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Finances of Fracking: Shale Industry Drills More Debt Than Profit
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2019 Jan 20, 12:46am 545 views 1 comment
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anonymous
2019 Mar 16, 7:28am
Fracking 2.0 Was a Financial Disaster, Will Fracking 3.0 Be Different?
Two years ago, the U.S.fracking industry was trying to recover from the crash in the price of oil. Shale companies were promoting the idea that fracking was viable even at low oil prices (despite losing money when oil prices were high). At the time, no one was making money fracking with the business-as-usual approach, but then the Wall Street Journal published a story claiming all of this was about to change because the industry had a trump card — and that was technology.
Today, frackers are again relying on technology as a financial savior, but this time, they are looking to Microsoft.
As ExxonMobil embarks on an ambitious move into fracking in the Permian oil fields of West Texas, it has announced a partnership with Microsoft to use cloud technology to analyze oil field data and optimize operations. Exxon claims the move could generate “billions in net cash flow.”
Time will tell if the Microsoft cloud will make Exxon rain profits in the Permian.
Fracking 2.0
In March 2017, the Wall Street Journal ran an article with the headline, “Fracking 2.0: Shale Drillers Pioneer New Ways to Profit in Era of Cheap Oil,” which detailed the ways the shale industry expected technology could help it finally deliver profits. The article mentioned “longer, supersize wells” and said, “The promise of this new phase is potentially as significant as the original revolution.”
The article highlighted EOG Resources (as in, Enron Oil and Gas), a company often touted as the “Apple of oil,” and quoted the company’s chief information officer saying that technology advances allowed its employees to work at the “speed of thought.”
It also reported that Chesapeake Energy was betting on these new supersize wells as part of its “turnaround strategy.” Chesapeake needed to “turnaround” from losing money and move in the direction of profits.
In June 2017, investment website Seeking Alpha trumpeted “The Arrival of Super-Laterals” as a technological accomplishment for the shale oil industry. (“Laterals” are the industry term for the horizontal wells used in the fracking of shale oil and gas). That article featured Chesapeake Energy’s new achievements in drilling longer lateral wells.
But supersized wells weren’t the only solution for keeping shale drillers from losing more money. Another was more wells per drilling pad. A year ago shale company Encana announced plans for “cube development,” in which it would drill 64 wells on one gargantuan drilling site in the Permian oil fields of West Texas.
The same thing was happening in the Marcellus Shale in Pennsylvania, where top natural gas producer EQTCorporation had plans for drilling 40 wells per pad. The company recalled the early days of fracking when drilling three wells per pad was seen as a significant breakthrough. As the Pittsburgh Post-Gazette reported at the time, the higher number of wells per pad required “creative geometry,” which “ensures that the wells don’t crowd each other underground.”
The Post-Gazette also quoted Dave Elkin, a senior vice president of asset optimization at EQT, touting the ever-increasing lengths of horizontal wells, as saying the “economic and technological limit” for those in the Marcellus Shale was 21,000 feet, or just shy of 4 miles.
With more advanced technology delivering longer horizontal wells and creative geometry packing them into smaller areas, profits seem like the next logical step.
But Fracking 2.0 was a financial disaster, and shale drillers’ desperate attempts to make money any way they can is coming back to haunt them in a big way.
Frac Hits and Technological Limits
Fracking 3.0: Exxon Bets on Microsoft to Solve the Problem
More on each boldface sub-header: https://www.nakedcapitalism.com/2019/03/fracking-2-0-financial-disaster-will-fracking-3-0-different.html
Two years ago, the U.S.fracking industry was trying to recover from the crash in the price of oil. Shale companies were promoting the idea that fracking was viable even at low oil prices (despite losing money when oil prices were high). At the time, no one was making money fracking with the business-as-usual approach, but then the Wall Street Journal published a story claiming all of this was about to change because the industry had a trump card — and that was technology.
Today, frackers are again relying on technology as a financial savior, but this time, they are looking to Microsoft.
As ExxonMobil embarks on an ambitious move into fracking in the Permian oil fields of West Texas, it has announced a partnership with Microsoft to use cloud technology to analyze oil field data and optimize operations. Exxon claims the move could generate “billions in net cash flow.”
Time will tell if the Microsoft cloud will make Exxon rain profits in the Permian.
