MEDIA DELUDES AMERICANS: Shale Oil Production Suffers Massive Decline Rates

The Mainstream media continues to delude the public into believing cheap shale oil production will make the United States energy independent.  We now see articles suggesting that Americans will no longer need to rely upon the Middle East or OPEC for our future oil supply when all we need to do is ramp up our domestic shale oil production.   Unfortunately, its not that simple or easy.

Matter-a-fact, the United States will never become energy independent because domestic shale oil production suffers from seriously high annual decline rates.  What does that mean?  That means, every year the top shale oil fields lose a massive amount of oil production, which can only grow by adding an even higher amount of new oil production… via a tremendous amount of drilling.

For the United States to become energy independent, it would have to produce an additional 4.5 million barrels of oil per day (mbd).  Even though we import more than 7 mbd of crude oil, our net imports are 4.5 mbd.  We export the remainder as various petroleum products.

Currently, the top four shale oil fields in the United States (Permian, Eagle Ford, Bakken & Niobrara) produced 4.8 mbd of oil.  So, for the United States to become oil independent, we would have to double current shale oil production in these top four fields. 

You see, that is a huge undertaking because these top shale oil fields are suffering from extremely high annual decline rates.  The EIA – U.S. Energy Information Agency labels this decline as a “Legacy Decline.”  I will label it as an “Annual decline rate” in this article.  So, how bad are these annual decline rates?  Let’s start by looking at what is taking place in the Bakken Field in North Dakota:

Bakken shale oil production peaked at 1.26 mbd in December 2014 and has fallen 25% to 963,000 barrels per day (bd) currently.  The red area at the bottom of the chart is displaying its month legacy production decline.  This is how much oil production the Bakken is losing each month.  I took these figures and calculated how much oil production the Bakken was losing each year.

In 2011, the Bakken only lost 307,000 bd, but this decline rate surged more than double to 633,000 bd in 2016.  Which means, the Bakken lost 633,000 barrels per day of oil last year.  Even though the Bakken added 326,000 bd of new production in 2016, its overall production continued to decline.

The same huge declines also took place in the Eagle Ford shale oil field in Texas:

The Eagle Ford oil production peaked in March 2015 at 1.71 mbd and is currently down 33% to 1.14 mbd.  You will also notice the the Eagle Ford suffered an annual oil production decline of 1,174,000 bd in 2016.  Which is also why the Eagle Ford oil production continued to decline in 2016.  The drillers didn’t add enough new oil production to offset the huge declines.

If we look at both the Bakken and Eagle Ford together, this is the result:

Total Bakken and Eagle Ford oil production has declined by 826,000 bd from their peak.  This is a 28% decline in just two years.  Furthermore, these two fields suffered an annual decline rate of 1.8 mbd of oil in 2016.  That is one heck of a lot of oil production lost forever due to a tremendously high annual decline rate.

Even though overall U.S. oil production has increased from a bottom placed in the middle of 2016, due to higher oil prices, this increase did not come from the Bakken or Eagle Ford fields.  As we can see in the chart above, combined oil production has remained flat over the past nine months.  This means, the drillers in the Bakken and Eagle Ford haven’t been too motivated by the rising oil price to add enough drilling rigs to increase overall production.

So, where has the overall rise in U.S. oil production come from, if not from the Bakken and Eagle Ford.  One place is the from the new kid on the block called the Permian region in West Texas.  Permian oil production is up a whopping 486,000 bd since the beginning of 2015, accounting for a large percentage of the overall rise in U.S. oil production:

Unfortunately, the Permian’s annual oil decline rate is also increasing steadily.  In 2016, it increased to 1,248,000 bd of oil.  So, the oil companies drilling in the Permian had to add at least 1,248,000 bd of new production to increase overall production in 2016.  Actually, with all the massive drilling, the Permian’s oil production only increased a net 142,000 bd last year.

However, a big increase in Permian oil production has taken place over the past three months this year as the region is the NEW OIL FAD for the U.S. and global oil industry.  Major oil companies are jumping in with both feet on the Permian band wagon to continue producing oil.  This has caused the Permian’s oil production to increase by a hefty 143,000 barrels from Jan-Mar 2017.  That is shown by the big surge up on the right hand side of the chart above.

