Where Are the US Fracking Oil Companies Heading?

[Rasulis]

It's from 1/22/2018, but The Wall Street Journal, the biggest business paper in America thinks frackers make money.

Key word from that article is “Could”.

The question is “Did they?”

The answer can be found in this study from Institute for Energy Economics and Financial Analysis from December 2018.

http://ieefa.org/wp-content/uploads/...ember-2018.pdf

It is a short report of only 10 pages. Here are their key findings.

• Even with a production boom and the highest prices since 2014, US frackingfocused oil and gas companies continued their nine-year losing streak through Q3, 2018.
• The 32 mid-size U.S. exploration companies included in this review reported nearly $1 billion in negative cash flows through September.
• Falling oil prices and rising interest rates will pose additional financial challenges to the industry in Q4.

It is an improvement over the last 5 years when the negative cash flow averages 3 billion per quarter. Keep in mind, these are losses despite the price of oil going over $70 per barrel (currently down to $53.49 per barrel) and the implementation of the 2017 Tax Cuts and Jobs Act which allows capital expenditures to be deducted in the year of their occurrence.

“Just 17 American oil and gas companies reported a combined total of $25 billion in direct one-time benefits from the 2017 Tax Cuts and Jobs Act. ” The companies’ activities in the United States are made less expensive, thereby encouraging a further expansion of oil and gas operations.”

https://psmag.com/economics/tax-bill...ompany-bonanza

https://oilprice.com/Energy/Energy-G...-Tax-Plan.html

[Michh]

I can’t speak to the drillers and their profits, only to the refining and products side of it, or Downstream side. I work for Exxonmobil in the largest petro/chemical refinery in the world in Baytown, Tx, and because of west Texas fracking we are in a once in a lifetime expansion to be able to make products from the feedstock coming our way. We just recently completed the North American Gas Project (NAG), over 6 billion dollar chemical plant.

In Corpus Christie we’re breaking ground on a new chemical plant out in the middle of nowhere it seems. And we just announced another 2.2 billion dollar expansion in Baytown for a new chemical plant.

At 49, and having been in the business all of my life, I never thought I would see anything like we have right now in the US. These chemical plants that make plastic and other products take a lot of natural gas to operate, and of course oil in many forms after it has been cracked and refined, oil & gas that’s coming from fracking. These products will be shipped all over the world to help countries bring their populations into the mainstream.

Not even 20 years ago we were disassembling plants here and moving them overseas because natural gas prices were too high, and cheaper prices overseas were more economic. Now that has changed.

[Rasulis]

Personally I do not think we should be exporting oil or natural gas. Extract just enough for our own use. Keep a strategic reserve supply for emergencies. Exporting oil can lead to pressure to defend that trade, even cause a war. If the other countries can not get enough oil, then they can develop means to rely on it less.

We export oil because in the early 2000s the majority of the Gulf Coast refineries were converted to process heavy and sour crude from middle eastern countries, Mexico, and a host of South American countries (including Venezuela). Those refineries are not capable of refining the light and sweet fracking crude. There are several facilities capable of processing light and sweet crude in the east coast, but the majority is located in California. The problem is that there is a dearth of pipelines connecting the fracking states with California. Rather than building new pipelines or converting the facilities to refine fracking crude, it is cheaper to export the light and sweet crude overseas and import the heavy and sour crude to be processed in the US for local consumption. Not to mention Aramco (i.e. Saudi Arabia) owns a lot shares in US Gulf Coast refineries and they want to keep those refineries processing their crude since they don’t have enough refining capacity in their own country.

[Milchshake]

Fracking has always been betting on higher oil prices.

Now I wonder if any fracking companies have friends that could start a war in the middle east to suddenly spike prices to help them pay off their debt.


Or more importantly. All the banks that bet on those fracking companies by giving them loans. I wonder if any of those banks have friends that could start a war in the middle east to suddenly spike prices. So they get paid instead of defaults.

I'm talking friends like the Kushners have, that can bail out underwater properties.

