AuthorTopic: Fracker Debt Bubble  (Read 116165 times)

Offline BuddyJ

  • Bussing Staff
  • **
  • Posts: 61
    • View Profile
Re: 🛢️ A Fracking Ban Will Never Happen
« Reply #465 on: September 16, 2019, 08:08:42 AM »
economics can only kill it if folks stop using oil and natural gas.

No, economics kill it because it can't be extracted at a price enough consumers can afford to pay.  Price goes up, demand goes down, glut ensues, prices fall, rinse and repeat until you hit bottom.

RE

Okay, so we've seen two of those cycles since the Great Recession. The one that hit its height in WTI at $145/bbl in July of 2008 and nadir in February of 2009 at $34/bbl. So that would be the crashing demand, followed by glut and low prices.

Price then increased into the $100+ range from 2011-2014. Demand didn't decrease, it increased.



This appears to be more of a cycle, not hitting a bottom, but bouncing around, and for reasons far more substantial than whether or not some company or another decides to do hydraulic fracturing. If memory serves, that entire high price period just about created the US shale revolution, and that revolution grew oil and gas production even more once prices went DOWN. That production caused a drop in price, and demand just kept increasing through the 2014-2018 time period as well. So the relationship of volume and price didn't even do the cycle thing from 2011-2018 as expected.

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
Re: 🛢️ A Fracking Ban Will Never Happen
« Reply #466 on: September 16, 2019, 08:41:46 AM »
economics can only kill it if folks stop using oil and natural gas.

No, economics kill it because it can't be extracted at a price enough consumers can afford to pay.  Price goes up, demand goes down, glut ensues, prices fall, rinse and repeat until you hit bottom.

RE

Okay, so we've seen two of those cycles since the Great Recession. The one that hit its height in WTI at $145/bbl in July of 2008 and nadir in February of 2009 at $34/bbl. So that would be the crashing demand, followed by glut and low prices.

Price then increased into the $100+ range from 2011-2014. Demand didn't decrease, it increased.



This appears to be more of a cycle, not hitting a bottom, but bouncing around, and for reasons far more substantial than whether or not some company or another decides to do hydraulic fracturing. If memory serves, that entire high price period just about created the US shale revolution, and that revolution grew oil and gas production even more once prices went DOWN. That production caused a drop in price, and demand just kept increasing through the 2014-2018 time period as well. So the relationship of volume and price didn't even do the cycle thing from 2011-2018 as expected.

Yes, demand does increase due to the fact that population continues to increase.  It's the RATE of increase that falls below expectations for growth, and that's what kills the investment because you need the constant growth to cover the interest on the investment.  That's why it is a Calculus problem.

The production increases, but the profitability from that production is falling.  Episodes like this perform the function of a Goalie doing a Stick Save.  But eventually, too many Pucks are going to be flying at the Goalie's head, and he can't stop them all from reaching the net.

RE
Save As Many As You Can

Offline BuddyJ

  • Bussing Staff
  • **
  • Posts: 61
    • View Profile
Re: 🛢️ A Fracking Ban Will Never Happen
« Reply #467 on: September 21, 2019, 05:27:04 PM »
Yes, demand does increase due to the fact that population continues to increase.  It's the RATE of increase that falls below expectations for growth, and that's what kills the investment because you need the constant growth to cover the interest on the investment.  That's why it is a Calculus problem.

What is the expectation for growth? According to CSIS, Rystad, WoodMac and Barclays, it is slowing to zero, and then going negative. I don't know what that means for who is covering what interest. Certainly if folks want less, less will be produced, and we have a different relationship for price as demand and production see-saw downwards. A good thing for the environment.

Quote from: RE
The production increases, but the profitability from that production is falling.  Episodes like this perform the function of a Goalie doing a Stick Save.  But eventually, too many Pucks are going to be flying at the Goalie's head, and he can't stop them all from reaching the net.

RE

So how does your idea work in the expected decreasing demand scenario that the think tanks are putting out there for discussion right now?

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ You’re Footing The Bill For Bankrupt Shale Drillers
« Reply #468 on: September 26, 2019, 11:24:39 AM »
Privatize the Profits, Socialize the Losses.

RE

https://oilprice.com/Energy/Energy-General/Youre-Footing-The-Bill-For-Bankrupt-Shale-Drillers.html

You’re Footing The Bill For Bankrupt Shale Drillers
By Nick Cunningham - Sep 25, 2019, 4:00 PM CDT


A wave of oil and gas wells abandoned by bankrupted drillers could cost the U.S. government hundreds of millions of dollars.

A new report from the U.S. Government Accountability Office (GAO) studied oil and gas wells drilled on federal lands, and found that the public could get stuck with a significant tab from companies that go out of business.

Inactive wells that have not been properly plugged present environmental threats, from methane leaks to surface, air and groundwater contamination. Reclaiming a well that goes offline involves plugging it, removing structures and revegetating that landscape.

On federal lands, the Bureau of Land Management (BLM) collects a bond upfront that can be returned to a driller after reclamation. If the well is not properly reclaimed at the end of its life, BLM uses the bond to pay for the cleanup.

But the problem is that the bond payments are often too low to cover the cost of reclamation. BLM regulations have minimum bond rates at $10,000 per lease, $25,000 for all wells in a state and $150,000 for all wells nationwide.

When a company abandons a well because it cannot afford to clean it up, the well becomes “orphaned,” and tends to fall to BLM. But the agency does not have the funds to handle a wave of orphaned wells because the bonds that drillers pay are too low. “Bonds held by BLM have not provided sufficient financial assurance to prevent orphaned oil and gas wells,” the GAO report found. For instance, GAO identified 89 new orphaned wells between July 2017 and April 2019, which could cost as much as $46 million to clean up.

