WARNING: The Global Oil & Gas Industry Is Cannibalizing Itself To Stay Alive

While the Mainstream media continues to put out hype that technology will bring on abundant energy supplies for the foreseeable future, the global oil and gas industry is actually cannibalizing itself just to stay alive.   Increased finance costs, falling capital expenditures and the downgrade of oil reserves are the factors, like flesh-eating bacteria, that are decimating the once great oil and gas industry.

This is all due to the falling EROI – Energy Returned On Investment in oil and gas industry.  Unfortunately, most of the public and energy analysts still don’t understand how the Falling EROI is gutting the entire system.  They don’t see it because the world has become so complex, they are unable to connect-the-dots.  However, if we look past all the over-specialized data and analysis, we can see how bad things are getting in the global oil and gas industry.

Let me start by republishing this chart from my article, Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows:

The global oil industry only found 2.4 billion barrels of conventional oil in 2016, less than 10% of what it consumed (25.1 billion barrels).  Conventional oil is the highly profitable, high EROI oil that should not be confused with low quality “unconventional” oil sources such as OIL SANDS or SHALE OIL.  There is a good reason why we have just recently tapped in to oil sands and shale oil…. it wasn’t profitable for the past 100 years to extract it.  Basically, it’s all we have left…. the bottom of the barrel, so to speak.

Now, to put the above chart into perspective, here are the annual global conventional oil discoveries since 1947:

You will notice the amount of new oil discoveries (2.4 billion barrels) for 2016 is just a mere smudge when we compare it to the precious years.  Furthermore, the world has been consuming about an average of 70 million barrels per day of conventional oil production since 2000 (the total liquid production is higher, but includes oil sands, deep water, shale oil, natural gas liquids, biofuels and etc).  Conventional oil production has averaged about 25 billion barrels per year.

As we can see in the chart above… we haven’t been replacing what we have been consuming for quite a long time.  Except for the large orange bar in 2000 of approximately 35 billion barrels, all the years after were lower than 25 billion barrels.  Thus, the global oil industry has been surviving on its past discoveries.

That being said, if we include ALL liquid oil reserves, the situation is even more alarming.

Global Oil Liquid Reserves Fall In 2015 & 2016

According to the newest data put out by the U.S. EIA, Energy Information Agency, total global oil liquid reserves fell for the past two years.  The majority of negative oil reserve revisions came from the Canadian oil sands sector:

Of the 68 public traded energy companies used in this graph, total liquid oil reserves fell from 116 billion barrels in 2014 to 100 billion barrels in 2016.  That’s a 14% decline in liquid oil reserves in just two years.  So, not only are conventional oil discoveries falling the lowest since 1947, companies are now forced to downgrade their total liquid oil reserves due to lower oil prices.

This can be seen more clearly in the EIA chart below:

The “net proved reserves change” is shown as the black line in the chart.  It takes the difference between the additions-revisions, (BLUE) and the production (BROWN).  These 68 public companies have been producing between 8-9 billion barrels of oil per year.

Because of the downward revisions in 2015 and 2016, net oil reserves have fallen approximately 16 billion barrels, or nearly two years worth of these 68 companies total liquid oil production.  If these oil companies don’t suffer anymore reserve downgrades, they have approximately 12 years worth of oil reserves remaining.

But… what happens if the oil price continues to decline as the global economy starts to really contract from the massive amount of debt over-hanging the system?  Thus, the oil industry could likely cut more reserves, which means… the 12 years worth of reserves will fall below 10, or even lower.  My intuition tells me that global liquid oil reserves will fall even lower due to the next two charts in the following section.

The Coming Energy Debt Wall & Surging Finance Cost In The Energy Industry

Over the next several years, the amount of debt that comes due in the U.S. oil industry literally skyrockets higher.  In my article, THE GREAT U.S. ENERGY DEBT WALL: It’s Going To Get Very Ugly…., I posted the following chart:

The amount of debt (as outstanding bonds) that comes due in the U.S. energy industry jumps from $27 billion in 2016 to $110 billion in 2018.  Furthermore, this continues higher to $260 billion in 2022.  The reason the amount of debt has increased so much in the U.S. oil and gas industry is due to the HIGH COST of producing Shale oil and gas.  While many companies are bragging that they can produce oil in the new Permian Region for $30-$40 a barrel, they forget to include the massive amount of debt they now have on their balance sheets.

