Interesting article on the energy companies that are focused on fracking to extract hydrocarbons. It looks like many of the fracking wells are squeaking by - and perhaps there are more losses than profits being generated today. My guess is that they will keep producing in order to generate cash to keep investors happy; however, should we expect a significant portion of these wells to be capped for when oil goes back up? I'm guessing long term, fracking is not truly profitable until the price is north of $80/barrel. And perhaps the ME reestablishes a stranglehold on

https://www.wsj.com/articles/big-frackin..._lead_pos3

Quote:The rapid decline of U.S. oil prices will test the claim of fracking companies that they can now prosper at $50 a barrel or less, a price level they have found challenging in the past.

For years, the companies behind the U.S. oil and gas boom, including Noble Energy Inc. NBL -1.68% and Whiting Petroleum Corp. WLL -2.30% , have promised shareholders that they have thousands of prospective wells that they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%.

But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.

For one, break-evens generally exclude such key costs as land, overhead and even at times transportation. Companies also frequently tout the low break-even price point of a portion of their holdings, without citing the higher price for crude needed to profitably exploit the rest, or adjusting for the inflated cost for drilling contractors and other services that come with rising oil prices.

Estimates by consulting firm R.S. Energy Group peg break-evens excluding land costs and overhead at about $37 for the Permian Basin of West Texas and New Mexico, $42 for the Eagle Ford in South Texas and $47 for the Bakken in North Dakota.

I think that there would be tremendous pressure on the inevitable Democrat presidential administration and Congress to massively curtail American mineral and petroleum extraction.

As such it would be foolish to bet against idea that the the USA will become a net importer of oil again in the future.

(12-04-2018 01:12 PM)miko33 Wrote:  Interesting article on the energy companies that are focused on fracking to extract hydrocarbons. It looks like many of the fracking wells are squeaking by - and perhaps there are more losses than profits being generated today. My guess is that they will keep producing in order to generate cash to keep investors happy; however, should we expect a significant portion of these wells to be capped for when oil goes back up? I'm guessing long term, fracking is not truly profitable until the price is north of $80/barrel. And perhaps the ME reestablishes a stranglehold on

https://www.wsj.com/articles/big-frackin..._lead_pos3

Quote:The rapid decline of U.S. oil prices will test the claim of fracking companies that they can now prosper at $50 a barrel or less, a price level they have found challenging in the past.

For years, the companies behind the U.S. oil and gas boom, including Noble Energy Inc. NBL -1.68% and Whiting Petroleum Corp. WLL -2.30% , have promised shareholders that they have thousands of prospective wells that they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%.

But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.

For one, break-evens generally exclude such key costs as land, overhead and even at times transportation. Companies also frequently tout the low break-even price point of a portion of their holdings, without citing the higher price for crude needed to profitably exploit the rest, or adjusting for the inflated cost for drilling contractors and other services that come with rising oil prices.

Estimates by consulting firm R.S. Energy Group peg break-evens excluding land costs and overhead at about $37 for the Permian Basin of West Texas and New Mexico, $42 for the Eagle Ford in South Texas and $47 for the Bakken in North Dakota.

It's worth noting that R.S. Energy Group is a Canadian company, and Canada isn't happy with US shale production because the effect of higher US production is a major economic hindrance to Canada. Alberta and Saskatchewan help pay the majority of Canada's bills through Tax Revenue. An economic downturn due to lower oil demand can have massive impacts on Canada's economic stability.

Canada loses if America increases Shale production.

Also important to keep in mind, is that as Shale production goes up and Refineries shift over to processing that... there will be less US refineries willing to take the Canadian Crude, because of the higher cost in refining it and lower output of refined product.

Again, Canada looses if America increases Shale production.

R.S. Energy Group is a Canadian Energy Company that is DIRECTLY affected by the US Shale Oil market.

That's be like Coke putting out a "projection report" claiming that Pepsi production is on shaky grounds to try and get investors to not support the plan that Pepsi has to increase production and earn larger profits.

R.S. Energy Group fiscally benefits from lower investment into US Shale. Of course they're going to put out gloom and doom 'projections' regarding US Shale.

