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Nomacs pause slideshow3/11/2023 ![]() That's the nature of the game, according to former investment banker and energy-industry analyst Deborah Rogers. ![]() Bloomberg reported in October 2014 that 62 of the 73 shale drillers gave investors resource estimates on average 6.6 times higher than proven reserves reported to the Securities and Exchange Commission. That's why the pressure is on to maintain the hype. Then the money to fund all that drilling dries up. ![]() ![]() The problem is that once production levels stagnate, Wall Street frowns, and those "buy" analyses turn upside-down. That hides the unprofitability of the wells and keeps their debt-fueled expansion going. It's important that the companies active in the shale keep drilling quickly enough to maintain or increase production. In a series of emails among industry executives exposed in 2011 by The New York Times, an official at IHS Drilling Data mused, "the word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics don't work." This explains the hushed skepticism among industry insiders. "You can keep the production stable as you move out, but eventually geology trumps technology, and the wells get more expensive while putting out less." The costs of the wells generally go up because you're drilling longer laterals with more fractures," Bill Powers, author of Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth, said. "As you move out you start dealing with fringier and fringier acreage. But the fact that the best spots go first only exacerbates the depletion issue since those wells become increasingly more difficult to replace. Companies attempt to locate these first since they're the most profitable wells to drill. The best output comes from "sweet" spots, which are twice as prodigious as the rest of the field. In the industry it's known as the Red Queen syndrome, after Lewis Carroll's Through the Looking Glass character, who complains, "It takes all the running you can do, to keep in the same place." In fields like the Eagle Ford and Bakken, four-fifths of new production replaces the output from already depleted wells. That means to maintain production levels companies have to keep drilling more wells. By the end of the third year the flow is one quarter what it once was. The wells gush hard when they're first drilled, but lose around 40 percent of their capacity each year. The cost of drilling a horizontal well averages $6-$8 million, compared to $1 or $2 million for a conventional well. Unconventional wells are expensive to drill and run down quickly, and fracking, as it's known, requires constant capital investment to maintain production levels.įracking wells are drilled at an angle and chemical slurries are pumped deep into the ground to break up the thick shale deposits, freeing the gas and oil trapped inside the rock. The fundamentals of unconventional wells are distinctly different from those of conventional wells, and this has contributed to the shale bubble's inflation. So the world has found what they consider a reasonably secure way to get anywhere from 6 to 9 percent interest." And most of these companies are going to pay you an interest rate that beats the pants off a savings account or a CD. "Whenever interest rates are really, really low, people spend money on really stupid stuff. "Very little of this would be going on if you had to pay 3-4 percent interest on money that people gave you," said Houston energy consultant Arthur Berman. Much of the boom is fueled by cheap credit, unrealistic expectations and lots of excess capital swishing around in search of good yields. Texans are more familiar than most with boom-bust cycles, so the quantity of sunshine being bussed up our backside might raise an alarm or two. There's no denying the turnaround the question is how long it will last. The energy industry employs twice as many people as it did nine years ago, and it contributed 0.3 percent to last year's gross domestic product. We now drill more oil and gas than anyone in the world–topping even Russia and Saudi Arabia. Gas output has increased by one third and total petroleum output (including oil, gas and condensates) by almost three-fourths in just six years. production record of 9.6 million barrels set in 1972. We're producing 8.5 million barrels daily and until recently many expected us to break the U.S. In 2005, when these unconventional wells were first drilled in the Barnett Shale basin around Dallas-Fort Worth, America was the world's largest oil importer and domestic production had been in decline for three decades. The mining of unconventional shale gas, light and tight oil–enabled by horizontal drilling and hydraulic fracturing–has sparked an energy revolution. has undergone the kind of dramatic makeover that's typically reserved for TV reality shows. Nomac Drilling rig in the Eagle Ford Shale
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