More eye-opening was the fact that the agency identified nearly 3,000 wells that are at risk of becoming orphaned. Costs for reclaiming old wells vary widely, so much so that the GAO offered two scenarios: low-cost wells can cost $20,000 a piece, while high-costs wells can reach $145,000. For those 3,000 at-risk wells, the cleanup tab for the federal government could range from $46 million to $333 million.

Roughly 84 percent of bonds are likely too low to reclaim the wells to which they are linked. “Bonds generally do not reflect reclamation costs because most bonds are set at their regulatory minimum values, and these minimums have not been adjusted since the 1950s and 1960s to account for inflation,” GAO said. It can also be decades between when a bond is paid and reclamation is actually completed. Notably, the average bond that BLM has on hand has declined over the years on a per-well basis, from $2,207 per well in 2008 to $2,122 per well in 2018.
Related: The Largest Trading Busts In The History Of Oil

This may seem like a rather arcane problem, but it is significant for two reasons. First, the number of shale wells have proliferated in recent years, drilled at ever-increasing depths, which makes reclamation pricier. Second, the shale industry is indebted and the financial foundation could begin to crumble, leaving a growing mountain of orphaned wells for the government as companies go out of business. Already more than 190 shale E&Ps have gone bankrupt since 2015.

“I talk to those guys, all the fracking companies, on a daily basis. I'm very engaged in what they are doing with their business, and I completely believe that the current model is unsustainable,” Scott Forbes, vice president of the Lower 48 for Wood Mackenzie, told E&E News.

It is because of this heightened financial stress that concerns over a wave of orphaned wells are rising. As E&E News notes, New Mexico requires a bond of $250,000 for companies with over 100 wells, which only translates into $2,500 per well at best, a paltry figure compared to reclamation costs.

Ultimately, if the full cost of reclamation was required upfront, there could be a lot less drilling.

The GAO report came at the request of Rep. Raul Grijalva (D-NM) and Rep. Alan Lowenthal (D-CA), both of which come from states with abandoned wells. “The oil and gas industry’s boom-and-bust cycles can lead operators to drill wells when prices for oil and gas are high but can contribute to bankruptcies when prices are low,” the GAO wrote in a letter to the congressmen that accompanied the report.

GAO recommended the U.S. Congress grant BLM the authority to obtain funds from drillers to reclaim orphaned wells while also requiring the agency to develop a mechanism to do so. It also said that BLM should hike bond rates to reflect actual costs of cleanup.

Rep. Lowenthal introduced a bill last week that increased the minimum bond payment for federal lands.

By Nick Cunningham of Oilprice.com
Save As Many As You Can

Offline BuddyJ

  • Bussing Staff
  • **
  • Posts: 61
    • View Profile
Re: Fracker Debt Bubble
« Reply #469 on: September 26, 2019, 05:27:42 PM »
So this article really isn't about shale drillers going bankrupt and their wells being taken over by someone else after bankruptcy or whatnot, it is about orphaned wells? Orphaned wells have programs dedicated to handling them, and they are certainly too small. But that is a regulatory thing, and should have been cleaned up decades ago. Governmental and regulatory incompetence is the category this problem fits into.

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ Oil Giant Slashes Jobs Amid Shale Slowdown
« Reply #470 on: October 11, 2019, 03:40:18 PM »
https://oilprice.com/Energy/Energy-General/Oil-Giant-Slashes-Jobs-Amid-Shale-Slowdown.html

Oil Giant Slashes Jobs Amid Shale Slowdown
By Nick Cunningham - Oct 10, 2019, 4:00 PM CDT


Halliburton announced that it would lay off 650 workers across four U.S. states due to the slowdown in shale drilling.

The oilfield services giant blamed “local market conditions” for slashing payrolls. “Making this decision was not easy, nor taken lightly, but unfortunately it was necessary as we work to align our operations to reduced customer activity,” Halliburton said in a statement. The job cuts were concentrated in Colorado, New Mexico, North Dakota and Wyoming.

The cuts are not the first for Halliburton. Over the summer, the oilfield services company announced job cuts equivalent to 8 percent of its North American workforce. At the time, Halliburton CEO Jeff Miller said that the company would be “removing several layers of management” and that it would be “emphasizing a return on capital approach.” Notably, the company stacked idled equipment, as the market for oilfield services crashed amid a surplus of rigs and services.

In July, when Halliburton last cut jobs and sidelined equipment, investors cheered. “Kudos for being proactive on stacking equipment in this market versus fighting for share,” Angie Sedita of Goldman Sachs said to Halliburton CEO Jeff Miller on an earnings call. Halliburton’s share price soared by 9 percent on the news.

This time around, the stock bounce did not materialize. Sinking oil prices, a deeper decline in drilling activity and increasing skepticism from investors has put Halliburton – and other service companies – in a bind. Halliburton’s share price has fallen by more than half in the last 12 months.
Related: OPEC Chief Hints At Deeper Cuts In December

Pessimism is very apparent from both oil producers and the oilfield service companies. In the most recent quarterly survey from the Federal Reserve Bank of Dallas, anonymous comments from industry executives revealed a deep sense of anxiety. “U.S. oil production is about to fall significantly. The rig count has declined dramatically from one year ago (down 170 rigs), and our customers are not completing wells in order to save cash flow. This all equals a big shift down,” one executive said.

“Oversupply of hydraulic fracturing capacity and reduced activity by customers have put extreme pressure on pricing. Most hydraulic fracturing providers feel that the current pricing is unsustainable over the medium to long term,” another unnamed executive from an oilfield services company said.

The problem for the industry is that WTI is lower than it was a few months ago, and the prospect of a rebound is also questionable. The global economy continues to weaken, and successive cuts to demand forecasts are coming on a monthly basis. OPEC just lowered its demand numbers for the third month in a row, although only by a modest 40,000 bpd.

As Reuters notes, industrial demand has declined as the economy has weakened. Consumption of natural gas and diesel is off because of a recession sweeping over the manufacturing sector. U.S. oil production is not growing at the blistering rate that many analysts had expected, but it has flattened out at a time when demand has contracted.

