Peak Of Bakken Oil Production Will Signal The Collapse Of The U.S. Economy

The U.S. is in serious trouble.  The great U.S. Bakken oil field supposedly responsible for making the United States energy independent, is now showing signs of peaking.  Not only has oil production from the Bakken declined significantly, so has the Eagle Ford.  If these two shale oil fields have indeed peaked, the collapse of the U.S. economy will certainly follow.

According to the U.S. Energy Information Agency (EIA) May 2015 Drilling Productivity Report, shale oil production from these two fields is forecasted to decline 78,000 barrels per day (bd) in June.  If we go by data from the EIA Drilling Productivity Reports, the Bakken peaked in March at 1.328 million barrels per day (mbd) and the Eagle Ford at 1.733 mbd.

Bakken Peak Oil

Eagle Ford Peak

If we look at these two charts (especially the Eagle Ford), we can clearly see the current peak and decline is more severe than any small down trends in the past.  Furthermore, this just may be the beginning of a much steeper decline to come later in the year.

Why?  Well, let’s look at the huge drop in drilling rigs in the Bakken.  This data comes from the North Dakota Department of Mineral Resources (DMR) republished on the PeakOilBarrel.com website:

Feb rig count 133
Mar rig count 108
Apr rig count 91
Today’s rig count is 83 (lowest since January 2010)(all-time high was 218 on 5/29/2012) The statewide rig count is down 62% from the high.

Now, this drilling rig data is just for North Dakota’s portion of the Bakken.  There is a small part of the Bakken in Montana, but the majority of production comes from North Dakota.  In addition, total drilling rigs in the Eagle Ford fell from 218 a year ago, to 105 currently.

Moreover, the EIA Drilling Productivity Reports are estimates and not actual production data.  If we go by the North Dakota DMR data, they show a peak in Bakken oil production taking place in December, not in March as the EIA reports.  Thus, the EIA’s current estimates may turn out to be overly optimistic.

In order for shale oil production to increase, the companies must continue drilling and fracking wells at a high sustained rate.  Even though drilling rig counts are down significantly (50-60%) over the past year, there was a large backlog of unfracked wells that continue to be completed and put into production.  However, once the industry works through majority of these backlogged wells, production will fall precipitously.

The only way this might be avoided is if the drilling rig counts were to surge back to the high levels seen a year ago.  I doubt this will occur unless the price of oil jumps back to $90-$100.  We must remember, the shale oil industry  was already losing money in 2014 when the average price of oil was $93.  Energy analyst Art Berman put together this table showing the summarized year-end 2014 financial data representing the U.S. shale oil industry:

Oil_Weighte-EPs-Summary-Table-2014-1-1024x71

The U.S. Shale oil companies free cash flow was a negative $10.4 billion in 2014 compared to a negative $2.9 billion in 2013.  The average price of West Texas crude oil was $98 in 2013 and still the group suffered a negative free cash flow of $2.9 billion.

To calculate free cash flow, you take cash from operations and subtract capital expenditures.  As we can see, the U.S. Shale oil industry wasn’t making money when the price of oil was nearly $100 a barrel.  Can you imagine the losses these companies endured during the first quarter of 2015 with the price of oil at $48??  Well, we don’t have to imagine too long as the results are shown below:

Q1 2015 Results

With a 33% decline in the average price of oil from Q4 2014 to Q1 2015, the top oil companies suffered a 335% increase in operating losses.  How long can these companies survive with combined losses of $20+ billion?  Even though the average price of West Texas oil may rise to $55-$60 for Q2 2015, losses will still continue.

The Peak Of Shale Oil Production Will Signal The Upcoming Collapse Of The USA

Very few Americans realize a country’s wealth is based upon its natural resources.  The U.S. was the Saudi Arabia of oil production during the 1940-1950’s.  However, after U.S. oil production peaked in 1971, ever increasing oil imports were necessary to meet growing domestic demand.  The U.S. was able to import oil as it controlled global trade via the world’s reserve currency… the fiat U.S. Dollar.

Basically, the United States was able to live off of the wealth and resources the rest of the world provided by running continuous trade deficits while increasing debt.  Unfortunately, the world has grown tired of taking worthless U.S. Dollars (continually printed into oblivion by the Fed) for real goods and services.

The U.S. financial system died in 2008 and has been propped up by massive Fed and U.S. Govt monetary printing and liquidity.  This allowed expensive shale oil to be extracted which gave the illusion that the United States could once again become energy independent.   Once it’s perfectly clear that U.S. shale oil production has peaked, it will signal the collapse of the U.S. economy.