As overall oil production continues to increase in the Permian, so will its annual decline rate.  The Permian will suffer the same fate as the Bakken and Eagle Ford.  I highly doubt the Bakken or Eagle Ford will ever again surpass their peak production set back in 2015.

Top 4 U.S. Shale Oil Fields Suffer Massive Annual Decline Rate

If we add up the annual oil production decline rates from the top four shale oil producers in the United States, they lost a stunning 3.4 mbd of oil in 2016:

If we add up the annual legacy oil production declines from the Permian, Eagle Ford, Bakken and Niobrara oil fields, it accounted for 38% of total U.S. oil production in 2016.  Which means, these four fields lost 38% of total U.S. oil production last year.

Thus, the companies drilling in these four fields had to add at least 3.4 mbd of new oil production just to keep production from declining last year.  Furthermore, to keep production from declining in these four oil fields, the companies will have to add another 3 mbd (or more) EACH AND EVERY YEAR.  While the decline rate in some of these fields may continue to decline, we can plainly see this is a HUGE TASK.

In keeping with the “U.S. Energy Hype Theme”, the Mainstream media has published articles stating the cost to produce oil in the Permian is now down to $40 a barrel, and could fall to $20.  This is pure nonsense.  Yes, it is true that some production costs have fallen due to a 50% decline in the price of oil, but that doesn’t change the fact the oil industry continues to be saddled with record amount of debt.

The top 18 U.S. oil companies have seen their long term debt surge from $107 billion in 2008 to $194 billion in 2016.  In addition, the low oil price destroyed the financial statements of these oil and gas producers.  In 2008, these 18 domestic energy companies enjoyed a stunning $163 billion in positive operation income.   Unfortunately, last year was a disaster as they suffered a combined $19 billion operating income loss.  Hell, they didn’t have the positive operating income to pay the $6.7 interest on the debt payment.

The only U.S. oil company that posted a positive operating income profit in the group was ExxonMobil.  However, after ExxonMobil paid their capital expenditures and shareholder dividends, they were $6.7 billion in the hole last year.  Which is part of the reason ExxonMobil’s long term debt has doubled to $34 billion in the past two years.

Even though domestic shale oil production will continue to increase as investors throw away hard -earned funds, to either break-even or lose money, the U.S. will never become energy independent.  Yes, overall production will rise for a while, but when the party is finished, the hangover will be extreme.  Who is going to pay to close in these tens of thousands of shale oil and gas wells????

The Falling EROI – Energy Returned On Investment is now seriously gutting the entire U.S. and global oil industry.  It is also causing a tremendous amount of havoc in the global economy.  Using massive amounts of debt and derivatives to offset the Falling EROI will not last for long.

Sure, the madness could continue for several more years, but we humans live long lives.  While the charade could continue for years, it will definitely not last for decades.  Thus, watch for disintegration of the U.S. and global oil industries for clues to when the markets will finally crack.

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26 Comments on "MEDIA DELUDES AMERICANS: Shale Oil Production Suffers Massive Decline Rates"

  1. Steve,
    Could you clarify a few things? My understanding is that there are three general types of oil drilling: traditional straight deep wells, shale oil employing various horizontal/injection/ fracking techniques which ?may? be piggybacking on to the traditional deep wellls to increase their longevity, and finally, off shore. I assume we have little if any open tar sands extraction in US. That is in Canada. So how much of the oil energy pie from these sources does shale comprise?

    When you say a shale oil field has to add e.g., 3.4 mbd to make up for the decline, does this mean that the total production is decline that much per yr?

    Would a better graphic not be to illustrate the increased cost (both EORI and financial ) of making up this deficiency?

    Finally , a decline in shale oil production could be attributed to the shutting down of wells in 2014-6 rather than oil field depletion. Now that there are an increased number of wells going back on line in the last 6 months , regardless whether it makes good business sense to restart, then a decline in production despite an increase number of wells coming back on line or new wells would indeed be an ominous sign.

    • Hubbs,

      Shale oil production accounts for roughly half of U.S. total production. While some of the Permian is not typical shale oil production, it’s not quite conventional either.

      Yes, for 2016, the top oil fields that I used, Permian, Eagle Ford, Bakken and Niobrara lost 3.4 million barrels per day of oil. This was their annual LEGACY DECLINE. The figures came from the EIA – U.S. Energy Information Agency. Hell, I wasn’t even considering decline rates in the other portion of U.S. oil production. Deep Sea can suffer double-digit decline rates 10-20% annually as well.