This is quite hilarious because a lot of this debt was added when the price of oil was over $100 from 2011 to mid 2014.  So, these companies actually believe they can be sustainable at $30 or $40 a barrel?  This is pure nonsense.  Again… most energy analysts are just looking at how a company could producing a barrel of oil that year, without regard of all other external costs and debts.

Moreover, to give the ILLUSION that shale oil and gas production is a commercially viable enterprise, these energy companies have to pay its bond (debt) holders dearly.  How much?  I will show you all that in a minute, however, this is called their DEBT FINANCING.  Some of us may be familiar with this concept when we have maxed out our credit cards and are paying a minimum interest payment just to keep the bankers happy.  And happy they are as they are making a monthly income on money that we created out of thin air… LOL.

According to the EIA, these 68 public energy companies are now spending 75% of their operating cash flow to service their debt compared to 25% just a few years ago:

We must remember, debt financing does not mean PAYING DOWN DEBT, it just means the companies are now spending 75% of their operating cash flow (as of Q3 2016) just to pay the interest on the debt.  I would imagine as the oil price increased in the fourth quarter of 2016 and first quarter of 2017, this 75% debt servicing ratio has declined a bit.  However, people who believe the Fed will raise interest rates, do not realize that this would totally destroy the economic and financial system that NEEDS SUPER-LOW INTEREST RATES just to service the massive amount of debt they have on the balance sheets.

As an example of rising debt service, here is a table showing Continental Resources Interest expense:

Continental Resources is one of the larger energy players in the Bakken oil shale field in North Dakota.  Before tapping into that supposed “high-quality” Bakken shale oil, Continental Resources was only paying $13 million a year to finance its debt, which was only $165 million.  However, we can plainly see that producing this shale oil came at a big cost.  As of December 2016, Continental Resources paid $321 million that year to finance its debt…. which ballooned to $6.5 billion.  In relative terms, that is one hell of a huge credit card interest payment.

The folks that are receiving a nice 4.8% interest payment (again… just a simple average) for providing Continental Resources with funds to produce this oil at a very small profit or loss… would like to receive their initial investment back at some point.  However….. THERE LIES THE RUB.

With that ENERGY DEBT WALL to reach $260 billion by 2022, I highly doubt many of these energy companies will be able to repay that majority of that debt.  Thus, interest rates CANNOT RISE, and will likely continue to fall or the entire financial system would collapse.

Lastly…. the global oil and gas industry is now cannibalizing itself just to stay alive.  It has added a massive amount of debt to produce very low-quality Shale Oil-Gas and Oil Sands just to keep the world economies from collapsing.  The falling oil price, due to a consumer unable to afford higher energy costs, is gutting the liquid oil reserves of many of the publicly trading energy companies.

At some point… the massive amount of debt will take down this system, and with it, the global oil industry.  This will have an extremely negative impact on the values of most STOCKS, BONDS & REAL ESTATE.  If you have well balanced portfolio in these three asset classes, then you are in serious financial trouble in the future.

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61 Comments on "WARNING: The Global Oil & Gas Industry Is Cannibalizing Itself To Stay Alive"

  1. As I was posting yesterday, one really has to stop and
    take a serious look at what is being reported. The ploy today is DECEPTION.

    http://www.zerohedge.com/news/2017-06-12/shale-production-will-hit-all-time-high-next-month-and-thats-just-beginning

    • Hubbs,

      Thanks for posting that. I have read that article, and will be publishing a piece on the PERMIAN OIL BASIN shortly with some very nice charts from peak oil analyst, Jean Laherrere. While the Permian Region has experienced an extremely large increase in production, its legacy decline rate is also surging right along with it. Thus, the drillers have to add one heck of a lot of oil just to keep production from declining.

      That being said… this is also a nice article: http://www.zerohedge.com/news/2017-06-13/oil-prices-suffer-first-death-cross-2014-collapse

      I don’t follow Technical Analysis that much, but most traders do. So, this could be an extremely bad sign for oil prices going forward.

      By the way… thanks commenter “VK” for posting that link in another thread. That is how I came across it.

      steve

      • Jean is an avowed peak oiler who started screwing that pooch in the last century…any reason to think he is going to do any better now?

