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Thread: Fracking Decline

  1. #1

    Fracking Decline

    Fracking oil wells have a short life- they often hit peak production after only about a year and then decline- that means you need to be constantly drilling new ones just to keep production levels the same. A lot of that is funded by debt and now investors are demanding to see more profits (which are limited given the costs of fracking relative to the price of oil) which is leading to a decline in the number of new wells. Globally, the slowing economies due to trade wars are lowering demand for oil and causing its price to fall. That hurts drillers profitability as well.

    https://www.forbes.com/sites/daneber.../#43a482de3755

    The mighty shale machine is finally slowing down. The question is how concerned energy investors and consumers should be since a decline in drilling activity ultimately points to a drop in production.

    Data from oil services firm Baker Hughes shows the U.S. oil rig count dropped by 17, or over 2%, during the week ended Oct. 25, putting the tally of rigs in the field under 700 for the first time in two and a half years. The drop marks the largest one-week decline in six months for U.S. oil drilling, which has essentially been on a downward trajectory for most of the past year.

    What’s going on here? The capital discipline investors have demanded from shale producers is finally showing up in drilling programs. While shale producers have been successful in growing U.S. oil production to record levels of more than 12.5 million barrels a day, it has been less successful in making money for shareholders. Those shareholders are now no longer rewarding drilling companies for unprofitable growth.

    The effect on producers’ stock prices is ugly. The biggest U.S. exploration and production companies (E&P) are showing roughly 35% declines in their share prices over the last 12 months, while smaller independents are faring much worse with drops of over 60%.

    That kind of capital retreat will force a sector to make massive strategic changes. For shale, that means the pursuit of “value over volume” rather than growth at any cost.

    The industry needs to show it can grow while keeping its capital expenditures within its cash flow -- otherwise, Wall Street will hammer it. Period.

    That reality has translated to tight capital discipline across the sector. With a couple of months left in the year, many shale producers are already nearing the limits of their annual spending budgets. These companies have signaled they will not overspend under any circumstances. The result is an acceleration of the drilling wind-down that we’ve seen across domestic oil plays recently.

    The fact that U.S. benchmark West Texas Intermediate (WTI) prices have remained near $55 a barrel despite intensified geopolitical tensions in the Middle East, including the devastating September 14th aerial attacks on Saudi oil facilities that temporarily wiped out more than half of Saudi production, has kept pressure on shale companies to stay within their budgets. Many shale producers break even at oil prices in the mid-$50s, so there’s little margin for error.

    The good news is that the sector is making progress in avoiding “cash burn” and delivering more free cash flow to shareholders. The second quarter of 2019 marked the first three-month period on record when shale operators achieved positive cash flow from operations after accounting for CAPEX, according to consultancy Rystad Energy.

    Rystad studied the financial performance of 40 shale companies and found that the group accumulated a $110 million surplus in cash flow versus CAPEX -- an industry first.

    But with WTI prices on a knife’s edge and right around break-even levels, there is much more work to be done. Indeed, just 35% of the companies in the Rystad survey were able to balance their spending with cash flow, meaning a large swath of the sector still is not getting the job done.

    Moreover, leading oil services companies such as Schlumberger and Halliburton have recently posted sobering earnings reports that portray a grim future for the E&P sector.

    With global oil markets well-supplied and over 4 million barrels a day of production off the market due to OPEC cuts and U.S. sanctions on Iran and Venezuela, there’s little hope for higher oil prices in the short-term.

    For the time being, shale producers will remain conservative. Investment bank Barclays now says that E&P spending in the United States will fall by 2% this year, including a 7% drop among shale-focused independents. Capital investment should be flat or down 5% in 2020, Barclay analysts predict.

    U.S. oil production is expected to show impressive year-over-year growth in 2019 of 1.3 million barrels a day, according to the U.S. Energy Information Administration (EIA). But a closer look reveals that U.S. output has effectively flatlined at a little over 12 million barrels a day since late last year.

    EIA forecasts growth to level out in 2020 because of falling prices in the first half of the year and continuing declines in productivity. The sector can only improve well-productivity rates by so much, and companies have likely achieved most of these efficiencies. Combine that with more disciplined spending, and EIA sees U.S. production growth slowing to 900,000 barrels a day in 2020 for an average of 13.2 million barrels a day.

    That’s still strong growth, but there’s probably more downside risk to it than upside potential due to oil prices. The new reality in shale is that if oil prices rise substantially, any extra cash flow will be used to pay down debt or reward shareholders with dividends or stock buybacks. Many think shale drilling budgets won’t rise unless WTI enjoys a sustained recovery with producers seeing prices of $65 to $80 a barrel for at least a year ahead in futures markets.

