AuthorTopic: Oil Facts & American Dreams  (Read 547 times)

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Oil Facts & American Dreams
« on: May 01, 2017, 02:11:56 AM »


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Published on The Daily Impact  March 6 & 9, 2017






Discuss these articles at the Kitchen Sink inside the Diner



The Oil Industry’s Alternate Facts






The two articles appeared within 48 hours of each other. One was produced by Bloomberg News, one of the most respected names in traditional journalism. The other appeared in Oilprice.com, a veteran and well respected source of objective news about the oil industry. No one has ever credibly accused either of these organizations of producing “fake news.” Yet when each of them decided to publish an assessment of the state of the American shale oil industry in the first week of March, 2017, the two articles were diametrically opposed in all their conclusions.



Bloomberg proclaimed “The second Coming of American Oil Shale…” with production “on the rise again.” [This is a piece of unrelieved optimism. Do the headline writers at Bloomberg know that the Second Coming is the end of the world?] Oilprice.com, rather than a trumpet fanfare, sounded a klaxon alarm —  “Why Investors Should Beware of the Bakken” (the premier American oil-shale field) — beginning with “It is the beginning of the end for the Bakken oil shale play.” Each article is long, well-written, lavishly illustrated with charts, and serious, meant for serious people making momentous decisions. The articles do not describe the same planet, let alone the same industry.



According to Bloomberg:




  • The number of U.S. drilling rigs has grown 91 percent to 602 in just over nine months;


  • production has gained more than 550,000 barrels a day since the summer, rising above 9 million barrels a day for the first time since April;


  • Exxon is diverting about one-third of its drilling budget this year to shale fields that will deliver cash flow in as little as three years;


  • the election of President Donald Trump, carrying the promise of fewer regulations, added pipelines and energy independence;


  • So far this year, U.S. energy companies have raised $10.5 billion in fresh equity, with shale and oil service groups drawing the most investment, the best start of the year since at least 1999 and equal to a third of what the sector raised in the whole of 2015



According to Oilprice.com




  • The decline in Bakken oil production that started in January 2015 is probably not reversible. December 2016 production fell 92,000 barrels per day (b/d)–a whopping 9 percent single-month drop. Over the past two years, output has fallen 285,000 b/d (23 percent). This was despite an increase in the number of producing wells


  • New well performance has deteriorated, gas-oil ratios have increased and water cuts are rising. Much of the reservoir energy from gas expansion is depleted and decline rates should accelerate. Estimated ultimate recovery (EUR) decreased over time for most operators and 2015 EUR was lower for all operators than in any previous year (Figure 2). This suggests that well performance has deteriorated despite improvements in technology and efficiency.


  • More drilling may increase daily output for a while but won’t resolve the underlying problem of poorer well performance and declining per-well reserves.


  • all major Bakken producers continue to lose money at current wellhead prices. Higher oil prices may not help much because the best days for the play are behind us.



This is why I have not written about the state of the oil industry for over a year — it’s been a year of yin and yang, the-crisis-is-almost over and the-crisis is just beginning, glass-half-full, glass-half-empty stories like these two. To sort out for oneself which narrative to believe — which planet one lives on — requires hours of checking and assessing the writers’ sources, definitions, assumptions and credibility.



Just take the starting point of the two articles: that shale oil production in the U.S. is going up/down. Only after parsing the Bloomberg piece carefully do you realize that while its headline and lede refer to shale oil, in the middle of paragraph five there is a seamless shift to all U.S. oil production, which is up. The Oilprice.com piece is correct in saying that shale oil production in the Bakken is falling.



When I do the same, migraine-inducing level of research on every single point, I come back again to the place where I began writing about this stuff ten years ago. The so-called new American oil revolution is not ushering in a triumphant new age of energy independence; it’s a bunch of desperate people clawing the last few drops of oil out of increasingly reluctant ground. None of them is making any money, none of them has ever made any money in the shale-oil patch.



But, like Kellyanne Conway and Bloomberg News, they can be nimble manipulators of alternate facts, who are well paid for distracting us from the fact that the light and smoke and luxury and ease of the industrial age is fast fading now, to a darkness we have seldom known, on this, the only planet on which we have ever lived.




