Shale is going bankrupt

I will ascend above the heights of the clouds; I will be like the most High.
                                                                                                                                Isaiah 14:14
 
Our translation below is from RIA Novosti, with commentary by Vince Dhimos.
 
Shale oil supporters said that America could become the no. 1 oil producer in the world. Turns out they were right. Trump said shale oil could reduce US unemployment. Turns out he was right too. The catch is that this shale pipe dream has hit a wall of solid rock. Thanks to shale's built-in geological features, ie, the need for fracking and the low shelf life of shale wells, it inherently fails to make money for its investors – like investing in Treasuries, who relied on the rocket science of quantitative easing. Investors in both are therefore pulling out. And the government, which tried giving shale investors tax breaks, even tax credits, will ultimately have to admit it’s simply been betting on the wrong horse.
 
American elites have a systemic problem: They believe in the zero-sum game wherein hurting your competitor is somehow tantamount to success. By contrast, China believes in the win-win game wherein making others rich gives you rich clients, and only rich clients can make you rich in turn. Pretty elementary, but US politicians and economic ideologues prefer Rube Goldberg solutions. Tant pis pour eux.
 
The insistence on win-win is why President Xi has long been talking about lifting the Third World out of poverty. China’s non-stop growth – despite a cruel trade war – signals that he has always held the winning hand.
 
If the US had invested in the Chinese AIIB and the Belt and Road, they would be on the winning team. But like the Medieval Crusaders, who couldn't bring themselves to share the Middle East with the other two Abrahamic religions, the proud hegemon could not lower himself to be part of a team. He had to be the boss, all or nothing. It was his choice.

We had warned early, here and  here, that this tragic fate of the shale oil industry was inevitable, and that no government intervention could prevent it. But Washington and Wall Street have an unbending preference for political solutions over science-based solutions. 
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The flip side of the boom: a wave of bankruptcies swept the American shale
 
May 18, 2019
 
MOSCOW, May 18 - RIA Novosti, Natalya Dembinskaya. The worst fears of US shale companies seem to be coming true: Weatherford, one of the leading providers of well drilling services, is preparing for bankruptcy proceedings. The next few smaller players are Halcon Resources and Alta Mesa Resources. Why expensive oil is not helping shale oil companies - RIA Novosti reports.
 
No money
 
Oil production in the United States has reached a record 11.5 million barrels per day, thanks in large part to oil shale. But, as Bloomberg notes, the shale boom is only masking the problems of this market.
 
To maintain high production rates, operators need to drill more and more wells, and this requires enormous costs. But there is nowhere to get the money: tired of unprofitable projects, investors are losing interest in shale drillers. Last year, Wall Street invested half as much in the industry as in 2016.
 
“Thousands of shale wells drilled over the past five years pump less oil and gas than their owners promised investors,” The Wall Street Journal notes. “It makes you wonder: is shale drilling promising and profitable, as one would expect from the hopes of turning the USA into an oil superpower?”
 
As a result, the industry is flooded with a wave of bankruptcies. Weatherford International, an American oilfield services company, one of the leading providers of drilling services, said last week that it was preparing to sue for bankruptcy. And the leadership of two other oil and gas industry players, Halcon Resources and Alta Mesa Resources, questioned the ability of their companies to continue operations.
 
California Resources, an oil and natural gas exploration and production company, also had problems. Its bonds are traded with a yield typical of junk papers - ten percentage points higher than US Treasury bonds. Bristow Group, PHI, Jones Energy and Rex Energy are also burdened with debts and likewise face bankruptcy.
 
"These non-viable companies are revealing the flip side of the boom. Manufacturers with high costs and poor balance sheets do not really attract investors, who are more interested in making a profit than investing in the development of shale production, be it through debt or equity," says Bloomberg.
 
Expensive oil won’t save the day
 
Faced with a lack of investment, by the end of last year, shale producers entered an austerity regime, cutting the budget for the current year - for the first time in several years. Major miners, Centennial Resource Development, Diamondback Energy, and Parsley Energy, reduced planned spending by about 15 percent. Cost reductions were announced by more than a dozen oil companies.
 
The hopes of the industry were largely associated with the restoration of oil prices. Since December, WTI and Brent have risen in price by almost 40 percent - up to $60 and $70 per barrel, respectively.
 
However, observers note, this is not saving shale drillers. As Bloomberg Intelligence analyst Spencer Cutter points out, despite $60-70 oil, bankruptcy in the US energy sector will “increase” by the end of the year. [And that despite Trump’s illegal sanctions on anyone buying Iranian or Venezuelan oil!]
 
Total losses
 
In the period of 2010-2014, the development of technology and high oil prices led to an explosive increase in investments in oil production in shale fields. But in 2015, black gold fell sharply, and the shale industry had to fight for survival. About a hundred manufacturers went bankrupt, owing a total of more than $70 billion.
 
Now the situation is repeating itself: shale drillers are cutting costs and growing debt (Weatherford's bankruptcy alone will add about eight billion dollars to total debt), and no new investments are expected in the sector.
 
For investors, shale companies turned out to be a "black sheep," according to FactSet, an international company specializing in the financial data market. Since 2007, the stock index of US oil shale producers has dropped 31 percent, even as the S&P 500 rose 80 percent.
 
Analysts point out that for ten years, the industry has not met expectations. According to Evercore ISI, a consulting firm, energy companies spent $280 billion more than they earned on oil and gas during this period.
 
Today, the proceeds from the sale of a quarter of shale oil produced in the United States are entirely used to pay interest on corporate borrowings. With the total debt of oil shale companies, the situation is even worse: it exceeded $300 billion, and nine billion barrels of oil must be produced to pay it off. This is almost as much as the shale oil extracted during the entire lifetime of the industry (about ten billion barrels).
 
Technology won't help
 
Experts also note that shale companies have been experimenting with various drilling methods for many years.
 
As oil scientist David Hughes explained to OilPrice, improving drilling methods has reduced costs and improved well efficiency, but has not led to a significant increase in oil production. "Technological progress does not change the fundamental characteristics of shale oil production, but only accelerates the life cycle from boom to recession," says Hughes.
 
Thus, in the shale industry, a drop in production is inevitable amidst a constant increase in costs. "It is a mistake to assume that oil shale production will grow forever on the basis of continuously improving technology: in the end, only geology determines the cost and amount of resources that can be extracted," the scientist warned.