AuthorTopic: Fracker Debt Bubble  (Read 123944 times)

Offline RE

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🛢️ Rig Count Crashes Most In 4 Years As Oil Shock Rocks U.S. Shale
« Reply #480 on: March 28, 2020, 08:00:44 AM »
...and another House of Cards comes crashing down...



They probably have run out of money to keep paying Moriart to Troll.   :icon_sunny:

RE

https://oilprice.com/Energy/Energy-General/Rig-Count-Crashes-Most-In-4-Years-As-Oil-Shock-Rocks-US-Shale.html

Rig Count Crashes Most In 4 Years As Oil Shock Rocks U.S. Shale
By Julianne Geiger - Mar 27, 2020, 12:15 PM CDT


Baker Hughes reported that the number of oil and gas rigs in the US fell again this week by 44, falling to 728, with the total oil and gas rigs clocking in at 278 fewer than this time last year. It is the largest single-week drop since February 2016.

In the runup to the published rig count, analysts were predicting that the results would show a steep drop off in the number of active rigs, and three of the biggest drilling operators in Texas made significant budget cuts, indicating that the industry is bracing for tougher times ahead.

The number of oil rigs decreased for the week, by 40 rigs, according to Baker Hughes data, bringing the total to 624—a 192-rig loss year over year.

The total number of active gas rigs in the United States fell by 4 according to the report, to 102. This compares to 190 a year ago.

The miscellaneous rig count stayed the same this week, for a total of 2 miscellaneous rigs.

Despite the sharp drop off in rigs, the EIA’s estimate is that the United States produced 13 million barrels of oil per day on average this week, just 100,O00 bpd off the all-time high.

The number of rigs in the most prolific basin, the Permian, fell by 23 this week to 382, compared to 454 rigs one year ago. The second largest basin, the Eagle Ford, lost 4 rigs this week, for a total of 63 rigs, compared to 78 a year ago. 
Related: Not Even The $2 Trillion Stimulus Package Can Save Oil Markets

The WTI benchmark at 12:15 pm was trading at $21.26 (-5.93%) per barrel—almost $3 per barrel below last week levels as market fears entrench deeply that the industry will get squeezed beyond repair between oversupply coming from Saudi Arabia and Russia, and lack of demand coming from the Covid-19 lockdowns that are widespread throughout the world’s largest oil consuming nation, the United States.

Further pressure was put on oil prices today when it became clear that the $2 trillion stimulus bill might not sail through the House unopposed, as fiscal hawks threaten to delay the process.

The Brent benchmark was trading at $27.33 (-4.61%)—roughly $2.50 per barrel below last week’s levels. 

Canada’s overall rig count decreased by 44 rigs as well this week, to a total of just 54 rigs. Oil and gas rigs in Canada are now down 34 year on year.

WTI was trading down by 4.42% on the day at 1:08pm EDT, with Brent trading down 3.60%.

By Julianne Geiger for Oilprice.com
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Offline RE

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🛢️ Banks Could Start Seizing Shale Assets
« Reply #481 on: April 11, 2020, 05:15:09 AM »
Maybee they'll seize Moriarty's assets!  :icon_sunny:

RE

https://oilprice.com/Energy/Crude-Oil/Banks-Could-Start-Seizing-Shale-Assets.html

Banks Could Start Seizing Shale Assets
By Irina Slav - Apr 10, 2020, 11:00 AM CDT


U.S. banks are preparing to start seizing the assets of ailing shale oil companies, Reuters reported today, citing unnamed sources in the know, who said that the banks must take this dramatic step if they want to avoid losses on the loans they extended to the industry.

U.S. shale companies rely heavily on loans, and now that they are facing the perfect storm of slack demand and low oil prices—even after the tentative deal OPEC+ announced yesterday—the chances or survival for many of them are slim to nonexistent.

The situation is aggravated by the fact that new wells are falling short of expectations concerning yields. This made banks wary of extending more loans to the industry a few months ago before the worst hit. Now, with more than $200 billion in debt backed by their assets, many oil and gas companies in the shale patch are on the brink.

Reuters reports that several large players in the shale field have hired debt advisors, including Chesapeake Energy Corp, Denbury Resources, and Callon Petroleum. Meanwhile, Whiting Petroleum became the first oil company to file for bankruptcy protection, citing the “severe downturn.”

Others, including the supermajors, are slashing spending, cutting costs, and asking oilfield service providers for substantial discounts for their services.

Meanwhile, even the news that OPEC+ was ready to cut 10 million bpd in daily production did not do much for prices. Both Brent crude and West Texas Intermediate were down at the time of writing, with WTI at $22.76 a barrel, down by more than 9 percent. Part of the reason was that few believe these cuts will be enough, and another part is that not everyone in OPEC+ is on board with the cuts, with Mexico balking.

By Irina Slav for Oilprice.com
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Offline JRM

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Re: Fracker Debt Bubble
« Reply #482 on: April 11, 2020, 09:56:18 AM »
Perfect timing for a perfect storm.
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

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Re: Fracker Debt Bubble
« Reply #483 on: April 11, 2020, 10:04:15 AM »
We will pay to bail out the frackers. Get ready for it. No limits. Bend over and prepare to be taxed.

It doesn't really matter if banks seize some fracker assets. I don't know how many dollars will have to be printed for the dollar to fail, but we are clearly now on the course to find out. No plan B now......just keep printing more until collapse.

The US government and the Fed are supported by one thing...a huge tax base that can be squeezed quite a bit harder than it is being squeezed in recent years. But it can only be squeezed if people have income.  The dollar will fall when the turnip finally gets squeezed and nothing comes out. We are headed there, but we aren't there yet.

