Kids Can Be A Real Pain In the &ss

This is about U.S. Shale Oil.  Penned by @Mike Shellman 

I recommend reading it, kicking the tires a bit, and mulling over the points made.  This is definitely not Mainstream Media pablum claptrap.

Kids Can Be A Real Pain In the Ass

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@Tom Kirkmanthank you for posting this. If you have not already I invite you to read Papa's comments during his company's recent conference call. Its pretty cool. 

Keep up the good work, sir. 

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49 minutes ago, Mike Shellman said:

@Tom Kirkmanthank you for posting this. If you have not already I invite you to read Papa's comments during his company's recent conference call. Its pretty cool. 

Keep up the good work, sir. 

Indeed, how bout them apples.

Do you feel your position falls on deaf ears among industry players? I mean, is it that shale companies disagree or that they don't care, or that they both care and agree, but suffer from a serious case of FOMO?

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Our research on taxes paid by the shale oil industry and net operating losses carried forward is pretty amazing, I think; most of these shale corporations will not pay federal income taxes for decades. The numbers are staggering. As a committee member suggests, its just one more dirty little secret about the shale oil business nobody knows about. 

The shale oil industry actually believes its own BS, I think. Or they are just praying for higher oil prices, or that the government will bail them out. Now, however, they are getting hammered by lenders wanting to see the money and personally I think they are ALL starting to get very nervous. They should be. 

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5 hours ago, Mike Shellman said:

Our research on taxes paid by the shale oil industry and net operating losses carried forward is pretty amazing, I think; most of these shale corporations will not pay federal income taxes for decades. The numbers are staggering. As a committee member suggests, its just one more dirty little secret about the shale oil business nobody knows about. 

The shale oil industry actually believes its own BS, I think. Or they are just praying for higher oil prices, or that the government will bail them out. Now, however, they are getting hammered by lenders wanting to see the money and personally I think they are ALL starting to get very nervous. They should be. 

Higher prices cause tax revenues to go up on the State and local levels; education improves. And, get this...once shale oil companies become profitable, they pay Federal income tax...for the first time ever! How about them apples?! 

Well that's just Un-American getting away without paying taxes. Are you a slight bit disgruntled because some Oil Management folks found loopholes in which the tax codes let them get by without paying? Please stop investing in companies you feel is legally right, morally wrong for not paying taxes. I say more power to 'em as long as it's by the books and legal. This IS still USA!!! I neither agree or disagree with Mikes analysis. Just stating that if the Shale Players are ripping off the banks, who's fault is it. Greed, greed, and yet toss in more greed. 

Yes it makes me ill to see 3.5mbd now getting loaded on ships. We should save out resources for ourselves. But as stated above, Greed!!! When Reaganomics kicked in in 84 full force, you couldn't buy a job even as a worm. Toolpushers became roughnecks and on down the line. The boom/bust cycle has been around since the 30's. 

Mike is correct on the spacing of the wells, as lessons from several years back, but still piling rigs 500 feet intervals with 4 to 6 per.... not sure that is in best interest in the wells production. Somebody much smarter than me has it figured out lol. Too many laterals will just pull fluids from each other and net loss on total well production. Flaring, well some is a necessary as to find a main to tap into and by the time you trench in a line you just lost money. Everyone gets the money out here in West Texas. Scratch the surface for the road to the rigs, someone pays for the rights to drive on your property. Surface mineral rights also get abused. Folks that invest in oilfield in any aspect should read the history of how the rancher may own the property but if in the beginning didn't buy mineral rights, they were bought by  big oil. So there is a love/hate n the oil patch. Read and read some more on the inner workings from spudding in to completion and get a sense of how much it costs. It's a very complex process, and a lot of risk. What is great today tomorrow may be a loss. Be careful now, as the future of fracking may just become another shot in the dark and Big Lenders says whoaaaaaaa. I wanna see some bux now.!!!! 

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17 hours ago, Mike Shellman said:

@Tom Kirkmanthank you for posting this. If you have not already I invite you to read Papa's comments during his company's recent conference call. Its pretty cool. 

Keep up the good work, sir. 

Thanks Mike.  Please keep writing.

After years, people seem to finally be waking up a bit, although many in the industry still pull an ostrich, and remain stubbornly in denial.

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@Old-RuffneckI am an operator and a producer, I don't "invest" in the shale oil industry by buying shares in E&P stocks. I would not do that if you held a gun to my head. I proudly pay federal income taxes every year because I actually make money as a producer. Its the American way. I've hit my lick; my only interest in the shale oil phenomena is that I am concerned for the long term hydrocarbon future of my country and our kids.

The shale oil industry is a decade old and a little south of $300B in debt including a WAG at private debt. There are now close to 500 different operators drilling HZ wells in the Permian and they have borrowed heavily in the past four years. Prices have averaged $74 during that decade. Net operating losses over then decade and the fact that the shale oil industry has not paid federal income taxes is interesting to me and proof that it has NEVER been profitable. The fact that it can carry forward those losses and likely not pay federal income taxes, even if the price of oil goes to $100, kinda sucks, you bet. If it's finding costs are limited to interest paid on debt, and it never pays that debt back, its sort of like drilling free wells. Its pissing off associated gas like its nothing and is so unprofitable it has never paid taxes. Everybody in America is mesmerized by this shale shit and I think its a little dumb. Its a novelty that has lasted as long as it has because of credit. We need for it be sustainable but ignoring its warts are not going to get that done. 

