article: "SHALE BUST HAS BEGUN WITH A FURY"

Hopefully the natural gas will be our saving grace....

http://www.theburningplatform.com/2014/12/03/shale-bust-has-begun-w...

In the last few days I’ve noticed a plethora of news stories from the usual suspects in the corporate mainstream media about how shale oil producers can still make a profit with oil selling for $66 a barrel. All of a sudden their breakeven costs are supposedly $40 per barrel or lower. That’s funny, because every legitimate estimate prior to this year was that oil needed to stay above $80 per barrel just so they could breakeven. When you see the new propaganda, you realize the entire shale miracle is nothing more than a Wall Street hyped debt financed Ponzi scheme. The Wall Street shysters are sending out their mouthpieces to lie, obfuscate, and mislead the public into thinking this fraud is still legitimate. The MSM pundits don’t even question the lies because their living depends upon perpetuating the lies.

The truth is revealed by the actions of the participants in the shale boom. The companies whose existence depends upon generating profits and cash flow will always take actions that will be in their own self interest. No company purposely takes actions to lose more money. All of the happy talk was just revealed to be false. 

New shale oil wells are expensive to begin and are 90% depleted after 2 years. Those are facts. Permits for new wells absolutely COLLAPSED in November. A 40% decline in one month is an epic collapse. If the Wall Street shysters were telling the truth and breakeven costs are really $40 per barrel, why would drillers stop drilling new wells when oil prices are $66? They wouldn’t. 

The shale oil boom is only sustainable at $100 a barrel oil. The Arabs know it. The big oil companies know it. The drillers know it. And the Wall Street shysters know it. The peak in U.S. oil production has arrived again, until prices go back up to $100 a barrel.

Facts don’t cease to be facts because they are ignored. Reality really is a bitch.

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Permalink Reply by Trapper on December 7, 2014 at 4:10pm
Thank you Jason.
Permalink Reply by Roy A. Wagner on December 9, 2014 at 8:26am

But, of course, The Utica Wells are primarily a GAS PLAY!   Last I heard, the Power Plants were converting from Coal to Gas.   Do people really want to develop Electric Cars that are powered by Electricity from Power Plants where the Electricity is generated from SAUDI ARABIAN OIL?   Still being held hostage by the Saudi Prince who has been funding all of the Anti-Fracking Ads until he decided that he had to try to kill the Industry by lowering his prices so low that the American Drillers would leave.   

Just how is Saudi Arabia going to cover their Socialist State Expenses and pay the Mortgages on all of those Mosques and Hate Academies they are planting in the USA if the price of Oil does not go back to $100/barrel?    I expect that we Land owners have LOTS more patience that the OPEC people have.

Permalink Reply by Jonathan H on December 9, 2014 at 8:40am

Don't get too concerned about the oil prices and break even prices trumpeted in the news; they depends on many factors, including local conditions, distance to market, maturity of the oil field (installed infrastructure locally), etc.

- The reported cost per barrel calculated by most analysts is for the complete cycle, which assumes no roads, pipelines, leases, or exploration; once activity has started, the cost per barrel starts dropping.

In the case of local development, leasing costs have for the most part already been paid, and there are more roads here than in West Texas or North Dakota - between existing infrastructure and sunk (already paid) costs, the actual cost to extract and sell a barrel of oil or MCF of gas has already dropped around here. 

- Remember that the media is focusing on Oil - development of areas of mostly dry gas will proceed or not based on Natural gas Prices, not Oil prices while gas prices are lower than last year, they are still above the lows of several years ago. If production didn't stop then, it won't stop now. I would expect companies to focus on the cheapest to extract resources once the currently planned activity has run its course.

- Distance to market is crucial also: The oil price usually trumpeted in the media is for Brent crude (British North Sea oil); that price does not include delivery to North America at $10-$15/ barrel by most estimates. gas prices are at the Henry Hub in Louisiana, and WTI (West Texas) or Bakken (North Dakota) have other delivery points - supplies available closer to where they are needed are worth more to end users since delivery time and cost are less, so oil from OH, WV, and PA is worth more to refiners in the Northeast than that coming from Texas, North Dakota, or Britain.

- Finally, actual sales price is crucial; the widely quoted numbers are on the spot market - most suppliers and users have long term contracts and only buy or sell on the spot market if their needs change unexpectedly; these contracts are very complicated and have clauses in them to help both sides. I expect that local drillers such as Hess, CHK, Rice, etc are getting and have been getting somewhere between the current listed spot price of $66 or so and the previously discussed $100 or so; in return they guarantee a certain amount of fuel on a given time frame (barrels/ day, MCF/ month, etc)

Permalink Reply by frank speaker on December 9, 2014 at 1:02pm

Then what should be the price upon which royalties are paid; the contracted price or the theoretical spot price on the day of production?

Permalink Reply by Jonathan H on December 9, 2014 at 1:47pm

It depends on what your lease lays out, often the spot price is used since the companies don't want to disclose the terms of their deals. yet another example of how a good lease makes the difference.

Permalink Reply by frank speaker on December 9, 2014 at 2:13pm

My lease says, "For all oil and gas substances that are produced and sold from the lease premises, Lessor shall receive as its royalty 20% of sales proceeds actually received  by Lessee from the sale of such production..."

Permalink Reply by cj wyalusing on December 9, 2014 at 2:38pm

Frank what about them paying you and them first selling to them selfs and paying you the roaltys on that ? Then there other company selling it for the real price ?

Permalink Reply by Jonathan H on December 9, 2014 at 3:08pm

That has happened and is the base of several lawsuits in Texas, Oklahoma, and PA, particularly involving Chesapeake (as I'm sure you have heard) - for this reason, some leases spell out the cost basis for calculating royalties.

Permalink Reply by frank speaker on December 9, 2014 at 3:30pm

A contract need not have a clause requiring sales to be at arms length. Arms length is presumed in any such contact involving unnamed third parties, otherwise what is being done is called "self dealing", and there is plenty of case law prohibiting it.

Permalink Reply by Joseph-Ohio on December 9, 2014 at 3:44pm
Okay.

Still the point is that the burden of proof is on the lessor as to whether or not the sales were at 'arm's length' or not; whether the clause exists in the contract or not.

Shame to have to end up in court over it in any case when the contract / agreement exists to preclude such in the 1st place.

Only IMHO.
Permalink Reply by Joseph-Ohio on December 9, 2014 at 3:10pm
Read about a clause in lease agreements that stipulates that all sales have to be to unaffiliated entities / prohibiting the lessee selling the production to themselves and then re-selling for the lessee's greater profit while locking the lessor out of the greater royalty return realized by such transaction. Words to the end of stipulating that any sale of production must be via 'arm's length' transaction.

Seems to me however that the spirit of such a stipulation can be defeated by a deal between an entity that would enjoy a discounted price in exchange for a share of any subsequent sale but then it becomes the lessor's burden to prove that the initial sale of the production was not really made to an arm's length buyer but rather an affiliate. That sounds as if it would / could be tough to prove.
Permalink Reply by frank speaker on December 9, 2014 at 3:43pm

You mean they make a sale to an dummy company at a lower than market price in exchange for a kickback, all done in order to avoid paying true royalties? This is called criminal fraud, and when their books are audited they face not a fine, but prison time.

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