The most important factor affecting this trajectory in the short run will be the outcome of the latest round of trade talks from the U.S. and China. At the time of this writing, there were mixed signals coming from both sides.
Related: Is This The Next $170 Billion Energy Industry In The US?

There is a bit of momentum for a modest trade deal that could stave off further tariffs. Trump said that he was set to meet with China’s vice premier on Friday, which raised speculation that there could be some sort of a breakthrough. At the same time, Chinese press said that there was no progress on negotiations. The Trump administration is also considering a more aggressive crackdown on Chinese companies and capital flows between the U.S. and China.

An accommodating and de-escalation could provide a jolt to oil prices, but because a grand bargain is extremely unlikely, it’s not clear that simply pushing off a planned hike in tariffs will be enough to rescue the deceleration in the global economy. For now, WTI is trading between $53 and $54 per barrel for November delivery.

Worse, oil futures for November 2020 are at just $50 per barrel, which is an indication that the market thinks things will only get worse next year. That is bad news for oil producers, and the oilfield service companies like Halliburton that support them.

By Nick Cunningham of Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ Is U.S. Shale Circling The Drain?
« Reply #471 on: October 28, 2019, 01:41:02 AM »

RE

https://oilprice.com/Energy/Crude-Oil/Is-US-Shale-Circling-The-Drain.html

Is U.S. Shale Circling The Drain?
By Tsvetana Paraskova - Oct 27, 2019, 4:00 PM CDT


‘Significant production slowdown’ is all around the headlines about the U.S. shale patch these days.

Yet, the headlines have often missed one growing problem in the U.S. oil industry—the abandoned, or ‘orphaned’ wells that bankrupt oil and gas operators leave behind on private, state, and federal land. With companies gone bust, it’s the state or the federal government that must pick up the tab for plugging those abandoned wells, cleaning up the sites, and restore lands to as close to their original natural states as possible. 

The money set aside for reclaiming ‘orphan wells’ is not nearly enough to cover all the costs. Therefore, the well reclamation process is slow and increases the liabilities of the state and federal agencies responsible for cleaning up abandoned wells. This raises the risks of increasing costs for the taxpayer and of environmental disasters waiting to happen if unplugged abandoned wells start to leak.

Before drilling, companies are required to pay bonds for wells reclamation in case the wells become orphan. But those bonds are insufficient to cover all the costs for reclaiming a well. Actually, estimates from the Western Organization of Resource Councils (WORC) show that bond amounts are often too low to cover fully the costs of plugging, removing equipment, cleaning up, and restoring the lands as close to their original state as possible.

The problem with orphan wells on state land is less acute than the one with abandoned wells on federal land. State legislatures can amend regulations to ask for higher bonding requirements from the industry, but the office responsible for cleaning up abandoned wells on federal land, the Bureau of Land Management (BLM), must ask Washington for changes in legislation and requirements.
Related: Pakistan’s New Energy Proposal Is A Double-Edged Sword

On the state level, most states in the West, including North Dakota, South Dakota, Alaska, and Colorado, have proposed significant increases in bonding requirements for oil and gas companies, WORC says. Montana and Wyoming are currently holding official discussions and oversight.

“Between an industry already prone to booms-and-busts and signs of economic slowdown, regulators and legislatures are working to make sure taxpayers are not on the hook for further cleanup of the growing amount of abandoned and ‘orphaned’ oil and gas wells,” WORC said.

Wyoming, for example, has had several thousand coal bed methane (CBM) wells orphaned by their owners since 2014 due to a plunge in natural gas prices, according to the Wyoming Oil and Gas Conservation Commission (WOGCC). Since 2014, there have been 5,775 wells orphaned, and the WOGCC has removed from the orphan well list 2,618 orphaned wells on state and private lands, the WOGCC said in a September update. Before 2014, there were around 500 orphaned wells documented over a twenty-year period, and all of those have been plugged and abandoned.

North Dakota wants to keep the orphan well problem in check and is working on new rules. With low oil prices, the number of North Dakota’s orphaned oil and gas wells has increased by 10 percent over the past two years to exceed 700, according to Bismarck Tribune.

But while states have more power in requiring higher upfront payments from drillers to ensure safe and swift well reclamation, BLM has little power to do anything with the federal land and legislation by itself. 

BLM was also found to have shortcomings in tracking the number of orphan wells on federal land and the liabilities those wells could incur, the U.S. Government Accountability Office (GAO) said last year.
Related: The End Of Syria’s “Pipeline War”

Last month, GAO said that BLM should address the risks from insufficient bonds to reclaim wells.

BLM updated its policy in November 2018, requiring field officers to review oil and gas bonds to determine whether the bond amount appropriately reflects the level of potential risk or liability.

But GAO recommended last month that Congress should consider giving BLM the authority to obtain funds from operators to reclaim orphaned wells and requiring BLM to implement a mechanism to do so.

BLM, however, said that it lacks authority to develop a mechanism to obtain funds, so GAO changed the recommendation to BLM to a matter for Congressional consideration.

BLM says that it aims to improve its orphan well data tracking.

“Under the Trump Administration, BLM has taken action to both better track orphan wells and get proper accounting of them on our online platform,” a spokesman for the Interior wrote in an email to E&E News’ Heather Richards, adding that BLM invests in improving the process for dealing with idle and orphaned wells.   

Across the United States, the number of orphan wells could further rise, due to the expected decline in U.S. shale production growth, and to smaller drillers increasingly constrained in their access to capital. The recent drilling of longer laterals and the increased size of the wells could also mean that costs for reclamation of such wells, if they become orphaned, could be much higher than recent averages.

By Tsvetana Paraskova for Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ A Death Sentence For Small Oil & Gas Drillers
« Reply #472 on: October 29, 2019, 03:23:00 AM »
Ask not for Whom the Bell Tolls.

It Tolls for the Collapse of Industrial Civilization.