    • Interesting article! No wonder the general public believes we are headed for “energy independence” and to a great, bright, shinning upland of civilization!
      I did a presentation in a class I was taking about 6 years ago warning about peak oil. They must all be laughing at me now. However, my beliefs are more firm than ever.
      I totally agree with Steve that the euphoria induced by these type of articles, and any increase in production is only achieved through political and financial manipulations of the markets. It’s just a matter of time how long the can will be kicked down the road.
      One thing that’s absolutely certain: When the crash comes, it won’t be a bell-curve slow descent, but a cliff, due to the political – financial mess that the physical decline is tied up with.

    • Fake it till you make it.

      New business as usual model.

  2. Hi Steve. I think I spotted a mistake in the paragraph after the second graph:

    “Conventional oil production has averaged about 25 billion barrels per day.” should read “Conventional oil production has averaged about 25 billion barrels per YEAR”

    Feel free to delete this comment after the fix.

    Great article

    • Eric Bauer,

      Nice catch. I made the change…. thanks. Because I am a ONE MAN SHOW here, I have to do all the editing myself. This is a NO-NO… LOL.

      steve

  3. Steve,
    The bad debts of the oil companies will become assets on the central banks balance sheets. They will buy the debts. Otherwise, there is no way the total debt will grow to $260 billion by 2022. Regular bankers are not that dumb.

    • eddy,

      Anything is possible, but Central Banks have been buying ASSETS not DEBTS. While I agree those terms can be interchangeable…. the Energy companies debts are the bonds held by other Financial Entities. So, the Central Banks would have to buy the bonds from these financial institutions, not the Energy companies. It would very convoluted.

      stve

      • DisappearingCulture | June 13, 2017 at 3:55 pm | Reply

        The Fed’s QE was buying U.S. debt [I guess]. It does become convoluted [as Mike Maloney explained in his Hidden Secrets of Money; I think episode 4, that they don’t “buy” like most people think about buying]. U.S. debt is better than corporate debt; closer to being an asset. U.S. debt is on the backs of the citizens, and there is some collateral. Real estate and ownership of corporations themselves [not their junk bonds or debt] are assets. Yes the Fed is using their power usurped from the Treasury and citizens, and their fake money systems to acquire the assets of the nation. And concentrate wealth and power into the hands of their owners.

  4. Steve. Do you think the various governments of the world, when these oil companies begin collapsing under the weight of their debt, will nationalize them, and subsidize their costs, no matter how expensive it is to procure more oil?

    • DisappearingCulture | June 13, 2017 at 3:59 pm | Reply

      Eric,
      That is a good question, becasue they have to support oil industry more than most other industries. Many corporate representatives of many industries will be allowed to fail. Not the major players in the oil industry. Nationalizing them is the ultimate backstop in keeping them functioning.

  5. BP says that in 2016 US oil proved reserves were flat at 48 billion barrels and world proved reserves grew 15 billion barrels to 1707 billion barrels.

    http://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of-world-energy-2017-full-report.pdf (page 12)

    Peak oil postponed for another year. 🙂

    • marmico,

      Always a pleasure that you take some time out of your busy day from the Peakoil.com blog to post here. Most appreciated.

      That being said… BP 2016 Statistical review did not show any downward revision in either the USA or CANADIAN oil reserves. I can tell you for a FACTOID that ExxonMobil reduced their Canadian Kearl oil-sands reserves by 3.5 billion barrels and several other companies had big oil sands write downs as well.

      http://www.zerohedge.com/news/2017-02-22/exxon-cuts-reserves-record-33-bilion-barrels-oil-crash-finally-takes-toll

      So… while you can quote BP’s 2016 Statistical Review Report, I find it quite interesting that they listed the EXACT SAME reserves for the USA & CANADA for 2015 and 2016… when in FACT, we know that the companies wrote off some big oil reserves last year.

      steve

    • BP Statistical Review: proved reserves not so proven

      http://crudeoilpeak.info/oil-reserves-and-resources-as-function-of-oil-price

      &

      An extensive new scientific analysis conducted by the Former Chief Economist Michael Jefferson at Royal Dutch Shell published in Wiley Interdisciplinary Reviews titled “A Global Energy Assessment 2016” : says “that PROVED conventional oil reserves as detailed in oil industry sources are likely “overstated” by HALF.” & “Punt bluntly,the standard claim that the world has “PROVED” conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 876 billion barrels. Thus, despite the fall in crude oil prices from a peak in June 2014, after that of July 2008, the “Peak Oil” issue remains with us.” (Jefferson 2016)

      http://onlinelibrary.wiley.com/doi/10.1002/wene.179/pdf

      • the “Peak Oil” issue remains with us.” (Jefferson 2016)