If we fall into a real prolonged depression because of Nuevo Corona, we could get there pretty fast.
« Last Edit: April 11, 2020, 10:07:44 AM by Eddie »
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Re: Fracker Debt Bubble
« Reply #484 on: April 11, 2020, 10:08:19 AM »
We will pay to bail out the frackers. Get ready for it. No limits. Bend over and prepare to be taxed.

It doesn't really matter if banks seize some fracker assets. I don't know how many dollars will have to be printed for the dollar to fail, but we are clearly now on the course to find out. No plan B now......just keep printing more until collapse.

That goes without saying. Expect some random bleating about, "preserving American energy independence," or some similarly-strung-together  nonsense syllables.

Funny how the phrase, "how you gonna pay for it"has disappeared from the conservative lexicon, just like "term limits." Expect both to reappear if, in spite of themselves and against all reason, the Ds win in November.
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🛢️ The Shale Suffering Has Only Just Begun
« Reply #485 on: April 26, 2020, 12:32:53 AM »
Scheudenfreud: Better than Sex.   ;D

RE

https://oilprice.com/Energy/Energy-General/The-Shale-Suffering-Has-Only-Just-Begun.html

The Shale Suffering Has Only Just Begun
By Tsvetana Paraskova - Apr 25, 2020, 12:00 PM CDT


A few weeks before the summer driving season begins, U.S. gasoline consumption has plummeted to levels last seen in the late 1960s, due to the lockdowns to contain the spreading of the coronavirus.

With demand for motor fuel plunging, refiners are cutting crude processing, and crude oil storage capacity in America is filling fast. The glut is set to worsen in the coming weeks, and storage capacity at Cushing, Oklahoma, could be full by the middle of May, analysts say. 

The fast demand destruction in the pandemic threatens to fill up storage across America soon, forcing oil prices lower and forcing oil producers to idle more rigs and curtail more production than initially thought. 

Total U.S. petroleum consumption stabilized in the latest reporting week to April 17 at 14.1 million barrels per day (bpd), up slightly from the 13.8 million bpd estimated consumption in the previous week, which was the lowest weekly consumption level in EIA’s statistics dating back to the early 1990s.

But crude oil and gasoline inventories continued to jump while crude refinery inputs continued to drop, according to EIA’s latest inventory report from this week.

U.S. crude oil refinery inputs averaged 12.5 million bpd during the week ending April 17, which was 209,000 bpd less than the previous week’s average. Refineries continued to cut run rates and operated at 67.6 percent of their capacity. To compare, refiners would typically operate at more than 90 percent capacity just ahead of the summer driving season. But this year, the summer driving season is postponed and is expected to be very weak.

Premium: Oil Storage Nears Its Limit

Gasoline consumption – the most significant part of U.S. petroleum consumption – has crashed the most since the lockdowns began, with the product supplied down by 40 percent to 5.3 million bpd as of the week ending April 17, from an average of 8.9 million bpd in 2020 through March 13.

Even if lockdowns across the U.S. were to be lifted tomorrow, gasoline demand is not expected to stage a V-shaped recovery. Instead, it would likely stay around the current levels for weeks and probably months, pushing both gasoline and crude oil inventories higher.

“As negative gasoline demand is still expected to plague the US throughout May, and a very weak driving season is expected during the summer, it is unlikely that demand for crude will return in the first half of the year,” Rystad Energy said this week.

To deplete swelling crude and gasoline inventories, which are higher than five-year averages, U.S. oil producers will need to cut oil production. They will do this because the market will force them to.

The glut in the U.S. and around the world is set to lead to the biggest-ever monthly decline in fracking activity in America, according to Rystad Energy.

“If we assume that no new horizontal wells are put on production from April 2020 onwards, total LTO production will decline by 1 million barrels per day (bpd) by May, 2 million bpd by July and by 3 million bpd by October to November, with the Permian Basin accounting for more than half of nationwide base decline,” the independent energy research company said.

Premium: The Oil Sector That Will Suffer The Most

According to Wood Mackenzie, “It’s possible that if current conditions continue, Cushing storage tanks could reach capacity by mid-May.”

“In large part, the damage is done for 2020, and we believe this significant slowdown will lead to a decline of one million to two million fewer barrels per day from activity reduction. Production shut-ins will add to that number as storage capacity peaks,” WoodMac said after WTI Crude May futures dipped into negative territory for the first time ever early this week.

As global oil demand is not expected to quickly return to its usual 100-million-bpd level – if ever, considering the change in our lives in this pandemic—U.S. producers are forced to react to the market forces and slash output much faster than they themselves and analysts had expected just a month ago, not to speak of at the beginning of this year. 

The 9.7 million bpd cuts pledged by OPEC+ for May and June will not come close to the demand loss. The OPEC+ intervention – even if every producer in the group fully comply with their quotas (for the first time ever)— will not be enough to prevent oil inventories in the U.S. and the world from overflowing within weeks.

That’s why the real rebalancing act will be the ‘intervention’ of market forces—producers in free markets such as the United States and Canada are not pledging quotas, but their producers are reacting to market conditions and will be slashing output, hoping to weather this perfect storm. 

By Tsvetana Paraskova for Oilprice.com
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Offline JRM

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Re: Fracker Debt Bubble
« Reply #486 on: April 26, 2020, 05:19:10 PM »
We will pay to bail out the frackers. Get ready for it. No limits. Bend over and prepare to be taxed.

It doesn't really matter if banks seize some fracker assets. I don't know how many dollars will have to be printed for the dollar to fail, but we are clearly now on the course to find out. No plan B now......just keep printing more until collapse.

That goes without saying. Expect some random bleating about, "preserving American energy independence," or some similarly-strung-together  nonsense syllables.

Funny how the phrase, "how you gonna pay for it"has disappeared from the conservative lexicon, just like "term limits." Expect both to reappear if, in spite of themselves and against all reason, the Ds win in November.

