Wood McKinzie Study Shows Weakness Of Fracking Business Case, Particuarly In TX Permian

[hatrack]

This month, the energy consulting firm Wood MacKenzie gave an online presentation that basically debunked the whole business model of the shale industry. In this webinar, which explored the declining production rates of oil wells in the Permian region, research director Ben Shattuck noted how it was impossible to accurately forecast how much oil a shale play held based on estimates from existing wells. “Over the years of us doing this, as analysts, we’ve learned that you really have to do it well by well,” Shattuck explained of analyzing well performance. “You cannot take anything for granted.”

For an industry that has raised hundreds of billions of dollars promising future performance based on the production of a few wells, this is not good news. And particularly for the Permian, the nation's most productive shale play, located in Texas and New Mexico. Up until now, the basic premise of the fracking business model has been for a company to lease some land, drill until finding a high-volume well, hype to the press this well and the many others it plans to drill on the rest of its acreage, and promise a bright future, all while borrowing huge sums of money to drill and frack the wells.

Throughout the seminar, Wood MacKenzie analysts emphasized that companies can't reliably predict future oil production by “clustering” wells, that is, estimating volumes of many future wells based on the performance of a small number of nearby existing wells, and described the practice as potentially “misleading.” Shattuck called out how the old business model of firms borrowing money from investors while hoping for future payouts on record-breaking wells no longer works. He summed up the situation:

“We’re transitioning to a point in time, where the investment community was enamored of the next well and how big it might be. That has changed for a variety of reasons. One very important reason is the next well might not be bigger. It might be smaller.”

The fracking industry is now being asked to produce positive financial results — not just promises of new super wells, or cube development, or artificial intelligence. And yet the industry couldn’t deliver profits while drilling all the best acreage over the last decade. Now, shale companies need to do that with oil wells that may not produce as much.

EDIT

https://www.desmogblog.com/2019/12/17/us-fracking-shale-wood-mackenzie-child-wells

[Mickju]

1. My right wing, oil loving relatives won't believe this

I say, fuck’em.