Halliburton, with its fingers on the pulse of the entire oil patch, depends upon “unidentified third parties” for their number of DUC’s.
So if you want folks to believe the Bloomberg BS then you need to explain to everyone here why operators were intentionally not completing wells when oil was selling for twice the current price.
Balls in your court.
GregT on Sun, 1st Nov 2015 10:14 pm
“Everyone: waste a little of your time and open the Bloomberg article.”
LOL
Boat on Sun, 1st Nov 2015 10:19 pm
Rock and GregT
Here is another one to waste your time on.
http://www.rystadenergy.com/AboutUs/NewsCenter/Newsletters/UsArchive/shale-newsletter-september-2015
Boat on Sun, 1st Nov 2015 10:32 pm
I can find many sources other than Bloomberg that say close to the same thing. This link may be a little over your head GregT. Has charts and everything.
GregT on Sun, 1st Nov 2015 10:44 pm
Did you not read Rock’s response Boat?
Boat on Sun, 1st Nov 2015 10:57 pm
Bury your head in the sand. Doesn’t bother me. You never impressed me as somebody wanting to know the truth. If you didn’t know that wells not fracked has a huge backlog, I understand. If unfracked wells were completed by years end production would actually increase. It gets kinda complicated so have somebody explain it to you.
apneaman on Sun, 1st Nov 2015 10:57 pm
Boat, were you ever financially compensated by the PVC pipe company for triggering your cognitive impairment and the periodic drooling episodes?
Boat on Sun, 1st Nov 2015 10:59 pm
apeman,
Lol, you run out of meds?
Brent on Sun, 1st Nov 2015 11:10 pm
Boat still waiting for the proof. I am listening whenever you produce it what you have posted there is not proof but just what they say.
GregT on Mon, 2nd Nov 2015 12:02 am
Ball’s still in your court Boat. Everyone is still waiting for your truthful and considerate response.
coffeeguyzz on Mon, 2nd Nov 2015 1:30 am
Three states’ statistics re DUCs and sources …
North Dakota, 993 wells drilled and not completed as of end of August, 2015.
Source – Director’s Cut, 10/13/2015 … third paragraph on page #2. Site is DMR North Dakota.
Ohio – 523 wells either drilled or being drilled. This site is updated every Tuesday afternoon. Site is oilandgas.ohiodnr.gov
Pennsylvania has 2,548 wells either drilled or being drilled. (7,043 producing horizontals). Some of the Pennsylvania wells are, surprisingly to me, frac’d but not producing … some as long ago as 2011.
Source is Marcellusgas.org and info current as of last week.
rockman on Mon, 2nd Nov 2015 4:10 am
coffeguy – And thanks to you for proving my point even better: “North Dakota, 993 wells drilled and not completed as of end of August, 2015.” Let’s try a little f*cking common sense: you and the Bloomberg ridiculous charts are saying the same thing: the inventory of DUC’s continues to increase. Very good: now explain why companies are drilling wells they don’t plan to frac as soon as possible. IOW why would a company spend 3X or 4X the money to drill a well as frac it if they don’t plan to frac it as soon as possible? Again really f*cking simple logic: according to all the BS sources referred to a company is spending $5 million to drill a well and then WON’T SPEND another couple of $million to frac it to start the cash flow? Why would they drill the well in the first place? If the economics weren’t good enough to frac a well how could they justify spending even more capex to drill it in the first place?
Of course wells are being drilled that aren’t immediately being frac. I suspect this is how the DUC bullsh*t started: wells have never been frac’d right after drilling completed. There is always a delay because the frac crews are not part of the drill crews. At one point operators were FORCED to wait 6 to 8 months for a frac crew after they finished drilling. And now that the service companies are cutting frac crews the wait may have begun to increase once the oil price collapse began.
And one more time: I don’t give a sh*t how many SAY there is an increasing number of DUCS out there: show me the DATA that supports such a claim AND the documented source of that DATA. I suspect what has happened is one idiot is just repeating what another idiot has said…said without presenting any DOCUMENTED DATA to support the claim in the first place.
So all you believers in a huge inventory of DUC’s have to explain why all the Bloomberg BS charts show an ever increasing number of DUC’s: why are operators continuing to spend many tens of $billions to drill wells they don’t plan to frac right away? IOW why the f*ck wouldn’t they wait to drill the wells in the first place?
So go ahead believers: keep repeating what some idiot (that presents NO DOCUMENTED DATA) says about the ever increasing number of DUC’s. Every time you do you only strengthen my argument. LOL.
BTW continue to notice how none of the members of the HODUC (Holy Order of DUC) haven’t responded to any of the specific points I’ve made. I’m sure it will continue. LOL.
rockman on Mon, 2nd Nov 2015 4:22 am
“Some of the Pennsylvania wells are, surprisingly to me, frac’d but not producing … some as long ago as 2011.” Yes: there are thousands of shale wells drilled and frac’d that aren’t producing today. It’s called DEPLETION. Are you aware that there were 4 Eagle Ford wells drilled and frac’d in the last 12 months that produced less than 6,000 bbls of oil before they depleted?
