"We can not always do with you"

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Recent reports of bankers' demands that shale producers not increase their upstream spending have led some to be pessimistic about the prospects for shale production, up to the previous month, including "…Shale boom about to leave, Bust. "& nbsp; & nbsp;Other stories have highlighted the poor financial performance of the sector, such asA red ink rifle, "Suggesting that shale is generally unprofitable and calling for investor caution.

& nbsp;(Of course, as Robert Rapier points out, some seem to use an incorrect measure of free cash flow by not considering depreciation as historical and non-current costs.)

Although the forecast for shale supply has proved too optimistic, media attention is often focused on the challenges facing the sector, with bearish expectations. & Nbsp; Such pessimism is not new: it began with initial skepticism about George Mitchell's pioneering efforts to extract gas from the shale, and went on to insist that only gas from the Barnett shale be viable. & Nbsp; When the production of other gaseous schists proved economical, many insisted that the oil molecules, being larger, would not circulate through cracked shales. & Nbsp; When Bakken's oil production was successful, this success was attributed to the dolomite layer that most other schists did not have; when Eagle Ford proved to be a success, it's said in 2013 that "each piece is in fact its own" pyramid of resources ", characterized by some" soft zones ".

The production of these schists and more recent ones, notably the Permian, STACK and SCOOP, has been the subject of new concerns: & nbsp; the rapid rate of decline of shale wells would significantly limit available supply. & nbsp; & nbsp; ace a recent history To put it, "the shale industry is facing an uncertain future because drillers are trying to get past the treadmill because of the precipitous decline of the wells."

This is similar to the arguments put forward for a long time by the supporters of the peak oil: "a brand new Saudi Arabia [will have to be found and developed] every two years '' to meet current demand forecasts. "& nbsp; (Robert Hirsch, citing Saddad al-Husseini 2005[i]) & nbsp; Unfortunately, he did not seem to notice Jimmy Carter's almost identical commentary in 1977: & nbsp; "… Just to stay, we need the production of a new Texas every year, from a northern slope of Alaska every nine months or a new Saudi Arabia every three years. Obviously, this can not continue. "

Now the arguments are centered on the alleged failure of shale producers to generate profits. & Nbsp; "Iin the early stages During the fracking boom, investors tolerated negative cash flows from oil and gas producers, believing that the sector would eventually learn to produce money as well as oil and natural gas. But most frackers have never pbaded. A few companies can now generate modest positive cash flows, but the industry as a whole does not systematically produce sufficient cash to satisfy its voracious appetite for capital. "

Again, this is not new. A 2011 story in the New York Times "Funds are flocking," said an badyst at … an investment company, & wrote to a subcontractor in an e-mail dated February. "It reminds you of comedians." & Nbsp; & nbsp; Times Public Editor subsequently suggested that the article relied too much on the opinion of some pessimists and inadequately explained that history did not refer to the industry as a whole, but to particularly aggressive independents.)

Analytically, many of these reports have simplistic ideas, including an inability to recognize the dynamic nature of production methods. & Nbsp; The breakeven point of most shale, if not all, is today much lower than it was ten years ago. & Nbsp; In addition, the mbadive losses that occurred during the drop in oil prices in 2015 largely explain the poor performance of the sector when yields over the last decade are aggregated.

But many pessimists seem to be simply biased, for example insisting that "… no major new discoveries are expected on the ground." & Nbsp; & nbsp; This before the development of the Permian. & Nbsp; Or the argues in 2010during the first test of Marcellus, he stated that "the same financial principles that have affected other shale plays apply to Marcellus: difficulty in identifying central areas, high marginal costs for production Shale gas, mediocre economy, the game area is much more capital will be destroyed than in other shale games. "

It is interesting to note that many shale pessimists were also active in the peak oil movement, and just as those who defend this idea have expressed great certainty on a very uncertain issue,all shale pessimists have great faith in their statements. & nbsp; "It takes a lot of faith to see the production of shale oil increase by 2 million bpd here, as well as several leaps of logic that the Citigroup report had in abundance."

The spokesman boasted about "hard facts," but in fact, shale production has risen by 4 mb / d since, even after prices dropped to below deemed levels. necessary to maintain production. & Nbsp; Not bad for a report ridiculed as "amateur" who made "extremely doubtful statements". & nbsp; (The same expert myself and otherss as the negationists of Peak Oil a decade ago.)

I've already pointed out to a petroleum industry advocate who, describing the many challenges facing the sector, "recalled Luke Skywalker, to whom Yoda was to say," You can never do it with you . "At one point, pessimists need to explain how the industry has been challenging gravity for more than a decade, continually increasing production as if a dozen animals had not predicted the opposite (to quote of Charles Mackay on the refusal of the Thames to comply with the flood warning of London astrologers).

