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Page added on January 20, 2016
The Fracking Year 2015
On New Year’s Eve the players in the fracking industry popped their champagne corks but it was not to celebrate wonderful success as they had done the year before. Rather it was to drown their sorrows. The USA’s Energy Information Administration (EIA) has now released this year’s first Drilling Productivity Report so we can now summarise what happened with fracking for shale oil and shale gas during 2015.
One the map you can see the areas in the USA that accounted for 92 % of the increase in oil production and 100 % of the increase in natural gas production during 2011-2014. These are the areas included in the Drilling Productivity Report . The other areas can make only small contributions to increased production and when we look into the future there are no new large areas that can begin to contribute large production volumes.
To give a complete picture of the areas with fracking I will also show this map from the EIA. The Barnett Shale in Texas is a big producer when it comes to shale gas but its production is not growing. Fracking exists in these areas today and it will exist in them tomorrow.
Shale oil was produced first from the Bakken Shale and then came Eagle Ford. Oil production in the Permian basin is a mixture of shale oil and conventional oil production and this is an area where shale oil production began later. There are not as many wells in the Permian that can rapidly deplete. When I wrote the chapter on fracking in my new book, “A world addicted to oil” I asserted that production from wells in Eagle Ford decline faster than for wells in the Bakken Shale. Visible evidence for this is that production in Eagle Ford has declined more in percentage terms than in the Bakken. The smaller shale area Niobrara has a mid-level production rate. We will now focus especially on the Bakken and Eagle Ford shales.
If we look at the number of drilling rigs that are active in the Bakken shale then we can see that activity has contracted dramatically during 2015. In the beginning there were around 200 rigs and now the number is under 50. In Drill, Baby Drill David Hughes showed that production from the Bakken would decline by 40% during one year if no new wells were drilled. The figure shown here does not show production per well but, rather, how efficiently oil producers can utilize individual drilling rigs. It will be interesting to see what happens with future production from the Bakken shale.
We see that oil production in the Bakken began to level off already before the number of drilling rigs declined dramatically. The Bakken was on its way to reach maximum production capacity. Since mid-2015 we can see a clear decrease but it will take a few more months before we can see the real decline. When/if drilling rig activity increases again the oil producers will find that there are no longer any “sweet spots” available because they have all been drilled intensively already.
Here we can see a “sweet spot” in the Bakken.
The number of drilling rigs in Eagle Ford has also decreased dramatically from 250 at the end of 2014 to 100 now at the beginning of 2016. The production from wells in Eagle Ford typically declines very rapidly and after two years it is 87% below the production peak. The rate of well production decline should affect total production from the Eagle Ford shale more than from the Bakken shale.
Just as expected we see a stronger decline for total production from Eagle Ford than from the Bakken. Thus another of my predictions has been validated. The decline is very palpable at all of 30 % during 10 months. Such a dramatic decline would not have happened if they had put drilled wells into production. The strong decline indicates that they are drilling wells but are also delaying the final large investments needed to frack the wells for hydrocarbon production.
The dramatic decline in production that we see will continue in coming months. There is a risk that smaller operators will encounter financial problems and companies with more money in their financial pockets will buy up the drilled, unfracked wells and wait for better times. In Eagle Ford as in the Bakken most of the drilling has been in the sweet spots. The volume of oil production from fracking in the USA was up at around 4.3 Mb/d in April 2015. If one summarizes the issue of declining oil production in the areas where only fracking occurs then production is now down by 0.9 Mb/d. Before the summer arrives the decline in production will be greater than 1 Mb/d.
The fact that Saudi Arabia has not cut back its oil production to support the price of oil has been called Saudi Arabia’s “war on fracking”. At the moment it appears to be succeeding. All too many investors have burned their economic fingers playing the fracking game and “once burned, twice shy” will be the rule. There are many indications that we will never again see production of shale oil in the USA exceed the level reached in April 2015. Fewer investors will be interested in gambling their money on it. The “fracking boom” is presumably over.
