Top U.S. Shale Oil Fields Decline Rate Reaches New Record…. Half Million Barrels Per Day

While the U.S. reached a new record of 11 million barrels of oil production per day last week, the top five shale oil fields also suffered the highest monthly decline rate ever.  This is bad news for the U.S. shale industry as it must produce more and more oil each month, to keep oil production from falling.

According to the newest EIA Drilling Productivity Report, the top five U.S. Shale Oil fields monthly oil decline rate is set to surpass a half million barrels per day in August.  Thus, the companies will have to produce at last 500,000 barrels of new oil next month just to keep production flat.

Here are the individual shale oil field charts from the EIA’s July Drilling Productivity Report:

The figures that are shown above the UP arrow denote the forecasted new production added next month while the figures above the DOWN arrow provide the monthly legacy decline rate.  For example, the chart on the bottom right-hand side is for the Permian Region.  The EIA forecasts that the Permian will add 296,000 barrels per day (bpd) of new shale oil production in August, while the existing wells in the field will decline by 223,000 bpd.

If we add up these top five shale oil fields monthly decline rate for August will be 503,000 bpd.  Thus, the shale oil companies must produce at least 503,000 bpd of new oil supply next month just to keep production from falling.  And, we must remember, this decline rate will continue to increase as shale oil production rises.

We can see this in the following chart below.  Again, according to the EIA’s figures, the top five U.S. shale oil fields monthly legacy decline rate increased from 398,000 bpd in January to 503,000 bpd for August:

In just the first seven months of 2018, the total monthly decline rate from these top shale fields increased by 26%.  These massive decline rates are the very reason the shale oil and gas companies are struggling to make money.  A perfect example of this is PXD, Pioneer Resources.  Pioneer is the largest shale oil producer in the Permian.  According to Pioneer’s Q1 2018 Report:

Producing 260 thousand barrels oil equivalent per day (MBOEPD) in the Permian Basin, an increase of 9 MBOEPD, or 3%, compared to the fourth quarter of 2017; first quarter Permian Basin production was at the top end of Pioneer’s production guidance range of 252 MBOEPD to 260 MBOEPD; as previously announced, freezing temperatures in early January resulted in production losses of approximately 6 MBOEPD; Permian Basin oil production increased to 170 thousand barrels of oil per day (MBOPD); 63 horizontal wells were placed on production.

Pioneer spent $818 million on capital expenditures (CapEx) for additions to oil and gas properties (drilling and completion costs) during Q1 2018, brought on 63 horizontal wells in the Permian, and only added 9,000 barrels per day of oil equivalent over the previous quarter.  So, how much Free Cash Flow did Pioneer make with oil prices at the highest level in almost four years??  Well, you’re not going to believe me… so here is Pioneer’s Cash Flow Statement below:

Pioneer reported $554 million in cash from operations and spent $818 million drilling and completing oil wells in the Permian and a few other locations.  Thus, Pioneer’s Free Cash Flow was a negative $264 million.  However, Pioneer spent an additional $51 million for additions to other assets and other property and equipment shown right below the RED highlighted line for a total of $869 million in total CapEx spending.  Total net free cash flow for Pioneer is -$315 million if we include the additional $51 million.

Therefore, the largest shale oil producer in the Permian spent $264 million more than they made from operations drilling 63 new wells in the Permian and only added a net 9,000 barrels per day of oil equivalent.  Now, how economical is that???

How long can this insanity go on??

If we look at the Free Cash Flow for some of the top shale energy companies in Q1 2018, here is the result:

Of the ten shale companies in the chart above (in order: Continental, EOG, Whiting, Concho, Marathon, Oasis, Occidental, Hess, Apache & Pioneer), only three enjoyed positive free cash flow, while seven suffered negative free cash flow losses.  The net result of the group was a negative $455 million in free cash flow.  

Even with higher oil prices, the U.S. shale energy companies are still struggling to make money.

So, the question remains.  What happens to these shale oil companies when the oil price falls back towards $30 when the stock market drops by 50+% over the next few years??  And how is the U.S. Shale Energy Industry going to pay back the $250+ billion in debt??

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44 Comments on "Top U.S. Shale Oil Fields Decline Rate Reaches New Record…. Half Million Barrels Per Day"

  1. Michael Kohlhaas | July 25, 2018 at 3:09 pm |

    Forget about it. Trump has a new deal and will sell that crap to the EU.

    • DisappearingCulture | July 25, 2018 at 4:02 pm |

      What? Makes no difference whether “that crap” is sold to the EU or elsewhere if the price isn’t high enough for profit.