Sleepy Joe said he was running for another term in the Senate. Need I say more?
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline Surly1

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Re: Fracker Debt Bubble
« Reply #487 on: April 26, 2020, 05:27:49 PM »
We will pay to bail out the frackers. Get ready for it. No limits. Bend over and prepare to be taxed.

It doesn't really matter if banks seize some fracker assets. I don't know how many dollars will have to be printed for the dollar to fail, but we are clearly now on the course to find out. No plan B now......just keep printing more until collapse.

That goes without saying. Expect some random bleating about, "preserving American energy independence," or some similarly-strung-together  nonsense syllables.

Funny how the phrase, "how you gonna pay for it"has disappeared from the conservative lexicon, just like "term limits." Expect both to reappear if, in spite of themselves and against all reason, the Ds win in November.

Sleepy Joe said he was running for another term in the Senate. Need I say more?


Last I looked he was running for president. Did I miss a memo?
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🛢️ Permian Bankruptcies Could Fuel A Buying Spree For Big Oil
« Reply #488 on: April 30, 2020, 02:57:49 AM »
...and the BKs will just keep moving up the ladder.  ::)

Who will be the last Oil Major left standing?

My bet is on Standard Oil, the original behemoth founded by John. D. Rockefeller.

RE

https://oilprice.com/Energy/Crude-Oil/Permian-Bankruptcies-Could-Fuel-A-Buying-Spree-For-Big-Oil.html

Permian Bankruptcies Could Fuel A Buying Spree For Big Oil
By Haley Zaremba - Apr 29, 2020, 4:00 PM CDT


The United States shale revolution is over. Production in the Permian Basin, which spreads across West Texas and Southeast New Mexico, has been slowing for months, but the novel coronavirus took things from bad to much, much worse for U.S. shale. The oil price shock that followed the spread of the COVID-19 pandemic, combined with a massive global oil glut spurred by a spat between with learning OPEC+ member countries of Russia and Saudi Arabia, drove West Texas Intermediate oil prices down to a previously unthinkable -$37.63 a barrel earlier this month.  While shale prices have since moderately rebounded, the Permian Basin is still in bad shape. The oil fields that made the United States the biggest crude oil producer in the world is now seeing tens of thousands of fired and furloughed employees as the region is rocked by a sweep of bankruptcies across the shale sector. Last week CNBC reported that “the oil industry shakeout is just beginning with more production cuts and bankruptcies ahead,” detailing that “U.S. oil companies are already paring back spending and closing wells, but wild trading in the futures market was a warning to curb production now because the world at some point will not be able to store any more supply.”

Just because the U.S. oil industry has hit a rough patch, however, doesn’t necessarily mean that the West Texas shale play is all played out. In fact, it stands to reason that, as competition dries up and blows away like so many tumbleweeds, Big Oil may step in and buy up faltering shale independents.

Related: How COVID-19 Will Change Oil Markets Forever

Not all industry experts agree on this outlook, however. “It may be tempting to think oil giants like Exxon Mobil Corp. will swoop in and pick up smaller crude producers at bargains, given the debt on a wide swath of weaker energy companies now trades at fire-sale prices, reported MarketWatch earlier this week. “But a takeover spree won’t be so easy to pull off, as depressed crude prices leave even the sector’s energy stalwarts without a clear picture of their own product’s worth. There’s also unease about when, and how much, crude will be needed once the coronavirus threat subsides.”

According to Bryant Dieffenbacher, an analyst for Franklin Templeton, “there are a lot of uncertainties, but perhaps the biggest of those is the price of oil.” He told MarketWatch that any potential candidates for mergers and acquisitions in the shale game to be “one-off, and driven by unique circumstances, rather than a widespread industry trend.”

In fact, the extreme volatility of the oil markets has led many industry experts to question whether investors should continue to put their money in oil at all. It was already common sentiment that the oil industry has kissed its glory days goodbye as the world edges further into a global energy transition in the face of catastrophic climate change. Even Saudi Aramco, in the biggest initial public offering in history, acknowledged that they expect to see peak oil by mid-century.

As the pandemic turns the entire global energy sector on its head, the World Economic Forum has suggested that if there were ever a time for an energy revolution, that time is now. The international economics organization posited the question, “as coronavirus shocks the energy sector and economy, is now the time for a new energy order?” in an article earlier this week. The answer, according to their writers, seems to be yes.

By Haley Zaremba for Oilprice.com
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🛢️ The Wave Of Shale Well Closures Has Finally Begun
« Reply #489 on: May 02, 2020, 04:58:55 AM »
https://oilprice.com/Energy/Crude-Oil/The-Wave-Of-Shale-Well-Closures-Has-Finally-Begun.html

The Wave Of Shale Well Closures Has Finally Begun
By Alex Kimani - Apr 30, 2020, 6:00 PM CDT


U.S. shale oil producers have so far held up admirably, hanging on for dear life amidst the biggest oil demand collapse in history. American producers continued to pump at record highs in March, even after dozens of drillers laid out blueprints to limit production.

But with U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest pandemic in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins.

Oil production in the country tumbled sharply to 12.2 million bpd in the third week of April, a good 900,000 bpd less than the record peak of 13.1 million bpd recorded just a month prior. That's a 7% production cut in the space of only a few weeks and the lowest level since July.

A lot more could be on the way.

More Production Cuts

Oklahoma-based Continental Resources (NYSE:CLR), the company controlled by billionaire Harold Hamm, has ceased all its shale operations in North Dakota and shut in most wells in its Bakken oil field totaling roughly 200,000 bpd.

The company, though, has refused to sell its contracted oil to pipelines at negative prices by declaring force majeure.

Continental has defended its stance by pointing out that the coronavirus outbreak has "...brought about conditions under which force majeure applies" while adding that selling its oil at negative prices constitutes waste.

Continental made the risky gamble of betting that economic growth would lift prices and, therefore, left itself heavily exposed to low oil prices by failing to employ the industry's usual playbook of hedging future production with derivatives.

