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U.S. SHALE OIL Production Replace: Financial Carnage Continues To Gut Business

As the Mainstream media reports about the following part of the glorious U.S. Shale Oil Revolution, the financial carnage continues to gut the business deep down inside the entrails of its horizontal laterals. The stench of fracking fluid have to be driving shale oil advocates totally insane as they’re no longer in a position to see the financial wreckage happening in these firms quarterly stories.

This weekend, certainly one of my readers sent me the next Bloomberg forty five minute Television special titled, The next Shale Revolution. If you are in need of a superb chortle, I highly suggest watching a part of the video. Firstly of the video, it begins off with President Trump stating that the U.S. has change into an vitality exporter for the primary time ever. Trump goes on to say, “that powered by new innovation and expertise, we are now on the cusp of a new vitality revolution.” Whereas I should applaud Trump’s efforts for putting out some optimistic and reassuring information, I ponder who is offering him with terribly inaccurate power information.

I’d kindly prefer to remind the reader; the United States is still a Internet IMPORTER of oil. We still import nearly six million barrels of oil per day, but we export some finished merchandise and a percentage of our shale oil production. Thus, we still import a web of approximately three million barrels per day of oil.

A couple of minutes into the Bloomberg video, both Pioneer Assets Chairman, Scott Sheffield, and Continental Sources CEO, Harold Hamm, clarify how advanced expertise will revolutionize the shale oil industry and convey down prices. I discover that statement fairly hilarious as Continental Sources and Pioneer proceed to spend more money drilling for oil and fuel then they make from their operations. As I acknowledged in a previous article, Continental Sources lengthy-time period debt ballooned from $165 million in 2007 to $6.5 billion at the moment. So, how did superior expertise lower prices when Continental now has accumulated debt as much as its eyeballs

Of course… it didn’t. Debt increased on Continental Assets balance sheet as a result of shale oil manufacturing wasn’t profitable… even at $100 a barrel. So, now the investor who purchased Continental bonds and debt are the occidental petroleum internship salary Bag Holders.

Regardless, while U.S. oil production continues to increase at a reasonable tempo, there are some troubling indicators in one of the country’s largest shale oil fields.

Shale Oil Production On the Mighty Eagle Ford Stagnates As Companies’ Financial Losses Mount
Patent-oriented sieve trayIt was just a few short years in the past that the energy trade was bragging in regards to the super development of shale oil production on the mighty Eagle Ford Area in Texas. At the start of 2015, Eagle Ford oil production peaked at a document 1.7 million barrels per day (mbd). At present, it is almost 500,000 barrels per day decrease. Based on the EIA – U.S Power Information Agency’s most not too long ago launched Drilling Productiveness Report, oil manufacturing in the Eagle Ford is forecasted to develop by ZERO barrels in December:

The chart above suggests that the businesses drilling and producing oil in the Eagle Ford spent one hell of a lot of money, simply to keep manufacturing flat. Despite the fact that the shale oil producers had been able to deliver on 88,000 barrels per day of recent oil, the sector lost 88,000 barrels per day as a consequence of legacy declines. We’d like not take out a calculator to know manufacturing development on the Eagle Ford is a giant PHAT ZERO.

Listed here are the five largest shale oil and gas producers within the Eagle Ford:

    EOG Sources
    BHP Billiton
    Chesapeake Vitality
    Marathon Oil

The company that doesn’t quite fit within the energy group above is BHP Billiton. BHP Billiton is one in all the largest base metal mining firms on the planet. Sadly for BHP Billiton, the corporate determined to get into U.S. Shale at the worst potential time. BHP Billiton bought shale oil properties when prices had been high and finally had to liquidate when costs were low. A Rookie mistake made by supposed professionals. I wrote about this in my article; DOMINOES Start TO FALL: BHP Chairman Says $20 Billion Shale Funding “MISTAKE.”

I determined to check out the current monetary experiences published by the five corporations listed above. The largest player within the Eagle Ford is EOG Assets. I went to YahooFinance and created the next Cash Movement table for EOG:

In the newest quarter (Q3 2017), EOG reported $961 million in money from operations. Nevertheless, the company spent $1,094 million on capital (CAPEX) expenditures and another $96 million in shareholder dividends. Applying simple arithmetic, EOG spent $229 million more on CAPEX and dividends than it made from its operations. Possibly someone can tell me how superior technology is bringing down the associated fee for EOG.

The subsequent largest participant in the Eagle Ford is ConocoPhillips. If we have a look at ConocoPhillips internet income at its totally different enterprise segments, we will see that the company isn’t making any money producing oil and gasoline in the decrease 48 states:

Whereas ConocoPhillips enjoyed a $103 million profit in Alaska, it suffered a $97 million loss within the lower forty eight states. Thus, the third largest oil firm in the U.S. isn’t making any money producing oil and gasoline in nearly all of the country. In keeping with the info, ConocoPhillips produced twice as much oil and fuel in the lower forty eight states then what they reported in Alaska, but the company still lost $ninety seven million.