————————–



The American Dream Has Retired








 



 



This what you had in mind for your retirement? Think again. (Photo by kenteegardin/Flickr)



 



 




It has always been an essential part of the modern American Dream that after you have put in 20 years of work, your company rewards your loyalty with a pension, to keep the gold in your Golden Years. Like most promises of the Industrial Age, it was a wonderful dream as long as no one did the math. What would happen, no one asked, when there were more pensioners than workers? Nothing, the answer would have been, because funds for each and every pension were set aside as the worker worked, and invested wisely, so that there would be plenty of money for each and every retiree.



But what would happen, no one thought to ask, if American industry and government lost their basic decency, and sacrificed the welfare of future pensioners to swell the fortunes of the current Masters of the Universe? What would happen, no one wondered, if the managers of the pension funds were so incompetent that instead of fattening the accounts, they starved them. Now we know what would happen.   



Virtually every pension fund in the country — for municipal, state and federal government workers, union members, and employees of private companies —  finds its treasury stuffed with IOUs from the companies and agencies that were supposed to keep it solvent (“sorry we can’t meet our obligations to you this year but we will next year or the year after that or the year after that or the year after that or the year after that. we promise”) and the records of bad stock market bets gone sour.



This is usually a topic for debate among actuaries and accountants — everyone else’s eyes glaze over at the mere mention of  this, one of the most treacherous and lethal campaigns to be directed at any class of Americans since the Indian Wars. We don’t take responsibility for the Indian Wars because they happened so long ago, and we shrug off the implications of the pension  debacle — the sudden depriving of millions of elderly Americans of the money for food, shelter, medicine and clothing — because it somewhere off in the distant future.



Except it’s not. It’s starting now:




  • At the end of 2015, the pension funds of the companies listed in the S&P 500 were underfunded by a staggering 375 billion dollars, after having been fully funded as recently as 2007. Underfunded is a polite term for treachery: the companies have not deposited in the pension fund the money they have promised to pay their qualified retirees.


  • State and local government pensions are in far worse shape: they are five and one-half trillion dollars short of the money they have promised — and are obligated by law — to pay their retirees.


  • The Pension Benefit Guarantee Corporation (PBGC), a US government agency, insures the private pension funds covering 40 million Americans. So far, it is responsible for paying the benefits owed by 71 pension funds that have gone broke (it does not pay the full benefit, more like 70 per cent, and it does not use taxpayer funds — yet.). The PBGC says it will run out of cash within ten years.


  • The Central States Pension Fund, for Teamsters union truck drivers in several states, one of the country’s largest funds covering a quarter of a million people, plans to cut benefits for more than a quarter million retirees — some by more than half — beginning July 1, and expects to be insolvent by 2025.



This rapidly gathering storm is not going to limit its effects to retired people. No less an authority than Investor’s Business Daily suggests that the public pension shortfalls alone could bankrupt the Unites States government. They estimate the existing debt at over $17 thousand for every American. Failure to honor a private pension is a breach of trust; failure to pay a public pension is a breach of the law.



As this crisis matures, with announcements coming every week now that another fund is reducing benefits or otherwise in trouble, so too will the related crises in social security and among the people — nearly half the households of working people — who have no personal savings or preparation for their retirement.  



When they came for the Muslims and the Mexicans, I did not speak up for obvious reasons. But now they’re coming for the old people.




Offline monsta666

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Re: Oil Facts & American Dreams
« Reply #1 on: May 01, 2017, 03:33:50 AM »
The Bloomberg and OilPrice have opposing conclusions because they are talking about different things. In the Bloomberg article it chooses to focus on production in the United States and from what I understand production has gone up in recent months. Whether it has increased to 9 million barrels a day I am less sure but increased it has. From what I gather these gains have come from increased production in the Gulf of Mexico which have more than offset the declines in shale, the lower 48 and Alaska. The $10 billion investment sounds impressive but bear in mind the oil industry in the United States is massive so that yearly investment may not be a good indicator of confidence, it may well be the opposite. It also interesting to note with Bloomberg the bit about cash flow. Every business generates cash flow but is their cash flow positive or negative? The industry trend has been largely negative and is kept alive through financing so you could easily draw that conclusion but the tone of article suggests positive cashflow. However the omission of this detail is noteworthy and could be an indication of positive spin and worst a tilt towards oil production propaganda.