Continental is in good company, though.

Rystad Energy via CNBC has reported that six major U.S. shale producers will shut another 300,000 bpd of crude in May and June. That's ~100,000 bpd more than April cuts, thus bringing the country's total production cuts to 1.2 million bpd. The cuts will come from Continental Resources, ConocoPhillips (NYSE:COP), Cimarex Energy (NYSE:XEC), Enerplus Corporation (NYSE:ERF), Parsley Energy (NYSE:PE) and PDC Energy (NYSE:PDCE).

Continental Resources is set to slash 69,000 bpd in April and nearly 150,000 in May and June while ConocoPhillips will lower output by 125,000 bpd of oil equivalent, including 60,000 bpd of oil.

Premium: The Oil Sector That Will Suffer The Most

Rystad's head of shale research, Artem Abramov, has estimated that the biggest shale fields--Permian, Eagle Ford, and Bakken--will cut a further 900,000 bpd, 250,000 bpd, and 400,000 bpd, respectively, throughout 2Q20, with shut-ins accounting for a staggering 60% in the early stages.

Expensive Shut-Ins

A well shut-in is considered a drastic action of last resort mainly because it can result in huge or even total loss of production.

That's a big consideration in these dire times, where even oilfield values are descending into negative territory due to liabilities such as plugging wells and land remediation.

Chris Atherton, president of EnergyNet, a company that deals in oil and gas operations, undeveloped acreage and royalty interests, has told Forbes that oilfield prices have tumbled from an average price of $42,000 per net flowing barrel per day when oil prices were around $60/barrel to under $20,000 currently. Buyers started getting picky and sellers more desperate in 2019 when oil prices were still relatively high.

Things have gone to the dogs now, with a shut-in field fetching only half the price of a virtually identical field but with oil still flowing.

As Bob Bracket of Bernstein Research revealed last week, "Shut-ins are not easy decisions. When production shuts-in, problems arise. Multi-phase well flows begin to separate out, while problematic hydrates, waxes, asphaltenes form which will have serious economic implications," citing numerous examples of fairly large wells with flows exceeding 1,000 barrels/day that could not be brought back to life after being shut-in.

That's the main reason why even heavily indebted shale companies, including bankrupt ones like Whiting Corp. (NYSE:WLL), insist on continuing to pump at all costs.
Related: The Death Of U.S. Oil

California Resources Corp. (NYSE:CRC) is a $133.7M (market cap) company drowning in debt to the tune of more than $4 billion due by the end of 2022. The company's average all-in cost per barrel of $35 means that it's losing ~$20 for each barrel of crude it pumps. Yet, the company is unable to shut-in its wells because they require a continuous injection of steam to keep them alive.

Deal Mania

A shut-in well is a tough proposition for a prospective oilfield buyer, too, because it's hard to determine how much oil can be coaxed out, especially after a lengthy layoff.

The only solace for the beleaguered oil sector is that there probably won't be a shortage of takers when the worst is finally over.

Atherton says that his company has 40,000 registered users with access to $17 billion in cash ready to make deals. He has predicted that distressed companies will "turn into a flood of assets available" in a year or so.

The bottom hunters will certainly be waiting to pounce, the downside being that many investments in the space could turn worthless due to the swelling wave of bankruptcy.

By Alex Kimani for Oilprice.com
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Good Newz of the day!   :icon_sunny:

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https://www.marketwatch.com/story/the-us-shale-oil-industry-may-collapse-new-report-says-after-goldman-warns-crude-is-set-for-a-fall-2020-06-10

The U.S. shale-oil industry may collapse due to the sharp fall in oil prices because of the coronavirus pandemic, a new influential report predicts.


The demand for and price of oil tumbled due to the economic slowdown and have since begun to recover, but Australian think tank the Institute for Economics and Peace warns that a low price will affect political regimes in the Middle East, especially in Saudi Arabia, Iraq and Iran.

The impact of coronavirus may ‘result in the collapse of the shale oil industry in the U.S., unless oil prices return to their prior levels.’
— Institute for Economics and Peace

IEP’s annual Global Peace Index, published Wednesday, analyzes tension around the world and compiles an index of the most peaceful countries. It suggests the effects of the pandemic may “result in the collapse of the shale-oil industry in the U.S., unless oil prices return to their prior levels.”

While the price of oil CL.1, -4.12% has begun to recover from its nadir — having crashed into negative territory in April — analysts at Goldman Sachs warned in a Tuesday note that the rise in the oil price has been overdone and forecast a drop in Brent crude prices BRNQ20, -3.59% to $35 a barrel, from around $43 a barrel, within weeks.

Shale oil is produced through fracking, the controversial process of pumping high-pressure water and sand underground to fracture rock and release valuable new energy reserves known as shale.

Among the biggest producers of shale oil are Exxon Mobil XOM, -5.36%, Chevron CVX, -3.89% and EOG Resources EOG, -6.45%.
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Read: Oil prices fall for a second session as investors worry about oversupply from Gulf producers

The IEP report says that the combined weakness in commercial, travel and industrial activity led to a plunge in oil prices in global markets. “These markets were already affected by an oversupply, emanating from Russia and Saudi Arabia who could not agree on production curbs,” it says.

Read: Oil ends lower as extension of OPEC+ output cuts fail to stem oversupply worries

But, on a positive note, it goes on to rank the countries most likely to stage a swift economic recovery in the wake of the pandemic, using four indicators.

China, Indonesia, Russia, Mexico and Australia all emerge as best placed to facilitate a recovery because they have low unemployment rates, low dependence on international trade, low tax revenue relative to gross domestic product, and low central government debt as a proportion of GDP.

IEP founder Steve Killelea said: “COVID-19 is negatively impacting peace across the world, with nations expected to become increasingly polarized in their ability to maintain peace and security. This reflects the virus’s potential to undo years of socioeconomic development, exacerbate humanitarian crises, and aggravate and encourage unrest and conflict.”

