BIG BLOW FOR SHALE ENERGY: Chevron Terminates All Shale Gas Exploration In Europe

No ChevronThe Shale Energy Industry suffered another big blow as Chevron terminated its last European operations in Romania due to poor exploration results and ongoing anti-fracking protests.  Chevron also suspended all operations in Poland last month and cancelled shale gas agreements in Ukraine and Lithuania.

This is just another bad sign for the Shale Energy Industry.  A few years ago, the hype put out by the Main Stream Media (MSM), was that there was an endless amount of shale oil and gas reserves all over the world.  Of course, this was pure nonsense as a few of the more enlightened energy analysts knew better.

According to the article, Chevron Ditches Last European Fracking Project In Romania:

While the US Energy Information Administration had previously estimated that Romania could potentially recover enough gas to cover domestic demand for more than a century, the exploration failures resulted in the country’s prime minister, Victor Ponta, saying last year that it looks like Romania “does not have shale gas.”

Globally, Chevron’s 2014 failure rate stood at 30 percent, as compared to 18 percent in 2013, according to Bloomberg. Sixteen of the 53 wells the company drilled were found to have had no commercially viable quantities of oil or natural gas.

As the article stated, the U.S. Energy Information Agency (EIA) first estimated that Romania had enough shale gas reserves to supply the country for more than a century.  So a SHALE ENERGY BANG turned into a WHIMPER as Chevron’s shale gas exploration projects turned out to be an utter failure.

We also must remember, most citizens in other countries who own property, do not own their mineral rights as do Americans.  So, it’s no benefit to them to have thousands of rigs and fleets of fracking trucks taking over the landscape.

In just a few years, Romania’s supposed 100 years worth of shale gas reserves evaporated into thin air.  This reminds me of President Obama saying the same thing during his public address to the nation last month.  Unfortunately, Obama was misinformed just like Romania’s Prime Minister, Victor Ponta, that the United States also has 100 years worth of shale gas.

How much shale gas does the United States really have?  Well, according to energy analyst Art Berman in his Peak Prosperity interview, Why Today’s Shale Era Is The Retirement Party For Oil Production, Art believes the U.S. has about 8 years worth of economically recoverable shale gas reserves at current annual consumption rates. 

If Art is correct that the U.S. had less than ten years worth of shale gas supply, this spells real trouble for our economy and highly leveraged financial industry…. both totally dependent on a growing energy supply to function.

Major Oil Companies Such As Chevron Are Already In Big Trouble

As Americans continue to believe the United States is heading for energy independence, $1.50 gallon gasoline and the never-ending expansion of the Great Suburban Dream…. serious cracks are beginning to appear on the balance sheets of the major U.S. energy companies.

Looking at Chevron’s cash flow statements over the past three years, we can spot a troubling sign.  In 2011, Chevron’s produced $41 billion in cash from operations, while it spent $26.5 billion on capital expenditures.  Thus, Chevron enjoyed a FREE CASH FLOW of $14.5 billion that year (excluding dividends).

Chevron Free Cash Flow

Normally, when we look at a companies free cash flow, we take cash from operations and deduct capital expenditures and shareholder dividends.  However, in the example above, I am excluding the $6.2 billion in dividends that Chevron paid to their shareholders in 2011.  So, if we were to deduct the $6.2 billion (dividends) from the $14.5 billion (operating cash minus CAPEX), we would end up with $8.3 billion in free cash flow for 2011.

Which is still positive for Chevron.  This was also true in 2012, when operating cash of $38 billion, minus CAPEX of $30.9 billion and dividends of $6.9 billion (not shown in the table above), gave Chevron a free cash flow of $200 million in 2012.

Unfortunately, things got worse for Chevron in 2013 when cash from operations of $35 billion was less than the $37.9 billion the company spent on CAPEX that year.  Furthermore, Chevron paid a whopping $7.6 billion in dividends in 2013, resulting in a NEGATIVE $10.5 billion in free cash flow for the year.

Basically, Chevron is suffering from the CASH FLOW PINCH…. falling operating cash flow and rising capital expenditures.   It’s no wonder Chevron finally decided to get out of all shale oil and gas exploration in Europe when it can’t even make enough cash from operations to pay its shareholder dividends.  I took a look at Chevrons Q1-Q3 results for 2014, and it isn’t any better than 2013.

