More On Plugging & Decommissioning
It is truly a nightmare, Conway. Thank you.
Nobody cares as long as it's not in their back yard.
What I am about to say will piss some people off. So be it.
Everyone lauds the tight oil and tight gas phenomena as the greatest thing since sliced bread. The don't care that it was born and raised on debt that will never be paid back. Shale forever changed the dynamics of the worldwide oil situation and, in my opinion, sucked all the capital out the rest of the domestic oil and gas industry in America and helped destroy it. It set back development of resources in the GOM 10 years. Tight oil in the US, in fact, reduced investment in exploration across the entire world.
In 2007 conventional dry natural gas production was rising. Look at what happened in 2008-2009 with the onslaught of unconventional shale gas. The same phenomena can be found with regards to oil. We went from focusing on production that was paid for, declined 3-4% per year to unconventional shale that was, is unprofitable to extract, requires debt and declines 29% per year (gas) to 63% per year (oil). Shale leasehold costs in America went up 1000% and drilling and completion costs are up 225% since 2010. Product prices collapsed and thousands of small operators went out of business leaving tens of thousands of unplugged wells...because of leveraged over supply from shale.
I've looked at set-aside funds and COH in tight oil and tight gas SEC filings; they've got maybe, MAYBE, 40% of their plugging costs set aside. The rest of those plugging costs, and decommission liability, will have to be set aside or paid in the next 5-6 years...in the face of Tier 3/4 locations that will cost more and make less. Then there is the debt.
The people in charge of all this are too stupid to fix it, they are only interested in money, and votes. They are equally too stupid to restrict or cease exporting the last of our hydrocarbon resources in America and intend on draining us dry. For money, and votes.
So, let's tax every barrel of oil, condensate, every gallon of propane, butane, ethane, every MCF or ton of LNG that is exported, that leaves the United States and set that money aside to plug wells and clean up this shit like you see in the photograph below of the Permian. If the shale industry ends up paying for shallow, vertical conventional wells that have been orphaned the past 15 years, so be it. They caused a lot of it.
I've had this conversation before with tight oil folks; they say only the strong survive, its American capitalism; fair trade. None of which is true in my opinion... if your existence is based on borrowed money you cannot pay back. The "finding costs" for U.S tight oil and tight gas is pretty much limited to the interest paid on debt. That's fair?
Tax exports. Let the tax filter back to oil postings and net WH prices so upstream pays for it.
Hold my beer, I can fix it.
Berman has shown you what the tight gas phenomena (Barnett, App. Basin, Fayetteville. etc.) did to conventional gas production in the United States. You know, the stuff that did not require debt, paid for itself, and declined <4 % per year.
Private enterprise in America abandoned that to make a quick buck, with no risk, drilling lousy tight gas wells. On debt.
Though perhaps not as dramatic, but far more important, the US tight oil phenomena did the same thing to conventional oil production in the U.S., the stuff paid for, that was good quality oil that could be run thru American refineries and not have to be exported.
Now we're running out of remotely affordable (but NOT profitable) shale oil in America and what we are left with is about a half trillion dollars when its all said and done, in debt, including tens of billions of dollars of plugging liability that will never get paid.
This entire gig has been an unregulated, uncontrolled shit storm that benefited a handful of CEOs, BODs, lenders, private equity and above all else, royalty owners that got nearly a T in free income.
For what? Cheaper gasoline, for national energy security? For US energy independence and dominance that kept us unreliant on others and out of war over oil?
Phftttttt.