    For that to happen, global oil markets need to tighten substantially -- which probably only begins with a negative supply response from shale.
    Last edited by Zippyjuan; 11-20-2019 at 12:41 PM.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    Quote Originally Posted by Swordsmyth View Post
    Yes, that is the new tactic from all the trolls.
    They just assert lies over and over no matter how often they are exposed.
    I am Zippy and I approve of this post. But you don't have to.



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  3. #2
    https://www.reuters.com/article/usa-...-idUSL2N27A0L0

    U.S. drillers cut oil rigs for record 11th month -Baker Hughes

    Oct 25 (Reuters) - U.S. energy companies reduced the number of oil rigs operating this week, leading to a record 11-month decline as producers follow through on plans to cut spending on new drilling.

    Drillers cut 17 oil rigs in the week to Oct. 25, bringing the total count down to 696, the lowest since April 2017, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday. RIG-OL-USA-BHI

    That was the biggest weekly decline since April.

    For the month, drillers cut 17 oil rigs, extending declines to a record 11 months in a row.

    In the same week a year ago, there were 875 active rigs.

    The oil rig count, an early indicator of future output, has declined so far this year as independent exploration and production companies cut spending on new drilling as they focus more on earnings growth instead of increased output.

    At least one oil major, however, has been adding rigs in recent weeks.

    Exxon Mobil Corp added rigs for three weeks in a row bringing its total up to 72 rigs this week from 64 early in the month, according to U.S. financial services firm Cowen & Co.

    Even though the number of rigs drilling new wells has declined since December, oil output has continued to increase in part because productivity of those remaining rigs - the amount of oil new wells produce per rig - has increased to record levels in most U.S. shale basins.

    The U.S. Energy Information Administration projected U.S. crude output will rise to 12.3 million barrels per day (bpd) in 2019 from a record 11.0 million bpd in 2018.

    U.S. crude futures, meanwhile, traded around $56 per barrel on Friday, putting the contract on track to rise over 4% for the week as support from a surprise draw in U.S. inventories and possible action from OPEC and its allies to extend output cuts outweighed broader economic concerns.

    Looking ahead, U.S. crude futures were trading below $55 a barrel in calendar 2020 and $52 in calendar 2021 .

    Cowen said that projections from the exploration and production (E&P) companies it tracks point to a 5% decline in capital expenditures for drilling and completions in 2019 versus 2018.

    Cowen said independent producers expect to spend about 11% less in 2019, while major oil companies plan to spend about 16% more.

    In total, Cowen said all of the E&P companies it tracks that have reported plan to spend about $80.5 billion in 2019 versus $84.6 billion in 2018.

    Cowen said nine of the 47 E&Ps it tracks have reported spending estimates for 2020 with 2 increases and 7 decreases versus 2019.

    Year-to-date, the total number of oil and gas rigs active in the United States has averaged 972. Most rigs produce both oil and gas.

    The number of U.S. gas rigs, meanwhile, fell four to 133, the least since December 2016.

    Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast the annual average combined oil and gas rig count will slide from a four-year high of 1,032 in 2018 to 951 in 2019 and 906 in 2020 before rising to 957 in 2021.

    That is the same as Simmons forecasts since late September.
    Last edited by Zippyjuan; 11-20-2019 at 12:46 PM.
    Quote Originally Posted by Swordsmyth View Post
    The quality seems to have dropped significantly since I came here, I guess you get what you pay for.
    Quote Originally Posted by Swordsmyth View Post
    Yes, that is the new tactic from all the trolls.
    They just assert lies over and over no matter how often they are exposed.
    I am Zippy and I approve of this post. But you don't have to.

  4. #3
    It is simply about demand . Demand should decrease soon because the economy has been in a 12 yr climb .
    Do something Danke

  5. #4
    Quote Originally Posted by Zippyjuan View Post
    Globally, the slowing economies due to trade wars are lowering demand for oil
    More Zippy spin. The US economy is stronger than it has ever been. It may even be the best economy the world has ever seen, you have no idea.

    The trade war hurts China but not the US, because Trump has the best tariffs. China's tariffs are just sad and embarrassingly poor in comparison.
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
    - Kim Kardashian

    Donald Trump / Rand Paul (Vice Pres) 2016!!!!

  6. #5
    Quote Originally Posted by TheTexan View Post
    More Zippy spin. The US economy is stronger than it has ever been. It may even be the best economy the world has ever seen, you have no idea.

