"Poor me" in the oil patch: stop me if you've heard this

Texas Monthly has a long read about the details of the latest oil bust and why this one's going to be bad.

Yeah, it may be, but I've heard this stuff before.

First, I'm old enough to remember $10/bbl oil just before the turn of the century, and how that lasted a long time.

And, adjusted for inflation, per the chart below, WTI was below $40/bbl for SEVEN YEARS, setting aside that brief blip just above the $40 mark in 1995.

Crude Oil Prices - 70 Year Historical Chart

So, let's stop this nonsense, Texas Monthly. Surely somebody on your editorial staff is old enough to know better.

What's changed is that the fracking revolution led MANY companies like Pioneer Energy to be formed, or if on the books as small companies, to greedily expand. Hey, Scott Sheffield, Pioneer Energy CEO and Texas Monthly's fracking whisperer? Nobody forced you to make yourself into the Aubrey McClendon of the oil patch, including, just like him, Ponzi-scheming yourself on leases that you have to drill or lose.

Indeed, a year ago, DeSmog Blog caught Scott Sheffield in either huge self-delusion or else huge fibbing when he claimed fracking was profitable at $30/bbl.

You're right that there is no such thing as a free market, not just in the oil patch but elsewhere. BUT ... until Railroad Commission chairman and nutbar-in-chief Wayne Christian refused to bail you out with proration, I don't recall you saying that the lack of a free market was a problem.

As for the whys of Wayno fighting proration? I'll take him at his word, discounted the 50 percent he normally should be. North Dakota, New Mexico and other states that have also had fracking-related oil booms may have found it difficult to adopt proration in their states. They may also, to the degree their state budgets have become more oil-dependent than Texas', decided they didn't want to, or didn't think they could afford to, prorate. In any case, whether or not Wayno tried that hard, he couldn't get a proration deal. And, within the US, the oil production world has changed since 1970.

In addition, Texas Monthly should be asking how big of a polluter whining Pioneer is. Hell, even the New York Times can ask that of frackers in general, along with other questions.

Yes, Texas is still the biggie. But states 2-10, combined, produce as much oil as it does. Just five years ago, though, New Mexico was way lower, and Colorado and Oklahoma a fair amount lower. Seven years ago, North Dakota was way lower.

Long long ago? In the 1980s, in a situation like this, per graph at this site, Texas only had to worry about Alaska. In the 1990s and 2000-oughts, then offshore production was an issue. And, though it's declined again, especially after the Deepwater Horizon, offshore drilling has two other issues. One, it's federally controlled, so Wayno has no control over it, nor do 49 other states. Second, offshore wells? You won't shut them down, period.

LONG long ago? The misty mythic 1930s? Contra Sheffield, and contra the Texas Monthly reporter who didn't call him out on it, everybody who knows anything about Texas crude knows that the RRC largely failed to control production then. People pumped and sold hot oil and laughed at the state. It took the feds and force to accomplish anything.

If this DOES change everything? It won't be by itself. Per Sheffield, it will be the rise of cars, plus, we hope to doorknob, real climate change legislation that includes a carbon tax and carbon tariff at the federal level, plus, we hope to doorknob, states and third parties winning lawsuits against Big Oil.

Earth Day 50, Part 2: Peak Oil was true

I have blogged off and on about Peak Oil for a decade or so.

I was an active commenter on places like the old Oil Drum. Remember folks like Jerome á Paris and others.

Sadly, it eventually folded up.

That was in part over the Bakken find in North Dakota, followed by the Eagle Ford in Texas. After it folded, the new round of fracking in the Permian came along and many people said it had finally, totally disproven King Hubbert.

Had it?

Hubbert's whole idea was based on the rational exploration for new oil with new technology when old, conventional oil became too pricey for a variety of factors.

None of that actually happened.

We know now that a lot of the fracking, especially a WHOLE LOT of the fracking in the newest developments in the Permian, was underwater from the start, and drillers chased more wells for the same reason Aubrey McClendon did with Chesapeake. He was facing a giant Ponzi scheme. And, unable to avoid it longer, he committed suicide, cursorily investigated, and his wife got his life insurance.

Well, it's true that we have well exceeded our 1970 peak. On paper.



But, if I whack off 25 percent of today's production, a reasonable guess as to what percentage is underwater, and following Hubbert's sanity-based (always a short commodity in the awl bidness) reasoning, we haven't.