He identified a predictable list of sectors hurt by the lockdown, which includes aviation, hospitality, tourism, retail and finance. Health care, telecom and food production are best placed.

One upside is that drug trafficking and other types of crime have seen a likely temporary reduction as a result of social isolation around the world. However, reports of domestic violence, suicide and mental illness increased.

Iceland remains the most peaceful country in the world, a position it has held since 2008. It is joined at the top of the index by New Zealand, Austria, Portugal and Denmark.

Afghanistan remains the least peaceful country, a position it has held for two years, followed by Syria, Iraq and South Sudan.

“The fundamental tensions of the past decade around conflict, environmental pressures and socioeconomic strife remain,” Killelea said. “It’s likely that the economic impact of COVID-19 will magnify these tensions by increasing unemployment, widening inequality and worsening labor conditions — creating alienation from the political system and increasing civil unrest. We therefore find ourselves at a critical juncture.”
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🛢️ Chesapeake's demise marks end of shale model that changed the world
« Reply #491 on: June 13, 2020, 12:55:41 AM »
https://business.financialpost.com/pmn/business-pmn/chesapeakes-demise-marks-end-of-shale-model-that-changed-the-world

Chesapeake's demise marks end of shale model that changed the world

Financial reality has at long last caught up with Chesapeake Energy Corp.

A Chesapeake Energy natural gas well pad rests on the hill in Litchfield Township, Pennsylvania, January 9, 2013.REUTERS/Brett Carlsen

Bloomberg News   
David Wethe and Joe Carroll

June 12, 2020
7:03 AM EDT

Last Updated
June 12, 2020
11:10 AM EDT
Filed under


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It will go down as wildest of the shale wildcatters, the overreaching pioneer of fracking techniques that minted vast fortunes and, now, has left behind ruin.

At long last, financial reality has caught up with Chesapeake Energy Corp., avatar of the boom and subsequent bust of North American shale.

Chesapeake’s spiral toward oblivion accelerated this week with executives said to be preparing for a potential bankruptcy filing, signaling the imminent end of Chief Executive Officer Doug Lawler’s 7-year campaign to turn around the troubled gas explorer. For a company that’s been skirting disaster for most of the past decade, the Covid-19-driven collapse in world energy prices merely added one more exclamation point to a tale of risk, hubris and debt.

Chesapeake may be shale’s biggest corporate casualty, but it is hardly the first — and won’t be the last. Its self-inflicted wounds have sapped confidence across the entire industry, leaving many smaller operators teetering on the edge of catastrophe.

As the remnants of shale’s turn-of-the-century heyday turn to dust, it’s unclear who — if anyone — will step into the void. Supermajors like Exxon Mobil Corp. and Chevron Corp. already have written off their own gas-heavy assets, and are instead focusing on oil-rich shale fields. But any shift in the global supply-and-demand balance for gas would prompt the most sophisticated giants to reassess the value of acquiring and drilling mothballed gas projects.

Story continues below

Extreme Pressure

Almost three dozen North American explorers, frackers and pipeline operators have fled to bankruptcy courts since the start of this year, buckling under $25.2 billion in cumulative debts, according to law firm Haynes and Boone LLP. Chesapeake’s indebtedness would swell that encumbrance by almost 40%.

And even with crude prices recovering from the unprecedented April collapse into negative territory, energy-sector bankruptcies are expected to grow in coming months because many shale companies are in too far over their heads. “Extreme financial pressure is being felt at all levels of the energy industry,” Haynes and Boone said in a report.

The template for the shale model that’s now unraveling for many companies was established by Chesapeake and its late co-founder Aubrey McClendon.

Experimental Drilling

Chesapeake was the brainchild of McClendon and his pal Tom Ward, who started out with $50,000 in borrowed money in rented offices. The company went public in 1993 and soon was experimenting with sideways drilling and hydraulic fracturing to pummel open shale formations previously regarded as impermeable — and therefore, worthless — by geologists.

At the time, the outlook for domestic gas production was so grim that Alan Greenspan predicted the U.S. would need huge imports of liquefied gas to keep industries and furnaces running. Tens of billions of dollars were invested in massive new gas import terminals that were rendered obsolete before they even opened as Chesapeake and other shale drillers flooded the continent with gas.

By the time Ward struck out on his own to form SandRidge Energy Inc. in 2006, Chesapeake was spending on average $1 billion a year to snap up drilling rights from Texas to Pennsylvania. At the start of 2007, Forbes magazine named Chesapeake the best managed oil and gas company.

Grand Ambition

Under McClendon, Chesapeake raised production more than 10-fold between 2000 and 2013, invested heavily in experimental natural gas-fueled transport, and even toyed with expanding overseas before its geologists concluded that many European shale formations were unsuitable for drilling.

At its peak, Chesapeake pumped more American gas than anyone aside from Exxon and boasted a market valuation of almost $38 billion.

The other side of that coin was that the company only generated positive cash flow in two out of the past 30 years. When gas output from newly tapped shale fields flooded markets and prices tumbled, Chesapeake had to scramble to find new investors or joint-venture partners to provide cash infusions. By 2012, the company’s net debt load was twice the size of Exxon’s, a company that had a market value 27 times larger. Chesapeake warned it was on the verge of running out of cash.

While all of that was still brewing, little-known oil wildcatters like Harold Hamm were quietly adapting the technology McClendon and the other shale-gas innovators employed for use on crude-drenched rocks in North Dakota. Those breakthroughs reversed the terminal decline in U.S. crude production, turned America into an energy powerhouse and shattered OPEC’s decades-long grip on the world’s most important commodity.