Quote from: John Donne
Devotions Upon Emergent Occasions

MEDITATION XVII.


NUNC LENTO SONITU DICUNT, MORIERIS.

Now this bell tolling softly for another,
says to me, Thou must die.


PERCHANCE he for whom this bell tolls may be so ill as that he knows not it tolls for him.  And perchance I may think myself so much better than I am, as that they who are about me, and see my state, may have caused it to toll for me, and I know not that.  The church is catholic, universal, so are all her actions; all that she does, belongs to all.  When she baptizes a child, that action concerns me; for that child is thereby connected to that head which is my head too, and ingraffed into that body, whereof I am a member.  And when she buries a man, that action concerns me; all mankind is of one author, and is one volume; when one man dies, one chapter is not torn out of the book, but translated into a better language; and every chapter must be so translated; God employs several translators; some pieces are translated by age, some by sickness, some by war, some by justice; but God's hand is in every translation, and his hand shall bind up all our scattered leaves again, for that library where every book shall lie open to one another; as therefore the bell that rings to a sermon, calls not upon the preacher only, but upon the congregation to come; so this bell calls us all: but how much more me, who am brought so near the door by this sickness.

There was a contention as far as a suit (in which, piety and dignity, religion and estimation, were mingled) which of the religious orders should ring to prayers first in the morning; and it was determined, that they should ring first that rose earliest.  If we understand aright the dignity of this bell, that tolls for our evening prayer, we would be glad to make it ours, by rising early, in that application, that it might be ours as well as his, whose indeed it is.  The bell doth toll for him, that thinks it doth; and though it intermit again, yet from that minute, that that occasion wrought upon him, he is united to God.  Who casts not up his eye to the sun when it rises?  But who takes off his eye from a comet, when that breaks out? who bends not his ear to any bell, which upon any occasion rings?  But who can remove it from that bell, which is passing a piece of himself out of this world?

No man is an island,  entire of itself; every man is a piece of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend's or of thine own were;  any man's death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bell tolls; it tolls for thee.

Neither can we call this a begging of misery, or a borrowing of misery, as though we were not miserable enough of ourselves, but must fetch in more from the next house, in taking upon us the misery of our neighbors.  Truly it were an excusable covetousness if we did; for affliction is a treasure, and scarce any man hath enough of it.  No man hath afflicion enough, that is not matured and ripened by it, and made fit for God by that affliction.  If a man carry treasure in bullion or in a wedge of gold, and have none coined into current moneys, his treasure will not defray him as he travels.  Tribulation is treasure in the nature of it, but it is not current money in the use of it, except we get nearer and nearer our home, heaven, by it.  Another may be sick too, and sick to death, and this affliction may lie in his bowels, as gold in a mine, and be of no use to him; but this bell that tells me of his affliction, digs out, and applies that gold to me: if by this consideration of another's danger, I take mine own into contemplation, and so secure myself, by making my recourse to my God, who is our only security.

RE

https://oilprice.com/Latest-Energy-News/World-News/A-Death-Sentence-For-Small-Oil-Gas-Drillers.html

A Death Sentence For Small Oil & Gas Drillers
By Tsvetana Paraskova - Oct 28, 2019, 1:30 PM CDT Drilling


Some of the largest banks financing U.S. oil and gas drillers have recently reduced their expectations for oil and natural gas prices, determining the value of companies’ reserves and loans that they can take against those reserves. 

Wells Fargo, JP Morgan Chase, and Royal Bank of Canada, among others, have reduced the value of reserves of oil and gas companies, according to more than a dozen banking and industry sources familiar with the borrowing base redeterminations.

The value of reserves estimated by banks serves as the basis for many small oil and gas firms to get funding for their drilling activity and operations. And in recent months, in many cases, this is the only source of funding that many of them can get because the equity and bond markets are practically closed for small oil and gas firms right now.

With the lowered value of reserves, drillers now face an even more restricted access to capital than in previous months.

In the fall 2019 survey carried out in September by Haynes and Boone, for the first time since 2016, the majority of respondents expected borrowing bases to decrease in the redetermination season this month.

According to Reuters’ sources, the banks have cut their expectations for both natural gas and oil prices compared to the previous redetermination season this past spring. Natural gas price forecasts were slashed by around 20 percent, which industry sources say would mean a 15-30 percent cut in the size of loans. Banks now see natural gas prices at US$2.00-2.35 per million British thermal units (MMBtu) over the next 12 months. Oil prices are now US$1 to US$2 a barrel lower than estimated in the spring redetermination, according to the Reuters sources.

Related: Trump’s Latest Trade War Move Sends Oil Tanking

The lower borrowing base for loans could mean additional pressure on smaller U.S. drillers, as other forms of financing are not accessible now.

“Utilization of debt and equity capital markets as a source of capital for producers has gone from small in the spring 2019 survey to minuscule in the fall 2019 survey,” Haynes and Boone said in its survey just ahead of a of the redetermination season.

“E&P companies will remain boxed in on capital sources for a while. Public equity markets – a primary source of capital for upstream oil and gas companies before 2018 – will not reopen until 2021 or later,” Haynes and Boone noted.

By Tsvetana Paraskova for Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ Natural Gas Is Fighting For Survival
« Reply #473 on: November 13, 2019, 01:55:39 AM »
https://oilprice.com/Energy/Energy-General/Natural-Gas-Is-Fighting-For-Survivial.html

Natural Gas Is Fighting For Survival
By Irina Slav - Nov 11, 2019, 3:00 PM CST


Natural gas has been hailed as the bridge fuel between the fossil fuel economy of the past and present, and the renewables economy of the future. With renewable energy costs falling steadily and considerably, some are beginning to worry that gas is facing increasingly fierce competition amid fast-growing supply.

A recent couple of reports from a nonprofit organization promoting renewable energy suggested solar and wind, plus storage, could become cheaper than most gas-fired power plants in the United States in just 16 years.

