U.S. SHALE GAS INDUSTRY: Countdown To Disaster

u-s-shale-gas-disaster-blurThe countdown has started as the demise of the great U.S. shale gas industry has begun.  This will have a disastrous impact on the U.S. economy as shale gas production declines in a big way.  Unfortunately, very few Americans understand how sickly the domestic shale gas industry truly is, because they have been brainwashed to believe the United States is heading towards energy independence.

For the U.S. to become energy independent, it would have to add at least another five million barrels per day of oil production.  At the peak in February 2015, the U.S. shale oil industry produced a little more than five million barrels of oil per day.  However, the real problem is not the doubling of U.S. shale oil production, rather it’s being able to make a profit in the process.

The U.S. shale oil and gas industry hasn’t made any real money since 2009.  This is especially true for one of the largest natural gas producers in the United States.  Chesapeake Energy, which is the second largest natural gas producer in the country, hasn’t made a lousy nickel for at least the past ten years:

chesapeake-energy-free-cash-flow-table

This table comes from the website, gurufocus.com.  If you click on the Chesapeake Free Cash Flow link at gurufocus.com, you will see the very same table by scrolling down the page.  According to gurufocus, their definition of Free Cash Flow is the following:

Free Cash Flow is considered one of the most important parameters to measure a company’s earnings power by value investors because it is not subject to estimates of Depreciation, Depletion and Amortization (DDA).  Over the long term, Free Cash Flow should give pretty good picture on the real earnings power of the company.

As we can see in the table above, Chesapeake Energy is completely in the RED as it pertains to free cash flow or real profits since 2006.  This is quite an amazing accomplishment from the second largest natural gas producer in the country.  You would think, being BIG would guarantee profits.  I gather someone forgot to tell Chesapeake’s management the important financial tidbit called, “Economies of scale.”

To get an idea of the top five natural gas producers in the United States, I listed them below.

Top 5 U.S. Natural Gas Producers (Data from Natural Gas Supply Association):

[Figures shown in billion cubic feet per day]

  1. ExxonMobil: 3.105 Bcf/day
  2. Chesapeake: 2.971 Bcf/day
  3. Southwestern: 2.208 Bcf/day
  4. Andarko: 2.164 Bcf/day
  5. EQT: 1.855 Bcf/day

I took the data for Chesapeake’s free cash flow and made the chart below:

chesapeake-energy-free-cash-flow-2006-2015

While the gurufocus.com table above is nice, this chart provides us a much clearer picture of the DISASTER taking place at Chesapeake Energy.  Not only do we see a lot of RED in the chart, we can also see the total cumulative negative free cash flow for the ten-year period.  Chesapeake Energy spent a whopping $60 billion more than they made from operating cash.

Basically, Chesapeake hoodwinked a lot of investors out of their hard-earned money to help make America, energy independent…. or at least they tried.  Unfortunately, many of these investors still don’t realize they have been bamboozled.  Why?  Because a lot of Chesapeake’s debt, as well as many other shale energy companies’ debt, are bonds purchased and held by many public and private pension and retirement funds.

And… it gets even worse.  I’ve read that insurance companies have invested in the Great U.S. Shale Energy Ponzi Scheme.  This is quite surprising as insurance companies are supposed to invest in very safe and conservative assets.  However, the ultra-low interest rates at the banks, thanks to the Clowns at the Fed, have forced investors and institutions to search for “Higher yielding” investments.  While the shale oil industry hasn’t really made any money, at least they pay their bond holders a higher rate than many other investments in the market.

Regrettably, when investors or institutions try to get their initial shale energy investments back in the future, they will be for a rude awakening.

More Nails In The Chesapeake Energy Coffin

Before I continue, we must remember that Chesapeake Energy is the second largest natural gas producer in the United States.  That being said, let’s look at few more troubling signs at Chesapeake.

One of the nifty ways to fund operations if cash flow isn’t adequate, is to perform STOCK DILUTION.  If the company can’t make a profit, well then by God, issue more stock to a new group of poor unworthy slobs.  As they say, there’s a sucker born every minute.

In order to do its part in making America energy independent, Chesapeake Energy diluted its shares by 319 million, or 70% over the past decade:

chesapeake-energy-outstanding-shares

Okay, a 70% dilution of its outstanding shares over the decade wouldn’t be that bad if investors were rewarded with a decent stock price.  Sadly, Chesapeake’s stock performance is just as dismal as its percentage of share dilution.  Even though Chesapeake’s share price doubled since the beginning of the year, it is down 75% from its high in 2014.