According to my back of the napkin calculations, Chevron’s free cash flow Q1-Q3, including dividends, was a negative $6.7 billion.  So, for the past two years, Chevron had to either borrow or come up with additional funds to pay its shareholder dividends as it didn’t have enough cash from operations to do so.

Folks, the world is starting to wake up to the fact that GLOBAL PEAK OIL is here.  It’s only a matter of time before overall production begins its inevitable decline.  Some energy analysts believe 2015 or 2016 will mark the year the world finally peaks in total petroleum liquid production.

Once we begin to see actual production decline figures, the market will start to realize the sobering reality that GROWTH FOREVER is over.  This will have profound implications for NET PRESENT VALUE, the financial formula that provides value to most stocks, bonds and paper assets.

With a declining global oil supply, economic growth will only go in one direction.  Thus, the value of most paper assets which are based on economic growth via a growing energy supply will experience a great mass exodus.

This is why I believe in owning physical gold and silver.  I don’t care how much the paper prices of the precious metals have fallen since 2011.  Investors need to realize that purchasing gold and silver is like any other retirement account… it’s a long-term buy and hold strategy.

The key to understanding the future value of gold and silver is by following the global energy market.  Finance does not run the global economy… energy does.

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19 Comments on "BIG BLOW FOR SHALE ENERGY: Chevron Terminates All Shale Gas Exploration In Europe"

  1. Interesting stuff as usual !

    A stupid question : how cash flow can ve negative as chevron is still posting in 2013 some “strong” net income ?

    Thanks.

    • The tax and accounting rules do not allow a full deduction of Capital Expenditures in the year the expense was occurred. This means even though a company might spends all the cash now, it only gets to deduct a portion of that cost now. The expenditures need to be capitalized and then depreciated over a number of years.

      In case of Chevron above, the net income does not take into account the amount of capital expenditures.
      So cashflow could be negative despite having a net income

  2. 2 remarks :

    1) Long term rates will go to 0 even for 30 years so the NPV will maybe fall than you can think.
    2) I checked with exxon and philipps conocco which have not such horrible numbers. chevron was quite similar to royal dutch shell but investment will decline now has some big projects (with low NPV as these levels for petroleum products) have been made in the last few years.

  3. “Folks, the world is starting to wake up to the fact that GLOBAL PEAK OIL is here”

    To play devils advocate, if this were true the market would start discounting this bleak future scenario despite a slight excess supply today. And look at the Airline companies: ON FIRE. And look at retailers like Home Depot: ON FIRE. And look at the contract service companies is offshore drilling: tanking. And yet that is WHERE THE OIL GROWTH IS GOING TO BE IN THE NEXT DECADE.

    In other words, the market isn’t buying the Peak Oil theory AT ALL.

    Frank

    • frank,

      You’re more than welcome to waste your time in here giving us your “EXCELLENT OPINION” now that you have dumped all of your gold and silver, so you can now HELP MANKIND.

      You remind me of the famous saying by Jack Nicholson in the movie AS GOOD AS IT GETS. He responds to a neighbor at his door by saying, “GO SELL CRAZY SOMEWHERE ELSE… WE ARE STOCKED UP HERE.”

      When people wake up, it takes time. First they realize something isn’t right in the back of their mind, but they don’t do anything about it. That’s where we are now. I imagine it will take another few years and the world will finally start to witness actual evidence of Peak Oil.

      So, frank… you want to go save the world and help mankind… go to it. Why on earth are you wasting time here on lousy PRECIOUS METAL INVESTORS when you could be saving the 99% of the world??

      steve

      • For people who can understand spoken french an interesting video on oïl/energy which are quite similar to Steve’s views :

        http://leseconoclastes.fr/2015/02/videos-de-la-conference-de-louvain-le-29-janvier-2015/

        My 2 cents regarding peak oïl : energy markets cannot anticipate some events which are several years from now as the contrary to monetary metals oïl stocks/oil production are very low.

        Regarding gold/silver : they are acting with negative correlation from stocks and even bonds so they can still be part of some diversification purpose in a portfolio. This situation could last somemore years.

    • lastmanstanding | February 25, 2015 at 4:56 pm |

      Frank. Airlines, ON FiRE…swipe the plastic…debt called an asset. Home Depot, Lowes, Walmart, ON FIRE…swipe the plastic…debt called an asset. CAT…No money down, borrow at 1 % interest, no payment for your choice of 3 months, FREE Equipment accessory included…debt used as/called an asset. CAT has lost money for the last 26 months…the largest equipment manufacturer on the planet.

