• About
    • Which Energy Mix is this?
  • Climate News Network Archive
  • Contact
The climate news that makes a difference.
No Result
View All Result
The Energy Mix
  • Canada
  • UK & Europe
  • Fossil Fuels
  • Ending Emissions
  • Community Climate Finance
  • Clean Electricity Grid
  • Cities & Communities
SUBSCRIBE
DONATE
  • Canada
  • UK & Europe
  • Fossil Fuels
  • Ending Emissions
  • Community Climate Finance
  • Clean Electricity Grid
  • Cities & Communities
SUBSCRIBE
DONATE
No Result
View All Result
The Energy Mix
No Result
View All Result
  • Canada
  • UK & Europe
  • Fossil Fuels
  • Ending Emissions
  • Community Climate Finance
  • Clean Electricity Grid
  • Cities & Communities
  FEATURED
Biden Approves $8B Oil Extraction Plan in Ecologically Sensitive Alaska March 14, 2023
U.S. Solar Developers Scramble after Silicon Valley Bank Collapse March 14, 2023
$30.9B Price Tag Makes Trans Mountain Pipeline a ‘Catastrophic Boondoggle’ March 14, 2023
UN Buys Tanker, But Funding Gap Could Scuttle Plan to Salvage Oil from ‘Floating Time Bomb’ March 9, 2023
Biden Cuts Fossil Subsidies, But Oil and Gas Still Lines Up for Billions March 9, 2023
Next
Prev

Declining Production, Wall Street Skepticism Could Produce Death Spiral for U.S. Shale Oil

February 8, 2019
Reading time: 3 minutes

Jeremy Buckingham/flickr

Jeremy Buckingham/flickr

14
SHARES
 

Despite headline-grabbing production numbers, the shale oil industry in the United States may be heading into a death spiral, according to a recent analysis on Resilience.org.

While low oil prices have certainly been a headache for the industry, Kurt Cobb of Resource Insights points to other signs of a more dire decline. “Oil production, it seems, is being overstated industry-wide by 10%, and 50% in the case of some companies,” he writes, citing a Wall Street Journal report. “The CEO of one of the largest players in the industry, Continental Resources, predicted that growth in shale oil production could fall by 50% this year compared to last year. In reality, we should expect worse, as the industry for obvious reasons tends to exaggerate its prospects.”

  • Concise headlines. Original content. Timely news and views from a select group of opinion leaders. Special extras.
  • Everything you need, nothing you don’t.
  • The Weekender: The climate news you need.
Subscribe

If that’s the way things go, the impact will fall hardest on private investment firms that bet big on shale oil bonds. “The plan for the firms was always to unload the debt on somebody else when better opportunities presented themselves,” Cobb writes. “But the firms overstayed their welcome and are having a hard time even finding a bid in the market for these bonds.”

Now that Wall Street skepticism is sinking in, a grouping of companies that must constantly raise new capital to stay afloat hasn’t concluded a single bond issue since November. And ironically, an industry that is working so hard to drive climate change may now be running afoul of one of the local impacts it produces. “The future of U.S. shale oil production seems to be in the Permian Basin in Texas, which has been providing the lion’s share of oil production growth for the entire country,” he states. “But ongoing drought in an already arid West Texas has raised doubts about whether the Permian will have enough water to meet all the demand for fracking new wells.”

Those observations kick off a downward spiral that has some analysts describing shale oil as a Ponzi scheme, Cobb writes. With production from existing sites declining fast, companies have to drill enough new wells to offset their losses, “a task akin to walking up the down escalator.” As the number of wells increases, companies are now spending more than half their capital budgets on the replacement sites, a figure that could hit 75% by 2021, and might eventually reach 100%. And after all that, the companies’ expenses come in far higher than their revenues.

“That means the companies must borrow from investors (usually in the form of high-yield debt) or get them to buy new shares in order to raise the money needed not only to drill enough wells to make up for lost production from declining wells, but also to drill enough to grow production—something investors have been counting on to secure the value of their bonds and increase the value of their shares,” he explains. “If the needed capital is not forthcoming, it means companies will be faced with declining revenues from declining production. With lower operating cash flow and little access to additional capital, these companies will be unable to drill enough wells to offset declining ones. That means even lower revenues in the future, which will mean even lower investment in new wells. That’s what a death spiral looks like.”

