Storm's a Comin'

On the left is a chart of free cash flow from 33 "focused" shale oil companies in America and the money they lost from 2010 to year end, 2019. The average price of WTI in 2019 was $61.23 per barrel and these 33 companies still lost over $2.1 billion smackers. For the nine year period these same 33 companies outspent revenue by $185 billion.

Mind you these are "focused" shale oil companies, likely meaning the cream of the crop, and there were actually over 400 public and private companies in America operating shale oil wells. The IEEFA suggests total shale losses in 2019 were $6.7 billion. [1]

So, how many barrels of shale oil did we add to our nation's reserves, to our country's long term energy security in 2019 for the money spent?

Not too damn much.

Below is the EIA's estimate of crude oil and condensate (C+C) reserves at the end of 2019, just released to the public a few days ago. America only gained 3o6MM barrels of proved shale oil reserves in 2019. For the record, that is about 19 days of total US consumption.

The EIA, by the way, gets its reserve estimates directly from shale oil operators. You can decide for yourself how accurate those estimates might actually be.

Then there is the EIA's definitions of "proved" reserves:

Reserves in nonproducing reservoirs

"Not all proved reserves are contained in actively producing reservoirs. Reserves within actively producing reservoirs are known as proved, developed, producing reserves. Two additional categories for proved reserves exist: proved, developed, nonproducing reserves (PDNPs), and proved, undeveloped reserves (PUDs).

Examples of PDNPs include: existing producing wells that are shut in awaiting well workovers; drilled wells that await completion; drilled well sites that require installation of production equipment or pipeline facilities; or behind-the-pipe reserves that require the depletion of other zones or reservoirs before they can be placed on production (by recompleting the well).

An example of proven undeveloped reserves (PUD's) are undrilled offset well locations (acreage adjacent to an existing producing well that is scheduled to have wells drilled upon it). However, additional conditions must be met to satisfy the definition of proved reserves." [2]

So the 23.2G barrels (G stands for billion) of proven reserves at the end of 2019 entails all kinds of stuff other than proven producing reserves, including "undrilled, uncompleted and undeveloped" reserves based on their proximity to producing wells, called (PUD's). In other words, this portion of the EIA's proved reserve estimates do not even exist yet. They are hypothetical and dependent on more capital to realize.

That's important.

Given the current financial state of the US shale oil sector and the fact that it is flat-ass out of money, should we be counting on all these "probable" reserve estimates? Nobody wants to give the shale oil sector any money to drill new wells. Its already at least $280 billion in debt. If it didn't make money in 2019 at $61 do you think it made any money in 2020 at $41? It did not. It added MORE debt in 2020. So how do we know these proven undeveloped reserves will ever get drilled, or realized?

We don't. Not for sure. Whatever engineers like to say about the percentage of probability in recovering different reserve categories, in the shale oil business that all depends on available capital.

How many barrels of oil does the EIA estimate is undeveloped or in "nonproducing" reservoirs and still classified as proved?

"Table 16 shows the estimated volumes of nonproducing proved reserves of crude oil, lease condensate, non-associated natural gas, associated-dissolved natural gas, and total natural gas for 2019. As of December 31, 2019, the United States had 16.3 billion barrels of crude oil proved reserves and 184.0 Tcf of natural gas proved reserves in nonproducing reservoirs." [2]

So, in reality the American shale oil industry had only 6.9G BO of proven producing reserves (PDP) at the close of 2019.

What does that mean?

It means there is a shit storm coming in our country and relying on the US shale oil sector to provide shelter for us will be like standing naked in a hail storm.

1.) Given the fact that the US shale oil sector produced 2.3G BO in 2019 it only has a reserve to production ratio of 3 meaning there is only 3 years of existing, proven producing shale oil reserves left in our entire country. The EIA just reported that; please read the link.[2] This is not my data, it's theirs.

How can that be, you ask? Shale oil's annual decline rates, if you are standing behind them, will suck you plum off your feet. Nearly 69% of America's shale oil production is less than 2 years old. [4]

2.) Of the 2.3G BO of unconventional shale oil produced in 2019, approximately 1.2G BO was exported to foreign countries, or 45.5% of total [3]. In other words, we are exporting almost half of all the shale oil we produce. And losing money doing it.

If you think exporting shale oil is good for America's long term future, with a PDP R/P of 3, you need to have your head examined.

3.) At $50 gross well head prices, 6.9G BO of proven producing reserves does not come within a country mile of paying down over $285 billion dollars of long term, public and private debt. [5]

So...for all the dog dookey about being "energy (hydrocarbon) independent," after 13 years and nearly a trillion dollars of deployed capital, the shale oil industry has only 3 to 3 1/2 years of proven producing reserves to show for it.

That's alarming.





[5] At $50 gross WH prices net backs per BO, after all costs are deducted, including transportation and marketing, taxes, royalty deductions, incremental lift costs per BO, general overhead, administrative and interest expense = $18-20 per BO 'take home pay.'

Rig Photo by Mike Rasco