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The Permian Has Outkicked Its Coverage


Midland WTI to Cushing WTI is -$3.75 going to -$5.50 by mid summer.

Waha differential to Henry Hub. By late summer, if you can sell the stuff, <$1.50/mmbtu... or worse. Thirty percent of revenue streams in the Permian Basin are based on gas. If you happen to be gaga over Permian Basin unconventional economics, better rethink your position as the E in BOE is soon to be NA.

This is a cool Google product showing satellite detected natural gas flaring in real time. Click the image above, zero in on the three major US shale oil basins and watch flaring grow exponentially over time, this in spite increased regulations against flaring. Remember, we don't live in Eastern Siberia, we live in America, where shale oil companies can tout how many drillable locations they have per square mile in investor presentations, yet can't get their gas tied in to market, for some reason, until a year or more after completions. Now, there is no market. We are going to wish we had all this wasted natural gas back someday, along with all the oil we are exporting.

And as to exporting our almost "unlimited" oil resources and exerting America's energy "dominance" on the rest of the world, its important to know who your friends are in high places: https://www.chron.com/business/energy/article/Steel-tariffs-to-squeeze-oil-service-producer-12781550.php

From MSN: 'Trade worries also remained after Trump linked his proposal to build a border wall between the U.S. and Mexico to ongoing NAFTA negotiations between the two countries. In a tweet Sunday, Trump said: "They must stop the big drug and people flows, or I will stop their cash cow, NAFTA. NEED WALL!"' So, adios to the Mexican market for West Texas gas, most likely.

The water problem in the Permian, in spite of the hubbub about "studying it," is not getting fixed. I just came from there, its drier than a popcorn fart in West Texas and there are already water well problems in Martin County. The summer time blues are going to renew interest in fresh water use:

http://www.circleofblue.org/2018/world/americas-oil-boom-can-not-happen-without-groundwater/ I like how they are shaving all the sand dunes off to ground level around Monahan's; dust to dust, and all that. I am just lucky to have seen all that again without getting killed in a head on collision.

I was also in S. Texas a few weeks ago and there are thousands and thousands of empty motel rooms for rent. Man, what a waste of money that was. Never in the history of our industry has so much faith, and so many hundreds of billions of dollars been spent on something so fragile as this shale oil phenomena. By fragile I mean the entire "system," from acreage acquisition to moving product to market is based on credit. On debt. Upstream the shale oil industry alone is $300B in debt; I can't even guess what service providers and the midstream sector have borrowed to service the upstream sector. More hundreds of billions, I am sure.

The profit margins on these wells are so small, the debt accrued over the past decade so massive, there are so many headwinds now facing shale economics, e.g. over-production, sweet spot saturation, takeaway bottlenecks, product price instability, increasing costs, tariffs, trade wars, labor, sand, water, forthcoming debt maturities and rising interest rates (have you seen the LIBOR lately?)...if you are in the service industry and your future and the future of your investors, or lenders, depends entirely on the concept of shale oil "abundance," and OPEC continuing to cut is production, so America can grow its production, you are a very brave soul. Good luck with that.


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