Furthermore, the once mighty Chesapeake stock traded for a high of $62 in 2008, but today, trades for a mere 7 bucks a share.  WARNING…For those savvy investors who are swallowing the Mainstream media hype that a new bull market in energy stocks has begun, let me show you Chesapeake Energy’s EKG… its vitals:

chesapeake-energy-assets-vs-total-liabilities

This chart should be easy for anyone to follow.  The Green Dollars represent Chesapeake’s total assets and the Red Line displays its total liabilities.  For a company to get a CLEAN BILL OF HEALTH, its assets must outweigh its debts… and by a wide margin.

Well, that may have been true for Chesapeake in the past, but today we see a TERMINALLY ILL PATIENT.  In the third quarter of 2016, Chesapeake’s total liabilities were higher at $13.7 billion versus its total assets of $12.5 billion.  Gosh, I wonder who owns the $9 billion of Chesapeake’s long-term debt?

Okay, well maybe there’s a slight chance that Chesapeake can begin to work harder at producing profits by increasing its natural gas production.  To do this, they would have to spend more money.  If we look at the chart below, we see another disturbing trend:

chesapeake-energy-capitall-expenditures

According to the figures above, Chesapeake’s capital expenditures are down a stunning 90% at $1.6 billion, since its peak of $14.7 billion in 2012.  This is definitely heading in the wrong direction.

By looking at all the financial indicators, the future for Chesapeake Energy looks quite dim.  Unfortunately, these indicators only provide part of the DISASTER taking place in the Good ole U.S. of A.

Chesapeake Energy Survived By Slashing Royalties To Property Owners

While Chesapeake Energy had to resort to spending $60 billion more to fund its business than it made from operations, on top of massive share dilution… this just wasn’t enough.  According to several sources, Chesapeake Energy decided to slash its royalty payments to the land owners to help make America energy independent once again.

In the article, How The Fracking Industry Avoids Paying Royalties To Its Landowners, it stated:

Don Feusner ran dairy cattle on his 370-acre slice of northern Pennsylvania until he could no longer turn a profit by farming. Then, at age 60, he sold all but a few Angus and aimed for a comfortable retirement on money from drilling his land for natural gas instead.

It seemed promising. Two wells drilled on his lease hit as sweet a spot as the Marcellus shale could offer—tens of millions of cubic feet of natural gas gushed forth. Last December, he received a check for $8,506 for a month’s share of the gas.

Then one day in April, Feusner ripped open his royalty envelope to find that while his wells were still producing the same amount of gas, the gusher of cash had slowed. His eyes cascaded down the page to his monthly balance at the bottom: $1,690.

Chesapeake Energy, the company that drilled his wells, was withholding almost 90 percent of Feusner’s share of the income to cover unspecified “gathering” expenses and it wasn’t explaining why.

“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner said. “I guess we’re expected to just take whatever they want to give us.”

In another article, I watched a short video on just how bad the farmers and landowners were getting screwed by Chesapeake.  One farmer received $1.10 royalty check one month, and then $0.10 the next.  What was really shocking was that one landowner received a bill for $30,000 from Chesapeake, instead of a royalty payment.  This was in the Pennsylvania Marcellus area.  You have to watch this video from PA Royalty Ripoff below:

In addition, there have been several large class action royalty payment lawsuits against Chesapeake in various states in which they are producing oil and gas.  Here is a map of Chesapeake’s operations:

chesapeake-energy-operations

Supposedly, the Marcellus is the largest and most profitable shale gas field in the United States.  Of the 43 billion cubic feet per day of U.S. shale gas production, the Marcellus is producing 18 billion cubic feet per day, or 42% of the total.

But, as several Americans in the video explain, they haven’t been receiving their royalty payments even though Chesapeake continues to extract gas.  While other companies are actually paying their landowners their fair share of royalties, the situation in the entire U.S. Shale Energy Industry isn’t much better than the financial catastrophe taking place at Chesapeake.