      • Michael Kohlhaas | July 25, 2018 at 4:24 pm |

        EU will pay any price just to prevent 25% taxes on their crappy cars. Crap for crap. Everybody wins!

  2. MASTERMIND | July 25, 2018 at 4:06 pm |

    Financial catastrophe resulting from resource depletion and a debasement of value of fiat currencies. Then a 12-month window of tyranny and government lockdown on citizens, followed by a 6-month window of absolute carnage and death. Then, a period of about 6 months of slow die-off and that’s pretty much that. Oh, and starting sometime within the next 5 years or so..

    https://imgur.com/a/pYxKa
    https://imgur.com/a/rBtIrfg

  3. So which is more alarming? The depletion rate of the legacy wells or the possibility decline in the new production brought on by new wells, assuming “unlimited” finance?

    In other words, when are these lines projected to cross?

    • Spanky Bernanke | July 26, 2018 at 6:27 am |

      That’s a frightening thought, my friend. Maybe we should cozy up to Putin and his oil, and start screwing the Chinese? Uuh, wait a minute…LOL. If I was a producer, it would make a whole lot of sense to stop capex to boost prices. And, cut fixed costs to stop the fall in FCF. This would help prices. But, there goes the fake economy, especially as interest rates are going up. Buy more Tesla shares?

  4. Theravaida | July 25, 2018 at 4:27 pm |

    LOL Facebook $FB.

    Looking forward to Netflix & Tesla next.

  5. Theravaida | July 25, 2018 at 4:47 pm |

    Quoth the Raven tweet:

    Nasdaq going to get assholed tomorrow

    Seems like this is it folks, the cheap oil, cheap interest rate fraud finally getting exposed before the Super Blood Moon of Friday night (& apparently Full Lunar Eclipse in other half of the world).

    It’s quite possible they may not wait until autumn (or Fall) for the customary stock market carnage timings.

    The powers that be may have very well decided to conduct their sacrifices in July this time around.

  6. IMHO this Mad Max Fury Shale oil drilling will continue for probably another 3 years until investors wake up and realize they will are not getting there money back. When you listen to the talking heads on various programs it is obvious they are drinking the Kool-Aid as they are positively giddy on shale oil.Also, I would like to thank Mastermind on your book recommendation “The end of More”. This book really puts things in perspective. I would not be surprised if the Federal Government does not get involved with this shale oil drilling adventure to keep BAU at any cost.

    • This is the mystery to me: why the hell is anybody investing in this sector? The fundamentals have been terrible for years, and yet, somehow, it continues to attract capital. Could we be witnessing intervention, such as that taking place in the “market” for U.S. T-bonds?

      Good write-up, Steve. Thanks.

      • Possible explanation: we may be witnessing inflated stock prices as a direct consequence of RATINGS FRAUD. Pension plans are massively underfunded and expected to start going under soon. Wall Street bundled energy stocks and inflated their ratings in much the way that the collateralized debt obligations tied to real estate were overrated prior to 2008. So, in effect, a ratings corruption time bomb is ticking, and the whole sector is going to collapse at some point when the scandal breaks. Judging by Steve’s charts, the breakdown will happen sometime within the next 2-3 years, in conjunction with revelations about overstatement of reserves and general corruption of the accounting books. That’s my guess, and I’m stickin’ to it.

  7. Scary how things are moving….! Thanks Steve!

  8. Steve,
    Your article today was picked up at the “Peak Oil Barrel” blog site today and was highly recommended by them. That is a site that I myself highly regard so congratulations on a job well done!!

  9. So when’s the time to buy oil futures?

  10. Steve what’s Continental, EOG, Whiting doing right that the other 7 are not?

    • Rodster,

      First, I don’t trust Continental Resources figures. But that is for another day. Second, EOG is experiencing some free cash flow because it is producing double that of Continental and Pioneer. However, EOG also paid $97 million in dividends Q1 2018. So, their net Free Cash Flow after Capex & Dividends was $14 million. That isn’t much when they spent $1.4 billion on CapEx spending Q1 2018.

      As for Whiting, they were able to make some free cash flow because their oil production is lower than it was two years ago. By cutting Capex, companies can make some Free Cash Flow.

      steve

  11. Thanks a lot, Steve. No surprise here (for us), but it’s important to maintain a logbook.

  12. MASTERMIND | July 25, 2018 at 9:11 pm |

    I love your articles Steve because most of the time I just can’t believe what I am seeing..

