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International Erroneous Agency


This was the IEA's predictions for free cash flow from the US shale oil industry in 2018, where it said, categorically, that 2018 was the year American shale oil would finally "turn the corner" and start making money.


Well, in spite of $67 WTI prices for 2018, break'even prices that magically! get lower and lower every year and higher well productivity than in 2017, it did not work out the way the IEA thought it would. The US shale oil phenomena outspent revenue, again, in 2018. Some did have a little discretionary cash flow (cash flow is NOT free when you are buried up to your hard hat in debt); overall the entire industry did not.


So, the International Energy Agency is gonna try again for 2019...

What's different this year, I have no clue. Productivity is stagnating and/or declining in all four major shale oil basins, GOR is rising rapidly (particularly in the Bakken!) with no improved marketing outlets, and so far oil prices are lower. Rig rates are declining and lenders have had a belly full of funding the party. It does not appear possible that US shale oil can continue to grow production without taking on even more debt.


Hope, however, springs eternal.


It's probably a good idea to remember that the rest of the world loves American light tight oil exports and does not mind, at all, that it is unprofitable to extract and requires the United States keep getting deeper and deeper in debt. OPEC and Russia enjoy, immensely, that one of the most expensive barrels of oil in the world, the US shale barrel, is getting produced first. Those countries are happy to save their cheap, established reserves for later, when the US depletes its entire resource base in the pursuit of dividends and CEO compensations. The IEA is one the US LTO industry's biggest cheerleaders, naturally, and has predicted incredible growth year after year, without any regard whatsoever for economics. It'll get a prediction right one of these days. Maybe.


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