Double Magnums

When times were good, Chesapeake spared no expense recruiting young talent to Oklahoma City and a corporate headquarters modeled after an Ivy League university campus. In between stockpiling double magnums of Bordeaux and collecting antique speedboats, McClendon singlehandedly transformed the northwest side of the city from a rundown backwater to a bustling commercial corridor.

But the good times never last forever. McClendon was ousted during an Icahn-led board revolt in 2013, and three years later he was indicted on federal bid-rigging charges. Just hours after vowing to fight the charges at all costs and clear his name, he died when his Chevy Tahoe slammed into a concrete highway abutment at 78 miles an hour along a desolate country road.

“They were absolutely guns blazing with their growth, but it took a lot of money to do that,” said Robert Clarke, research director at Wood Mackenzie Ltd. “Right now we’re looking at the ugly side of all that excess.”

Gordon Pennoyer, a Chesapeake spokesman, declined to comment for this story.

Escape Routes

Although Lawler inherited many of the burdens that sank the company, the fateful 2019 takeover of WildHorse Resource Development Corp. that included the assumption of more than $900 million in debt was his own undertaking. The move — intended to pivot Chesapeake toward oil and away from gas — occurred just in time to expand the company’s exposure to the crude-market collapse.

In the end, Chesapeake ran out of escape routes from its $9.5 billion debt load. Gas prices were too low for too many years, and lenders and private-equity investors had long since shut the door on shale. That left asset sales as the sole avenue for raising cash, but in a market already drowning in a surfeit of gas, Lawler couldn’t find buyers.
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Offline BuddyJ

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Re: Fracker Debt Bubble
« Reply #492 on: June 13, 2020, 06:47:55 PM »
The moral of the story being....folks who drill really need to learn to stop before they succeed so well they destroy the price of the very commodity they need to survive? Seems pretty basic really, and surprising that the companies themselves don't get it.

Offline RE

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🛢️ Shell to Write Down Up to $22 Billion as Virus Hits Big Oil
« Reply #493 on: July 01, 2020, 09:46:47 AM »
The moral of the story is the debt financing, like resources, is not infinite.  Learn your math.

RE

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🛢️ Frackers Are in Crisis, Endangering America’s Energy Renaissance
« Reply #494 on: July 21, 2020, 12:54:44 PM »
I feel sooooo bad for Moriarty.  lol.

RE

https://www.bloomberg.com/news/features/2020-07-21/u-s-oil-shale-industry-faces-extinction-amid-shutdowns


Frackers Are in Crisis, Endangering America’s Energy Renaissance

A rig on the Permian Basin, near Pecos, Texas.
Photographer: Julie Dermansky

Even before the pandemic, West Texas was reeling and Wall Street was running out of patience with the industry.

July 21, 2020, 1:00 AM AKDT


Twenty years ago, before the U.S. oil industry became a global energy power that strikes fear into Saudi Arabia, brothers Dan and Farris Wilks started Frac Tech Services LLC in tiny Cisco, Texas. The company provided equipment for hydraulic fracturing, aka fracking, the breaking up of tight sedimentary rock by blasting water, sand, and assorted chemicals through horizontal bores at fantastically high pressure.

Frac Tech grew into one of the most successful pressure pumpers as the U.S. experienced a boom first in shale gas, then in shale oil. The Wilks brothers became billionaires when they sold Frac Tech in 2011, just as shale oil was transforming the U.S. into one of the world’s biggest producers of crude. Last September the country became a net exporter of crude and petroleum products for the first full month in at least 70 years.

The big oil explorers and producers are household names: Chevron and BP, Exxon Mobil and Royal Dutch Shell. But the U.S. oil renaissance has ridden heavily on the backs of little-known pressure pumpers that figured out how to extract oil from the stubborn shale of Colorado, New Mexico, North Dakota, Texas, and Wyoming. The companies that perform this grimy work are also central to the potent political notion that Americans shouldn’t have to rely on the Saudis, Russians, and other oil producers for petroleum.
3220P_FEAT_FRACKING_02_CMS
Dan (left) and Farris Wilks
Photographer: Major Images

Today the Wilks brothers’ former company, now publicly traded and named FTS International Inc., is fighting to stay alive. Since early March, FTS has slashed executive pay, idled almost its entire fleet of pumping gear, and laid off two-thirds of its employees. It has more debt than cash. Its stock fell to about 30¢ a share before a 20-for-1 reverse stock split in May. Other pressure pumpers are suffering, too, with thousands of workers laid off. Research firm IHS Markit Ltd. recently pondered whether current conditions could “create a scenario in which a wave of bankruptcies in service companies leaves North American shale without enough pumpers to do the work at today’s standards.”

With pressure to move away from fossil fuels rising, the bigger question may be whether the shale phenomenon itself can endure. Already this year, more than three dozen North American explorers, fracking service companies, and pipeline operators—including shale pioneer Chesapeake Energy Corp.—have sought bankruptcy protection. Production is down about 2 million barrels a day from a peak of almost 13 million early this year, and Morgan Stanley says prices must go higher than the current $40 a barrel to prevent further production declines in 2021. Futures prices need to settle in the $55-to-$65-a-barrel range for an extended period before new drilling picks up significantly, says research firm Enverus. Even then, many companies are so highly leveraged that much of their cash could go to reducing debt rather than extracting oil.

Shale’s woes are connected to pandemic shutdowns eviscerating demand and the Saudi-Russia price war that briefly pushed oil prices below zero. But the shale industry’s own shortcomings had gotten it into trouble before Covid-19, as a look at FTS’s winding journey through twin booms and busts makes clear. Now a crucial link in the U.S. oil supply chain is facing mass extinction.

In December 2010, Frac Tech filed with the U.S. Securities and Exchange Commission for an initial public offering. The prospectus described a vertically integrated company that not only dispatched crews to fracture horizontal wells for oil and gas producers, but also manufactured its own equipment, mined fracking sand, and managed a logistics business with more than 1,000 rail cars. This new method of fossil fuel extraction was going full blast in natural gas and gaining momentum in oil as producers feasted on cheap postrecession capital to spend on drilling.