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3 hours ago, Mike Shellman said:

@Old-RuffneckI am an operator and a producer, I don't "invest" in the shale oil industry by buying shares in E&P stocks. I would not do that if you held a gun to my head. I proudly pay federal income taxes every year because I actually make money as a producer. Its the American way. I've hit my lick; my only interest in the shale oil phenomena is that I am concerned for the long term hydrocarbon future of my country and our kids.

The shale oil industry is a decade old and a little south of $300B in debt including a WAG at private debt. There are now close to 500 different operators drilling HZ wells in the Permian and they have borrowed heavily in the past four years. Prices have averaged $74 during that decade. Net operating losses over then decade and the fact that the shale oil industry has not paid federal income taxes is interesting to me and proof that it has NEVER been profitable. The fact that it can carry forward those losses and likely not pay federal income taxes, even if the price of oil goes to $100, kinda sucks, you bet. If it's finding costs are limited to interest paid on debt, and it never pays that debt back, its sort of like drilling free wells. Its pissing off associated gas like its nothing and is so unprofitable it has never paid taxes. Everybody in America is mesmerized by this shale shit and I think its a little dumb. Its a novelty that has lasted as long as it has because of credit. We need for it be sustainable but ignoring its warts are not going to get that done. 

That's right............ we must show dynamic consistency here in unision i.e. sustainably not showing profit...............

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3 hours ago, Mike Shellman said:

Net operating losses over then decade and the fact that the shale oil industry has not paid federal income taxes is interesting to me and proof that it has NEVER been profitable

Mike, I read your bio, tho your just a tad older than I. I do agree with what your saying, I was being a bit facetious in some remarks. I am not disagreeing with your summarization of Non-profit wells. It seems they have people in place to make sure they aren't showing profits. In my company I pay every year as I have a healthy respect for IRS and I make enough to give my fair share to the government. 25,000 HZ wells and not profitable, tells me goverment is allowing it to happen. Turning a blind eye so we can boost production to 20mbd and tell some countries to keep their oil. I could be wrong, I try to look at through a different non emotional set of glasses. Just remember who loses when these hundreds of billions get written off. Just here in West Texas there are probably 50k people on unemployment more sooner than later is my guess. Fracking has already proven false positive. Crashes come and go, and non-experienced folks will pour money back into the new trendy way of drilling. I was just worked on vertical wells. Some as deep at 24k but well over a year north of Andrews punching to just short of 13k. Rigged down every 8 days. 

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23 minutes ago, mthebold said:

Cool.  Now do Cost Per Proppant Per Lateral Length.

It’s interesting you propose this and I too would like to know the math on it.  

I only know that as the price of oil dropped the demand for the proppant and the negotiated price per load we transported it for in the Permian dropped with it. 

 

 

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Proppant costs have come down due to local sources, with inferior crush factors that appear to be causing post frac operational issues, and higher OPEX, water costs have gone up. So what? The price of WTI Cushing in 2018 and $67 and change and earnings sucked, again, pretty much across the board. 

NOL carry forwards are just another indication of how unprofitable the shale oil phenomena has been. PXD racked up $2.4B of NOL's the last two years while its CEO earned $27MM in compensation.

Growth by debt is artificial. Its fake. 

 

 

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15 hours ago, Mike Shellman said:

Proppant costs have come down due to local sources, with inferior crush factors that appear to be causing post frac operational issues, and higher OPEX, water costs have gone up. So what? The price of WTI Cushing in 2018 and $67 and change and earnings sucked, again, pretty much across the board. 

NOL carry forwards are just another indication of how unprofitable the shale oil phenomena has been. PXD racked up $2.4B of NOL's the last two years while its CEO earned $27MM in compensation.

Growth by debt is artificial. Its fake. 

 

 

If you saw the crushers around Pecos, Kermit and Imperial Tx and even 2 smaller ones in Ft. Stockton, your summarization of the quality is correct. Too powdery because the caliche is not like 10 yrs ago pure sand, rail shipped here and stored. Guess they were trying to knock some overhead off. My guess is the powdery crap is acting more like a plug than sands that are more porous. Monahans has a lot of sand but it's also a state part hehe. Above Imperial on the caprock above the Pecos river there is a pretty massive operation. Once the cream of the crop sand is removed they crush. Will see in 6 months or less how this is going to go forward. 

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(edited)

You understand it perfectly, Mr. Roughneck. When I get WO reports, AFE's etc. from out there I am astounded that sand separators are now an essential part of the production system and how often CT units are washing out that 100 mesh tail-in crap. And what that costs. Yikes. 

For all, there is a good WSJ article out this morning by Bradley Olson that confirms what a pain in the ass "kids" can really be. 

 

Edited by Mike Shellman
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Monetarism based on fiat money and debt Manufacturing industries idealized & followed by affiliated partners, hedge funds, investors, entrepreneurs, VCs, market players/makers, punters, speculators, gamblers, and species alike  thrive on short & sharp boom & bust business cycles, be it shale oil or dot.com bubbles. Whereas sustainable Socio-political and cultural development of communities require long term stable economic growth facilitating planning with predictable financial resources to achieve those community goals. These two political economy ideological mindsets don't mix like oil & water don't.

Predatory entrepreneurship & Winner Takes All mindset has no  legal or moral for that mater preoccupation with Crime & Drugs prevention; if not directly involved it might even find the risks & rewards in those illegal ventures temping as it does for those living on the wild side. 

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