14 Comments on "The Fracking Year 2015"
rockman on Wed, 20th Jan 2016 6:53 am
The fact that US shale producers have not cut back its oil production to support the price of oil has been called America’s “war on OPEC”. Based upon the recent numbers offered by OPEC: They forecast a 2016 rate of 31.6 mm bopd. Their reference Basket price in Dec was $33.46/bbl. If prices don’t slide any further that will generate a revenue stream of $386 billion. Had not US shale producers generated so much new production (which they have so far refused to reduce from existing wells) OPEC would have continued receiving $90+/bbl. This would have generated a revenue stream of $1.04 TRILLION in 2016. IOW the war against OPEC waged by US shale producers will cause a reduction of $652 billion in revenue for 2016. In contrast US shale producers will receive only $77 billion less in revenue during 2016 as a result of their not cutting back on their production. IOW the war on OPEC is costing it more than 8X what it is costing US shale producers. The net effect: US shale producers are get hit with negatives that affect their stock prices and potential futures. None of which has a net negative effect on the USA since our consumers are now paying about $400 BILLION LES PER YEAR for oil. OTOH OPEC countries will have over $600 BILLION LESS PER YEAR to try to keep their control over their increasingly unstable populations.
I would say the USA is easily winning the war against OPEC. All OPEC can do to reduce their hemorrhaging of their economies is deplete their finite reserves even faster. Which, in turn, appears to be further reducing what they can charge for their production.
Davy on Wed, 20th Jan 2016 7:31 am
Who is winning the oil war?
“Markets In TurmOIL: Futures Plunge, Japan Enters Bear Market, Crude And Commodity Currencies Crash”
http://www.zerohedge.com/news/2016-01-20/markets-turmoil-futures-plunge-japan-enters-bear-market-crude-and-commodity-currenci
“In sum: the world is on the verge of a global bear market, exacerbated by an ongoing earnings deterioration which has sent the MSCI gauge of global equities to the brink of a bear market. But the biggest driver remains oil whose slump to a new 12-year low is ripping through markets”
“Commodity currencies were slammed with Russia’s ruble and Mexico’s peso falling to record lows, while bets mounted on an end to Hong Kong’s dollar peg. Saudi Arabia also launched capital controls when it was reported overnight that it had ordered a halt to Riyal forward option trades.”
“It’s back to oil and that’s what is driving everything at the moment,” Barra Sheridan, a rates trader at Bank of Montreal in London told Bloomberg. “We can easily run more because it’s pure fear. I don’t know what we need to change this sentiment.”
“Asian equity markets traded with heavy losses after the continued weakness in energy prices, with WTI Mar`16 futures falling below USD 29/bb dampening sentiment across the region. Subsequently, the MSCI Asia-Pac reached 4 year lows, while the Nikkei 225 (-3.7%) fell into bear market territory after falling 20% from August highs”
makati1 on Wed, 20th Jan 2016 7:59 am
Rock, but the Us is going to lose in the end and the KSA knows it. This may be the year that breaks the financial back of fraking. We can only hope.
Kenz300 on Wed, 20th Jan 2016 9:45 am
There are safer, cleaner and cheaper ways to produce energy and to invest……the transition to alternative energy sources continues…….
Half of U.S. Fracking Industry Could Go Bankrupt as Oil Prices Continue to Fall
http://ecowatch.com/2016/01/18/fracking-industry-bankrupt/?utm_source=EcoWatch+List&utm_campaign=bddf330f10-Top_News_1_18_2016&utm_medium=email&utm_term=0_49c7d43dc9-bddf330f10-86023917
70 More Earthquakes Hit Oklahoma, Averaging Nearly Three a Day in 2015
http://ecowatch.com/2016/01/11/fracking-earthquakes-oklahoma/?utm_source=EcoWatch+List&utm_campaign=1fd6621515-Top_News_1_11_2016&utm_medium=email&utm_term=0_49c7d43dc9-1fd6621515-86023917
twocats on Wed, 20th Jan 2016 10:34 am
Good analysis Rockman. It’s hard to know “who started it”, but we’ll see who is determined to finish it. If SA can change production landscape for the next ten years then it may end up as a win. If fracking industry is never destroyed but just changes hands a couple times, then US wins. If US just invades SA and takes control of their oil, then… everyone wins?
rockman on Wed, 20th Jan 2016 10:42 am
mak – “Rock, but the Us is going to lose in the end and the KSA knows it.” You have to keep it in the right perspective. The US (a very disproportionately large user of oil) is winning big time as a result of lower oil prices. US oil companies are losing.
The KSA, which is heavily dependent upon oil sales revenue, is losing BIG TIME as a result of lower oil prices. As I just pointed out elsewhere: due to low oil prices the US shale producers are seeing a $70 billion/yr drop in revenue and OPEC almost a $700 billion/yr reduction in revenue. US consumers OTOH are spending almost $400 billion LESS for oil this year.