      Now, if you look at the Bakken & Eagle Ford charts, you will notice that their Legacy Declines were actually higher in 2014 & 2015. This is due to initial higher declines when they were producing more oil.

      Hubbs, the decline in the Bakken and Eagle Ford is not due to shutting in wells. I have been following several Oil & Gas blogs, including comments from some excellent folks working in the industry, and both of these fields were going to suffer these declines even at higher oil prices. It’s just due to the high annual decline rates of Shale oil wells.

      Furthermore, the best core area in the Eagle Ford and Bakken were drilled first. As they move out the core area, the quality and profitability of the oil well declines considerably. So, the situation will become even more dire at time goes by.

      Please check out the report done by David Hughes who worked for the Canadian Energy Industry for decades. You will see his forecast for the Eagle Ford and Bakken. Actually, he was more optimistic than the actual results:

      http://www.postcarbon.org/publications/2016-tight-oil-reality-check/

      I really don’t see the Bakken or Eagle Ford ever again surpassing their previous peaks.

      steve

  2. When will the stampede out of oil debt start? That would be a killer. 6,7% in revenue is quite nice nowadays, but when ‘investors’ see the exponential rise in oil debt and the inability to pay it off eventually, then what? And if/when that happens, in what condition is the rest of the oil industry worldwide, in other words, will the oil industry blow up the financial system or the other way around? Imho, they will print and monetize because they don’t have a choice and blow up the currency.

  3. This guy has no clue how the oil patch works. When oil went from 100 dollars a bbl to 45 dollars, it started an avalanche of wells being shut in until prices go up. That started an avalanche of layoffs. Right now there are 5000 shale wells that have been drilled but not completed. Over 1200 in the Eagle-Ford alone. Why sell your oil for half its value.

    • TexasScout,

      Yes, it is true that many wells were drilled but not fracked. And the reason…. it costs a lot more to Frack & Complete the well than it does to drill it.

      However, the Shale Oil Industry hasn’t really made money even at $100 a barrel oil prices. The chart below shows the FREE CASH FLOW of the top U.S. Shale Oil & Gas producers. You will notice that their combined FREE CASH FLOW, which is Operating Cash minus Capital Expenditures has been in the RED since 2009:

      So…. it really doesn’t matter that they drilled all those wells after all. If the Shale Energy Industry didn’t make money at $100, what would anyone believe they could make money at $50???

      steve

      • What? Create moar debts, of course. And the more debt they pile on now, the harder the shock will be from the coming crash, for bond/stock related holders/”owners” as well as the banks that issued loans into this industry.

  4. The steep decline of shale oil yields and the impending crash of in country oil production, explains the recent energy events that have occurred in Canada. Now America’s largest supplier of oil and gas.
    – The Keystone XL pipeline linking the Canadian oil sands to the US has got the go ahead.
    – The increased capacity improvement of the existing pipeline from the oil province of Alberta to the Port of Vancouver has received the go ahead, as has the increased handling capacity at the tanker loading facility.
    – Native claims concerning the new LNG terminal to be built on the central coast of British Columbia with deep water port on native lands, has received the go ahead.
    – The Northern Gateway pipeline has received the Canadian federal governments okay to proceed.
    These recent developments along with an announcement of an additional oil find in Alaska, may keep the lights on for a few more years.

    • OLI, the spice must flow, indeed. You ain’t seen nothing yet. Fracking revenues red all over the place, average households cannot survive a 5k dissapointment.

      The fogs of fiat made the world go blind. Your guide dog makes you eat out of its bowl, you’ll even keep the cat away and howl to the moon.

    • @ OutLookingIn: I thought the Northern Gateway was dead. Can you please provide a source link to this news?

  5. Shale for those who study EROEI was a fraud from day one . Oil insiders know that most of shale oil has an API of +45API so it is not crude but a distillate . It´s only major use is as a dilutant to make heavy crude flow in the pipelines . At the best it can be refined to produce gasoline (no diesel,no ATF) and the world is awash with gasoline(petrol) . Shale is nothing but “snake oil” ,only kept alive by ZIRP and of course suckers .