U.S. Shale Energy Industry Has Been In The Red Since 2009

I found this wonderful table in an article, Oil Industry Spending Too Much; Deficit Spending Is Unsustainable, on the free cash flow for the Large Cap E & P oil and gas companies in the United States.  If there is one chart you have to see, this is the one:

large-cap-energy-ep-operating-cash-flow-table-2015

This chart gives us a true picture of the DISASTER taking place in the U.S. Shale Energy Industry.  While I have focused this article on the second largest shale gas producer in the U.S., we can clearly see that the entire group lost money in 2012/2014, and the industry as a whole has been in the RED since 2009.

What is even more amazing about the figures in this table is that the Large Cap Shale Producers suffered higher losses (negative free cash flow) when the price of oil was at its highest prices from 2011 to 2014.  Even though the price of oil began to fall in 2014, the average price for the year was $93.

Furthermore, the table also shows a forecast for continued negative free cash flow for the entire industry in 2015 and 2016.  Thus, the U.S. Shale Energy Industry will have been in the RED for eight consecutive years.

Today, the price of oil is trading half of what it was in 2014 at $49-$50.  While some analysts are pointing to “increased efficiency” and “lower production costs”, this won’t save the industry as it is still producing an INFERIOR and UNECONOMIC quality of oil and gas.

As I mentioned in my interview on the X22 Report, the amount of damage taking place on the U.S. roads and landscape by the Shale Fracking Industry is off the charts.  Here is a picture from the article linked above showing the huge FOOTPRINT that one shale gas well has on a farmer’s property:

farmers-fracking-well-site-impact

Can you imagine looking at that everyday on your picturesque farmland?  What is even worse, you have to look at that when the company isn’t even paying your royalty payments.  Of course, when the well is finally producing shale gas, most of this equipment will be gone, but the size of the drilling pad is huge.

Moreover, the amount of damage done to local and state roads by the Shale Fracking Industry is huge.  According to the excellent research by the Energy Policy Forum,

Pennsylvania collected $204 million in impact fees in 2012 (they don’t have a severance tax), but road damage topped $3.5 billion! Since 2009, Arkansas received $182 million in gas severance taxes, but estimates road damage cost $450 million.

Well there you have it.  Fracking shale gas in the Pennsylvania Marcellus generated $204 million in impact fees, but the road damage topped $3.5 billion.  What a deal.  From the information I have read, it takes an estimated 1,600 truck trips for a single fracked well.

As we can see from all the information and data provided in this article, the Great U.S. Shale Energy Industry has been a complete failure.  Moreover, we are witnessing the U.S. Shale Gas Industry, COUNTDOWN to DISASTER.  When the industry finally implodes, who will pay to properly cap the tens of thousands of fracked wells??  Who will fix the roads?  What happens when the natural gas-electric generation supply drops considerably?

Yes, that is correct.  The United States will be in serious trouble.  However, Americans today have no clue that the U.S. Shale Energy Industry has made no real money, ripped off landowners of their royalty payments, polluted groundwater and destroyed countless roads across the country, all in the effort to make us “Energy Independent.”

Well done….

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44 Comments on "U.S. SHALE GAS INDUSTRY: Countdown To Disaster"

  1. Steve,

    Thanks for another good read! You have been getting better and better. I appreciate the hard work you do

    to make these difficult issues easy to understand.

    Merry Christmas !

    Mike

  2. The spice must flow. Corrupted, broke, monetized, whatever. Average Joe pays the price. Thanks for this one Steve, hard and sad numbers. Bought myself some Christmas silver today. The FED will buy oil debt to keep the wheels spinning and pensioners happy.

  3. Great work Steve,
    All your articles are incredibly well researched & precient.
    Have a great Christmas.
    Rodney
    United Kingdom.

  4. “Unfortunately, many of these investors still don’t realize they have been bamboozled.”

    oh nonsense. they all knew, everyone knew, from the beginning. that’s why shale oil was financed by junk bonds.

    so why did they invest in it? because there was nowhere else to go. everyone’s financial boss came downstairs and screamed at the accountants, “get me profits now! or you’re all fired!” and they looked around and saw that the only infestment that stood a ghost of a chance at saving their jobs was shale oil, so they put their bosses’ money into it and kept their jobs for a few years longer. that’s all. they knew what they were doing, and there was nothing else they could have done.