    The trade war hurts China but not the US, because Trump has the best tariffs. China's tariffs are just sad and embarrassingly poor in comparison.
    More truth is spoken in jest than many a jester knows.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  7. #6
    Quote Originally Posted by Swordsmyth View Post
    More truth is spoken in jest than many a jester knows.
    Do you know that China's GDP, by the PPP measure, which makes more sense than dollar-based, is already much larger than America's?

    ...you should, because I've told you.

    China is going to dwarf the US in coming decades, regardless of what Trump or any other US politician does.

    The US fought the civil war, killed 1,000,000 people, and still totally dominated the next century.

    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  8. #7
    Quote Originally Posted by r3volution 3.0 View Post
    Do you know that China's GDP, by the PPP measure, which makes more sense than dollar-based, is already much larger than America's?

    ...you should, because I've told you.

    China is going to dwarf the US in coming decades, regardless of what Trump or any other US politician does.

    The US fought the civil war, killed 1,000,000 people, and still totally dominated the next century.

    China lies about everything and has massively misallocated resources with their centrally planned corruption.
    They are going to all but disappear from the map.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  9. #8
    Quote Originally Posted by Swordsmyth View Post
    China lies about everything and has massively misallocated resources with their centrally planned corruption.
    ...sounds strangely familiar.

    They are going to all but disappear from the map.
    LOL, no.

    They are going to be telling Washington how high to jump, in half a century.

    ...well, assuming psychos like Bolton and other Trump appointees don't get their hands on the button.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken



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  11. #9
    Quote Originally Posted by r3volution 3.0 View Post
    ...sounds strangely familiar.



    LOL, no.

    They are going to be telling Washington how high to jump, in half a century.

    ...well, assuming psychos like Bolton and other Trump appointees don't get their hands on the button.
    Dream on.

    You would have been saying the same thing about the USSR just before it did disappear from the map.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  12. #10
    Quote Originally Posted by Swordsmyth View Post
    Dream on.

    You would have been saying the same thing about the USSR just before it did disappear from the map.
    The USSR was doomed (Thank God) for two reasons:

    (1) communism is terribly inefficient

    and, (2) the territories of the USSR, at the start in the 20s, had only a small fraction of the population and GDP of the US.

    China, on the other hand:

    (1) is not a communist state (despite anti-Chinese propaganda to the contrary)

    and (2) has a vastly larger population, and already significantly larger GDP than the US

    Seriously, if you want to do a good service for your country, you will warn them of this, not play ostrich. China in the not too distant future, is going to be a gigantic $#@!ing gorilla, like the US was vis a vis Europe after 1945. The US is going to need all the help it can get to contain China, if that's what it chooses to do. A strong EU, for instance, will be necessary.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  13. #11
    Quote Originally Posted by r3volution 3.0 View Post
    The USSR was doomed (Thank God) for two reasons:
    (1) communism is terribly inefficient

    and, (2) the territories of the USSR, at the start in the 20s, had only a small fraction of the population and GDP of the US.

    China, on the other hand:
    (1) is not a communist state (despite anti-Chinese propaganda to the contrary)

    and (2) has a vastly larger population, and already significantly larger GDP than the US

    Seriously, if you want to do a good service for your country, you will warn them of this, not play ostrich. China in the not too distant future, is going to be a gigantic $#@!ing gorilla, like the US was vis a vis Europe after 1945. The US is going to need all the help it can get to contain China, if that's what it chooses to do. A strong EU, for instance, will be necessary.
    China IS a communist state even if it has compromised to delay its collapse and its population is more of a disadvantage than an advantage, its population is also going to crash and cause more problems because they had the one child policy for so long that it became part of their culture.
    Their GDP is far more fake than ours and even if you accept it their debt to GDP ratio is still far worse.
    China is going to collapse and probably end up split into squabbling regions like so many other times in its history.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  14. #12
    Quote Originally Posted by Swordsmyth View Post
    China IS a communist state
    No, it isn't.

    Private property is extremely widespread.

    Communism means state ownership of all factors of production; that does not remotely describe China.

    It hasn't in many decades; you're behind the times bud.

    ...blinded by a bit of jingo-jango in the eye.

    even if it has compromised to delay its collapse and its population is more of a disadvantage than an advantage, its population is also going to crash and cause more problems because they had the one child policy for so long that it became part of their culture.
    Their GDP is far more fake than ours and even if you accept it their debt to GDP ratio is still far worse.
    China is going to collapse and probably end up split into squabbling regions like so many other times in its history.
    I can imagine similar statements being made in London, with respect to the peasants with pitchforks across the western sea, c. 1910-1950.