The third largest company producing oil within the Eagle Ford is BHP Billiton. Instead of providing monetary results, I assumed this chart on BHP Billiton’s Return On Capital Employed was a greater indicator of how dangerous their U.S. Shale belongings were performing. If we look at the right-hand facet of the chart, BHP Billiton’s shale oil resources have turn out to be one hell of a drag on the company’s asset portfolio:

Whereas BHP Billiton is enjoying a wholesome constructive Return On Capital Employed on most of its assets, shale oil resources are exhibiting a adverse return. Moreover, the company makes a be aware to above stating, “Detailed plans to enhance, optimize or EXIT.” I’d guess my backside Silver Dollar that their decision will end up “EXITING” the wonderful world of shale energy, with the sale of their property for pennies on the greenback.

Shifting down the checklist to the next shale company, we come to Chesapeake. While Chesapeake is the country’s second-largest natural gasoline producer, the company has been losing cash for more than a decade. Sadly, the situation hasn’t improved for Chesapeake as its present financial assertion reveals the company continues to burn by means of cash like a druken sailor:

Chesapeake’s internet money provided by its working activities equaled $273 million for the first three-quarters of 2017. Nevertheless, the company spent a whopping $1,597 million on drilling and completion prices (CAPEX). Thus, Chesapeake spent $1.Three billion more on producing its oil and natural fuel Q1-Q3 2017 than it made from its operations. Once more, how is advanced know-how making shale oil and gas extra worthwhile

If it weren’t for the asset sale of $1,193 million, Chesapeake would have needed to borrow that money to make up the difference. Regrettably, promoting assets to fortify one’s stability sheet isn’t a long-time period viable enterprise model. There are solely so many assets one can sell, and in some unspecified time in the future, in the future, the market will realize these property can have became worthless liabilities.

Okay, we finally come to the fifth largest player within the Eagle Ford…. Marathon Oil. The state of affairs at Marathon isn’t any better than the opposite companies drilling and producing oil within the Eagle Ford. Based on the companies third-quarter report, Marathon suffered a $600 million net earnings loss:

Again, we’ve another instance of an energy firm losing some huge cash producing shale oil and gasoline. You will notice how excessive Marathon’s Depreciation, depletion, and amortization are in each the third-quarter and nine months ending on Sept thirtieth. While some might believe that is just a tax write off for the company… it isn’t. As a result of huge decline rate in producing shale oil and gas, PLEASE SEE the primary CHART ABOVE on the EAGLE FORD Progress OF ZERO, these firms have to put in writing off these property because it represents the BURNING of money.

For example, Marathon reported cash from operations of $1,487 million for Q3 2017. Nevertheless, it spent $1,305 million on CAPEX and $128 million on dividends for a complete of $1,433 million. Thus, Marathon really enjoyed a small $fifty three million in constructive free cash circulation as soon as dividends were deducted. But, that is just part of the story. If we go back to 2005 when the oil price as about the identical as it is right this moment, Marathon was reporting quarterly earnings, not losses.

In the first quarter of 2005, Marathon earned a optimistic $324 million in net revenue. It also reported a $258 million net earnings gain in 2004, even at a much lower oil worth of $38 a barrel versus the $48-$50 throughout Q3 2017. So, the Falling EROI – Vitality Returned On Invested is killing the profitability of shale oil and fuel companies right this moment, whereas they were making profits only a decade ago.

Now, I didn’t present any information on the other shale oil fields in the U.S. however production continues to extend in several regions, especially within the Permian. However, one in every of the biggest gamers in the Permian, Pioneer Sources, isn’t making any cash either. If we take a look at their financials, we can see that Pioneer continues to spend extra money on CAPEX than they’re receiving from money from operations:

In all three quarters in 2017, Pioneer spent extra money on capital expenditures than it made from its working actions. Pioneer spent $four hundred million more on CAPEX spending than from its operations for the primary nine months of 2017 ending on Sept 30th. So, right here is just another instance of a U.S. shale oil producer who partly responsible for the rising manufacturing in the Permian, nevertheless it nonetheless isn’t making any cash.

Now, some buyers or readers on my blog would say that the situation will get better when the oil worth continues in direction of $60, $70 after which $80 a barrel. Effectively, that would be good, but I consider we are heading in direction of one hell of a market crash. Although some financial indicators are wanting rosy, this market is being propped up by a massive quantity of debt and the biggest Short VIX commerce in history. When the markets start to go south because the massive VIX Commerce reverses… effectively, watch out under.

Thus, as the markets crash, the oil price will head occidental petroleum internship salary down with it. Unfortunately, this will probably be the ultimate blow to the U.S. Shale Oil Ponzi Scheme and with it… the notion of Energy Independence without end.

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