(12-04-2018 01:51 PM)q5sys Wrote:  

(12-04-2018 01:12 PM)miko33 Wrote:  Interesting article on the energy companies that are focused on fracking to extract hydrocarbons. It looks like many of the fracking wells are squeaking by - and perhaps there are more losses than profits being generated today. My guess is that they will keep producing in order to generate cash to keep investors happy; however, should we expect a significant portion of these wells to be capped for when oil goes back up? I'm guessing long term, fracking is not truly profitable until the price is north of $80/barrel. And perhaps the ME reestablishes a stranglehold on

https://www.wsj.com/articles/big-frackin..._lead_pos3

Quote:The rapid decline of U.S. oil prices will test the claim of fracking companies that they can now prosper at $50 a barrel or less, a price level they have found challenging in the past.

For years, the companies behind the U.S. oil and gas boom, including Noble Energy Inc. NBL -1.68% and Whiting Petroleum Corp. WLL -2.30% , have promised shareholders that they have thousands of prospective wells that they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%.

But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.

For one, break-evens generally exclude such key costs as land, overhead and even at times transportation. Companies also frequently tout the low break-even price point of a portion of their holdings, without citing the higher price for crude needed to profitably exploit the rest, or adjusting for the inflated cost for drilling contractors and other services that come with rising oil prices.

Estimates by consulting firm R.S. Energy Group peg break-evens excluding land costs and overhead at about $37 for the Permian Basin of West Texas and New Mexico, $42 for the Eagle Ford in South Texas and $47 for the Bakken in North Dakota.

It's worth noting that R.S. Energy Group is a Canadian company, and Canada isn't happy with US shale production because the effect of higher US production is a major economic hindrance to Canada. Alberta and Saskatchewan help pay the majority of Canada's bills through Tax Revenue. An economic downturn due to lower oil demand can have massive impacts on Canada's economic stability.

Canada loses if America increases Shale production.

Also important to keep in mind, is that as Shale production goes up and Refineries shift over to processing that... there will be less US refineries willing to take the Canadian Crude, because of the higher cost in refining it and lower output of refined product.

Again, Canada looses if America increases Shale production.

R.S. Energy Group is a Canadian Energy Company that is DIRECTLY affected by the US Shale Oil market.

That's be like Coke putting out a "projection report" claiming that Pepsi production is on shaky grounds to try and get investors to not support the plan that Pepsi has to increase production and earn larger profits.

R.S. Energy Group fiscally benefits from lower investment into US Shale. Of course they're going to put out gloom and doom 'projections' regarding US Shale.

I get your points on R.S. Energy Group connections. I don't think what they are saying will influence investors into U.S. shale energy since they will conduct their own due diligence and consult other sources too. P&L figures would be objective, and if we dig into each energy companies' financials we should be able to spot whether the break even point concerns in the article are valid or overblown.

This is not a security problem. Much of the proven production is known and its known at what price that oil is economically viable.

So price goes down....expensive production gets shut in and we simply use the excess cheap production
Price goes up...restart the wells in the Permian and the Bakken.

I've been in this industry for decades. We lurch from overcorrection to overcorrection.

----

What IS dangerous is that many companies have a nasty habit of producing oil that is uneconomic, as they want to wait out a downturn so they'll make excess profits when it comes back. Basically they just waste their balance sheets doing so. I call it 'playing chicken with their shareholders' money'.

If you can pick up Canadian heavy sour and refine it for 28 a bbl, do it. The oil reserves are still there in the US, and we know where they are, and we know how to extract it.

The US' first became a net exporter of ENERGY as a result of the fact that the US has a overcapacity of refining. That fact is most important, because the refinery overcapacity is physically located closer to our reserves, thus making the net price to the refiners relatively cheaper for US unconventional oil.

Albertan heavy sour tar sand Crude (I call it sh*toil) is hella expensive to extract, its expensive to transport, and its expensive to refine. Canada can build all the pipelines they want to, its not going to change the quality of the oil or the cost to get it out of the ground and process it for transport.

Basically, I see going long on Suncor (I've never worked for them), which is a big syncrude player, as basically a call option on heavy sour crude at 70 USD/bbl.

(12-04-2018 05:39 PM)Tom in Lazybrook Wrote:  This is not a security problem. Much of the proven production is known and its known at what price that oil is economically viable.