Looking at those numbers it’s easy to separate winners from losers IMHO.
rockman on Wed, 20th Jan 2016 10:49 am
cats – Just my way of teasing: neither the KSA nor US shale producers did anything. It’s all on the consumers: the refiners saw the tea leaves indicating a decrease in demand for products due to those former high oil prices. Refineries are not going to pay so much for oil that they lose money cracking it. The refiners control the price of oil…not the producers. Always been the case and probably always will be the case. The only control we have is how much of our oil we’re willing to sell from our existing wells at the price the refiners are willing to pay. In the case of the KSA and virtually every oil producers on the planet they are producing as much as possible in order to max their revenue.
antaris on Wed, 20th Jan 2016 11:06 am
Rock, you don’t have any retired refinery engineering buddies do you? It would be nice to hear their perspective.
I would imagine that working guys might have signed confidentiality forms to keep mouths closed but the retired ones may have passed the time limit.
makati1 on Wed, 20th Jan 2016 6:31 pm
Rock, The KSA can keep this up for at least 4 more years by just spending their reserves. Can fraking last that long? I don’t think so. Maybe not until the end of this year. We shall see.
Boat on Wed, 20th Jan 2016 8:03 pm
Rock,
Yep, all those anti Americans who think the US is getting hammered by low prices just can’t see the big picture. Nat Gas is giving the US same type of price break but by over production in a fairly internal market.
Changing the subject just a bit but overall low energy prices with the drop in other commodities seem to me sets the ground work for GDP expansion instead of the popular contraction in a couple years. Japan, China, South K and other large importers will benefit also. is will eat up the glut, oil will go back up and the world rolls on.
GregT on Wed, 20th Jan 2016 9:17 pm
Boat,
“Yep, all those anti Americans who think the US is getting hammered by low prices just can’t see the big picture.”
What planet do you live on? Not only is the US getting hammered, the entire globe is.
World markets plunge as oil drops below $27 a barrel
“Global markets’ bad start to 2016 just got uglier.”
“World stocks fell sharply Wednesday as oil sank below $27 a barrel to its lowest level since September 2003.”
“By midday, the main indexes on Wall St. were down in the region of 3%. The S&P 500 and the Dow are now down 10% in 2016.
The crash in oil prices keeps getting worse, heightening concerns about the health of the world economy.”
http://money.cnn.com/2016/01/19/investing/world-markets-oil/
And in case you can’t figure this one out either, CNN is not anti-American.
Apneaman on Wed, 20th Jan 2016 9:27 pm
Boat, me thinks all Americans like you and rockman are the true anti Americans. Your own people are being poisoned, kids, the elderly and even the unborn and all you fuck heads can come up with is more cheer-leading for your ideology. Human externalities don’t count for cock suckers like you and rocky and you always seem to leave out the economic ones too. Like the torn up infrastructure, lost mom&pop business revenue and the environmental tab being passed to the taxpayer.
Porter Ranch Methane Leak Spreads Across LA’s San Fernando Valley
“It now looks like the catastrophic Porter Ranch gas leak, which has spewed more than 83,000 metric tons of noxious methane for nearly three months, has spread across Los Angeles’s San Fernando Valley”
http://ecowatch.com/2016/01/15/porter-ranch-methane-leak-spreads/
Businesses in Porter Ranch struggling as customers relocate
http://www.latimes.com/science/la-me-porter-ranch-economy-20160120-story.html
Porter Ranch worker says air quality led to miscarriage
http://www.foxla.com/news/local-news/75199622-story
makati1 on Wed, 20th Jan 2016 10:10 pm
Ap, what goes around, comes around and some here are staring at that 2X4 coming for their face and still denying it because it will upset that dream boat of a happy life sucking the blood from the peasants. I see a massive increase in suicides in the West this year. If you want to invest, buy pharmaceutical stock. Tranquilizers will be the big item for the near future. And/or alcohol. LMAO
Apneaman on Wed, 20th Jan 2016 11:19 pm
Links galore
Alert: LA gas well has ‘destabilized’, large crater develops in area — Officials: “Could be catastrophic” — TV: Risk of massive fire, possible explosion — Expert: “If wellhead fails, the thing is just going to be full blast… a horrible, horrible problem” — Company refuses to provide photos or media access (VIDEO)
http://enenews.com/la-gas-destabilized-officials-could-be-catastrophic-tv-experts-highly-flammable-gas-creating-risk-massive-fire-explosion-professor-wellhead-fails-going-be-full-blast-itll-be-horrible-horrible-pr