        Fair enough. Eliminate the Athabasca and Orinoco reserves as they are continuous not conventional oil fields. Eliminate the Middle East political conventional oil reserves from 30 years ago. Now add the 550 billion barrels of undiscovered conventional from USGS 2012. Pretty much back to square one.

        https://pubs.usgs.gov/fs/2012/3042/

        The peak oil issue does not remain with us. (marmico 2017) 🙂

        • marmico,

          Yes, we can subtract this and add that and multiply this… so on and so forth. I believe the most MISUNDERSTOOD FACTOR that folks involved in the PEAK OIL DEBATE fail to realize, is the massive amount of debt in the system.

          If we didn’t have all this debt, then yes… I could see pumping a lot of oil for a long period of time. But, we have all this debt and derivatives that really only work with cheap oil, not the expensive stuff. As for the 550 billion barrels of undiscovered conventional oil, I wouldn’t hold my breath on that one.

          It really seems as if the global oil industry will be in BIG TROUBLE within the next 5-10 years.

          steve

          • A’s debt is B’s credit. In the private sector B’s credit is typically collateralized on A’s fixed assets (house, auto, factory, mall, etc.)

            Specifically, the oil firm’s senior creditors will realize on the collateral wiping out stockholders and junior creditors. Winners and losers. What’s the big deal?

            Energy is cheap. Energy relative to GDP is near the lowest ever. I estimate that the 2015 and 2016 energy expenditures relative to GDP are ~6%. Energy has only been cheaper (energy expenditures as a share of GDP column) for a few years in the data set.

            https://www.eia.gov/totalenergy/data/monthly/pdf/sec1_17.pdf

          • marmico,

            You say energy is cheap as compared to the GDP. That’s because you are comparing a severely inflated GDP that has been inflated by the tens of $trillions of monetary liquidity and Central Bank asset purchases. Now come on… you know better than that.

            The Real GDP is likely 10-20% of the current valuations. You don’t find it surprising that the DOW JONES INDEX is up 23 Times since 1980, while U.S. Public Debt of $20 billion is also up 23 times during the same time period. The S&P500 is up 22 times and the U.S. Retirement Market is up 24 Times.

            Come on marmico…. you have to realize the world is one giant PONZI SCHEME.

            Lastly…. you haven’t even considered the falling EROI of Oil & Natgas. Forget price. The oil industry used to make a killing at $40… now, it is losing money. We need to start waking up and smelling the fracking fluid.

            steve

          • Quite the rant, Steve.

            Not a penny of tens of $trillions of monetary liquidity ended up in my pocket. How about you? Beats me how I’m supposed to goose GDP by a penny without receiving an additional monetary liquidity penny?

            I see that you are bigly on intuition and coincidence.

            I’m sure that mortgages were refinanced at lower interest rates due to Central Bank asset purchases. Didn’t help me by a penny. I’m mortgage-free. How about you?

            So are you going to name names about those lucky people that received monetary pennies to goose GDP.

            EROI is a joke unless it is adjusted for intensity. My car is more durable, more well appointed, safer and travels 100% further per unit of energy than it did 30 years ago. How about you?

        • According this website everything should be worthless in value except cryptos because it is harder and harder to mine them…

        • Marmiico I don’t know if you are ignorant or just deluded. take your pick but here are dozens more studies to debunk. go for it big guy

          https://www.reddit.com/r/collapse/comments/6g2d7j/collapse_of_global_civilization_by/

        • Now add the 550 billion barrels of undiscovered conventional from USGS 2012. Pretty much back to square one.

          (Do you think Jefferson’s study didn’t account for this?)

  6. Steve
    “debt is on the backs of the citizens, and there is some collateral.”
    If the U.S. citizens will not have surplus energy and will never pay back the debt. Falling productivity is over time is unavoidable.
    Cheers.

  7. BP says in the footnotes:
    Total proved reserves of oil – Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from
    known reservoirs under existing economic and operating conditions. The data series for total proved oil does not necessarily meet the definitions, guidelines and practices used for determining
    proved reserves at company level, for instance as published by the US Securities and Exchange Commission

    In any event, the XOM write down is a rounding error in the quantity of proved world reserves.