“We find that the natural gas bridge is likely already behind us,” one of the reports said, “and that continued investment in announced gas projects risks creating tens of billions of dollars in stranded costs by the mid-2030s, when new gas plants and pipelines will rapidly become uneconomic as clean energy costs continue to fall.”

This would certainly be impressive. Solar and wind costs have indeed been falling steadily but storage is not normally included in these falling costs. Whether or not the forecast is overly optimistic remains to be seen but it does seem that renewables are gaining on gas as fuel for power plants: probably the biggest arena where fossil fuels are fighting renewables.
Related: The World’s Biggest EV Market Braces For Another Crippling Blow

The second problem for natural gas is methane emissions. The main component of natural gas is a much more potent greenhouse gas than the notorious carbon dioxide and it has been garnering increasing attention from regulators and investors alike. Oil and gas investors have had a lot to worry about recently with the crusade against fossil fuels winning stronger support among governments. Investors now need assurances that the industry is strong enough to survive the double offensive from renewables and regulations.

One way to give them these assurances is by lowering costs to match the cost decline in renewables. The gas industry, at least in the U.S., has already proved it can do it, albeit unwillingly. Several times this year benchmark spot prices for natural gas in the country fell below zero because of oversupply. Renewables have a long way to go to fall into negative territory without even trying.

But such price swings aside, the gas industry both in the U.S. and elsewhere is actively looking for ways to make their product more competitive. After all, competition within the industry is intensifying, too, as global gas demand rises and companies and governments rush to respond to this rising demand.
Related: Canadian Oil Prices Crash After Keystone Spill

So, one way of gaining an advantage over competitors is by lowering costs and improving production efficiency, as Nick Butler, the chair of The Policy Institute at King’s College London wrote in a recent column for The Financial Times.

Another way is by becoming renewable. Methane collected from waste and manure - a renewable sort of natural gas - is a popular source of energy in Europe, but in the United States, it has yet to establish itself as a viable alternative to fossil fuel gas. Thanks to tax incentives and improving technologies, however, companies are making increasingly wider inroads into this segment of the renewable energy industry. This would go a long way towards solving the methane emissions problem and it would certainly improve natural gas’s reputation. As for when renewables will take over, based on projections about a continued strong rise in global gas demand, chances are it will be a while.

By Irina Slav for Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ This U.S. Shale Giant Is On The Brink Of Collapse
« Reply #474 on: November 29, 2019, 12:45:46 AM »
https://oilprice.com/Energy/Energy-General/This-US-Shale-Giant-Is-On-The-Brink-Of-Collapse.html

This U.S. Shale Giant Is On The Brink Of Collapse
By Tsvetana Paraskova - Nov 28, 2019, 9:30 AM CST


One of the shale gas pioneer companies in the United States said earlier this month that depressed oil and natural gas prices may force it to breach loan covenants over the next year and that a massive debt pile threatens its ability to “continue as a going concern.”

Chesapeake Energy—which helped propel the shale gas revolution in the late 2000s with leading positions in the Marcellus, Barnett, and Haynesville shale basins—is now facing tough times trying to heal its balance sheet, on which US$9.7 billion in total debt weighs.

The company is looking to improve its balance sheet and is evaluating multiple options to reduce debt and to become, finally, free cash flow positive next year. 

Chesapeake Energy’s troubles are indicative of the current woes of the whole U.S. shale patch—firms now have to focus on generating free cash flow and successfully manage the debt they had taken on to boost production instead of profits. Squeezed between the scarce availability of capital from debt and equity markets and investors demanding more profits, many U.S. oil and gas firms are reducing capital expenditure plans for 2020.

Producers are also cutting production targets and now admit that the fast-paced growth of the past two years will slow down to moderate growth over the next few years.

In this challenging environment, aggravated by low commodity prices, Chesapeake Energy warned in early November that “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”
Related: All Eyes On China As Oil Demand Dwindles

The stock took a dive and has now lost nearly 60 percent in less than a month, and during this time it also touched a 25-year-low. Year to date, Chesapeake Energy’s shares have lost 72 percent. 

Yet, the company and some analysts believe that Chesapeake Energy is not dead yet and will not die.

According to Matthew DiLallo, senior energy and materials specialist with The Motley Fool, Chesapeake’s reduced spending next year, reduced natural gas production, and the strive for free cash flow could help it to avoid default.

Due to lower oil and gas prices, Chesapeake is slashing its 2020 capital expenditure forecast by around 30 percent, and expects to reduce 2020 production by some 10 percent. 

“We will continue directing the majority of our -- capital to our highest margin oil assets and our capital spend will be ultimately be determined by commodity prices in 2020,” Chesapeake’s President and CEO Doug Lawler said on the Q3 earnings call.

The reduction in cash costs will allow the company to target free cash flow in 2020, he said, adding that Chesapeake is assessing multiple ways to bolster its balance sheet.

“We continue to evaluate multiple opportunities that can further improve our balance sheet, including divestitures, deleveraging acquisitions and capital funding options,” Lawler said. 

Chesapeake Energy is reportedly in talks with leading Haynesville basin producer Comstock Resources to sell its Haynesville assets in Louisiana, in a deal that could be valued at more than US$1 billion. If the deal goes through, this could be one strategic divestiture to raise some cash and reduce the debt pile.
Related: How To Invest In An Oil Contango

A week after Chesapeake warned of its distressed situation, Morgan Stanley said it expects the firm to be able to manage debt and avoid default.

“While we expect the company to successfully manage through the potential covenant breach in 2020, it will likely require strategic action and/or waivers,” Morgan Stanley said, as carried by MarketWatch. 

Scotiabank also expects Chesapeake to successfully manage debt, via a combination of asset sales and consolidation of Brazos Valley operations.