Fracking 2.0
In March 2017, the Wall Street Journal ran an article with the headline, “Fracking 2.0: Shale Drillers Pioneer New Ways to Profit in Era of Cheap Oil,” which detailed the ways the shale industry expected technology could help it finally deliver profits. The article mentioned “longer, supersize wells” and said, “The promise of this new phase is potentially as significant as the original revolution.”
The article highlighted EOG Resources (as in, Enron Oil and Gas), a company often touted as the “Apple of oil,” and quoted the company’s chief information officer saying that technology advances allowed its employees to work at the “speed of thought.”
It also reported that Chesapeake Energy was betting on these new supersize wells as part of its “turnaround strategy.” Chesapeake needed to “turnaround” from losing money and move in the direction of profits.
In June 2017, investment website Seeking Alpha trumpeted “The Arrival of Super-Laterals” as a technological accomplishment for the shale oil industry. (“Laterals” are the industry term for the horizontal wells used in the fracking of shale oil and gas). That article featured Chesapeake Energy’s new achievements in drilling longer lateral wells.
But supersized wells weren’t the only solution for keeping shale drillers from losing more money. Another was more wells per drilling pad. A year ago shale company Encana announced plans for “cube development,” in which it would drill 64 wells on one gargantuan drilling site in the Permian oil fields of West Texas.
The same thing was happening in the Marcellus Shale in Pennsylvania, where top natural gas producer EQTCorporation had plans for drilling 40 wells per pad. The company recalled the early days of fracking when drilling three wells per pad was seen as a significant breakthrough. As the Pittsburgh Post-Gazette reported at the time, the higher number of wells per pad required “creative geometry,” which “ensures that the wells don’t crowd each other underground.”
The Post-Gazette also quoted Dave Elkin, a senior vice president of asset optimization at EQT, touting the ever-increasing lengths of horizontal wells, as saying the “economic and technological limit” for those in the Marcellus Shale was 21,000 feet, or just shy of 4 miles.
With more advanced technology delivering longer horizontal wells and creative geometry packing them into smaller areas, profits seem like the next logical step.
But Fracking 2.0 was a financial disaster, and shale drillers’ desperate attempts to make money any way they can is coming back to haunt them in a big way.
Frac Hits and Technological Limits
Fracking 3.0: Exxon Bets on Microsoft to Solve the Problem
More on each boldface sub-header: https://www.nakedcapitalism.com/2019/03/fracking-2-0-financial-disaster-will-fracking-3-0-different.html
In this series, DeSmog’s Justin Mikulka and Sharon Kelly investigate the finances of the fracking industry and how falling fossil fuel output and questionable lending practices reminiscent of the mid-2000s housing bubble may be setting up another bubble, one with a bill that may ultimately be paid by American taxpayers and the planet.
In this series:
Fracked Shale Oil Wells Drying Up Faster than Predicted, Wall Street Journal Finds
Fracking in 2018: Another Year of Pretending to Make Money
Peak Shale: Is the US Fracking Industry Already in Decline?
The Fracking Industry’s Water Nightmare
The Fracking Industry Is Cannibalizing Its Own Production, Increasing Spill Risks
Oil Industry Plans to Keep Workers Safe—by Firing Them and Having Robots Do Their Jobs
Rise of the Machines: Fracking Execs Plan Profits by Using Automation to Shrink Workforce
Why It Matters If Fracking Companies Are Overestimating Their ‘Proved’ Oil and Gas Reserves
Flip This Well: How Fracking Company CEOs Get Rich While Losing Billions
This Fed Policy Enabled the Fracking Industry’s $280 Billion Loss
As Rest of World Moves Towards Renewables, US Keeps Offering Exclusive Tax Breaks for Fossil Fuels
How Wall Street Enabled the Fracking 'Revolution' That's Losing Billions
GOP Tax Law Bails Out Fracking Companies Buried in Debt
Low Octane: The Surprising Reason Shale Oil Makes a Poor Fuel for High-Tech Cars and Trucks
Despite Disappointing Returns, Oil Driller Pushes Ahead with Fracking Near Rare Texas Wildlands
The Secret of the Great American Fracking Bubble
https://www.desmogblog.com/finances-fracking-shale-industry-drills-more-debt-profit
#Fracking #Economics #Oil