Why?  The U.S. is in severe trouble as the BRIC countries continue to work on an alternative trade system around the Dollar.  When the U.S. Dollar is no longer needed as the world’s reserve currency, it will severely impact the price of imports, especially oil.   Which means, U.S. oil imports will decline on top of falling domestic shale oil production.  This will cause economic activity to decline with no end in sight.  It will be the death knell of the once great U.S. economy.

Investors acquiring real estate for the past several years (at supposed bargain basement prices) will find out that PEAK OIL will utterly destroy the value of most of these assets.  There will be very few assets to protect ones wealth in the future.  In my opinion, gold and silver will be two of the safest assets to own in a peak oil environment.

If you want a good indicator that will reveal how the U.S. financial and economic system will unfold going forward, keep your eyes focused on the Bakken and Eagle Ford oil production.  They are the key.

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25 Comments on "Peak Of Bakken Oil Production Will Signal The Collapse Of The U.S. Economy"

  1. LOVE those Q1 results. -23,5 bn USD in a quarter. That’s almost -100 bn annualized. Puts a smile to my face, as all this nonsensical western “shale revolution” and “energy independence” hype and propaganda crashes and burns.

    • Markus,

      Yeah, totally agree. I knew the results were going to be bad, but they were actually worse than I estimated. I believe we are going to see serious trouble in the U.S. Shale oil & gas industry by the end of the year unless the U.S. Govt comes in and bails them out for whatever reason.

      steve

      • I don’t even see how they can keep producing with year after year of losses. Same as with basically the whole PM mining industry. Why are these losers (literally) being financed? They will never ever get out of the red! If nobody was willing to lend them money anymore, all of them would be out of business within days or weeks!

    • According to my information, all of this was simply a scam anyway induced by the government and the banks to encourage mass bank lending, create the false feeling of job creation, while hoping that new technology might arrive on the scene to make getting the oil truly efficient…Problem is, that technology hasn’t arrived yet.

  2. OutLookingIn | May 16, 2015 at 9:32 am | Reply

    The present situation, when looking at economic activity indicators, has the appearance of the same period in history as the 1936-37 deep recession, within the great depression.

    These recent indicators at present are ALL down;

    Production
    Capacity utilization
    Manufacturing
    Mining
    Wholesale orders
    Retail sales
    Construction
    Industrial production
    Shipping/transportation

    The US has turned the corner. Now on a steeper economic decline. The worm has turned.

    • OutLookingIn,

      Yes, U.S. economic indicators have turned down even though the Dow and S&P 500 disregard the forces of gravity. I really don’t believe Americans have any idea just how bad it will be once we start to see a serious decline in U.S. shale oil production. This was our last HURRAH. Nothing comes after this.

      So, when we finally come to terms that domestic oil production has only one way to go… DOWN, as well as production from the rest of the world, this should do wonders to all that PAPER out there masquerading as assets.

      steve

  3. The decline of the USA will be an economic shock for the world.
    Even the chinese would have been hit very strong when this happen.

    So many hate the US-government spreads around the world with her wars , politician and banksters of all countries know that a fall of the dollar will provoke the end of the FIAT-System.

    The financial elite as a profiteer worldwide will fight as long as possible to defend the money system.

    In the moment the strong dollar destroys the 3 world countries because of the “dollar debts”.
    No matter how you think about his financial system it leads in a catastrophe.

    At the end they will do 3 things:

    -haircuts
    -creating inflation(hyper inflation)
    -new currencies

    • Silverwillwin | May 17, 2015 at 8:10 am | Reply

      Yeah and word has it that the Oligarch have already established moving their playing field from the U.S. to the Asian Persuasion .
      They don’t play favorites.
      They could care less about America.

      And we go to war for these A** H***’s !?

  4. ‘Very few Americans realize that a country’s wealth is based on its natural resources..’
    If that is true why does Japan, who have very, very few natural resources , and has a small population, possesses one of the top economies in the world?

    • Drew, Japan’s economy is horrible and has been for some time. Their agressive version of QE (Abenomics) has indebted their nation to the hilt. The only plus for Japan right now is their devalued currency compared to the U.S. which has increased their imports to the U.S. Their population is ageing, they must import all their oil, and most of their food. Also, Fukushima radiation and their other nuclear plants idled, plus many volcanos are becoming active and numerous earthquakes. Check out the economic articles on Japan on Zero Hedge.

