Dead Shale Walking: The Debt Saturated Shale Oil Companies Are Filing Bankruptcy On A Weekly Basis And The Trend Will Only Accelerate From Here
by James Quinn
About that American oil independence narrative. Dead shale walking. The debt saturated shale oil companies are filing bankruptcy on a weekly basis and the trend will only accelerate from here as their hedges expire and oil prices continue to fall. You can stick a fork into the shale oil/gas miracle. I can’t remember who predicted this over a year ago.
Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.
To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the USA is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.
The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.
None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.
Figure 1. Horizontal Wolfcamp-Spraberry & Leonard-Bone Spring play location map, Permian basin.
Source: Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)
Reality Check: The Claims vs. Proven Reserves for the Permian Basin
Pioneer claims more than 10 billion barrels for its Spraberry-Wolfcamp position, and EOG claims 2.35 billion barrels for its Bone Spring and Wolfcamp plays.
Let’s put that in context.
Total proven crude oil and condensate reserves for the United States as of the November 2015 EIA reportare 39.9 billion barrels. So, these two companies claim that they have reserves or resources of more than one-quarter of all U.S. reserves in 3 plays in the Permian basin. According to the same EIA report, the Permian basin has less than three-quarters of a billion (722 million) barrels of proven tight oil reserves.
Right.
Pioneer’s claim is by far the more preposterous of the two but it wasn’t very long ago (May 2014) that EOG CEO Bill Thomas told investors that his company wasn’t really all that into the Permian basin. Pioneer CEO Scott Sheffield has been making statements for a few years about the Spraberry that ought to give his company’s General Counsel heart seizures.
“The Spraberry Wolfcamp could possibly become the largest oil and gas discovery in the world.”
It is incredible that analysts have not challenged Sheffield’s claim over the last two years that the Spraberry is second only to the Ghawar Field (Saudi Arabia) as the world’s largest oil field.
What exactly do analysts analyze, anyway
About that American oil independence narrative. Dead shale walking. The debt saturated shale oil companies are filing bankruptcy on a weekly basis and the trend will only accelerate from here as their hedges expire and oil prices continue to fall. You can stick a fork into the shale oil/gas miracle. I can’t remember who predicted this over a year ago.
Guest Post by Art Berman
Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.
To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the USA is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.
The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.
None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.
Figure 1. Horizontal Wolfcamp-Spraberry & Leonard-Bone Spring play location map, Permian basin.Source: Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)
Reality Check: The Claims vs. Proven Reserves for the Permian Basin
Pioneer claims more than 10 billion barrels for its Spraberry-Wolfcamp position, and EOG claims 2.35 billion barrels for its Bone Spring and Wolfcamp plays.
Let’s put that in context.
Total proven crude oil and condensate reserves for the United States as of the November 2015 EIA reportare 39.9 billion barrels. So, these two companies claim that they have reserves or resources of more than one-quarter of all U.S. reserves in 3 plays in the Permian basin. According to the same EIA report, the Permian basin has less than three-quarters of a billion (722 million) barrels of proven tight oil reserves.
Right.
Pioneer’s claim is by far the more preposterous of the two but it wasn’t very long ago (May 2014) that EOG CEO Bill Thomas told investors that his company wasn’t really all that into the Permian basin. Pioneer CEO Scott Sheffield has been making statements for a few years about the Spraberry that ought to give his company’s General Counsel heart seizures.
“The Spraberry Wolfcamp could possibly become the largest oil and gas discovery in the world.”
It is incredible that analysts have not challenged Sheffield’s claim over the last two years that the Spraberry is second only to the Ghawar Field (Saudi Arabia) as the world’s largest oil field.
What exactly do analysts analyze, anyway
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