    • MASTERMIND,

      Interestingly, when I do the research, I continue to be surprised by what I see. I am totally astounded as to why the market can’t see what is right in front of their face.

      steve

  13. Steve,
    wrt Pioneer. I assume, they have got press and/or IR people.

    What’s their take on your reading of Q1-2018 ? How do company officials envision to escape from this rat race? They can’t just say: “There always will be dull investors” or “Only a question of financial engineering”, etc. What’s their exit scenario from this situation? Oil price? Minimizing operating costs?

    • Andreas,

      To be honest, I have no idea what the Investor Relations are thinking. But, they can’t be that stupid to realize Shale will ever be profitable. We must remember, the Sweet Spots and most economical area of the fields are being exploited first. As they move to the less economic areas outside the sweet spots, the situation will just get worse.

      Of course, the Shale Oil Companies could make a lot of Free Cash Flow if they stop drilling new wells, but production will fall off a cliff in just a few years. Thus, while they can make a lot of free cash flow if they stop all drilling, their share price will collapse as investors realize the SHOW IS OVER.

      I am not quite sure how the U.S. Shale Oil Industry will disintegrate, but it will likely happen much quicker than the market realizes.

      steve

  14. “Of course, the Shale Oil Companies could make a lot of Free Cash Flow if they stop drilling new wells, but production will fall off a cliff in just a few years. Thus, while they can make a lot of free cash flow if they stop all drilling, their share price will collapse as investors realize the SHOW IS OVER.”
    Exactly. Endgame soon. IF there are no mechanisms, nobody is factoring in (Fed, legislation, etc.)
    Thanks.

  15. Thanks, Steve.
    Irrational exuberance of the oil industry (which I’m part of) beggars belief.
    From exchange with Art Berman: “I have questioned the sustainability of shale for many years but the market has good reason to believe it will continue based on to-date growth & the constant chorus from IAE and EIA”.
    … (praising his branding of shale as a “retirement party”)
    “Everyone at the retirement party makes it seem like things will be great for the retiree but they all know it is downhill for him until he dies.”

    Pray for PPT to stop ETF sell-off (triggered by FB plunge) when market opens…

  16. I recommend you to make a chart of debt for a group of top-10 shale producers. Knowing they have negative cash flow… we must see their debt level rising, otherwise we are missing something. My guess – this party will be spoiled as soon as debt level reach critical values.

  17. JT Roberts | July 26, 2018 at 6:08 am |

    Very interesting Steve I love the perspective. If the rate of decline continues it will soon outstrip the rig productivity. Presently the rig productivity from the EIA averages 686 barrels per day. There are approx 860 active rigs. That means the about 730 of them are simply replacing production declines. 130 of the rigs are increasing the supply but that would only be about 90,000bpd. So a little quick math and the industry hits a production wall in 6 months.

    There is another problem the EUR is also declining because all the sweet spots have been drilled already. So as the rate of decline increases the rig productivity is decreasing. Already the US has more active rigs then the rest of the world combined. Where will all the new rigs come from?

    If we hit the tipping point which we likely will by the end of this year production will go into terminal decline even with all drills active. My guess is that investors will bail as soon as that happens because the shale companies won’t be able to cover their negative cash without supply growth. Which means the drilling will stop. If the rate of decline is around 600,000 bps per month then by this time next year we could easily be down by 2-3,000,000bpd. There goes the exports.

    • BP questions pace of US tight oil growth as productivity fades –Platts

      “It does perhaps suggest that the very rapid increases in tight oil productivity that characterized much of the initial phase of the shale revolution may be beginning to fade,” Dale said.

      “More recently, increasing bottlenecks within the supply chain, together with signs that investors are becoming less willing to finance continued high levels of investment, suggest there may be some limits to the speed with which tight oil can grow going forward,” he said.

      https://www.spglobal.com/platts/en/market-insights/latest-news/oil/061318-bp-questions-pace-of-us-tight-oil-growth-as-productivity-fades

    • Productivity as a whole is declining. Because of, you know.

      The new paradigm is; stealth monetization

      The plumber that tells you your mother in law won’t drown sleeping in the cellar.

  18. JT Roberts | July 26, 2018 at 6:50 am |

    For the industry to keep growing they will need to add a drill rig every day for eternity.

  19. The fracking boom may be the dirtiest and biggest Ponzi scheme ever designed. That’s if we don’t consider the whole capitalist economy as a huge Ponzi scheme, which it’s what probably is. A Ponzi scheme running since the 18th century.

    Thank you mr. St. Angelo for explaining it to us.

  20. Occidental (OXY) is trying to sell pipelines in the USA. Is this the way their leaders react to their calamitous investments ? Are they selling the company slice by slice ? No doubt why mr. St. Angelo uses the term “cannibalization” to speak about what the oil industry is doing.