  5. As usual Steve, you are spot on! You know… it amazes me how analyst after analyst, pundit after pundit, big mouth after big mouth, continues to harp on about the Federal Reserve, the politicians, the secret societies, the security complex, the military industrial complex, you name it, WITHOUT EVER mentioning a word about the fundamental issues surrounding energy and how it directly correlates to modern industrial society. I’m sick and tired, especially with the newsletters geniuses (Jackasses) who wax on about everything, except the energy component, and think they got it all figured out. A gold standard here, a jail term for banksters there and Bob’s your uncle. Everyone one them, including guys that should know better like David Stockman, Paul Craig Roberts, The “Doc”, Chris Duane, just to name a few, NEVER address the issues of oil. I don’t know if they’re just ignorant or have a particular ax to grind, but nevertheless, it’s a bit long in the day to miss what now is patently obvious. High oil costs equal collapsing economies – FULL STOP! Everything else is symptomatic and a desperate attempt to keep the dying irrelevant system alive. You can have all the gold standards you want, you can arrest every rotten banker and politician, you can send home all of the troops and you can rid the world of every surveillance camera and it still won’t produce one stinking barrel of cheap crude oil! Your work Steve is impeccable because it links currencies, PM’s, and energy. You are one of a handful of analysts who figured it out. Your work annihilates an economic theory model that doesn’t include the biophysical inputs.

    • Beautiful post. I was going to address something similar.. I saw this post getting 7 comments, and another one with “SILVER BULLION” in the title 33.. there really seems to be little interest about the energy situation even in the alternative media.

      What freaks me out that the energy situation is actually very relevant to the PM markets, as energy dictates how much PMs we produce. Meaning supply. And supply and demand determine price (or at least should). So I really do not understand how little attention is being paid to the energy situation, which is the largest factor on the supply side of the PM market, and commodity markets in general.

      It mainly seems like even in the so called alternative media, basically everyone reurgitates what everyone else is saying. Steve is one of the very few with fresh and relevant viewpoints.

      I actually announced at one point that I was not going to post on this blog anymore. This was at a time, 1, 2 years ago, when some of the hot money (meaning FOOLS) was still in PMs, and it was impossible to have a meaningful conversation here.
      Right now, the people who were in PMs for the wrong reason seem to have been washed out, or have just lost interest, because it’s just not a hot market right now. So it’s a refreshing atmosphere here now, and as long as it stays that way, I will stay. One day, it will all change, and maybe PMs will become THE hot topic.. but right now, we’re cool.. literally 😉

    • Ethercruiser1 | May 19, 2015 at 3:41 am | Reply

      As I understand it, the price of today’s stocks & bonds are dependent upon the expected future earnings of companies, which in turn is dependent upon available resources to produce goods & services at a profit. The price & availability of oil & energy are a key factors in expected future earnings of companies. If the present estimates of future earnings are way off because the price & availability of oil & energy have been grossly miscalculated, then when enough people become aware of the gross miscalculations, the prices of stocks & bonds will tend to collapse and the economy itself will tend to collapse as many businesses will simply go bust as their goods and services no longer turn a profit. At least, that’s how I see things happening and I would be glad if someone could point out any error in my line of reasoning.

  6. This article is not showing on your home page,i got the link from your comment on zero hedge.

  7. Something is wrong with the website Steve. On the homepage i can’t find this article.

    • Never mind. Only after my comment i could see the other comments on this thread. Homepage works again too.

  8. The U.S. government is fully aware of what’s going on. It would be easy to conclude that “they” have been preparing for this for a long time.
    (Search “oil shale and other conventional fuels activities energy.gov”)
    The fall of the U.S. Dollar as reserve currency may actually provide the catalyst that would make shale oil a viable alternative to foreign oil imports. However, this scenario would involve an outright collapse of the U.S. economy, placing the country in a very long, hard depression. If the PTB are positioning themselves for this, there would be no hope for the middle class to survive. Gold and silver may simply provide sustainability. You may see a significant decline in human population as the cost of living will climb beyond the means of many.
    And this outcome could even escalate to a nuclear exchange, meaning all bets are off for those living above ground. This is just “what if”, with the hope that I’m wrong.

    • Everything we need for living (except maybe water, in countries with good water supply), is energy dependent – every kind of food, clothing, housing, resouces/commodities (like iron or copper). And oil is by far the richest and most accessible energy source.

      However, I don’t see a large part of the human population not being able to survive, once oil supply hits the wall. There is plenty of potential for cutting consumption.

      For example, about half of world oil is used for personal vehicles. Now, if we remove that, economies would suffer, but nobody would die – and we’d only need half of today’s total world oil production. We should still be able to produce that much 50 years from now, when technology will also have produced the battery technology to make electric cars really usable everywhere, anytime, and for everyone.

      Most likely, oil will just continue to become more expensive, barring many from driving (as much) with their cars. It will self regulate, and encouraging investment in alternative energies. It will self-regulate.

      • Okay, I researched this again, and I remembered wrong. Actually personal vehicles “only” use 25% of total oil in the US, meaning worldwide it’s probably much less.