Last week, Moody’s cut its ratings on Chesapeake, with Moody’s Senior Analyst John Thieroff motivating the move:

“The downgrades reflect the heightened potential for Chesapeake to undertake a distressed exchange or other restructuring activity in light of the company’s history of largescale purchases of its debt at distressed levels, the deep discount at which its debt is trading and statements the company’s management has made pointing to the possibility of 'capital exchange transactions'.”

However, Chesapeake has large positions in major shale plays, which give the company operating scale efficiencies and the potential to sell assets in order to cut debt, Moody’s said. 

By Tsvetana Paraskova for Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ Burn, Pay, Or Shut It Down: Three Evils For Permian Drillers
« Reply #475 on: January 02, 2020, 06:33:25 PM »
https://oilprice.com/Energy/Crude-Oil/Burn-Pay-Or-Shut-It-Down-Three-Evils-For-Permian-Drillers.html

Burn, Pay, Or Shut It Down: Three Evils For Permian Drillers
By Julianne Geiger - Jan 01, 2020, 6:00 PM CST


There was a time when natural gas was a welcomed byproduct of crude oil drilling, and drillers in the prolific Permian basin enjoyed this consolation prize--at least when natural gas prices were on the rise. All good things come to an end, though, and the amount of natural gas now exceeds the capacity to get rid of it.

With pipeline capacity fully exploited and natural gas prices squarely in the red, Permian drillers today are faced with three lousy choices: burn off the natural gas, pay to have the gas removed, or slow oil drilling activities to staunch the flow of natural gas.

Crude oil and natural gas are like two peas in a pod: when you find oil, you often find gas.

Crude oil is pumped out of the well, and a small amount of natural gas comes almost inevitably comes with it.

But over time, this ratio changes: less oil, more natural gas.

Now, there is simply too much natural gas, and drillers in the American shale patch must face the not-so-pleasant music, with only one question remaining: which shale drillers can hold on until more pipeline capacity comes online?

Burn, Baby, Burn

The first option for drillers trying to weather the natural gas storm is to burn it off.

This is flaring--and it’s a rather unpopular method, publicly speaking, due to the negative impact on the environment. For drillers, though, it’s a cost-effective way of dealing with the glut, and since they all must answer to shareholders and lenders, flaring is the first choice when it comes to watching the bottom line.

Flaring has increased exponentially in recent years as the discrepancy between natural gas and pipeline capacity increased, creating unfavorable market conditions and leaving drillers holding a bag of unwanted natural gas.

In fact, we’ve seen an increase from 123 billion cubic feet annual of vented and flared gas in Texas in 2017, to 238 billion cubic feet annually in 2018, according to the EIA.

North Dakota, which has tighter flaring regulations, saw an increase from 88 billion cubic feet annually in 2017 to 147 billion cubic feet in 2018.

Related: The Best And Worst Oil Predictions Of 2019

Overall, the U.S. saw an increase in flaring and venting from 282 billion cubic feet in 2017 to 468 billion cubic feet in 2018--and oil production has increased by 1 million bpd since 2018.

According to Rystad Energy, flaring and venting in the Permian basin reached an all-time high from July to September 2019--at 750 million cubic feet per day.

(Click to enlarge)

Venting and flaring may be the cheapest option for oil and gas companies, but it’s also the most harmful to the environment, with flared and vented gas contributing to greenhouse gas emissions. Venting releases methane into the atmosphere, while flaring--which gets rid of the methane--still releases carbon dioxide into the air.

Pay to Take Away

Another method open to oil and gas companies in the Permian is to have their natural gas taken away. Oil drillers who come up with natural gas as a byproduct can--and do--pay to have it removed.

Typically, as producers pay pipeline companies for use of the pipeline. They recoup their cost through natural gas profits, and those will longer term deals are essentially immune. For those companies who don’t have long-term contracted rates and contracted shipments, they are now paying others who have allotted space to take it--and at a huge loss, which has recently been considered a rather unpleasant cost of doing business in the oil industry.
Related: Oil Prices Head Higher Despite OPEC+ Skepticism

This is cringeworthy for companies who are fastidiously watching their bottom line, all while their competitors are getting permits to flare it into the atmosphere largely for free.

Shut it Down

Finishing off our list of terrible options for oil drillers is to slow production until more pipeline capacity can be brought online. Oil production in the United States has increased by 1 million barrels per day from the beginning of the year.

In the Permian specifically, oil production has increased from less than 2 million barrels per day just three years ago to nearly 5 million bpd today. And according to the EIA’s Monthly Drilling Productivity Report, January is expected to increase by 48,000 bpd over December.

(Click to enlarge)

And with it, of course, natural gas production in the region is rising as well, with a projected 213 million cubic feet per day increase from December 2019 to January 2020.

(Click to enlarge)

With every month, the natural gas problem grows. And as oil prices climb, the thought of shutting wells in looks less and less attractive.

The Pipeline Resolution

All is not lost for Permian drillers.

There are pipelines in the works set to increase the natural gas takeaway capacity in the region, which will alleviate the current burden on oil drillers.

On the pipeline horizon is Kinder Morgan’s Permian Highway, which should increase takeaway capacity in the region by 2.1 Bcf/d by late 2020, Stonepeak’s Whistler (2.0 Bcf/d) by summer 2021, Permian 2 Katy (1.7 Bcf/d to 2.3 Bcf/d), Pecos Trail (1.9 Bcf/d), Permian Global Access (2.0 Bcf/d), Bluebonnet Market Express (2.0 Bcf/d), and the Permian Pass (2.0 Bcf/d).

Until such time as these pipelines come into service, venting and flaring in the Permian is here to stay.