    • “there was nothing else they could have done.”

      by design.

      now the “global elite” “international financiers” “deep state” who issued the junk bonds will seize the shale oil properties. then they’ll tell their bought-and-paid-for politicians to raise taxes on the cattle and subsidize shale oil “for national security reasons”. they’ll have all the oil they want, and the rest of us will pay for it.

      pretty slick, huh?

    • gman,

      Again, you are more than welcome to come in here and leave all the comments to you hearts desire. But, please don’t think that you KNOW IT ALL. While I don’t admire someone who is arrogant, I can accept it if they are CORRECT.

      Most of the investors who have either public or private pension plans or retirement accounts have no FRICKEN IDEA what the fund managers have invested it. Maybe some of the fund managers might know they have invested in garbage shale stocks and bonds, but they were up against the wall to find HIGH YIELDING investments.

      steve

      • “Maybe some of the fund managers might know they have invested in garbage shale stocks and bonds”

        heh. “fund managers might have known”.

        they knew. they all knew. I don’t know squat about oil, but even I could understand what the experts were warning about years ago when this all started. nobody was “bamboozled” or “hoodwinked”, they all knew what a junk bond is.

        as for all the people that chipped in their retirement funds to the care of “fund managers who might have known”, thinking these “fund managers who might have known” would work to get them free money off of someone else’s future work, well … good morning to them all. nobody “bamboozled” or “hoodwinked” these unsecured creditors either. nobody had to.

        and not just them. anyone who thinks they have a retirement/investment/contributing/whatever fund building up anywhere had best take a look.

  5. I wonder how much time we have before OPEC and other oil producers start bypassing the Dollar and selling oil for Gold, Silver, or other tangibles? When that happens, we’d be doubly screwed since we are no where near energy independent. I think the whole facade of American energy independence is probably a psyop in an attempt to deflect possible assaults on the Dollar for petrol paradigm. In previous years the U.S. successfully destroyed nations attempting to sell their petrol for other currencies. In Syria and in Russia the U.S. has not been successful. At what point do we hit that tipping point and the paradigm changes? If citizens within the U.S. don’t have access to affordable cheap oil what happens then? At least in the U.S. we may be a lot closer to Steve’s EROI scenario then the Hill’s Group suggests.

  6. A good article Steve, a real good article!! and you now have a “Secretary of State elect” from this very industry! .. Lol ….. He should do a good job!!!!

    It wouldn’t surprise me if they start shutting down some of these websites to make the information more difficult to get. someone must be discussing it somewhere. They will declare them “Fake Information” sites.. Lol

    AND;

    “Gosh, I wonder who owns the $9 billion of Chesapeake’s long-term debt”?

    Well that has to be the Superannuation Funds and Pension Funds of-course who invest (or misappropriate) the money they steal from the people doing REAL work.

    I mean; it is really hard, not to be cynical about the pricks and the crooks running the joint is it?

    I wonder what they talk about when they go home of a night?

  7. Steve, this is fantastic work from you.

    The facts you present are so incredible that it leaves me speechless.
    From Wolf Richter I read this some days ago:
    “In other words, the junk-bond bubble is back, alive, and well, driven largely by the recovery in energy junk bonds, as if the losses, restructurings, and bankruptcies had never occurred.”

    http://wolfstreet.com/2016/12/13/treasuries-melt-down-junk-bonds-boom-yield-spreads-collapse/

    It’s truly amazing how the investor sheeple are guided to the shambles.

    Merry Christmas.
    from Germany

  8. Where I live in Northern NSW Australia fracking was good for us. This area is populated by traditional farmers and alternative hobby farms. The two groups didn’t get on that well. When fracking threatened our area the farmers and the hobby farmers united to fight the frackers and won. They are gone for good.
    This united the area and now everyone gets on fine.
    Fantastic article Steve, thanks a lot for all your great work on the energy catastrophe.

    • I live just down the road from you Barry !!!! Hawkesbury District. Good to see you have found Steve’s site. You can’t get info like this any where else.

      Sorry about using your site as a social medium Steve…. Lol

  9. Wow you are providing such great WAKE UP NOW information it is stunning! Thank you very much!

  10. Thanks Steve was nice work and data were put in to the mix to make case even stronger, very good. regards

  11. Very interesting info Steve. Nevertheless it would be even more reliable if you got the infor from the direct source, i.e., from Chesapeake balance sheets. Maybe you trust your sources, but for those who read you many times we don’t have the time to go out and check for ourselves.
    Anyway, great job!