    • marmico,

      That was very kind of your to quote the BP Statistical Review footnote at the bottom of their reserves page. However, I already read the darn thing and for some odd reason, that doesn’t really account for the nearly 8 billion barrels of Canadian oil sands that were written off.

      Yes… maybe 3.5 billion barrels is likely a ROUNDING ERROR as it pertains to total reserves, as you say. I have no problem with that. However, I still find it quite interesting that the boys at the EIA, who I may remind you… LIVE IN THE VERY COUNTRY IN WHICH THEY PRODUCE THE RESULTS, show a decline in oil reserves for 2015 and 2016. So, this goes ABOVE & BEYOND a rounding error in my book.

      Furthermore, I would also like to highlight another interesting TID BIT that doesn’t add up. In BP’s 2016 Statistical Review, it shows that Venezuela has 300 billion barrels of oil reserves… the largest on the planet. I find this quite interesting now that the country is in total collapse mode, suffering from hyperinflation and now resorting to eating dogs to stay alive when the country “supposedly” has the most oil reserves in the world.

      Doesn’t anyone else find this a bit ODD??? Maybe it has something to do with the fact that they are sitting on a lot of HEAVY OIL RESERVES that aren’t really commercially viable. I would suggest that if Venezuela was sitting on 300 billion barrels of LIGHT SWEET ARABIAN STYLE CRUDE OIL RESERVES as the Middle East was blessed with, I highly doubt they would be eating dogs and suffering massive hyperinflation.

      steve

  8. Steve,
    That chart showing the trend of debt servicing vs operating cash flow means that all these energy companies will go bust by one year from now!
    And it will go even quicker when the FED increases rates…

  9. Hi Steve as you are well aware of most oil and gas reserves are outside the usa.
    In the middle east it is still the cheapest region to produce oil and gas. So while
    some regions will see huge economic problems due the debth situation of the many oiilcompanies for sure it is not a global problem. The shale industry needs to innovate much more efficient to be economic viable I agree very much with you. To me it just means that this will effect both the energy defecit countries as the energy surplus countries. Hence that is why the us empire is waging war in middle east for decades already. Not to forget the Fed will keep this freak show moving a lot longer as we can imagine. I already it would collapse 3-4 years ago.

  10. Only conventional oil can be profitable because it is net energy positive or have an high EROEI. Since you have to buy energy to produce energy, companies involve in shale and tar sand will always lose money and carry big debt because they have to buy more energy (energy defines in BTU not money) then the energy value they value. The speed of the economical contraction is proportional of the speed of conventional oil because it is the only that have net energy positive.

  11. Steve,

    Your proposition that “what happens if the oil price continues to decline as the global economy starts to really contract from the massive amount of debt over-hanging the system? Thus, the oil industry could likely cut more reserves, which means… the 12 years worth of reserves will fall below 10, or even lower. My intuition tells me that global liquid oil reserves will fall even lower due to the next two charts in the following section.” contradicts Micheal Jefferson who states that ““Punt bluntly,the standard claim that the world has “PROVED” conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 876 billion barrels. Thus, despite the fall in crude oil prices from a peak in June 2014, after that of July 2008, the “Peak Oil” issue remains with us.” (Jefferson 2016)”

    Using Jefferson’s reserve figures there is 824 billion barrels total reserves (1.7 trillion less 876 billion overstated). For the sake of simplicity, if we assume (dangerous I know) that the world continues to use an average of 25.1 billion barrels per year, that would leave us with about 32 years of reserves.

    So how much deliverable oil is there? 10 to 12 years or 32? If all 68 companies go bankrupt and servicing debt is taken out of the equation, is it possible that buyers at bankruptcy could start over and how much oil could we expect them to produce over what period of time?

    Thanks

    SteveW

    • Steve W,

      The 12 years worth of oil reserves were for the 68 public trading companies, not the entire world… which a lot is being produced by state run oil companies.

      However, those 824 billion barrels of supposed reserves are not the same barrels of oil we were producing back in the 1950-2000. A lot of those newer oil reserves are DEEP WATER, SHALE OIL and more expensive oil.