Now, it's true that there may have been the occasional well in the past that was not profitable. But, once the government started regulating prices, starting here in Tex-ass with the Railroad Commission really moving into oil (shipped on rail cars in the 1930s) over the "hot oil" fights, that's not been true until now.

So, no, if you're counting profitable oil, versus unprofitable oil that shouldn't be getting pumped right now, we haven't proven Peak Oil wrong.

And we won't in the future.

The Permian wells that have been cannibalizing each other? I suspect forced closures is going to affect some subterranean pressure issues. Reopening them on condition of refracking them in 2-3 years will just be more expensive.

Permian drillers, and the lying banks subsidizing them, have, to take a coronavirus idea that applies perfectly because of the steep production curve of a fracked well, have ramped up the curve of production, versus climate change, rather than flattening it and nudging the world more toward energy alternatives.

Is the Texas economy fixing to implode?

The so-called Texas Miracle, whether under Rick Perry's name or Greg Abbott's, has always been based on two things:

1. Robust oil profits;
2. Lots of cheap immigration.

Well, wingnuts of the Dan Patrick stripe, along with Trump federally, have gnawed away at the second.

And now, the first looks in trouble. (As does the smaller scale Permian-driven "New Mexico miracle"; see end of post for more.)

Non-coronavirus bad news for the Texas economy popped up Friday. Talks between Russia and Saudi Arabia for extending the OPEC+ expanded oil producers agreement broke down, and oil prices tanked along with it. WTI had been below $50/bbl before that, making the great majority of fracking wells in the Permian Basin unprofitable. We're now officially in Ponzi scheme territory, where the only reason companies will drill is fear of losing overvalued leases that cannibalize each other as is, as I've blogged about in recent weeks. Whether it will get as bad as what Aubrey McClendon inflicted on Chesapeake in the gas biz remains to be seen. It's not likely, but it's certainly possible.

And, at end of biz on Friday? West Texas Intermediate was at $42/bbl. And, it got worse over the weekend. The Saudis, after initial indications that they couldn't afford to fight the Russians, started doing so, first with a price splash. By last night, WTI was trading around $30 a barrel. There will be some bounce-back, to be sure. But, no way it gets back above $45 for some time.

And even that isn't likely any time close to soon. Goddam Sachs said oil could drop into the $20s, at least with spot dips, and its prediction is that WTI will remain in the $30s for the rest of the second and third quarters.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” the firm added.

In addition, the Dallas Fed has already reported that hiring is flat out in the Permian. And, related to that, that rents have finally flattened.

Russia made clear, per that first link, that it wants this. Remember, the Saudis tried to force such a collapse a few years ago under MBS' pushing, but couldn't pull it off. Russia is less dependent on oil as a somewhat smaller sector of its economy and can take lower oil prices.

Update, Monday evening —

Oh, goodie! We get to read Texas Comptroller Glenn Hegar give us some PR spin a passel of lies about the state of the Texas economy:

“The fundamentals of the Texas economy remain strong. The agency is monitoring weakness in financial markets, including commodities and energy markets. We have been tracking revenues carefully since markets began to soften. 

 "Certainly, Texas has exposure if oil prices remain depressed for a sustained period of time, and slowdowns in economic activity related to the COVID-19 outbreak could also be a headwind. We are still only six months into the current budget cycle, however, and it is too early to tell with certainty how current fluctuations will impact long-term economic performance and state revenues."

Yeah, nice try, Glenn. With half the new oil in the Permian actually being halfway to condensate, and between that and increasing water cuts, half the new drilling in the Permian being underwater, this would be a lie even before last Friday. OilPrice.com is predicting a daily surplus of 3 million barrels by the end of the second quarter.

That said, the amount of trouble oil majors as well as oil minors already face over economically unviable fracking says that the Saudis three years or whatever ago actually pulled it off more than they knew. Don't think the Russians don't know that, as well.

There's also the geopolitical angle. As it looks to extend its reach in Syria in particular and the Middle East in general (Yemen, anybody?) Putin wouldn't mind weakening Saudi Aramco, and some of the government it supports, just as much as ExxonMobil. Or it wouldn't mind continuing to help the legitimate government of Venezuela.

The flip side is that nationally, Larry Kudlow has already made murmurings of selective business help in the country's economy as needed. This also, of course, shows that other than in libertarian wet dreams, and the public speaking out of them, that the Platonic idea of capitalism simply doesn't exist.

I guess a silver lining is that a slowdown in drilling, per that second link, will delay Peak Permian by a couple of months. That said, at the fringes of the Permian, reinforcing what I said about companies seeking out marginal drilling, Apache is withdrawing from the Balmorhea area after claiming it had the secret sauce to find deposits in the Alpine formation there.