  9. Hi Steve. Doesn’t it bother you that you are constantly wrong? Peak silver, yet the price of silver is where it was seven years ago — before the financial crisis hit. Peak oil, yet the price of oil is back where it was a decade ago… That awful stock market is making new all-time highs. Sure, it’s gonna collapse to hell any day now, but still… I noticed that most commodity pushers like Sprott, Turk, or Casey got real quiet in recent years. Some are still active, but much less loud than at peak silver prices. One has to wonder why that is? Reminds me of all the TV idiots who were most joyful about the stock market in late 1999, then in the summer of 2008. The way I see it is that the stock market has still a few years to go. And commodities, including silver and oil, will be cheap for a few years. Then prices will certainly correct.

    • Pete,

      if you think the stock markets “have a few years to go” before sizable correction or crash, you have rose colored glasses on at times, and at other times, blinders.

      • Yeah, I heard this same reply in 2011, 2012, 2013 and 2014. Bloggers come and go. They are mostly hustlers who are fully invested in dollars but keep telling other fools to buy this or that. Frankly, many of these guys belong in prisons because they cost many people large portions of their life saving. So, as far as the market correction goes, let’s talk in 2017. But not here because I heavily doubt that Mr Rocco aka Steve will keep up this blog all the way until 2017. He will go the way of Turk and Sprott, and all the other promoters.

  10. Markus,

    Re: your second comment

    “However, I don’t see a large part of the human population not being able to survive, once oil supply hits the wall. There is plenty of potential for cutting consumption”

    I can tell you are a good guy and this isn’t meant as a personal affront, but……

    NO !!! – that’s not the way it works! Maybe you are new to this site. Your line of thinking might seem logical, but that’s not how the system works.

    The vast majority of people out there are under the same impression. i.e. “We can all just drive 25% less and then we only need 75% of the oil.” It seems very reasonable. But trust me, “it don’t work that way” !

    The “system” we live in is extremely complex and interconnected. The relationship of the economy vs. oil may seem like a linear mathematical relationship, but it is more like an inverse geometrical relationship.

    It would be much better to think of it this way: a 25% reduction of oil would equal a 50-75% reduction in population. Steve talks about these types of relationships and ramifications often.

    First: The tremendous amount of flexibly processed and relatively easily obtained energy present in a barrel of oil enables the production of all the other forms of energy AND is the overwhelming basic feedstock of plastics, rubber and most chemicals.

    Second: The entire financial system not only cannot operate with 75% of the energy we use. It cannot function without a GROWING energy base.

    Without a GROWING energy base, the system WILL IMPLODE. The production of raw materials, especially oil represents an extremely complex mix of industry, science, energy and finance. Once this is disrupted, even 10%, the system will experience more or less TOTAL breakdown.

    Building up to a 21st century economic system, we can take a few hits, but re-adjusting back to the mid-20th or early 20th century is an extremely painful and unfortunately, FATAL experience for the majority. There is no way around it.

    The adjustments will simply be cataclysmic in nature for us all.

    Have a pleasant evening,
    Rob

  11. I forgot a couple of points:

    All interest on borrowed money / debt is a call on future production, and thus, future energy. Since the amount owed is always greater than the amount borrowed, due to interest, an increasing amount of energy must be consumed to pay debt. (not even mentioning our debt-based monetary system)

    Also: Food = energy

    Every calorie of food produced in most countries requires 10 calories of equivalent energy (mostly oil) inputs. 25% less energy = more than 25% loss of food, due to inverse geometric relationship of industrial economies. Not to mention MASSIVE civil and political chaos which will disrupt food production, distribution and sales.

    One more thing: If your food isn’t grown 100% with rain water, watch out!

    “Food for thought”

    -R

  12. “Very few Americans realize a country’s wealth is based upon its natural resources. The U.S. was the Saudi Arabia of oil production during the 1940-1950’s. However, after U.S. oil production peaked in 1971, ever increasing oil imports were necessary to meet growing domestic demand.”

    And very few writers are attempting to educate people to the fact that natural resources, “commodities” if one wants to call them that, are #1 oil, and in terms of essential uses, #2 is silver. Yes water and climate and trees, etc. matter a lot, but in terms of industry, manufacturing, agribusiness, etc. it is energy and essential non-renewable elements. The U.S.’s dominant global currency and military has allowed for importing far in excess of what is mined domestically….oil, copper, silver, N, P, K used in fertilizer, and many other examples.

    While getting a Geology degree starting in 1974 one professor of mine talked about peak oil and some ramifications for the future. Yes technology enabled new discoveries and made recovery in harsh climates like Alaska and the North Sea possible. But the point is in the 1970’s they were turning to remote/ocean sources and unfriendly countries for the remaining big finds.

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