      We must remember, if the oil companies are dealing with a lot of trouble financially with a $50 oil price… what happens when the price goes lower??? Basically, a lot of those supposed reserves… just stay in the ground.

      steve

  12. Frank Breckenridge | June 13, 2017 at 10:12 pm | Reply

    You wrote, “Because of the downward revisions in 2015 and 2016, net oil reserves have fallen approximately 16 billion barrels, or nearly two years worth of these 68 companies total liquid oil production. If these oil companies don’t suffer anymore reserve downgrades, they have approximately 12 years worth of oil reserves remaining.

    But… what happens if the oil price continues to decline as the global economy starts to really contract from the massive amount of debt over-hanging the system? Thus, the oil industry could likely cut more reserves, which means… the 12 years worth of reserves will fall below 10, or even lower.”

    I must have missed something here due to my ignorance, but I can’t let this go without asking: it would seem to me that if the “global economy starts to really contract”, it will use LESS oil and therefore reserves should last longer, not fall.

    Please explain.

    • Frank Breckenridge,

      You bring up a good point that if the economy goes into the crapper, then wouldn’t reserves last longer. Yes, that might be true, however a lot of the reserves that have been added over the past two decades need a higher oil price. If the economy goes into the toilet, then more reserves will be written off as the oil price continues to decline… DUE TO A WEAKENING ECONOMY.

      Which also means falling oil production equals falling CASH FLOW, FALLING CAPEX SPENDING, FALLING PROFITS and the whole oil industry disintegrates under the weight of massive debt that it can no longer service.

      For example, I would imagine a lot of the Canadian oil sands reserves will stay in the ground.

      steve

  13. The scenario of ‘interest rates cannot rise’ is trivial and unrealistic, as the rates are set primarily by the markets, rates did rise, and the Fed only keeps up. Which brings the really intersting question: what happens to all this if rates keep rising despite all the kicking and screaming? What is the dynamic of that process?

    • DisappearingCulture | June 15, 2017 at 7:02 am | Reply

      The interest rates are NOT set by the markets. They are set by central banks. there is no free market interest discovery mechanisms working.
      The Fed is making tiny increases to save face after all their promises…and so they can drop them again as a last ditch stimulus later.

  14. Steve great piece.

    Everything is true but the conclusion is more than an investment issue. Once the system cracks and the trucks stop running it’s game over for civilization.

    • JT Roberts,

      It’s hard to forecast how things unfold. So, maybe we experience a MAD MAX… hell, I don’t know. But, maybe we collapse into something smaller… more local. Either way, owning physical gold and silver will AFFORD an INDIVIDUAL MORE OPTIONS than owning most paper assets that are going to disintegrate.

      That is how I look at it.

      steve

  15. What is the problem, if the oil is going to the end, who cares, I f.ck about this.
    Now i’m going for a driving round with my BMW750i and i will the beast kick down!

    • A pointless comment to show off about owning what is now a common make of car. Maybe try growing up instead. No one cares about your p.e.n..i.s. extension. Learn to live with the tiny one you have.

  16. I read an article last week saying that shale oil is getting a lot cheaper to produce as modern technology improves. Apparently some of the big shale oil producers will be able to cope even if oil goes to $40. Perhaps that is not true? Would appreciate views on this??

    • That company promotion line fails to mention that they exclude labour costs, depreciation, tax and debt servicing costs. Art Berman is the go to guy here.

  17. Steve,

    3 billion barrels is according to a quick calculation, about 33,000 of 360 ft diameter storage tanks full of oil. It was so big a number, the person I was talking to (an expert in storage tanks) refused to believe that they could write-off that reserve like that.

  18. $110 Billion due in 2018 for sub grade oil company debt? If we assume that 5 Mn bpd per day is produced by these companies in total. Then embedded in every barrel of oil extracted is a debt to be repaid component. 5 Mn bpd X 365 = 1.825 Mn bpd.
    $110 Bn divided by 1.825 Mn bpd = $60 of debt to be repaid per barrel!!!

    By 2020 that figure doubles to $120 of debt cost embedded per barrel. To be profitable that means oil prices have to shoot north of $200! Collapse is between now and 2020 that means. And prices need to spike to sustain CAPEX and debt servicing, because otherwise the banks start failing from bad loans. But if the price spikes the consumer gets hammered and banks die from defaults on consumer loans. Either way a crummy future. Whiskey away!!

  19. Venus, if oil can be produced so cheaply, statements of free cash flow over time will provide the answer

  20. Ok
    Let’s say that this is one big “new” bubble.
    Let’s say in 5 year we don’t find a new big good reserve.

    What would you do to make money of it?