Another silver lining? This is possibly the best refudiation yet of #TheResistance that claims Trump is and has been colluding with Russia.

Update, March 30: DeSmog Blog now notes that many refineries are likely to be shuttering in weeks ahead. The typical refinery can't cut production below about 65 percent without shutting down whole units. The problem is a complex one, and more complex than in previous hydrocarbon gluts. A number of these refineries are on the Texas Gulf Coast, including one in Baytown that Exxon has already announced it is shutting.

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And, despite Joe Monahan's denialism, the problems (and rightful concern) are spreading to New Mexico. Update: The state has officially banned public gatherings of more than 100 people.

Peak Permian is still likely to be here sooner rather than later

Per DeSmog Blog (and others I have noted in the past, like Ari Berman), we may well be getting closer and closer to a new peak of production in the Permian Basin, despite all the breathless gushing by American wingnuts about energy independence — along with less than the most critical reporting on this issue by Texas' largest newspaper.

Horizontally-drilled fracking wells dropped in tight clusters have a tendency to cannibalize each other's oil. DeSmog Blog itself wrote about this 18 months ago. Per that DeSmog Blog link, I have also blogged about this issue six months before that second link, and looked beyond just the Permian.

As for 2020 being a possible peak? In my blog post, one of the links, in February 2018, said the peak, and for all big fields, not just the Permian, might come in just four years from then. That would be the start of 2022, a year later than DeSmog Blog, but certainly in the same neighborhood. It's also of importance in that it covers all the major fields, not just the Permian, which means ... Peak Oil, period, if you will.

DeSmog Blog also looks at the fiscal side of what's behind all the drilling, as I have done before, too. Basically, oil frackers are largely in the middle of a Ponzi scheme no different than that of Aubrey McClendon of Chesapeake with natural gas a decade ago — which still hasn't fully dissipated either. It's not so confined to one company, which is both good and bad. It means we won't have one major player go kablooey, but it means its even more widespread, if not so sharply deep. That said, gas fracking Ponziness wasn't totally just McClendon, either.

 I have blogged and tweeted before about how half of the "boom" of modern fracked wells is faster well flow and only half is increased overall production. If not Toyota, which hasn't improved overall fuel economy in a decade, Honda and others are lying in wait for SUV-addicted American car companies to hit another crunch.


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Per another, newer piece by DeSmog Blog, maybe Peak Permian is ALREADY here. "Oil" from new fracking is looking more and more gassy. No, really; much of it is just about light enough to qualify for what the Railroad Commission considers condensate. Also contra Trump and others on "energy independence," this ultralight stuff HAS TO be blended with heavier grades from elsewhere — as in, imported — for the best refining.

DeSmog Blog notes other thing yours truly has said for some time — fracking produces somewhat more oil, but even more, it produces the oil it does at a much faster flow rate, making it look like a big boom just before the big bust.

And this is not just the Permian — it's fracking. That same piece notes that wells in the Bakken decline just as fast, and decline faster yet in the Eagle Ford.

For that matter, per a recent blog post, per why and how King Hubbert calculated it, Peak Oil itself was actually true. 

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Update, March 14: And now, coronavirus plus the collapse of OPEC+ are further cratering prices.

RIP to Ponzi scheme grifter Aubrey McClendon (updated)

Aubrey McClendon

A day after being indicted by the feds for on oil and gas lease fraud, Chesapeake Energy founder and former CEO Aubrey McClendon is dead in a horrific one-vehicle accident that certainly looks like suicide by vehicle.

(Update 1, March 15: More proof on that end comes from OKC police. Per USA Today, he was traveling as high as 89mph, and after light brake-tapping, hit the embankment wall at 78mph, after suddenly veering left.

Update 2, June 7: In a narrowly circumscribed report, OKC police say now they can find no proof he intended to commit suicide. Yes, and absence of evidence isn't the same as evidence of absence.

Per the first update, the "barely tapping" on brakes looks suspicious, like a man trying to put a veneer over a suicide that would still let family inherit life insurance, pension, etc. See the lower part of the original piece, in the bullet points, for more on this.)

The indictment involved Chesapeake and an unnamed (for now?) company B allegedly involved in bid-rigging for federal oil and gas leases. That said, one of my newspaper peregrinations had me in the southwest corner of the Dallas side of the Metroplex, at the edge of the Barnett Shale. I've covered meetings of Chesapeake folks with local city councils. And blogged about its denialism on fracking earthquakes.