This should come as an even bigger shock: there are hundreds of thousands of wells (including those in conventional reservoirs)that have been drilled and completed over the last 100 years that aren’t producing today. Guess what: in time every shale well that has been drilled and frac’d won’t be producing because they have been PLUGGED AND ABANDONED once they become uneconomic to continue to produce. And guess what again: thanks to the big drop in oil prices there are wells today that aren’t economic to produce that were a year ago.
There are folks misinterpreting the portions of data they are seeing because they don’t fully understand the dynamics.
rockman on Mon, 2nd Nov 2015 4:35 am
BTW someone just asked in a PM why I “LOL” so much. For everyone else who doesn’t understand here’s my response:
I gather you don’t understand the standard protocol: LOL means the post isn’t being written in anger. Have you ever noticed how many f*cking assholes put out angry posts? LOL. I use the “LOL” to show the distinctions between me and them. Perhaps you are also unaware of the protocol behind ” IMHO”. It has nothing to do with being humble: it to point out that the statement is an OPINION and not a FACT: if I say “X is a f*cking idiot IMHO” I’m stating my OPINION of X. I’ll let their own foolish comments establish the FACT. LOLLLLLLLLLLLLLLLLL.
marmico on Mon, 2nd Nov 2015 4:40 am
BTU Analytics reports that there are ~1700 DUCs in the Eagle Ford.
Enno Peters on Mon, 2nd Nov 2015 4:45 am
Coffee, Rockman,
The above source for ND Coffee mentioned comes with a major disclaimer. The numbers (completed wells) have been wrong in the past, and the number of DUCs mentioned in the Director’s cut are estimates. Looking at the actual individual well data, I also belief they are wrong or at least don’t represent the wells that could have been completed already. Many may just have been drilled, and the typical lag between drilling and completion in ND is indeed 3-5 months.
I have posted a graph at http://peakoilbarrel.com/bakken-production-data-and-steo-predictions/ that shows the spudded but not completed wells in ND, and this number has gone done every month since last November. It does appear to be true that the number of wells that could have been fracked, but is not yet (meaning, 3-5 months have past since they were drilled), has been rising, but is now holding at around 500 wells. Only a minority of operators (like EOG) appear to be holding of on completing until later (EOG plans to start completing again early next year).
Therefore, I think Rockman is mostly right about this issue, and that he is supported by the actual data.
marmico on Mon, 2nd Nov 2015 5:41 am
If the argument is that excess DUCs equal total DUCs less 3-5 months of monthly spuds, then a constant excess (500, in your NDIC example) with declining spuds means that excess DUCs are increasing.
rockman on Mon, 2nd Nov 2015 8:30 am
That’s great marm: BTU Analytics draws a graph which the provide no data to support. But they do seem to imply that they actually don’t have hard data. The say their chart is an “estimate”. So what is that estimatd based upon if they don’t have actual data? Perhaps they are basing their estimate on reports by others who don’t have data to support their position.
Enno – Ard you seeing data in the Bakken showing operators have continued drilling despite low prices but are electing to not frac those wells? So the same question: why would companies spend hundreds of $millions to drill wells but not spend another 25% or so to frac them and start producing now? Would you spend $5 million today to drill a well you don’t plan to produce for a year or two?
So one more f*cking time: would any member of the HODUC explain why companies are spending so much capex to drill wells they don’t plan to frac and produce ASAP.
OK everyone: notice how I’ll continue to get no response to such a straight forward question.
Kenz300 on Mon, 2nd Nov 2015 9:16 am
Oil sands in Canada were never a good investment……..
they are the highest cost production………
coffeeguyzz on Mon, 2nd Nov 2015 10:04 am
Rock
I am unable, timewise, to do justice to your questions of why operators drill yet not frac’d and produce … although I am aware of several of the reasons and will touch upon a few.
EOG has said repetitively, for over a year, that they are reluctant to produce at the low realized price.
So, naturally, why drill in the first place?
Of the numerous reasons that these companies have clearly, repetitively stated in their quarterly reports and conference calls (all easily viewed online), fulfilling the contracted terms to utilize the drill rigs is the most common.
As these multi year contracts expire, they are not being renewed. To cut loose rigs prematurely incurs financial penalties, which some operators have, selectively, chosen to do. IOW, the operators are committed to paying whether the wells are drilled or not.
The second most common reason to drill and not frac/produce, especially in the Appalachian Basin, is to hold the acreage as per the leasing agreements. Although the individual contracts, especially in Pennsylvania, are ‘wide open’ regarding particulars, operators generally must at least drill a well to continue to hold it. As the acreage in Ohio, West Virginia, and Pennsylvania
is huge, a lot of wells have been spudded for this reason.
Additionally, in the Basin, there is the well recognized reality of woefully inadequate takeaway capacity for the output (primarily natgas and NGLs), so the operators are unable to frac’d and turn the wells online.
A further motivation is discovery, as in just what the heck is down there.