Frac Tech noted in its prospectus that it benefited from a “tight supply” of competitors and ample demand. In some drilling locations, Frac Tech operated around-the-clock, using twin day and night crews. The late Aubrey McClendon, chief executive officer of Chesapeake, which owned 26% of Frac Tech and was a regular customer, called the company “the best in the business.”
Active Pressure-Pumping Fleets in the U.S.

Data: Compiled by Bloomberg

The following spring, Frac Tech canceled the IPO. It then closed a leveraged buyout that delivered the company to a group of investors led by Temasek Holdings Pte, a Singapore state investment company, and RRJ Capital. Chesapeake increased its stake to 30%, and the Wilkses pocketed more than $3 billion, some of which they’ve used to acquire vast tracts of land in Montana and Idaho and to support anti-abortion and other conservative causes.

Frac Tech’s annual revenue had risen sixfold in four years, to $1.3 billion, and its net income had quadrupled, to $369 million. Crude prices had hit $100 a barrel, and shale was a happy business. Blue-collar workers looking to earn $100,000 a year flooded into West Texas. RVs and “man camps” housing out-of-towners stacked up around the little towns. Monahans, with a population of 7,000, saw that “probably double,” says Todd Hunt, CEO of Tejas Bank there. “License plates from all over the United States.”

It didn’t matter much in places like Monahans, but fracking was a hot political issue. Environmentalists raised concerns about air and groundwater pollution linked to fracking chemicals. Natural gas generated as a byproduct of fracking often goes to waste as oil producers burn it off through a process called flaring. Last year enough gas was flared in West Texas’ Permian Basin alone to power 5 million U.S. homes. Sharon Wilson, senior field advocate for the nonprofit Earthworks, argues that shale has worked against U.S. energy independence. “Rather than having a managed decline of oil and gas as we build out renewable energy, now we’ve got chaos,” she says. “We’re probably less independent now than if we had used this time to transition to renewable energy built in the USA. People would be better off healthwise, and we wouldn’t be dealing with this awful bust.”

In the early days, shale oil producers seemed like miracle workers. They could get wells flowing in mere weeks, while offshore projects took years. Shale wells delivered big initial bursts of oil, helping producers grow at copious rates. Wall Street had almost endless patience. Instead of earnings and cash flow, investors focused on whether you hit your production estimates. “It was all about, Let’s grow this as fast as possible,” says analyst George O’Leary of Tudor, Pickering, Holt & Co. “I’ve got to drill like crazy for five years, and if prices are at $100, I’m going to make a mint.”

By late 2011, Frac Tech was running 33 pumping fleets of flat-bed trailers, high-powered pumps, water trucks, diesel engines, sand trucks, gauges, pipes, hoses, and crew. More than half its business was with so-called dedicated customers like Chesapeake—those that prebooked Frac Tech crews for use on the bulk of their projects. In September, Frac Tech’s new owners filed for an IPO and announced the name change to FTS.
U.S. Crude Oil Production

Barrels per day

Data: Energy Information Administration

The IPO never happened, and this time it wasn’t because there was a better deal elsewhere. The leveraged buyout had loaded more than $1 billion in debt on FTS, and the company wasn’t making enough money to service it. Not long after the buyout, a natural gas glut sent prices into a free fall, and FTS’s customers began cutting capital outlays. The costs of running the business were rising, too, especially that of guar, a bean used to thicken fracking fluid. As producers shifted to oil, new pressure pumpers piled in, giving producers leverage to reduce what they were willing to pay for pumping. Dedicated customers became less dedicated. In retrospect, the Wilks brothers couldn’t have timed their deal much better. They bid farewell to their baby as just about everything that made pumping so lucrative was about to change.

Within 18 months of the buyout, Standard & Poor’s cut FTS’s credit ratings, investors pitched in money to keep the company from violating debt agreements, and the CEO, a former McClendon underling, was replaced. The LBO borrowing wasn’t intended to be permanent, rather a sort of bridge loan to sustain the company until it could execute a proper offering. But the acquirer’s expectations for growth, reflecting the industry’s mood, turned out to be too exuberant.

With oil prices slipping in late 2014, the world’s oil-producing nations looked to the Saudis to cut production and keep prices up. The Saudis declined, having given up all the market share they were willing to. Crude prices bottomed out at about $30 in 2016. Producers cut back on drilling, and some pressure pumpers went out of business. FTS, after refinancing $1.1 billion in debt in 2014, managed to hang on. Company executives declined to be interviewed for this story.

By late 2017 crude was in the $60-a-barrel range and the shale oil boom was officially back on, with the Permian Basin the favored place to drill. FTS had survived the bust, rebounded under another new CEO, Michael Doss, and was preparing yet again for an IPO. Across the shale world, a sort of amnesia set in.

The archetype of the American oil driller is the flag-waving, hell-raising Texas wildcatter looking high and low for his next gusher. Shale supposedly made the caricature obsolete: Who needs a wildcatter when everyone already knows where to find the oil?

Pressure-pumping fleets are essentially mobile factories, and like any other factory they make money only when they’re active. Generally they’re paid by the stage—a length of a horizontal bore, usually about 200 feet long, through which a pumping crew blasts water and sand. The bores themselves can extend laterally for 2 miles.

With oil prices healthy again, drillers cranked up rigs, private equity money poured in, and pressure pumpers and related oil-services firms went public. FTS went into its February 2018 IPO after tripling revenue in 2017, to $1.5 billion, reactivating a bunch of fleets, and generating positive operating income for the first time since 2014. The company had raised its pumping prices by 56% on average in 2017. However, in a conference call with industry analysts in March 2018, Doss said pricing was getting competitive again, noting, “There are new [pumping] fleets coming into the market.”