So price goes down....expensive production gets shut in and we simply use the excess cheap production
Price goes up...restart the wells in the Permian and the Bakken.

I've been in this industry for decades. We lurch from overcorrection to overcorrection.

----

What IS dangerous is that many companies have a nasty habit of producing oil that is uneconomic, as they want to wait out a downturn so they'll make excess profits when it comes back. Basically they just waste their balance sheets doing so. I call it 'playing chicken with their shareholders' money'.

If you can pick up Canadian heavy sour and refine it for 28 a bbl, do it. The oil reserves are still there in the US, and we know where they are, and we know how to extract it.

The US' first became a net exporter of ENERGY as a result of the fact that the US has a overcapacity of refining. That fact is most important, because the refinery overcapacity is physically located closer to our reserves, thus making the net price to the refiners relatively cheaper for US unconventional oil.

Albertan heavy sour tar sand Crude (I call it sh*toil) is hella expensive to extract, its expensive to transport, and its expensive to refine. Canada can build all the pipelines they want to, its not going to change the quality of the oil or the cost to get it out of the ground and process it for transport.

Basically, I see going long on Suncor (I've never worked for them), which is a big syncrude player, as basically a call option on heavy sour crude at 70 USD/bbl.

I'm not in the industry, but I am familiar with the manufacturing sector. I think part of the issue on waiting out a downturn is based on the scale of the company who own the fracking assets. If it's Exxon-Mobile in control of the assets, then I can see them utilizing more restraint to match the market with supply. Smaller companies who have most of their assets tied up in oil shale fields probably have to ride out the downturn or risk going belly up and giving the field away to the next company who can swoop in and work it during boom times. Maybe smaller players aren't as sensitive as I suspect they are, and waiting out a 6 month drop in market prices is not that big of a deal. IDK, but I think it would be the smaller players with more assets concentrated in these sectors who would be more likely to push production so long as their marginal revenue can cover their variable costs.

(12-04-2018 07:49 PM)miko33 Wrote:  

(12-04-2018 05:39 PM)Tom in Lazybrook Wrote:  This is not a security problem. Much of the proven production is known and its known at what price that oil is economically viable.

So price goes down....expensive production gets shut in and we simply use the excess cheap production
Price goes up...restart the wells in the Permian and the Bakken.

I've been in this industry for decades. We lurch from overcorrection to overcorrection.

----

What IS dangerous is that many companies have a nasty habit of producing oil that is uneconomic, as they want to wait out a downturn so they'll make excess profits when it comes back. Basically they just waste their balance sheets doing so. I call it 'playing chicken with their shareholders' money'.

If you can pick up Canadian heavy sour and refine it for 28 a bbl, do it. The oil reserves are still there in the US, and we know where they are, and we know how to extract it.

The US' first became a net exporter of ENERGY as a result of the fact that the US has a overcapacity of refining. That fact is most important, because the refinery overcapacity is physically located closer to our reserves, thus making the net price to the refiners relatively cheaper for US unconventional oil.

Albertan heavy sour tar sand Crude (I call it sh*toil) is hella expensive to extract, its expensive to transport, and its expensive to refine. Canada can build all the pipelines they want to, its not going to change the quality of the oil or the cost to get it out of the ground and process it for transport.

Basically, I see going long on Suncor (I've never worked for them), which is a big syncrude player, as basically a call option on heavy sour crude at 70 USD/bbl.

I'm not in the industry, but I am familiar with the manufacturing sector. I think part of the issue on waiting out a downturn is based on the scale of the company who own the fracking assets. If it's Exxon-Mobile in control of the assets, then I can see them utilizing more restraint to match the market with supply. Smaller companies who have most of their assets tied up in oil shale fields probably have to ride out the downturn or risk going belly up and giving the field away to the next company who can swoop in and work it during boom times. Maybe smaller players aren't as sensitive as I suspect they are, and waiting out a 6 month drop in market prices is not that big of a deal. IDK, but I think it would be the smaller players with more assets concentrated in these sectors who would be more likely to push production so long as their marginal revenue can cover their variable costs.

Nope. Those smaller companies are often very sensitive—especially the ones that are very heavily leveraged with investor capital.