  6. James Papsdorf | March 31, 2017 at 6:15 pm | Reply

    Great piece of work ! The secret is out of the bag ! Great charts and discussion and this article will shortly be referred to Drudge. Zerohedge.com will pick it up as well.

  7. vulcanized crawler | March 31, 2017 at 7:03 pm | Reply

    we dont need the shale oil, but, the natural gas turned to methanol. 85% mixed with gasoline 14% mixed with 1% of cyberfuels secret ingredient under patent, will produce 96 octane flex fuel and tell me how much natural gas we have. check it all out. being put into indian stations in canada as we speak, montreal…..florida company tech leads the way….(ECSL) is the symbol of the penny stock that has the disruptive transportation fuel NOW.

    • vulcanized crawler,

      Nice try. However, natural gas production will turn south shortly after oil. No penny stock can change the MASSIVE FORCE of the FALLING EROI.

      steve

  8. Not a comment but a question. How much can the United States get from Canada with the new pipeline approvals?

    • Edward Kent,

      Edward, the newest pipeline proposal is the Keystone XL or Stage 4. It runs from Alberta, Canada, through the Bakken oil field and down to Steele City and then to Cushing Oklahoma.

      The reason for the proposed Keystone XL pipeline is that the very LIGHT BAKKEN OIL will be mixed with HEAVY TAR SANDS OIL from Alberta Canada. They are already doing this because it tries to make a more medium crude blend. Unfortunately, the refiners cannot make the same kind of petroleum products from this FRANKENSTEIN blend compared to a conventional medium weight crude oil.

      I highly doubt the Keystone XL pipeline will be completed as the Bakken has most likely peaked.

      steve

  9. Excellent analysis Steve,

    It’s pretty much game over for conventional oil financing; expect direct CB financing. Also, there’s a barrage of pro shale propaganda out there at the moment including Zerohedge so things must be truly desperate.

    I doubt we’ll get past 2017.

    Good Luck as always,
    Putrid

    • Just read your latest article. Very interesting, and thanks.

      • Thanks,

        My buddies and I are more interested in the Entire System and so we depend upon subject experts. It’s a fairly good analysis but I’ve concluded most Oil data is now fake which is frustrating. I’m no longer confident the present framework can hold together so I’ve gone 100% all in Gold. My Network has begun to relocate and make final preparations.

        I stopped working a year ago, just enjoying these final days of calm.
        Good Luck
        Cathal

        • Cathal,

          While the collapse of the system could happen at any time now, there may be still more time before the situation really gets out of hand. However, once it does start to unravel… living anywhere near the BIG CITY will be quite difficult.

          steve

  10. Bill Philipson | April 1, 2017 at 5:03 am | Reply

    Re: “Which is part of the reason ExxonMobil’s long term debt has doubled to $34 trillion in the past two years.” Wow – almost twice as much as the US government’s official debt! How will they pay it back?

  11. Thanks Steve, regards.

  12. K.V.sadasivan | April 2, 2017 at 9:30 am | Reply

    Another reason Prez Trump, has reinstated Coal?

    • K.V.sadasivan,

      I really don’t believe Trump understand the dire implications of the U.S. oil and gas industry. Rather, he sees coal as another domestic energy source that can be utilized to “supposedly” assist in rebuilding our infrastructure and manufacturing base.

      steve

  13. Koen van den Bos | April 5, 2017 at 10:52 am | Reply

    Hey Steve,
    Great article as always. I’ve been studying oil for a few years now, and the peak of cheap oil has kept me up at nights. I recently found a company that is producing oil from oil sands using a petroleum product based solvent that washes the oil off the sand. The company claims it can produce at around $20, and claims its EROEI is 20:1, which is five times higher than its competition in Canada, who have an EROEI of 4:1. This technology can easily be scaled upward and can be used on many oil sand deposits around the world. It can also be used to clean up regions that have suffered from oil pollution. Normally I would be extremely skeptical, but after reading more about the company, I came to realize that it:

    1. Is run by an ex-Exxon CEO
    2. Has produced oil using this solvent
    3. Has a patent for the technology
    4. Has been discussing cleanup projects with Canadians and Saudis

    It might still be a scam or a failure, but I surmise they are the real deal.

    http://www.mcwenergygroup.com/

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