  21. pennies onthedollar | June 14, 2017 at 10:52 pm | Reply

    Scalar war is underway. Spooky2. Take control. Namaste.

  22. pennies onthedollar | June 14, 2017 at 11:02 pm | Reply

    Keep close only that which you can take with you into the next life. Hold it tight.

  23. Hummm, as petro energy declines so goes electricity, but wait, there’s coal, but no diesel to mine it.
    Oh yes there’s nuclear and green, but wait not enough built to supply demand.
    Without electricity how can I spend my cryptos? I know, I will store enough ever ready bunnies to fire up my devices.
    Just hope the guy selling food has enough batteries to accept my bitwealth.

    Don’t know whether to stock up on batteries to sustain or tulips to decorate graves.

  24. Cannibalizing Itself?The only market in doings so is the PM-market.Miner stocks have only one direction.Downwards.They are at a niveau 20 years ago.

  25. “Humans are very good at propping up the unsustainable and this often results in a fast and unexpected collapse” (Tainter 1990)

  26. Is it possible discoveries have declined sharply because they’re not looking very hard? Maybe the industry drank the Just In Time kool aid and realized reserves just mean non-performing inventory.

  27. We have run out of cheap energy –Oil companies are not replacing reserves – they are shutting down exploration — because the market will not accept 120 oil…. it collapses the economy. So what is going to happen is that the financial system is at some point going to collapse. It is the operating system of the global economy and civilization.

    They will do everything they possibly can trying to fend off another 2008 moment — they will print and stimulate and bail and loan…. they will use every bullet in the box … they will throw the empty gun at this — then their will rip off the kitchen sink and throw it too.

    I guarantee you they will do ‘whatever it takes’ to hold this moment off for as long as possible.But the moment will arrive — that is guaranteed.

    And when it does there will be nothing left to throw — the shops will be looted and emptied — the electricity will go off… the violence and disease and suffering and starvation will follow. Global trade will completely stop — factories will close — spare parts to run the system will not be available — all energy sources will cease to operate — refineries will shut down — oil rigs will go offline — everything – and I mean everything will stop on a dime.Then chaos will reign.

    And you will be dead – I will be dead – and the central bankers will be dead

    • Excellent points by Mastermind. We are a fossil fuel based civilization. Without oil based lubricants no car in the world will run, no ship engine, no factory. Without natural gas no fertilizer will be produced. The Hills Group ETP model is telling us that by 2020-2022 the game is over except for nomadic pastoralists and subsistence farmers in the best farmlands in the world. Cryptocurrencies wont be worth anything as the Internet will have failed.

  28. The collapse of the fossil fuel sector is ensured, the best investment and I do not mean financial, is in food and water; put all you have into those things. The one thing, just one, in this great article, that I disagree with is investing in gold and silver, aside from making things from them; they are worthless to our future.

  29. Don’t see how the USGS estimates of some 20 billion barrels in the Wolfcamp, published 2016 or so, didn’t make it into the 2016 global discoveries chart? Is it necessary to censor information from graphs like this to make a point?

    • John,

      The USGS 20 billion barrel in the Wolfcamp was Technically recoverable, not commercially recoverable. That is why it didn’t make it into the reserve chart…AND, it is not conventional oil anyway.

      What we are talking about here, is low-quality, high-cost SHITE oil.

      steve

      • Wolfcamp oil isn’t low quality, it is actually pretty high quality stuff, so I’m not sure where you get your information. And I don’t know what the difference between conventional and unconventional oil is anyway, is there really a change in chemical composition that a refinery cares about in 42 degree API light sweet crude, one coming from Yates and the other from the Wolfcamp?

        • John,

          Doesn’t matter. Shale is not CONVENTIONAL. Let me repeat that one more time… SHALE IS NOT CONVENTIONAL. It is HIGH COST LOW QUALITY GARBAGE OIL… that no one made any money when oil was at $100 a barrel. Yes, the refiners can refine it, but the EROI is 5/1. No one makes any money producing that crap oil.

          Again… that is why it was not added to CONVENTIONAL OIL DISCOVERIES. If you need me to repeat any of that again… let me know.

          steve

  30. Brian Scrocca | July 1, 2017 at 9:09 am | Reply

    So what if price rises along with Gold and Silver. The USD if it does further weaken over time, will it not cause argued like in the 70-80’s a massive increase in oil and gas?

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