By Julianne Geiger for Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ Billions In Worthless Assets Plague The Oil & Gas Industry
« Reply #476 on: January 08, 2020, 04:15:24 PM »
https://oilprice.com/Energy/Energy-General/Billions-In-Worthless-Assets-Plague-The-Oil-Gas-Industry.html

Billions In Worthless Assets Plague The Oil & Gas Industry
By Nick Cunningham - Jan 08, 2020, 2:00 PM CST


Investors, pension funds and companies need to get ahead of the financial risk from climate change, as many fossil fuel assets risk becoming worthless.
Remaining Time -0:50

“We can’t have a financial sector that ignores an issue, and then all of a sudden has to deal with it,” Mark Carney, the outgoing Governor of the Bank of England, said in a recent interview with BBC. Carney is referring to the fact that current plans by fossil fuel companies, and investors who own assets in those companies, are to continue on a path that puts the world on a trajectory of 3.7-3.8 degrees of warming, “far above the 1.5 degrees that governments say they want and that people are demanding.”

Government action to limit emissions, however, would obviously disrupt that trajectory. As a result, the valuation of so many assets will remain at a certain level, until all of a sudden there is a massive repricing of companies and entire sectors. “How many of those assets that exist today are actually going to be stranded?”

Carney has lamented that the predicament amounts to a “tragedy of the horizon,” which refers to the fact that the problem of climate change is a long-term one, which makes it difficult to convince investors and companies to act. The problem is, once the real-world climate problem becomes impossible to ignore, there will be draconian policies put in place. And, in financial terms, once it becomes impossible to ignore, a sharp loss in value becomes impossible to avoid.
Related: The Biggest Wild Card In 2020 Oil Markets

That’s exactly why he is urging investors to get ahead of this issue. That means pension funds, banks and many other financial institutions need to put limits on their fossil fuel investments, and also to disclose more information about their exposure. Carney will soon be taking on a role of UN special envoy for climate action and finance. He has been sounding the alarm about stranded assets and the financial risk of climate change for years.

“A question for every company, every financial institution, is ‘what’s your plan?’” Carney said. “If there is no action, we will be in a climate emergency.” Every pension fund and investor needs to justify their stakes in fossil fuels, he said.

Carney will try to tighten up international standards ahead of the Glasgow climate talks later this year.

The rising focus on the financial sector and investors presents another threat to oil and gas companies. But companies are vulnerable in different ways. U.S. shale drilling, for example, may not be all that exposed to this financial bubble. The bulk of a shale well’s production occurs in just a few years, allowing them to dodge the government restrictions and demand risk that likely lie in the future. That’s not to say that shale is not littered with its own set of financial problems, but the problem of stranded assets is a deeper problem for long-lived oil and gas projects.
Related: Oil Jumps Again As Middle East Tensions Escalate

That includes Canada’s oil sands, LNG, offshore oil drilling and pipeline projects. “Mark Carney is a thoughtful person so I want to listen closely to what he has to say,” Michael Tims, vice-chairman of Calgary-based Matco Investments, told the Financial Post. “The harder part is to try to rationally assess what the implications are to value for longer-horizon projects.”

These projects are based on the assumption that they will stick around for decades. The problem is that many of them are unviable in a world that gets serious about climate change. So, either the world blows past climate targets and hurtles toward catastrophe, or governments crack down on oil and gas, upending assets currently worth hundreds of billions of dollars.

By Nick Cunningham of Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ U.S. Gas Giant Downgraded To Junk Status
« Reply #477 on: January 15, 2020, 08:59:27 AM »
Hopefully, Prof. Moriarty is on the Unemployment line by now.   :icon_sunny:

RE

https://oilprice.com/Energy/Natural-Gas/US-Gas-Giant-Downgraded-ToJunkStatus.html

U.S. Gas Giant Downgraded To Junk Status
By Nick Cunningham - Jan 14, 2020, 5:00 PM CST


The largest natural gas driller in the United States just announced a massive write-down for its assets, offering more evidence that the shale sector faces fundamental problems with profitability.

In a regulatory filing on Monday, Pittsburgh-based EQT took a $1.8 billion impairment for the fourth quarter, as the natural gas market continues to sour. EQT said that the write down comes as a result of the “changes to our development strategy and renewed focus on a refined core operating footprint,” which is a jargon-y way of saying that some of its assets are now worth much less.

EQT also slashed spending for 2020 to between $1.25 and $1.35 billion, down by another $50 million compared to the guidance the company provided in the third quarter of last year.

Although not a household name, EQT is the largest gas producer in the country, and is a giant in the Marcellus shale. EQT purchased Rice Energy in 2017, growing into a huge gas producer and pipeline company, but it has posted disappointing results in the last few years. The poor performance led to an internal battle for control of the company. Toby Rice, who co-founded Rice Energy and maintained small ownership stakes in EQT after the tie up, wrestled control from management, convincing the company’s board that he could right the ship. He became CEO last year.

So far, the company’s problems continue. Natural gas prices slid sharply in 2019, and are at rock-bottom levels, particularly for the time of year. According to the FT, while Henry Hub natural gas prices for February delivery trade at $2.24/MMBtu, they are only trading at around $1.83/MMBtu at the Dominion South hub in Pennsylvania.
Related: Canada Faces A New Oil Price ‘’Blowout’’

EQT itself admits that it can’t succeed in this environment. “Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas,” Toby Rice said in December “A lot of this development doesn’t work as well at $2.50 gas.”

EQT hopes to cut $1.5 billion in debt by selling assets and boosting cash flow. However, the cash flow part will be hard to pull off with prices stuck in the doldrums.

Moody’s cut EQT’s credit rating on Monday to Ba1 with a negative outlook, moving it into junk territory after the gas giant said it would issue new bonds to refinance debt. “EQT's significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company's intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade,” Moody’s senior analyst Sreedhar Kona said.

The agency also noted the “volatility associated with the cash flow of pure-play natural gas producers necessitate a higher retained cash flow to debt ratio threshold than EQT can deliver over the medium term even with significant debt reduction.”

“Additionally, EQT's cash flow metrics compare poorly to other Baa3 rated oil producing companies, despite EQT's size and scale,” Moody’s concluded.
Related: This Was The Most Successful Energy Niche Last Year

EQT’s share price is down by more than half since last spring, and it is also down by more than 75 percent since 2017.

