As dark clouds gather on the financial horizon, big trouble is brewing in the U.S. Shale Oil Industry…
As dark clouds gather on the financial horizon, big trouble is brewing in the U.S. Shale Oil Industry. While most Americans are focused on the Mainstream media’s coverage of the ongoing Washington D.C. circus, the real threat to the domestic economy lies in the country’s oil heartland. And, if we look at what is taking place in the United States’ largest shale oil region, the signs are troubling.
The Permian Oil Basin in Texas and New Mexico accounts for nearly half (46%) of the total U.S. shale oil production. According to the data from Shaleprofile.com, Permian’s oil production peaked in May at 3.43 million barrels per day. Due to the massive decline rate, production in the Permian has stalled this year.
The chart below shows the Permian oil production declining even though more wells continue to be brought online. Unfortunately, there aren’t enough wells being added to offset the tremendous decline rate. You will notice how quickly the oil production that was added in 2018 (Light Blue color) has declined in just half a year:
To give you a better idea of the huge decline rate in Permian oil production, let’s only focus on 2018 and 2019 in the following charts. But, before doing so, I wanted to let everyone know that this information would not be possible without the data from Shaleprofile.com. I highly recommend that you check out Shaleprofile.com and consider subscribing to the service if you want to be able to access more details in the shale industry. It’s worth its weight in gold.
Let’s look at the Permian oil production just for 2018. Permian oil production brought on in 2018 peaked in December at 2,136,000 barrels oil per day (bopd) or 2,136K bopd, and declined to 1,056K bopd by July 2019. That is a STUNNING 50.5% decline in just seven months:
The next chart shows the Permian oil production that was brought online from Jan-July 2019 increased to 1,308K bopd, or 1.3 million barrels per day:
Unfortunately, the 2,493 wells completed so far in 2019 haven’t been enough to show much overall oil production growth in the Permian. If we combine both 2018 and 2019, here is the result:
Even though the companies drilling and completing wells in the Permian added 2,493 new wells so far in 2019, overall production from these two years only increased by a net 221K bopd (221,000 bopd). Thus, of the 1,308K bopd of the new output brought on in 2019, 1,087K bopd was already lost due to the massive decline rate of 2018’s production.
Now, there may be some upward revisions for Permian oil production in 2019 because a small percentage of the wells have not yet been reported. But, this will not change the overall situation all that much.
Just think about this for a minute. Of the 5,132 wells drilled, completed and brought online in 2018, 50.5% of that production has VAPORIZED in just seven months. This is CAPITAL DESTRUCTION at its finest.
While the capital invested in a gold mine would last 10-20 years, more than 50% of the capital invested in a shale well goes up in smoke every year. Of course, oil industry accountants that calculate the depreciation on a typical shale well will say that it only loses 25% of its value in the first year because it has a long tail of production stretching 20-30 years. Unfortunately, we are beginning to see evidence that these wells aren’t lasting that long. More on that in upcoming articles.
Lastly, while Americans continue to yell, holler, and bicker about which party should win the presidential election next year, they should be more concerned about the ENERGY that drives the entire economy. When U.S. shale oil production peaks and begins to collapse, there is no PLAN B for the Fed and central banks. Printing money when oil production heads south will look a lot more similar to what is taking place in Venezuela than what we experienced since the last 2008 financial crisis.
IMPORTANT NOTE: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.
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