    • Ruy,

      You are correct that it would be more direct to take the information from Chesapeake’s Annual Reports, but one has to download many of these reports and they separate their capital expenditures. So, it makes it difficult to get the data. Seems as if they do this on purpose.

      However, sites like ycharts.com and gurufocus are PAID SITES, so you can bet your bottom silver dollar that their information is pretty accurate. I have cross checked their figures with yahoofinance and googlefinance and they are consistent. So, I am confident the figures on gurufocus are quite accurate.

      Yes, I plan on getting Bedford on an interview to explain the history and how the ETP Oil model works. It is just hard to get him now as he has been extremely busy.

      steve

  12. Steve, I am posting this comment here since it seems that older posts no longer admit more.

    I want to request from you to have Bedford W Hill to deeply explain the Etp model. I read it, but since I am not an oil or mining engineer there are some things that I am not able to grasp; but I have a MS degree in Civil Engineering at MIT and I have been trying to follow the reasoning, basically for the entropy rate balance equation, and I am not sure to have it clear.

    I have also some doubts about the year of the meltdown, because we could push it forward by introducing net energy from another source, namely natural gas. It is known that natural gas will peak later than oil, so it will be capable of delivering some net energy to the PPS in order to continue extracting crude oil even if the EROEI is under 6,89.

    In summary, I think it would be great to have an “Etp model for dumbs” interview. And I truly believe that you are the most prepared individual to do it!

  13. Duane Thomforde | December 16, 2016 at 5:16 am | Reply

    Oil and gas industries for all purposes are fixed cost producers. If for example it costs $50 a unit to produce a unit of output, at $49 sale price, they lose $1, at $51, they make $1, at $60, they make $10, and so on. Thus minor changes in price lead to huge changes in profit or loss. If your royalty payment is fixed, you are just another creditor and will receive a fixed amount, as small as they can talk you into, and if you payment is a % of the profits, it is boom or bust. You may get 10 times a fixed payment or nothing. This is made even worse as the companies biggest asset is the product still in the ground. If in the long run, the price goes from $100 to $50, the value of their reserves drops to 1/2 and the potential profits or losses extracting and marketing the product vary by many times the change in price. The oil and gas companies are mounted on the back of a tiger and holding on for dear life.

  14. Did I miss it? At what price must oil be before the shale producers become profitable?

    • Don_in_Odessa,

      Well, according to different data, it is anywhere between $60-$100. Unfortunately, the shale oil industry is not paying for all the EXTERNAL COSTS that at least conventional oil did.

      That being said, the situation in the U.S. Shale Patch will become increasingly problematic as the price of oil continues to decline.

      steve

  15. Thanks for your brilliant research and great efforts

  16. Thank you for your very educational articles supported by “hard” data.

  17. Does this all mean I must hope for a currency or economic collapse for my accumulated silver
    assets from 2010 to rise in value? Aren’t there any investors in the USA to read your articles and
    hurry to buy silver? It is all a supply demand game. And no one is busting their butt to own silver.
    The demand, even at $16 is pitiful. Are 320 million Americans that stupid? Why hasn’t a group of
    millionaires jumped into silver? All silver gurus including Morgan and Cloud have been wrong these
    past 15 years. With an inevitable crash, why are you the only one hyping silver? If we attach a time
    frame to your scenario things may happen as your articles state in 10 to 20 years down the road. As I said before: If I must root for a collapse for silver to rise and only one person in very hundred owns silver, how do I get to spend it ? You used to preach peak oil, then EROI, then production costs, then
    Shanghai and none of these affect silver. Why? Because no one is buying it. Write articles to tell people to buy silver instead of articles of the demise of the USA.

    • DisappearingCulture | December 16, 2016 at 8:10 am | Reply

      “Write articles to tell people to buy silver instead of articles of the demise of the USA.”

      Then you would hold him in disdain like Morgan et al….

      • DisappearingCulture,

        LOL… I couldn’t have said it better myself. I was going to reply to ole Joe, but it doesn’t seem like he reads or responds to my follow-ups. Joe seems like a fella who likes to talk but not listen. If he listened or read my articles, he would learn why ENERGY IS THE KEY.