    Oh well, don't say no one saw it coming.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  15. #13
    Quote Originally Posted by r3volution 3.0 View Post
    Do you know that China's GDP, by the PPP measure, which makes more sense than dollar-based, is already much larger than America's?

    ...you should, because I've told you.

    China is going to dwarf the US in coming decades, regardless of what Trump or any other US politician does.

    The US fought the civil war, killed 1,000,000 people, and still totally dominated the next century.

    Disagree. Nothing says a strong economy like zero interest rates, food stamp usage much higher than before the crash, and having a majority of school aged children on free or assisted lunches.

  16. #14
    Quote Originally Posted by Swordsmyth View Post
    China IS a communist state even if it has compromised to delay its collapse and its population is more of a disadvantage than an advantage, its population is also going to crash and cause more problems because they had the one child policy for so long that it became part of their culture.
    Their GDP is far more fake than ours and even if you accept it their debt to GDP ratio is still far worse.
    China is going to collapse and probably end up split into squabbling regions like so many other times in its history.
    Not a fan of GDP but yes the debt to GDP ratio is important. We saw the affects of the of that, during the fake austerity claims, in the PIGGS nations that saw the debt to GDP ration go sky high and how their economy stagnated. Stagnated at best.

  17. #15
    Quote Originally Posted by tebowlives View Post
    Disagree. Nothing says a strong economy like zero interest rates, food stamp usage much higher than before the crash, and having a majority of school aged children on free or assisted lunches.
    Quote Originally Posted by tebowlives View Post
    Not a fan of GDP but yes the debt to GDP ratio is important. We saw the affects of the of that, during the fake austerity claims, in the PIGGS nations that saw the debt to GDP ration go sky high and how their economy stagnated. Stagnated at best.
    The OP is Fracking , but wait , no its about communism... lets talk about Gandi......


  18. #16
    Quote Originally Posted by TheTexan View Post
    More Zippy spin. The US economy is stronger than it has ever been. It may even be the best economy the world has ever seen, you have no idea.

    The trade war hurts China but not the US, because Trump has the best tariffs. China's tariffs are just sad and embarrassingly poor in comparison.

    Rome had the best economy the world had ever seen.

    I have seen what tariffs do first hand;
    An item I bought from China cost me $1500 in May, it is now (6 mos later ) $2100, US consumers pay the tariffs, I'm not
    sure where that tariff money goes, but I know damn well it isn't going in
    my pocket to offset the de facto added tax on what I buy from whomever is being 'tariffed' .

    China has been screwing us for decades, no question about it, but they also are making some very good products
    today.
    I don't see tariffs , blockades, and sanctions though doing anything but hurt consumers everywhere.



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  20. #17
    Quote Originally Posted by Stratovarious View Post
    The OP is Fracking , but wait , no its about communism... lets talk about Gandi......

    I wasn't the one who brought it up. If you think it's off topic, report it , or comment on the first post that went that way.


    Quote Originally Posted by Stratovarious View Post
    Rome had the best economy the world had ever seen.

    I have seen what tariffs do first hand;
    An item I bought from China cost me $1500 in May, it is now (6 mos later ) $2100, US consumers pay the tariffs, I'm not
    sure where that tariff money goes, but I know damn well it isn't going in
    my pocket to offset the de facto added tax on what I buy from whomever is being 'tariffed' .

    China has been screwing us for decades, no question about it, but they also are making some very good products
    today.
    I don't see tariffs , blockades, and sanctions though doing anything but hurt consumers everywhere.
    Isn't roughly the exact amount of the higher price going straight to the Feds? Assuming no shortages that would influence the price.
    Last edited by tebowlives; 11-21-2019 at 05:30 AM.

  21. #18
    Quote Originally Posted by tebowlives View Post
    I wasn't the one who brought it up. If you think it's off topic, report it , or comment on the first post that went that way.


    Isn't roughly the exact amount of the higher price going straight to the Feds? Assuming no shortages that would influence the price.

    Frackin A

  22. #19
    Quote Originally Posted by tebowlives View Post
    I wasn't the one who brought it up. If you think it's off topic, report it , or comment on the first post that went that way.


    Isn't roughly the exact amount of the higher price going straight to the Feds? Assuming no shortages that would influence the price.
    My suspicions are that that money is not being used the way you nor I would approve , especially
    considering the SUPOSSED intentions of the punishment/retaliation (I'm not against retaliation , but we need another means)



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