Specicific case in point, Rex Energy drilled four wells from one pad in Butler county, PA several months ago … one well targeted the shallower Burket formath
coffeeguyzz on Mon, 2nd Nov 2015 10:09 am
I am having too much trouble posting and need to go to work.
The Burket well and one Marcellus well were frac’d and tested.
None will be turned online for several months as there are no pipelines there.
There are other, company specific, formation specific reasons why this occurs, and this information is generally publicly available.
marmico on Mon, 2nd Nov 2015 12:49 pm
BTU Analytics uses DrillingInfo, Baker Hughes, Rigdata.
Rockman uses bluster and blather.
Case closed. LOL, ROTFLMFAO.
DUCs are sunk costs. Operators get their DUCs in order. Every day the DUC inventory is ranked for the next completion. For instance, a single well pad drilled in July 2015 maybe ranked higher than a three well pad drilled in April 2015. A two pad well that drilled both the Middle Bakken and Three Forks maybe ranked higher than a four pad well that drilled the Middle Bakken only. The rank order changes as more information becomes available. Welcome to a competitive business in a market economy.
The U.S. oil business has never operated in a market economy. There was always BIG DADDY in the SKY (Texas RRC and OPEC) to pick you up after you fell down and scratched yourself.
rockman on Mon, 2nd Nov 2015 2:01 pm
coffeeguy – “The Burket well and one Marcellus well were frac’d and tested. None will be turned online for several months as there are no pipelines there.” Mucho thanks again for helping prove my point: Those wells ARE NOT DUC’s. They are DAC’s: Drilled And Completed. More to the poing those operators aren’t voluntarily keeping them from producing
rockman on Mon, 2nd Nov 2015 2:16 pm
That’s great marm. Then you should have no problem posting the actual data from those sources here. I mean BTUA did post the actual data they used as well as their methadology, right? Otherwise someone might accuse you bustering and blathering instead of POSTING CREDIBLE FACTS, right? LOL
As far as that great credible source, EOG, please post their press release that states how many DUC’s they have.
And I’m referring to intentional DUC’s since every shale well that has ever been drilled would have been classified as a DUC since they all has to wait some period of time for a frac crew to become available…sometimes many months.
And for you patient folks notice no one has yet posted any documented data supporting those high DUC numbers. Just as I predicted.LOL.
marmico on Mon, 2nd Nov 2015 2:33 pm
What a blathering, blustering fuctard.
Can’t you make a chart or a graph or any fucking thing with your billionaire boyfriend’s DrillingInfo service access?
I’m still waiting for your 250 word POD abstract.
BTW someone just asked in a PM why I “LOL” so much. For everyone else who doesn’t understand here’s my response
BTW someone just asked in a PM why I “ROTFLMFAO” so much. For everyone else who doesn’t understand here’s my response:
I roll on the floor laughing my ass off because Rockman is a fuctard.
coffeeguyzz on Mon, 2nd Nov 2015 2:33 pm
Rock
Those two wells were certainly frac’d and tested for purposes of evaluation … but the remaining two Marcellus targeted wells were simply drilled to total depth as, I suppose, a cost saving approach as the rig and crews were already onsite.
The timeframe to drill these 6,000’+ verticals with 5,000′ laterals is well under two weeks. Although it may seem odd, in this case the two remaining Rex wells just joined the que of the other 3,000 Marcellus and Utica wells waiting to be frac’d.
I don’t make the rules nor claim to understand the financial logic, but the three sites I listed above are straight from the state regulating bodies or, in the case of marcellusgas.org, in daily touch with the commonwealth’s regulatory Department of Conservation.
A couple of minutes browsing those sites, especially the Buckeye state’s site, can be highly informative.
Bottom line, rock, there are bokoo wells already drilled but not completed … and it’s pretty easy/quick to verify this.
coffeeguyzz on Mon, 2nd Nov 2015 2:59 pm
This is getting kinda weird …
As far as “documented data supporting high DUC numbers …
1.). Type in oilandgas.ohiodnr.gov
2.) Scroll down a little to grey button/bar ” Shale Activity” click
3.) Scroll down to pale grey bar/button that sez “Horizontal Utica/Pt Pleasant Well Activity in Ohio. Click
4.) One page pdf quickly downloads, open, and one can see a map of Ohio and the colored dots that the text below describes (yellow) ‘Drilled/Drilling’ 523
Green dots described as ‘Producing’ 1,023
If this current data located right on the state’s website is not documenting that Ohio has over 500 wells drilled but not yet producing … well, I just don’t know what would constitute ‘proof’.
marmico on Mon, 2nd Nov 2015 4:04 pm
Listen this isn’t complicated. It is basic arithmetic – stocks and flows, aka levels and growth.
1. There is a DUC (oil or gas) stock count.
2. There is a spud, completion and fuctard flow.
3. There is a ratio: DUC stock to spud flow or DUC stock to completion flow or DUC stock to fuctard flow.
4. Is the DUC stock to spud or completion or fuctard flows increasing, decreasing or unchanged?
5. coffee, enno and marmico post data; Rockman posts bluster and blather
5. Rockman is clearly in the fuctard increasing flow.