        But…. as you correctly stated, Joe has a ONE TRACK MIND.

        steve

        • Why do you insult me? I’ve read your articles these last 5 years and anyone investing in silver. after listening to you, has lost part of their investment each and every year. You started with peak oil. This had no effect on silver. Then it was production costs at $30. Then it was $20. Now the miners say their costs are $10. Then it was Shanghai over the the Comex. Then minting was the rage and on and on. Now it’s EROI etc. You are 10 to 20 years too soon. Chesapeake has had problems since 2006. They will survive or someone will buy their assets. Silver gurus have been prognosticating using charts etc.and HAVE BEEN WRONG THESE PAST 10 years. The only thing an investors wants is a rising silver price. And that only occurs when demand far exceeds supply. No one is buying silver so no one thinks that demand will increase. WE need some country or billionaire to buy 200,000,000 ounces in 2017 to have silver rise. And this talk about gold to silver ratio is a joke. It is not me Steve, it is you! You are 10 to 20 years too soon with your articles.What happened to Cloud? He said there would be a silver shortage in 2016? Geeze! I can’t wait to read another article from this wizard. You’ve got good material Steve but like a failing FIAT currency you used to preach about, you 10 years too soon regarding FIAT
          also. And with true innovators in the USA in 10 years they’ll have an alternative. You’re beating a dead horse.

          • Joe,
            Who are buying all these gold and silver eagles? I know quite a bit of people and only one has any significant amount of silver which I consider at least a monster box. The answer are the rich who else would it be if less than 1% of the public owns physical pm’s wouldn’t it make sense that it’s the top 1% or less that are buying it. Do you think joe six pack is out there buying monster boxes of silver eagles or a tube of gold eagles here and there no it’s people that have money who can drop 50000$ without a worry in the world.

    • DisappearingCulture | December 16, 2016 at 8:35 am | Reply

      ” if we attach a time frame to your scenario things may happen as your articles state in 10 to 20 years down the road. As I said before: If I must root for a collapse for silver to rise and only one person in very hundred owns silver, how do I get to spend it ?”

      *NOT 10 to 20 years, but no one knows how long. My guess is less than five.

      *Doesn’t matter if 1 in 100 currently own silver if people with fiat cash decide they want to buy it.

      *Must you root for a collapse? Unfortunately I suspect economic chaos will shortly follow a significant valuation increase in PM’s. It didn’t have to be this way in times past, but that’s the way market manipulations are shaping the future.

    • Hi Joe.

      http://www.usagold.com/cpmforum/wp-content/uploads/SGEAGDeliveryw02.png

      The Chinese are buying physical silver. Lots of it. Oh, and gold:

      https://3.bp.blogspot.com/-B4I3JGSkCYs/WFOtKRvBYRI/AAAAAAABMgo/2hGW6NHxkpoWwGEhc_AUnBfyiASqv4KKgCLcB/s1600/SGEAUDelivery0220161216.gif

      Do not come over here for a quick profit. Ain’t gonna happen. I know you are worried about the future. We all are. Paper promises won’t be fullfilled in the near future, all those billions will go looking for hard assets, gold and silver are the ultimate stores of energy and the most valuable hard assets. Watching their ‘price’ is a fools game.

  18. Great article Steve, but as a retired upstream petroleum engineer I can assure you the farm and well location picture with comments is misleading. ” Here is a picture from the article linked above showing the huge FOOTPRINT that one shale gas well has on a farmer’s property:” Then below the picture, “Can you imagine looking at that everyday on your picturesque farmland? What is even worse, you have to look at that when the company isn’t even paying your royalty payments. Of course, when the well is finally producing shale gas, most of this equipment will be gone, but the size of the drilling pad is huge.”
    The picture shows a well at the time of a massive fracture treatment. There are many tanks for fracture fluids, silos for propant storage, tank trucks with chemicals, fracture placement equipment, a crane holding the tree save and more. As you rightly point out, all of that is temporary and is moved off location leaving behind the wellhead and most likely a small amount of processing equipment when fracturing is complete. The energy company is not going to leave it there if for no other reason they are renting all of it from service companies. Generally lease agreements require the lessee to restore damaged property to original condition, but if they are not paying royalty, then that may be a fight. Energy companies post a performance bond with the state as a condition of operating. If the company is not performing, then there is at least in part, an enforcement issue on the states part if the location remains an eye sore.
    When I was doing this work every truck and load was in compliance with state regulation and it is near certainty current trucks are as well. Moving equipment and products for fracture treatment occurs only for the treatment, it is not an ongoing operation. Further for a gas well, the product is not trucked, rather transported via gathering system pipeline. I travelled Pennsylvania roads many times before shale development and the roads (even those with tolls) were the worst in the nation. To blame road poor road conditions on a one time movement boarders on scapegoating.
    I did not write this to throw rocks at your work, I think it is top notch. I only wanted to shed a little light on the operational aspects of which I am very familiar.

