Goehring & Rozencwajg have been beating the drums almost as long as Mike about the realities of the shale industry. Their commentary from 1st quarter 2025 repeats their previous points about how geology "trumps" technology in the oil patch, and adds data that shows oil demand is actually higher than most of the sources we see in the mainstream energy media are indicating. That definitely goes a long way toward explaining why inventories seem so tight when production seems too high.
I've been saying that we're in for a Big Supply Surprise sooner than many people think, which will, once again, push prices past the levels that governments work so hard to maintain. These spikes aren't war driven, they're what happens when politicians just don't want to hear, much less consider, any scenario that challenges the message of the moment. Our attempts to push natural gas as the logical replacement for oil are well meaning, but ignore the reality that this lower carbon hydrocarbon fuel doesn't generate as much energy. As an accountant, I had to balance the accounts somehow, and if we're short supply, someone doesn't get their fair share. In a market driven world where only price matters, prices will decide who does. We're in for a war between our desire to have AI do all our thinking, and our desire to have heat in the winter, sooner than we think.
It will be worse than buying a lease from XOM when you try to put a prospect/project together. This is the end of the little guy in the Permian.
I would like to add something that all the rest of you probably figured out long ago. There has been a powerful segue in shale. Insiduously almost, the largest producer in the Permian has also become the largest holder of minerals. The production company is being crushed by excess debt with no free cash flow, while its minerals-holding subsidiary holds very little debt and has tremendous free cash flow. When the time comes for a major such as Exxon to purchase this driller, it is likely that the giant minerals subsidiary will be pinched off as a debt-free money-making machine owned by a few smart fellers. This is a major tell regarding the status of the shale basins.
Now that comment is pure gold .. so much truth. I'd buy that man a beer. Leopard eating faces party indeed. Cheers all. Did you manage to get your dinner with your blushing bride,?
https://www.ainvest.com/news/shale-oil-companies-drill-50-wells-due-tariffs-price-decline-2507/
I'd read this if I were you, particularly the one and only comment.
As I have suggested downhole, it is hard to put a great deal of credibility behind a specific, unique sector of the U.S. industry that is trying to dominate the world with shale oil when it can't withstand a 4-6% increase in drilling costs, and a 10% decrease in prices, and has to send rigs back to the barn.
That is what debt does to you, man. When you borrow other people's money to drill wells that decline 85% in 24 months, you have sold your soul to the devil. You no longer control your own destiny. The "resilience" that has been written about you is actually quite frail.
America has overdosed on stupid pills...
BUT...for more than a decade the U.S. shale oil sector clucked like a barnyard full of chickens about abundance, affordability, profitability, increasing technology will save the day, 10, 20, 30 years of drillable locations, exaggerated EUR's...in 2018 and AGAIN in 2024 Donald Trump told the American public our country had so much oil that people would never have to worry about running out, that we had more liquid gold than any other nation in the world, all we had to do was drill baby, drill.
But oilfields don't last forever; never have, never will. So maybe the shale oil sector brought some of this lawsuit on themselves. Maybe it should have been warning the American public the end would come sooner than expected instead of making shit up for the sake of more investment dollars.
Now shale oil is peaked and will be heading down. Stupid Americans thought otherwise...because of what they were told.
I am going to try and run down the Bloomberg article; its behind a pay wall, naturally.
If this is true it is really great news for our country and our long-term energy future. I wish it had started 12 years, and 10 billion barrels of exports ago.
The U.S. is also the No. 1 hydrocarbon liquids consumer in the world and will be for many decades to come. But with only 4% of the world's proven oil reserves the U.S is also the 3rd largest exporter of hydrocarbon liquids in the world.
With the passing of the big, beautiful debt bill and elimination of CAFE standards in the U.S., demand for hydrocarbons will go up, up and away. If you find some sort of patriotic pride in the article above, please, may we revisit the situation in four years?
By the by, the U.S is the largest exporter of LNG in the world, facing the same demand increases for domestic natural gas, while electricity costs are already soaring for the average consumer.
https://www.cnbc.com/2025/06/21/why-electricity-prices-are-surging-for-us-households.html#:~:text=Electricity%20prices%20rose%204.5%25%20in%20the%20past%20year%2C,retail%20electricity%20prices%20would%20outpace%20in
But we've got this all under control, right? We're going to "dominate" the rest of the world with cheap (?!!) American hydrocarbons and the entire world is going to love us for it, quit shooting rockets at us, start paying for their own national defense. If only we could find the money to get on with the drill baby, drill thing.
Well, there's always mo' debt. We're No. 1, or 2 in the world on that metric too !
One thing I remember, is that in previous installments they said that the industry relies heavily on AI to select the first better tires with better productivity, now AI is notoriously for scrambling the fields of knowledge where they are applied and have unforeseen consequences .
Mike I agree with almost all you say about oil and gas but I would not say that going to renewables is the way forward. Both solar and wind are intermittent as we know and can be wiped out in an afternoon of severe thunderstorms. A wind turbine on average can suffer gear box and bearing damage within 5-7 years world wide and most people don't realize that with the passage of a storm front you CANNOT FEATHER the blades because the wind veers 180 degrees instantly and under storm cells the downburst can drive all three blades straight down. 54 years in aviation taught me a lot about thunderstorms.
Electrical power should never have been sent long distances as it now is on power grids around the world. The reason is that electrical energy suffers from the inverse square law in physics and that is why it has to be transmitted by very high voltage. Far better to have nuclear power stations close to all major demand centres and also to make synthetic liquids which can be done using the excess high heat. Renewables and batteries are very diffuse energy wise. Mark Mills, a US physicist has calaculated that you need 20,000 lbs of battery to equal the energy of one barrel of oil which weighs 300 lbs and can be stored in a $10 drum. The green hydrogen scam has almost run its course too.
The major oil companies and producers around the world have been incredibly stupid to allow the Financial world to manipulate their prices so low for so long and as you say there is a lot of pain coming.
Regards
Dick
Thanks Anne!
What sort of hydrocarbon resource is it in America that is so marginally profitable it can't be drilled at $65 per barrel of oil if drilling and completion costs rise 6-7% because of tariffs on steel (Dallas Fed Survey)?
Or if wells have to be drilled 15 miles away from core, sweet spots, in goat pasture, and make 50-60,000 barrels less over their life expectancy, THEY can't be drilled either?
Shale oil is all we have left in our nation, that is what we are totally dependent on and most of that comes from less than eight counties in the Permian Basin.
And finally, if the last of our nation's hydrocarbon resources are THAT marginally profitable, and price sensitive, why in God's name are we exporting 50% of every barrel of shale oil we produce in the U.S to foreign countries, below costs?
https://x.com/staunovo/status/1940464159722033274