U.S. Shale Oil Industry: Catastrophic Failure Ahead

While the U.S. Shale Industry produces a record amount of oil, it continues to be plagued by massive oil decline rates and debt. Moreover, even as the companies brag about lowering the break-even cost to produce shale oil, the industry still spends more than it makes. When we add up all the negative factors weighing down the shale oil industry, it should be no surprise that a catastrophic failure lies dead ahead.

Of course, most Americans have no idea that the U.S. Shale Oil Industry is nothing more than a Ponzi Scheme because of the mainstream media’s inability to report FACT from FICTION. However, they don’t deserve all of the blame as the shale energy industry has done an excellent job hiding the financial distress from the public and investors by the use of highly technical jargon and BS.

For example, Pioneer published this in the recent Q2 2018 Press Release:

Pioneer placed 38 Version 3.0 wells on production during the second quarter of 2018. The Company also placed 29 wells on production during the second quarter of 2018 that utilized higher intensity completions compared to Version 3.0 wells. These are referred to as Version 3.0+ completions. Results from the 65 Version 3.0+ wells completed in 2017 and the first half of 2018 are outperforming production from nearby offset wells with less intense completions. Based on the success of the higher intensity completions to date, the Company is adding approximately 60 Version 3.0+ completions in the second half of 2018.

Now, the information Pioneer published above wasn’t all that technical, but it was full of BS. Anytime the industry uses terms like “Version 3.0+ completions” to describe shale wells, this normally means the use of  “more technology” equals “more money.” As the shale industry goes from 30 to 60 to 70 stage frack wells, this takes one hell of a lot more pipe, water, sand, fracking chemicals and of course, money.

However, the majority of investors and the public are clueless in regards to the staggering costs it takes to produce shale oil because they are enamored by the “wonders of technology.” For some odd reason, they tend to overlook the simple premise that…

MORE STUFF costs MORE MONEY.

Of course, the shale industry doesn’t mind using MORE MONEY, especially if some other poor slob pays the bill.

Shale Oil Industry: Deep The Denial

According to a recently released article by 40-year oil industry veteran, Mike Shellman,  “Deep The Denial,” he provided some sobering statistics on the shale industry:

I recently put somebody very smart on the necessary research (SEC K’s, press releases regarding private equity to private producers, etc.) to determine what total upstream shale oil debt actually is. We found it to be between $285-$300B (billion), both public and private. Kallanish Energy Consultants recently wrote that there is $240B of long term E&P debt in the US maturing by 2023 and I think we should assume that at least 90 plus percent of that is associated with shale oil. That is maturing debt, not total debt.

… By year end 2019 I firmly believe the US LTO industry will then be paying over $20B annually in interest on long term debt.

Using its own self-touted “breakeven” oil price, the shale oil industry must then produce over 1.5 Million BOPD just to pay interest on that debt each year. Those are barrels of oil that cannot be used to deleverage debt, grow reserves, not even replace reserves that are declining at rates of 28% to 15% per year… that is just what it will take to service debt.

Using its own “breakeven” prices the US shale oil industry will ultimately have to produce 9G BO of oil, as much as it has already produced in 10 years…just to pay its total long term debt back.