[i]& nbsp; & nbsp; Hirsch, Robert "The inevitable spike in global oil production" & & nbsp; In: & nbsp; Bulletin, Atlantic Council of the United StatesOctober 2005.

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Recent reports of bankers' demands that shale producers not increase their upstream spending have led some to be pessimistic about shale production prospects, up to the "Shale Boom on the verge of disappear last month. " Other articles have pointed to the poor financial performance of the sector, such as "A Gusher of Red Ink," suggesting that shale is generally unprofitable and calls for investors to be cautious.

(Of course, as Robert Rapier points out, some people seem to use a wrong measure of free cash flow by not considering depreciation as historical and non-current costs.)

Although the forecast for shale supply has proved too optimistic, media attention is often focused on the challenges facing the industry, which implies downward expectations. Such pessimism is not new: it began with initial skepticism about George Mitchell's pioneering efforts to extract gas from shale, and went on to emphasize that only gas from Barnett shale would be viable. When the production of other gaseous shales proved economical, many insisted that the oil molecules, being larger, would not circulate in fractured shales. When Bakken's oil production was successful, this success was attributed to the dolomite layer that most other schists did not have; When Eagle Ford was successful, it was said in 2013 that "each piece is in fact its own" resource pyramid ", characterized by a few small" sweet spots ".

The production of these and more recent shales, including Permian, STACK and SCOOP, has been the subject of further concern: the rapid rate of decline of shale wells would significantly limit available supply. As a recent article says, "The shale industry is facing an uncertain future because drillers are trying to get past the treadmill because of the precipitous decline of the wells."

This is similar to the arguments put forward for a long time by the supporters of the peak oil: "a brand new Saudi Arabia [will have to be found and developed] every two years "to meet current demand forecasts." (Robert Hirsch, citing Saddad al-Husseini 2005[i]Unfortunately, he seemed not to notice Jimmy Carter's almost identical commentary in 1977: "… to stay, we even need to produce a new Texas every year, a North Slope of Alaska every nine months or a new Saudi Arabia every year. three years. Obviously, this can not continue. "

The arguments now relate to the alleged failure of shale producers to make profits. "At the beginning of the hydraulic fracking boom, investors tolerated negative cash flows from oil and gas producers, believing that the sector would eventually learn how to produce money as well as oil and gas. natural. But most frackers have never pbaded. A few companies can now generate modest positive cash flows, but the industry as a whole does not systematically produce sufficient cash to satisfy its voracious appetite for capital. "

Again, this is not new. According to a 2011 article in the New York Times, "investors are flocking", although shale gas is "fundamentally unprofitable," said an badyst at … an investment company, a contractor in a email sent in February. "It reminds you of dot-coms." (The Times Public Editor later suggested that the article relied too much on the opinion of some pessimists and improperly explained that history did not refer to the industry as a whole, but to particularly aggressive independents.)

From an badytical point of view, many of these reports suffer from simplistic views, including the lack of recognition of the dynamic nature of production methods. The price of balance in most if not all shale is today much lower than it was ten years ago. In addition, the mbadive losses that occurred during the drop in oil prices in 2015 largely explain the poor performance of the sector when yields over the last decade are aggregated.

But many pessimists simply seem to be biased, insisting, for example, that "… no major new field discoveries are expected". This before the development of the Permian. Or the 2010 argument, when Marcellus first tested, that "the same financial fundamentals that have affected other shale plays apply to Marcellus: difficulty in identifying central areas, costs marginal high for shale gas production, economic difficulties, playing space is so large that much more capital will be destroyed than in other shale plays. "

It is interesting to note that many shale pessimists were also active in the peak oil movement and, just as those who defend this idea have expressed great certainty on a very uncertain issue, many shale pessimists have great confidence in their statements. "It takes a lot of faith to see the production of shale oil increase by 2 million bpd here, as well as several leaps of logic that the Citigroup report had in abundance."

The critic claimed to rely on "hard and hard facts", but in fact, shale production has increased by 4 Mb / d since, even after falling prices below levels deemed necessary to maintain the production. This is not so bad for a qualified "amateur" report that has made "extremely dubious claims" (the same pundit is imposed on myself and on my own. other people as Holocaust deniers in the oil sector a decade ago.)

One day, I pointed out to a petroleum industry advocate who, describing the many challenges facing the industry, reminded me of Luke Skywalker, to whom Yoda had to respond: "With you, this can only still not be done. "At one point, pessimists need to explain how, in their view, the sector has defied gravity for more than a decade, continually increasing production as if a dozen experts had not predicted the contrary (to quote Charles Mackay's description of the Thames's refusal to comply with the London astrologers' flood warning).

[i] Hirsch, Robert "The inevitable spike in global oil production." In: Bulletin, Atlantic Council of the United StatesOctober 2005.