Despite a winnowing during the bust, FTS was still vying with about 40 rivals. As they started redeploying, the supply glut forced pumpers to make price concessions, contributing to drops in FTS’s revenue and earnings later in 2018. Producers by then were paying about $50,000 a stage, less than half what they paid in 2011, says Daniel Cruise, founder of Coras Research.
U.S. Exports of Crude and Petroleum Products

Barrels per day

Data: Energy Information Administration

As prices fell, another threat arose: Wall Street was running out of patience with shale. The economics of shale oil and conventional oil are as different as the drilling methods themselves. After their early surge of output, shale wells trickle out more rapidly than conventional vertical wells in what’s known as the decline curve. Flows from conventional wells tend to fall 5% to 10% a year, while a shale well can lose as much as 65% of its production by the end of its first year.

To keep production numbers high, shale companies keep drilling wells. It’s an expensive treadmill. Seeking to make the most of their acreage, producers started bunching wells closer and closer together, the kind of idea that can look better on a spreadsheet than in the Texas dust. Those additional bores, known as child wells, can interfere with output from the parent well, leading to diminished profits and wasted acreage.

Consider Permian driller Concho Resources Inc. To juice production, the company last year crammed 23 wells onto a single drilling location dubbed “Dominator,” with bores spreading out underground like octopus tentacles. Concho produced just a fraction of what it promised from those wells, forcing it to dial back its 2019 production forecast. Its shares fell 22% in a single day. Diamondback Energy Inc. encountered a similar problem when a neighboring producer’s wells interfered with its output, meaning the company wouldn’t meet its forecast. Its stock plunged, too. Both companies’ shares recovered some before the pandemic began.

It was yet another reason for investor exasperation. “How companies still, after all these years we have wailed and gnashed our teeth, manage to overpromise and underdeliver remains an infuriating mystery,” analyst Paul Sankey, now of Sankey Research, said in a note to clients. Since 2010, U.S. producers have spent about $340 billion more than they generated in revenue, according to Deloitte LLP. “In 2014 it would have been better for investors to take their money, burn half of it, and put the other half under their mattress,” says Clark Williams-Derry, an analyst for the nonprofit Institute for Energy Economics & Financial Analysis. “It’s not just bad performance, it’s been epically horrible performance.”

The cheap capital that fueled shale’s rise dried up. IPOs and follow-up offerings dropped to their lowest points in at least a decade. Texas shale activity as measured by rig counts, drilling permits, and well completions declined through much of 2019, says economist Karr Ingham of the Texas Alliance of Energy Producers. Producers kept squeezing pressure pumpers for lower prices. By the end of 2019, at least two pumping companies were exiting the business, and others, like FTS, were laying off workers and seeking other ways to cut costs. Then came the coronavirus.

Almost a quarter of Texas’ 242,000 oil and gas jobs have disappeared. The state’s unemployment rate leapt to 13% in May, from 3.5% at the end of last year. Houston alone has lost at least 10,000 industry jobs and will probably see an additional 15,000 vanish by the end of the year, says Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.

The pain is acute in West Texas, where pressure pumpers and other service companies are the economic lifeblood of towns such as Monahans, Kermit, and Pecos. “We have 200 cars wrapped around our buildings every day of the week,” says Libby Campbell, executive director of the West Texas Food Bank. The bank distributed more than a million pounds of food in June, twice the amount of a year earlier. Many clients have never sought public assistance before, Campbell says: “The fear on their faces, it’s heartbreaking.” Hunt, the Monahans banker, says: “Honestly, I haven’t seen anybody stop paying me yet. I know the train’s coming, I just can’t see how big it is.”

Texas oil people who’ve lived through past busts remain resolute. This spring the Railroad Commission of Texas, which regulates the oil industry, considered limiting crude production in the hope of bolstering prices amid the Saudi-Russia price war. Some Texans reacted with disdain. “Texas, out of all states, represents a humble, steadfast resolve that refuses to sacrifice its principles due to foreign influence,” David Dale, a Houston-area land manager for oil and gas producer Ovintiv Inc., wrote to the commission. Troy Eckard of Eckard Enterprises LLC in Allen, Texas, told regulators that Russia and Saudi Arabia are “terrorists” whose “game of supply hostage is not the time to bow down and sell out. Let the weak go broke. Let the overpaid, poorly run private equity-back[ed] companies fall by the wayside. Leave us to our own free-market solutions.” The commission stood pat.

As oil historian Daniel Yergin has observed, companies go bankrupt, rocks don’t. Assuming prices slowly recover, producers will begin to turn wells back on—a process that’s never been tried at this large a scale—and maybe drill some new ones. Whether they start paying pumpers better remains to be seen. Opportune LLP, a Houston energy advisory firm, says pumpers and other service companies face “a test of survivability, not profitability.” Consolidation seems likely, with producers themselves possibly acquiring the smaller service companies on the cheap.

The Wilks brothers started a new fracking company, ProFrac Services LLC, four years ago. The brothers also have invested millions of dollars in shale drillers, four of which have filed for bankruptcy.

On a Feb. 13 conference call, three analysts congratulated Doss on FTS’s fourth quarter. Never mind that revenue and earnings were way down from the previous year or that the company’s market value was one-seventh what it was 12 months earlier. Things were better than expected in terms of daily pumping hours and stages fracked per fleet. Plus, the company had finally whittled the old LBO debt to a somewhat manageable level. “The last 18 months have been challenging,” Doss said, “but current indications are that we are beginning to turn the corner.”

His tone was bleaker on his next quarterly call, on April 30. By then, FTS had only four fleets in the field. “Even at our low point in 2016, we still had 11 fleets operating,” Doss lamented. Asked about the future, he said: “We definitely want to come out of this. However long this downturn is—9 months, 12 months, maybe beyond—we want to come out of this.” —With Catarina Saraiva
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