  21. OutLookingIn | July 26, 2018 at 9:41 am |

    When speaking of “shale oil”;

    It must be remembered that we are speaking of “oil equivalent”.
    Shale oil is very difficult to refine. Most US refineries are not set up to handle this grade of raw resource. Before they can begin the refining process, this “oil equivalent” must be “cut” by mixing it with heavier grades of crude.
    Ever wonder why US oil exports to European refiners has picked up over these past few years? Because those refineries are set up to handle this type of “oil equivalent” crude product.

    Steve, it would be an interesting comparison to chart “oil equivalent” exports or refined, against the rate of decline. Would there be some correlation?

  22. Steve,

    trying to understand your reading of Q12018 of Pioneer: While being able to locate 554 mn. $ in net cash from operations in a business wire news release from May, 2, I am unable to find the 818 mn. $ in spending in “additions to oil and gas properties” (your screenshot). Could you please point me to a link for that or is this a non public file?
    It looks to me as if Pioneer got by only by investment proceeds to the tune of 555 mn $ … They must have sold something to cover their CapEx.where?)

    • Andreas,

      These Shale Companies make it difficult to find the data. Some of the data is published in their Press Releases, while some of the information is found in their SEC filing. The Cash Flow Statment for Pioneer came from their SEC Filing Q1 2018 Report here: http://investors.pxd.com/sec-filings

      You click on either Annual Filings or Quarterly Filings.

      For some odd reason, Pioneer doesn’t list all the CapEx spending in their Press Release and they don’t provide much of their production data in their SEC filings.

      steve

  23. Many thanks – very much apprecisted !!

  24. Steve,

    just to let you know: I dug into this thing and literally spent hours looking for the CapEx of Pioneer – and what I found is, that you seem to be a 100% right.

    Which is reflected in a short addendum in my (german language) posting over at my blog staatsstreich.at

    Thanks again for your pointing me to the SEC filings Q 10. Even they were not easy to spot, but I managed it. That’s some crazy stuff.

  25. silverfreaky | July 27, 2018 at 6:34 am |

    So we heared the fairy tail silver is rare.I think the day steve admit that he was wrong, the price will increase.
    Ron Paul told us that he is angry because the miner managment take the money from the little stockholder.The same for physical material.When i’am 7 years wrong with my analysis,maybe i should change the subject.

    • Punctuation Police, please insert a space after a comma or period.

      • George Bellarious | July 29, 2018 at 4:45 pm |

        I’m pretty sure they didn’t write that, “silverfreaky” did. Or did you mean to use a colon there after “Punctuation Police” to indicate they were speaking?

        All in good fun.

  26. Steve, have you seen this ZeroHedge article?

    “Global Oil Discoveries See Remarkable Recovery In 2018”

    https://www.zerohedge.com/news/2018-07-27/global-oil-discoveries-see-remarkable-recovery-2018

    • DisappearingCulture | July 27, 2018 at 5:02 pm |

      “Guyana led the top five countries in terms of total discovered resources added followed by the United States, Cyprus, Oman and Norway.”
      NOTE:
      “The discoveries in Guyana, the United States and Cyprus are located in ultra-deepwater…”
      What have we learned about ultra-deepwater oil recovery? Can it be profitable? Maybe. Is the initial expense plus time lag to bring to market measured in years? Yes. Could there be an environmental disaster? No of course not LOL. We can guarantee that will never happen again. We promise.

    • It appears that the chart claims that the ‘recovery’ is only up 30% compared to last year, which isn’t much really, especially when you factor in that the last three years have been the worst years back to back in decades of oil finds. And out of that 30%, much of it was gas. All of it wasn’t liquids/oil. So really not much in terms of finds. We would need something comparable to three years ago to even start getting my attention.

  27. Andrew Hopkins | July 28, 2018 at 6:52 pm |

    Thanks Steve.
    I have always maintained that shale oil is a ponzi. It is amazing how the IEA etc continue to forecast increasing production without any understanding of the negative cash flows of most shale companys.

  28. George Bellarious | July 29, 2018 at 4:36 pm |

    Are you sure the “Proceeds from Investments” isn’t supposed to be included in the FCF? Because that’s a huge $555M, which actually meant they added to their cash for the year.

    • George Bellarious | July 30, 2018 at 9:44 pm |

      Oops… FCF = Cash Flow From Operating Activities – Capital Expenditures

      I’m still left wondering what it means that they can add cash from “investments”. Might those have to do with the business?

Comments are closed.