These problems are obviously much larger than EQT. Range Resources recently slashed its dividend in order to pay off debt, while also taking out another $550 million in new debt in order to pay off maturing debt this year. Meanwhile, Chesapeake Energy, the second largest gas producer, is now trading at pennies on the dollar and faces the prospect of being delisted from the New York Stock Exchange.

EQT’s predicament reflects the broader financial questions that have long plagued the shale industry. Fracking can produce lots of oil and gas, but steep decline rates make profits elusive. If the largest gas producer in the country is struggling, and has a credit rating in junk territory, then something is wrong with the business model.

The problems endemic to the shale gas industry are starting to affect production. The decade-long boom in gas production from Appalachia may have finally come to a halt.

By Nick Cunningham of Oilprice.com
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39791
    • View Profile
🛢️ The U.S. Natural Gas Boom Is On Its Last Legs
« Reply #478 on: January 17, 2020, 12:05:44 AM »
https://oilprice.com/Energy/Energy-General/The-US-Natural-Gas-Boom-Is-On-Its-Last-Legs.html

The U.S. Natural Gas Boom Is On Its Last Legs
By Tsvetana Paraskova - Jan 15, 2020, 5:00 PM CST


Weak natural gas prices amid abundant supply and a falling rig count across the United States will slow down U.S. natural gas production growth this year, and some basins will even see production declines, analysts say.

Due to the shale revolution, natural gas production in the U.S. has been growing rapidly over the past decade, and growth accelerated over the past two years. But now companies are struggling with negative cash flows as prices stay low, and investors are not rewarding production growth if they don’t have returns.

The natural gas glut created from the continuously rising production amid insufficient pipeline takeaway capacity has been recently aggravated by the gushing associated gas in the oil wells in the Permian, where pipeline capacity is not nearly enough to accommodate additional natural gas volumes. Gas flaring has hit record highs as producers are unable to find any useful and reasonably cost-efficient application for that gas.

Due to continuously rising U.S. natural gas production, natural gas prices at the U.S. benchmark Henry Hub averaged US$2.57 per million British thermal units (MMBtu) in 2019—the lowest annual average price since 2016.

Lower prices and fewer rigs are expected to slow down U.S. natural gas production growth this year. Some regions in the Mid Continent could see declines in their gas production, according to estimates from S&P Global Platts Analytics.
Related: The Unexpected Consequences Of Germany’s Anti-Nuclear Push

For example, the SCOOP/STACK play in Oklahoma saw its active rig count drop to a multi-year low of 23 this week, according to data from energy data analytics company Enverus cited by Platts.

Despite the tumbling rig count, natural gas production in the SCOOP/STACK has been steady at around 3.3 billion cubic feet per day (Bcf/d)-3.4 Bcf/d for most of last year, S&P Global Platts Analytics says.

This year, gas production in the SCOOP/STACK is set to slow down to 3.2 Bcf/d, down from the 3.4 Bcf/d average production in 2019, according to S&P Global Platts Analytics. In the broader Midcon Producing region—including the SCOOP/STACK, Cleveland Tonkawa, Mississippi Lime, and Granite Wash plays—production in 2020 is set to average 6.6 Bcf/d, down from 6.8 Bcf/d in 2019, according to Platts Analytics’ forecasts based on the current rig count in the areas.

U.S. dry gas production rose by 8-9 Bcf/d in each of 2018 and 2019, but this year the production increase is set to be just 2 Bcf/d, Enverus said in a report last month.

In 2019, the Marcellus and Utica basins saw pipeline relief but “aggressive gains in production continued to surprise and caused renewed price weakness this past fall,” Enverus said. In the Permian, promising economics will continue to be challenged by pipeline capacity shortages, while Haynesville’s growth last year was likely limited to Tier 1 acreage, “which is the only area reliably in the money with a $2.13/MMBtu gas breakeven,” according to Enverus.

The EIA’s latest estimates in the January Short-Term Energy Outlook (STEO) show that U.S. dry natural gas production is set to rise by 2.9 percent annually in 2020, due to higher associated gas production from oil-directed rigs and easing of the pipeline capacity constraints out of the Appalachian and Permian basins.

Next year, production will drop by 0.7 percent on the year due to expected low natural gas spot prices in 2020, which will reduce drilling activity in the Appalachian basin, the EIA said.
Related: Oversupply Fears Are Front And Center In Oil Markets

In the Appalachian basin, low natural gas prices are eating into the earnings of producers. The largest producers in the region spent a combined US$500 million more on drilling than they realized by selling oil and gas in Q3 2019, an analysis from the Institute for Energy Economics and Financial Analysis (IEEFA) showed in November.

“Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters,” IEEFA said.

Much of the gas glut comes from the Permian which “has become so uneconomic that some oil producers simply burn their natural gas rather than selling it,” IEEFA’s analysts noted.

“No one wants to flare gas; that is like burning money!” one E&P executive said in comments in the latest Dallas Fed Energy Survey.

Another executive noted: “The price of natural gas is going to stay low for some years due to associated gas coming online as infrastructures are built out.”

By Tsvetana Paraskova for Oilprice.com
Save As Many As You Can

Offline BuddyJ

  • Bussing Staff
  • **
  • Posts: 61
    • View Profile
Re: Fracker Debt Bubble
« Reply #479 on: January 17, 2020, 04:51:11 PM »
On its last legs indeed, and via the usual mechanism. The polluting bastards just can't figure out when to stop until oversupply clobbers prices and half of them go bankrupt. You would think they would learn or something.

 

Related Topics

  Subject / Started by Replies Last post
7 Replies
2623 Views
Last post December 08, 2014, 01:57:48 AM
by jackbrouno
1 Replies
995 Views
Last post November 09, 2015, 04:01:03 PM
by MKing
9 Replies
1223 Views
Last post January 13, 2018, 12:19:00 AM
by RE