      Who the fuck does biz that way and survives?…in the real world. For now, all of the above. All require massive amounts of fuel to operate.

      Frank, the earth doesn’t work that way…she will eventually shit can all of the above because there will be no need for their services any longer. There will not be enough fuel/oil available or people with money to buy all of their crap. Now, everyone can buy fuel, but just wait…costs will skyrocket and only a select few will be able to.

      Growth is slowing…exponentially…corps, gub, banks all lie to cover the truth of what is happening because it doesn’t work for them. As a last resort, war is next.

      This time, they…corps, gub, banks will be fair game and on the field with the rest of us. No one will have neutrality in what is coming. I can hardly wait. Live free until you die.

      Frank…THAT is how the planet works.

  4. Wow, that was snippy. Okay, Steve. I get it. Someday, in a whole lot of years…..someday in the far away future…..EVERYONE will finally see what you see.

    Got it. Good luck to you. I’m glad to see that you know EXACTLY what the future will look like. Good for you Mr. Soothsayer. I just have one question: How’s it working out for you?

    Frank

  5. Frank , Not only are you an ugly , advocate of the devil , and probably a paid shill to boot , your method has been used many times before and it’s stale , VERY stale .
    At least try and come up with something new and original to entertain all of us with your ass clown tricks.

    • Frank : there is the martin’s Armstrong for that…

      • Erratum : martin armstrong’s blog/forum for the most ardent gold/silver haters, even more than wall street boys.

        • RD,

          Martin Armstrong doesn’t believe in PEAK OIL or CLIMATE CHANGE. I gather he believes in infinite growth on a finite planet. I would like to see him CYCLE CHART that one.

          steve

          • Martin Armstrong is just interested in financial markets : he is not an investor and a long term strategist. he is just a wall street boyz who have been caught while others have not !

            I also believe that huge innovation will happen in the next décades but that does not mean we will face some troubles in the meantime !

          • In the interest of clarity: Are you talking about natural climate change, AGW as propounded by the AGW industrial complex c/o the Club of Rome, real environmental crises, or Maunder Minimum and global cooling? This discussion is as prone to semantic ambiguity as the inflation-deflation debate!

          • Lore,

            I am in the camp of human induced GLOBAL WARMING. There is no cooling of the climate even though the Northeast USA is being pounded by the so-called Polar Vortex. The extreme cold weather is forced south due to the falling temperature gradient between the equator and Arctic, slowing the Jet Stream. A slower Jet Stream now produces much longer waves heading south.

            Those who believe we are entering a new ice age due to the cooling of the Northeast during the winter, fail to realize the extremly high temperature anomalies in the northern latitudes and Arctic. For example, back in Jan an island station off the Arctic stated a temperature of 27 degrees, while Pensacola Florida was 20 degrees.

            You can only have a new ICE AGE, if the northern latitudes and the Arctic grow EVEN COLDER than the Southern latitudes.

            I really don’t want to get in the CLIMATE CHANGE debate, because it looks as if we have triggered the METHANE CLATHRATE GUN, which means, positive feedback loops will now cause a continued exponential methane increase from the Arctic.

            So, there is nothing to be done.

            steve

  6. Infinite growth is nonsense.But a time Frame for an Investment is necessary.

  7. Before the pop of every bubble, some correctly read the signs & symptoms, and some of those who are in the financial industry are on the record of warning their readers or subscribers to, for example, get out of most stocks or excess real estate holdings in 1999 or 2007.

    Some never see it coming or refuse to see it coming.

    Sometimes that comes down to personality types. For example those identified as intuitive on the Myers-Briggs personality profile test were more likely to see or accept the reality that unfolded in 2000 and 2008/2009….before it happened.

    For entertainment or self understanding take the test: http://www.myersbriggs.org/my-mbti-personality-type/mbti-basics/

    The most professional/up-to-date version may require payment [the version used by PhD clinical psychologists]. But there are free versions online.

    Then again regardless of personality type or how much information is put in front of them some are just obstinate, obtuse, or obnoxious.

  8. Hey Frank, If you have any gold or silver to sell, I’ll take that junk off your hands! You shouldn’t be holding such thing so unworthy of your hard earned dollars.

  9. Losing these good paying oil field jobs, is really going to drive the last nail in the economies coffin!
    Good luck trying to find a job that will pay as well, or for that matter, ANY job!

    This short video will open your eyes as to whom and what is responsible.

    http://www.youtube.com/watch?v=SfTfsWhZi5E

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