The Oil Price is also correct as it chooses to focus on Bakken oil production which seems to have past peak. Oil production has been showing a general decline in the region and with low prices and low investment it is probable declines will continue especially if all the sweet spots have been drilled. The Oil Price piece chooses to highlight the month with the most dramatic drop in production to bring their point home but it is not a typical decline (as yet) and so whilst decline has set in it is not as dramatic as the month they highlight which can skew peoples' opinion towards the downside. The other points raised are pretty accurate so overall it does point an accurate picture of the Bakken play dynamics.

I get my figures by tracking Ron Patterson's website Peak Oil Barrel and it has described all the mentioned trends a few months back. I do choose just to focus on articles describing actual production figures that come in than the ones that make predictions for future production figures as historically predictions on future oil production has been poor.

Offline RE

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Re: Oil Facts & American Dreams
« Reply #2 on: May 01, 2017, 03:42:56 AM »
Thanks for the analysis Monsta.  :emthup: :icon_sunny:

Glad somebody here is following Ron on PeakOilBarrel.

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Offline agelbert

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Re: Oil Facts & American Dreams
« Reply #3 on: May 01, 2017, 03:22:49 PM »
:emthup:  :icon_sunny: Great article.

Oil and Gas is a dead man walking. The stubborn morons that keep funding them instead of letting them go bankrupt will continue to get destroyed in the market place.

Good!

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if it has not works, is dead, being alone.

Offline agelbert

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Re: Oil Facts & American Dreams
« Reply #4 on: May 01, 2017, 03:29:49 PM »
The Bloomberg and OilPrice have opposing conclusions because they are talking about different things. In the Bloomberg article it chooses to focus on production in the United States and from what I understand production has gone up in recent months. Whether it has increased to 9 million barrels a day I am less sure but increased it has. From what I gather these gains have come from increased production in the Gulf of Mexico which have more than offset the declines in shale, the lower 48 and Alaska. The $10 billion investment sounds impressive but bear in mind the oil industry in the United States is massive so that yearly investment may not be a good indicator of confidence, it may well be the opposite. It also interesting to note with Bloomberg the bit about cash flow. Every business generates cash flow but is their cash flow positive or negative? The industry trend has been largely negative and is kept alive through financing so you could easily draw that conclusion but the tone of article suggests positive cashflow. However the omission of this detail is noteworthy and could be an indication of positive spin and worst a tilt towards oil production propaganda.

The Oil Price is also correct as it chooses to focus on Bakken oil production which seems to have past peak. Oil production has been showing a general decline in the region and with low prices and low investment it is probable declines will continue especially if all the sweet spots have been drilled. The Oil Price piece chooses to highlight the month with the most dramatic drop in production to bring their point home but it is not a typical decline (as yet) and so whilst decline has set in it is not as dramatic as the month they highlight which can skew peoples' opinion towards the downside. The other points raised are pretty accurate so overall it does point an accurate picture of the Bakken play dynamics.

I get my figures by tracking Ron Patterson's website Peak Oil Barrel and it has described all the mentioned trends a few months back. I do choose just to focus on articles describing actual production figures that come in than the ones that make predictions for future production figures as historically predictions on future oil production has been poor.



I disagree that the price of oil is correct, regardless of what area of exploitation and extraction it happens to focus on.

The oil price will never be correct until the Social Cost of Carbon is included in it.

Get real, Monsta.  ;)

<a href="http://www.youtube.com/v/oBBFJNhwnz8" target="_blank" class="new_win">http://www.youtube.com/v/oBBFJNhwnz8</a>
Leges         Sine    Moribus      Vanae   
Faith,
if it has not works, is dead, being alone.

 

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