And, yeah, that fish rotted from the head down. He carried his Ponzi scheming (it was, as documented years ago) over to American Energy Partners. In light of this, I even wrote a Beverly Hillbillies spoof about Chesapeake.

As for the Ponzi scheme label?

No, he wasn't ripping off outsiders. But, it's related to what got him indicted. Both at Cheseapeake and AEP, he was essentially chasing new leases and new gas to pay for old after the success of fracking kneecapped him, kind of like Aaron Kutcher and newspapers at the Orange County Register. So, not Ponzi scheme in its conventional sense, perhaps, but I'll stand by use of the phrase. The fact that he had taken a personal stake in Chesapeake wells, then used that as a mix of loans collateral plus payment to himself for the cost of well-drilling, per the NYT, is an even more conventional Ponzi scheme.

EE News, in a long piece, has more about how he bubbled himself, then Ponzi-schemed his own company, then all of us (since We the People are the owners of federal lands).

So, I'll call him a Ponzi schemer. And laugh at his protestation of innocence, in hindsight. As Forbes notes, he didn't deny anything; he just boo-hooed about being singled out.

McClendon's totaled 2013 Tahoe.

First, a sidebar. This isn't the first case of suicide by vehicle that I've heard about. The first was in the city of my first media job, about a year after I moved. In that case, the person drove off an uncompleted ramp for a bridge for a new highway routing. Small town, construction had been going on; not likely to have been an accident, and there were arguably reasons for his decision. So, I have a bit of background in professionally understanding such things.

So, such things happen. And, the latest update on the accident makes clear that he intended to hit the embankment.

Why on this?

First, the mechanics of it possibly being suicide by vehicle?

• One-vehicle accident
• Very high rate of speed
• Head-on collision with a very immovable object, a bridge abutment.

Second, the why?

• He's under indictment, and thus avoids testifying. 
• Because of that, the feds will find it harder to claw back money from his family than from him, since he never goes to trial.
• And, because suicide by vehicle is hard to prove as suicide, family gets life insurance money, etc. And, given that he was still being paid by Chesapeake and still even covered by a Chesapeake life insurance policy, as well as any personal life insurance, etc., yes, his wife stands to get a bunch of money.

So, per lawyers?

"Goes to motive, your honor."

And, as follow up, on the legal angle:

• Will the feds indict anybody else?
• Will we learn the identity of "company B"?
• If anybody is convicted, for manipulating oil and gas bids, will they get more than the 21 months of Tim DeChristopher?

And, will Gang Green enviros become any more repentant of their embrace of the gas business? That's as Russell Gold, though not as in-the-tank as in his 1-starred book, writes a largely laudatory paean which surprised me not one bit when I saw the name. The fact that Gold says the Department of Justice is about to dismiss the indictment without mentioning that's because you can't put dead people on trial, as if he's insinuating DOJ overreached, says enough.

Aubrey McClendon's greed coming to fruition

The post-McClendon Chesapeake Energy looks like a tempting "buy" target precisely because it's still dealing with an overexploration hangover. Of course, as we speak, he's gone from inflating one bubble to another, trying to inflate the spreadsheets of American Energy Partners.

Is he one of the brashest people in a brash energy world? Yes. One of the most creative? Hell, no. 

One of the most "creative"? Of course. If I were an investor, I wouldn't give him a fucking dime, ignoring the allegation that he stole Chesapeake trade secrets.

McClendon's lucky that people don't generally understand the realities of shale gas, and that he either doesn't understand them himself, or he's a very good bullshitter.

Fracked natural gas wells in shale formations come online like the Spindletop oil well gusher of 1901. Then they decline in a dizzying bell curve just 3 years or so later. And, the fracking process doesn't get out that much more gas than otherwise expected.

Oh, fracking does stimulate overall production somewhat. But the biggie is that it rapidly increases the rate of production.

McClendon himself didn't appear to understand this in his Chesapeake salad days. I think he DID understand that in his post-salad days though, and he realized he was SOL unless he could get investors to back what had become a Ponzi scheme.

That said, he had a theoretically clean slate at AEP. And now he's running a Ponzi scheme from ground zero. And, runs twice as many incorporation shell games as the typical energy company or the typical media group.

And, he ripped off the city of Seattle seven years ago, too.

Back to Chesapeake, though.

It either didn't learn its lessons, post-McClendon, or else it's leading lights have decided to carry on the Ponzi scheme on their own. In either case, no sympathy here.