  19. Seems to me the same problem is in many ‘business models’….and National agendas……DEBT….which for some reason can not be reconciled so that the ‘investors’ do not get taken…since most leaders/administrators of business and government still receive compensation and bonus’s, while the under lying ‘business’ and investors, suffer the losses…..imho

  20. EROI

    You must ‘burn’ energy to produce energy.
    Steve –
    What is the average EROI coming from the nations shale plays?
    What is the break even point?
    At what point in the EROI does the economics turn negative?
    And finally, in your esteemed estimation, when does this occur?
    A bullet point reply would be fantastic, considering the KISS principal.

    Thank you for your tireless work in bringing forth this vital information.

    • Oli, if i may..

      Average eroi 5:1
      Break even point: the point of dillution of the currency that makes people start bartering
      The economics are already negative
      Its occurring already, and it will accelerate

      Be very aware of the fact we cannot simply turn off the lights with 7 billion + people

      • hout –

        Thank you.
        I seem to recall that average eroi ratio that you posted, (5:1) is the “rock bottom” return for the thinnest of margins for the energy sector. Anything below that level is negative, considering the cost of capital (machinery, transportation, refining etc.) for the producers.
        We will not run out of oil. The residual will still be there, just too expensive to produce a profit.

  21. I am a wheat farmer, I place my savings in silver, not flour.
    I feel about 100 out of 100 folks create the demand for flour products and I’m quiet sure none of them will double their consumption in the near future.

    But with only 1 out of 100 folks investing in silver, wow! think what will happen when only 1 more out of every 100 decides to own silver,,,,,,,,,demand doubles.

    In truth it is my opinion that very few savers have much control over where their money is placed (for now).

    Most baby-boomers are vested in employment retirement accounts, those controlling these accts are pack followers, so long as their performance is no worse than the pack, their job is secure; therefore the stock mkt is their game of choice.

    Watch the stock mkt, when it stumbles, the whole thing comes down.

    Currently Dallas mayor asking for court order stopping early lump sum withdrawals from police and fireman retirement funds.

    Return on investment in PM’s will not come in $$$, return will come from easy purchase of things to sustain comfortable life style.

  22. Expect falling PM-prices.The sentiment is to bullish.When Trump takes new money and make the infrastructure programme this could change.In 6 weeks we look what happens when Trump starts as a president.

    A year ago i told you that we go in direction deflation.For this deflation times the PM-production is way to high.

    Only wenn inflation is higher then the interest rate, we will see better prices.The fundamental fault of all so called analysts.The low leading interes trate in the usa is the PM killer.

    • silverfreaky,

      You say the precious metals sentiment is “TOO HIGH”? LOL… thank God, you don’t know what you’re talking about.

      steve

  23. Yes, that’s right.The final capitulation means that all throw away the towel.
    A complete wash out is necessary.The blood must run threw the streets.

  24. Hi Steve,
    Sorry I have not been able to provide you with more input. I’ve been busy putting out fires. We have several projects going on around the country, and the stubborn oil prices are reeking havoc on many of our clients. After the 2014 crash many of them were betting that the price was going to go back up to post crash levels. They planned projects out 4 or 5 years based on that assumption. Even though we told them that they were being way overly optimistic they insisted that we push forward anyway. Now they are getting into trouble and we have contracts with specific performance criteria with them. Getting out of those contracts, while retaining our shirts, is turning into a full time chore. Maybe after the first I’ll be able to free up some time.

    To the engineer above who is having trouble getting his head wrapped around the Etp Model, look up the equations I = To* б, and ∆s = c* ln(T2/T1) where:
    б = entropy
    ∆s = delta entropy
    c = specific heat where cv = cp
    T2 & TI = temperature in Kelvin or Rankine
    I = irreversibility in the system

    Once you get past that, it is all down hill from there.

    BW

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