The industry might have a chance of bouncing back if oil prices surge. But if and when that happens, Cobb asks, “will investors risk getting caught during a subsequent downturn with shale oil company bonds that can’t catch a bid in the market (or shares that could end up worthless)?”



in Community Climate Finance, Energy / Carbon Pricing & Economics, Shale & Fracking, United States

The latest climate news and analysis, direct to your inbox

Subscribe

Related Posts

U.S. Bureau of Land Management/flickr
Oil & Gas

Biden Approves $8B Oil Extraction Plan in Ecologically Sensitive Alaska

March 14, 2023
39
David Dodge, Green Energy Futures/flickr
Community Climate Finance

U.S. Solar Developers Scramble after Silicon Valley Bank Collapse

March 14, 2023
63
EcoAnalytics
Media, Messaging, & Public Opinion

Canadians Want Strong Emissions Cap Regulations, Not More Missed Targets

March 14, 2023
53

Comments 1

  1. Rick says:
    4 years ago

    A sobering message that main stream financial media seems to ignore. I wonder why?

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

Trending Stories

Behrat/Wikimedia Commons

Hawaii Firm Turns Home Water Heaters into Grid Batteries

March 14, 2023
203
U.S. National Transportation Safety Board/flickr

$30.9B Price Tag Makes Trans Mountain Pipeline a ‘Catastrophic Boondoggle’

March 14, 2023
78
David Dodge, Green Energy Futures/flickr

U.S. Solar Developers Scramble after Silicon Valley Bank Collapse

March 14, 2023
63
Rebecca Bollwitt/flickr

Fossils Stay ‘Oily’, Gibsons Sues Big Oil, U.S. Clean Energy Booms, EU Pushes Fossil Phaseout, and Fukushima Disaster was ‘No Accident’

March 14, 2023
60
EcoAnalytics

Canadians Want Strong Emissions Cap Regulations, Not More Missed Targets

March 14, 2023
53
U.S. Bureau of Land Management/flickr

Biden Approves $8B Oil Extraction Plan in Ecologically Sensitive Alaska

March 14, 2023
39

Recent Posts

Raysonho/wikimedia commons

Purolator Pledges $1B to Electrify Last-Mile Delivery

March 14, 2023
33
United Nations

UN Buys Tanker, But Funding Gap Could Scuttle Plan to Salvage Oil from ‘Floating Time Bomb’

March 10, 2023
86
Gage Skidmore/Wikimedia Commons

Biden Cuts Fossil Subsidies, But Oil and Gas Still Lines Up for Billions

March 10, 2023
162
jasonwoodhead23/flickr

First Nation Scorches Imperial Oil, Alberta Regulator Over Toxic Leak

March 8, 2023
360
MarcusObal/wikimedia commons

No Climate Risk Targets for Banks, New Guides for Green Finance as 2 Federal Agencies Issue New Rules

March 8, 2023
230
FMSC/Flickr

Millions Face Food Insecurity as Horn of Africa Braces for Worst Drought Ever

March 8, 2023
239
Next Post
Dawn Ellner/flickr

Climate-Health Plan Demands Federal Action on Century’s ‘Greatest Public Health Challenge’

The Energy Mix - The climate news you need

Copyright 2023 © Energy Mix Productions Inc. All rights reserved.

  • About
  • Contact
  • Privacy Policy and Copyright
  • Cookie Policy

Proudly partnering with…

scf_withtagline
No Result
View All Result
  • Canada
  • UK & Europe
  • Fossil Fuels
  • Ending Emissions
  • Community Climate Finance
  • Clean Electricity Grid
  • Cities & Communities

Copyright 2022 © Smarter Shift Inc. and Energy Mix Productions Inc. All rights reserved.

Manage Cookie Consent
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behaviour or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Manage options Manage services Manage vendors Read more about these purposes
View preferences
{title} {title} {title}