"Shale Fracking Is a “Ponzi Scheme”

"We now have more than enough data to know what has really happened in America.

If a huge number of wells come on stream in a short time, you get a lot of initial production.

This is exactly what has happened in the US.
...The big snag with shale wells is that output falls away very quickly indeed after production begins. Compared with “normal” oil and gas wells, where output typically decreases by 7pc-10pc annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60pc or more in the first 12 months of operations alone.

...the only way to keep production rates up (and to keep investors on side) is to drill yet more wells. This puts operators on a "drilling treadmill"...

Net cash flow from US shale has been negative year after year, and some of the industry’s biggest names have already walked away.

...once investors wise up, and once the drilling sweet spots have been used, production will slump... and fall precipitously after that.

Meanwhile, recoverable reserves estimates for the Monterey shale – supposedly the biggest shale liquids play in the US – have been revised downwards by 96pc.

In the future, shale will be recognised as this decade's version of the dotcom bubble..."

Tim Morgan
Former global head of research at Tullett Prebon
10:13AM BST 04 Aug 2014

Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent...

...“The list of companies that are financially stressed is considerable”

Independent producers will spend $1.50 drilling this year for every dollar they get back.

Feb 26, 2014

"Drillers ...must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.

“Interest expenses are rising,” said Virendra Chauhan, an oil analyst with Energy Aspects in London. “The risk for shale producers is that because of the production decline rates, you constantly have elevated capital expenditures.”

May 27, 2014


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