Culling the Shale Herd

Resilient U.S. Frackers Sueezing Out More Oil Than Expected

What has happened to the fledgling U.S. shale boom is akin to a cull, as the weakest (read: least profitable) projects have been devoured by the bearish market, leaving only the most productive wells still in operation. When you couple this effect with the efficiency gains the industry has been able to produce—the innovations it has doggedly pursued—what you’re left with are fewer but far more valuable rigs. Whatever happens, America’s energy security looks stronger than it has in decades, and that comes to us entirely courtesy of shale. --The American Interest, 18 May 2016

The nation’s oil production is set to drop less than expected this year as drillers in West Texas and Oklahoma find ways to pump crude faster, and for less money, Goldman Sachs says. U.S. crude output should fall by 650,000 barrels a day this year, the investment bank said Monday, revising its previous forecast from a decline of 725,000 barrels a day after two weeks of earnings reports by oil and gas explorers. The fact that oil prices are rising in the face of resilient shale output and higher-than-expected production out of Iran shows global demand is stronger than many believe, and production is falling off elsewhere, Goldman said. --Collin Eaton, Fuel Fix, 9 May 2016

According to Fitch, oil and gas firms defaulted on $26 billion in debt in 2016, which is sharply up from the full-year figures of just $17.5 billion in 2015. But bankruptcy does not necessarily mean that sharp declines in oil production will be forthcoming. As SandRidge’s press release reveals, the company hopes to emerge from bankruptcy without much damage to its production levels. For stronger oil and gas drillers that are not in danger of missing debt payments – which, it should be noted, are companies that represent the bulk of U.S. oil production – the big question is when they will begin to restart drilling. According to Wood Mackenzie, the largest 50 publicly-traded oil companies would breakeven at $53 per barrel. --Nick Cunningham, Oil Price, 17 May 2016

Oil producers in the US have already ridden to the rescue of consumers once this decade. Soon they may have a chance to do it again. The oil market has been hit by a series of shocks, from wildfires in Canada to militant attacks in Nigeria, which have taken an estimated 3m barrels a day from global supplies. The glut that has sent prices plunging since 2014 has been clearing faster than expected. If oil prices stay above $50 for any length of time — and even more if they stay above $60 — US producers will start putting rigs back to work. --Ed Crooks, Financial Times, 18 May 2016

UK Energy and Climate Change minister Andrea Leadsom reiterated on Wednesday the government’s mission to take the country’s shale gas industry out of the ground during the Shale World UK conference in London. “Shale is a fantastic opportunity for the UK,” said Leadsom adding the government and the industry are both “eager to press forward.” Leadsom said the government is taking action to make sure the industry has the right conditions to move forward, citing the 16-week timeframe local councils have to process a permit application, the urgency appeals have to be dealt with and the national government’s given authority to overrule local county councils’ decisions. --Kallanish Energy News, 19 May 2016

High oil prices have boosted the quantitative dimension of globalization by increasing trade, investment and tourist flows, but have greatly impaired its quality. Russians travelled all over the world, Arabs snapped up London properties and Venezuelans gorged on imported goods. Meanwhile, the petrostates’ elites were busy perpetuating their countries' institutional backwardness. Lower oil prices are working to reset the balance. Only those countries that embrace modernization and carry it further than they did in the previous oil downcycle can hope not be relegated to a historical footnote. The rest will be condemned to economic enclavization centered on a resource that is steadily losing value. Now is the time for petrostates to awaken from their long oil dream and choose between the first and the third worlds. --Petr Aven, Vladimir Nazarov & Samvel Lazaryan, The National Interest, May 17, 2016