America Needs ALL of America's Oil

October 15, 2017

America will need ALL of it's remaining hydrocarbon resources in the near future, including that oil production that occurs from the Gulf of Mexico,  Alaska and  onshore conventional sources; EOR projects and stripper wells, alike. Stripper wells alone account for over 700,000 BOPD of crude oil production in America. At the moment onshore conventional production is unable to slow its annual decline rates because of low, unstable product prices (as a result of too much (LTO) supply) and higher finding and extraction costs  driven entirely by demand on  supplies and on the service industry from the US shale oil phenomena. 

 

American's are fixated, to the point of hyperventilation,  on  the American shale oil phenomena. But it is woefully unprofitable to produce, is sucking all the air out of the rest of the oil industry in North America and  exists entirely on credit. We need shale oil in America too, but we need for it to be profitable, to  pay for itself and be extractable in the future without  being associated with massive amounts of long term debt, bankruptcies, price and employment volatility.

 

This is a chart from the EIA STEO Report  dated October 2017. Only unconventional shale oil is projected to grow thru 2018; all other forms of oil production in America will decline. From the North Slope in Alaska, oil production is set to decline rather dramatically. Can we bank on all that EIA production growth from shale oil in the future? 

 

Best not.  For the EIA's projections to occur the shale oil industry must be able to continue to defer deleveraging long term debt, sell more of its reserve assets and/or borrow additional capital. It can no longer raise significant capital thru stock offerings; shareholders are disgruntled with horrible returns and declining share values. Except for new start-up companies that can be controlled with onerous loan covenants, Wall Street even appears to be fed up with loaning the shale oil industry money; an industry, by the way, that has never in it's existence been able to produce free cash flow.

 

There is a staggering $39,000,000,000 of long term shale oil debt maturing in 2019, another similar amount in 2020 and more again in 2021. In the face of all this maturing debt the LTO industry will have to stop outspending cash flow drilling and completing new wells to pay down old  debt.  In 2017 it is outspending revenue, again, and perhaps making  a serious mistake,  so says an analyst at Barclays. Hoping for higher oil prices is not a plan.  Relying on OPEC to continue its production cuts and keep the price of oil propped up is a poor business tactic. 

 

The EIA's "wishful thinking" seems far fetched, to say the least. Increased shale oil productivity is not the same as profitability and ignoring the current financial plight of the shale oil industry, and its massive amount of debt, is ignoring reality. Private enterprise in America must be profitable to be sustainable and the American shale oil industry is no different.  

 

 

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