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Fracking Bust Deepens, Sets Records

February 23, 2015

This is a great post by the guys over at WolfStreet.com. Click here to visit their site for other great posts.

The fracking bust that is following the phenomenal fracking boom is deepening relentlessly, week after week, and there is still no respite in sight.

Drilling activity peaked in October last year, when 1,606 rigs were drilling for oil, with a four-month lag behind oil prices. But by October it was clear that the oil-price plunge wasn’t a blip, and in November oil fell off the chart. It was then that the industry reacted with vertigo-inducing rapidity. And the number of rigs drilling for oil, which Baker Hughes publishes every Friday, began to plummet.

In the latest reporting week reported Friday, drillers idled an additional 34 oil rigs. Now only 1,019 rigs are still drilling for oil, down 590 rigs from the October peak, a 37% plunge in 19 weeks. The steepest rig-count plunge in the data series.

US-rig-count_1988_2015-02-20=oil

But drillers have to service their mountain of debt with which the fracking boom was funded. They can’t afford to cut production. To stay alive, they cut operating cost and capital expenditures, and they’re laying people off. But they focus their remaining resources on the most productive plays, using the most efficient technologies, with a single-minded focus on raising production while spending less.

The hope is that this strategy will get them through the oil bust if it doesn’t last too long. But because everyone is thinking in those terms, US production overall continues to rise – it averaged an estimated 9.2 million barrels per day in January.

Given lackluster demand, crude oil inventories are piling up into record territory. Excluding the Strategic Petroleum Reserve, they rose by another 7.7 million barrels last week to 425.6 million barrels, according to the Energy Information Administration. The highest level in the weekly data going back to 1982. Oil inventories are now 63.3 million barrels, or 17.5%, above the already high inventories at the same time last year.

The surging trajectory of those crude oil stocks has been making a mockery of the 5-year range (gray) and seasonal fluctuations:

US-crude-oil-stocks-2015-02-19

Apparently, due to numerous recent changes, there is no clear picture of how large storage capacity for crude oil in the US actually is, and when the US will run out of storage. But the topic is beginning to weave through conversations.

On the natural gas side, drillers idled another 11 rigs. Only 289 gas rigs are still actively drilling for natural gas, the lowest since May 1993. The rig count has crashed 81% since its peak in 2008, and yet production of natural gas – which is also a byproduct of oil wells – has been setting new records on a weekly basis. Fracking has turned the US into the largest natural gas producer in the world, despite the fact that the rig count has been crashing for years:

US-rig-count_1988_2015-02-20=gas

The plummeting oil rig count was supposed to curtail oil production, and lower production would bring supply and demand into balance and allow the price of oil to recover. But the opposite is happening.

Discussion
27 Comments
    CFS
    Feb 23, 2015 23:49 PM

    I suspect the apparent disconnect between rig activity and share prices may be due to the bigger and/or those companies with more cash picking up companies with good potential reserves, believing that the low oil price will be short-lived.

    I believe this to be a potential major mistake, because it is not clear to me the world is not about to be in a long depression.

    CFS
    Feb 23, 2015 23:13 PM

    OFF TOPIC:

    http://english.farsnews.com/newstext.aspx?nn=13931204001534

    The above is bizarre, if true.

    Truth should be measured against the source, which is the English version of Farsi news out of Iran.
    No separate verification sourcing as yet.
    But I read everything I can.

      LPG
      Feb 23, 2015 23:40 PM

      Hello CFS,
      Thanks for this.
      If true, it wouldn’t be bizarre in “my book”.
      Best to you,
      LPG

    CFS
    Feb 23, 2015 23:27 PM

    OFF Topic:
    The Greece situation from earlier today on BBC.

    http://www.bbc.com/news/world-europe-31567619

    CFS
    Feb 23, 2015 23:46 PM

    OFF Topic:
    Yesterday some stuff had moved in my house, probably due to a Quake, so I thought I had better check on Fukushima…….Sure enough……
    http://www.themalaymailonline.com/world/article/sensors-indicate-new-nuclear-leak-at-japans-fukushima-plant
    New leak.

      THe US, could just bottle the water and send it to IRAN, that might expedite the peace talks…………I do think, Kerry should sample the water prior to delivery, might make his hair grow………..PB@lol

    CFS
    Feb 23, 2015 23:27 PM
    CFS
    Feb 23, 2015 23:49 PM

    When Good Men Do Nothing

    by Wayne Greeson

    “All that is necessary for the triumph of evil is that good men do nothing.” (Edmund Burke)

    So much of the history of the struggle between good and evil can be explained by Edmund Burke’s observation. Time and again those who profess to be good seem to clearly outnumber those who are evil, yet those who are evil seem to prevail far too often. Seldom is it the numbers that determine the outcome, but whether those who claim to be good men are willing to stand up and fight for what they know to be right.

    Feb 23, 2015 23:05 PM

    Rig count is exploration and maintenance and does not affect production figures in the short term.
    Oil companies have slashed 2015 spending on exploration and maintenance. The oil service industry is hurting badly.

      Feb 23, 2015 23:48 PM

      With horizontal drilling and frAcking, short term is very short. Decline is steep in these wells. Instead of drying up in 20 -30 years, they do that in 3-4 years.

        Feb 23, 2015 23:49 PM

        It is purely physics.

    ANYBODY …..following …………ROMARCO MINERIALS……….. thanks……………j

      Feb 24, 2015 24:52 AM

      Much much Shares ! Also on the Mcewen index ! New low coming ?

    CFS
    Feb 24, 2015 24:40 AM

    Yes, they just completed a $200 mil debt facility to work on their Carolina mine.

    CFS
    Feb 24, 2015 24:54 AM

    I don’t own shares of Romarco directly,but follow it.
    Projection (tentative) are earnings about 5-6 cents a share in 2017 at a P/E around 8.. It is followed by 7 analysts to my knowledge, with 2 recommending as a strong buy, 5 as a buy, but currently is only rated as 22/42 in industry. Slightly positive insider buying.

    CFS
    Feb 24, 2015 24:04 AM

    Surprise, Surprise……Yellen says interest rates will be held at current rate.
    (sarcasm off)
    Who does she think she is fooling…..obviously stockbrokers, as the market jumps up.
    However, any economic analyst knows she CANNOT raise interest rates.

      ditto …………….no way to raise rates………..with out the govt paying more on the debt…………..just make everyone else suffer………………………..lol