[Rasulis]

I can’t speak to the drillers and their profits, only to the refining and products side of it, or Downstream side. I work for Exxonmobil in the largest petro/chemical refinery in the world in Baytown, Tx, and because of west Texas fracking we are in a once in a lifetime expansion to be able to make products from the feedstock coming our way. We just recently completed the North American Gas Project (NAG), over 6 billion dollar chemical plant.

In Corpus Christie we’re breaking ground on a new chemical plant out in the middle of nowhere it seems. And we just announced another 2.2 billion dollar expansion in Baytown for a new chemical plant.

At 49, and having been in the business all of my life, I never thought I would see anything like we have right now in the US. These chemical plants that make plastic and other products take a lot of natural gas to operate, and of course oil in many forms after it has been cracked and refined, oil & gas that’s coming from fracking. These products will be shipped all over the world to help countries bring their populations into the mainstream.

Not even 20 years ago we were disassembling plants here and moving them overseas because natural gas prices were too high, and cheaper prices overseas were more economic. Now that has changed.

Out of curiosity. Is your plant processing light and sweet crude from fracking or heavy and sour import? It is my understanding that you get a lot more side products from processing heavy and sour crude.

[XDurionX]

Imagine they had to ay for the environmental and health damages they cause.

Glad that fracking is forbidden over here.

[Michh]

Out of curiosity. Is your plant processing light and sweet crude from fracking or heavy and sour import? It is my understanding that you get a lot more side products from processing heavy and sour crude.

Yes for the last couple of years, we’ve been using only domestic light crude oil. Before that we used a mixture of both with most being heavier crude for the countries you speak of. Obviously there’s a benifit to using only domestic crude because it’s cheaper than importing it in. Considering our main goal is to take feedstock, in this case oil, and turn it into products to sell, local domestic crude is better if there’s enough of it. Fracking has made that possible for the first time in many years.

We’re actually in the middle of revamping our refinery to handle more light crude. Your comment is not completely correct about light crude. It’s not that we can’t refine it, it’s that we take a hit in how much we can refine compared to the heavier crude you speak of. Currently we can process about 630,000 barrels per day of heavy crude, but only about 510,000 barrels per day of light crude. We are in the middle of spending about $400M to retool our equipment to bring our capacity back over 600k barrels per day. Two projects called Tight Oil Capture and Jet Recovery are in the middle phase of being implemented.

Your question about products; I don’t work in operations, I work in the construction side of it - I build and maintain the refinery, and operations folks make the product, so I may be wrong about some of this. Heavy crude is a pain to refine because of the byproducts, and you can get much more gasoline/diesel and jet fuel per barrel of light crude, without having to deal with sulfur and other byproducts. Just a few years ago we were refining a mix of both, since there really weren’t enough domestic light crude, we had to rely on international markets to make up the difference.

Should note that I’m speaking only of this refinery, and I don’t know how other XOM refineries in the US are operating.

[Rasulis]

Yes for the last couple of years, we’ve been using only domestic light crude oil. Before that we used a mixture of both with most being heavier crude for the countries you speak of. Obviously there’s a benifit to using only domestic crude because it’s cheaper than importing it in. Considering our main goal is to take feedstock, in this case oil, and turn it into products to sell, local domestic crude is better if there’s enough of it. Fracking has made that possible for the first time in many years.

We’re actually in the middle of revamping our refinery to handle more light crude. Your comment is not completely correct about light crude. It’s not that we can’t refine it, it’s that we take a hit in how much we can refine compared to the heavier crude you speak of. Currently we can process about 630,000 barrels per day of heavy crude, but only about 510,000 barrels per day of light crude. We are in the middle of spending about $400M to retool our equipment to bring our capacity back over 600k barrels per day. Two projects called Tight Oil Capture and Jet Recovery are in the middle phase of being implemented.

Your question about products; I don’t work in operations, I work in the construction side of it - I build and maintain the refinery, and operations folks make the product, so I may be wrong about some of this. Heavy crude is a pain to refine because of the byproducts, and you can get much more gasoline/diesel and jet fuel per barrel of light crude, without having to deal with sulfur and other byproducts. Just a few years ago we were refining a mix of both, since there really weren’t enough domestic light crude, we had to rely on international markets to make up the difference.

Should note that I’m speaking only of this refinery, and I don’t know how other XOM refineries in the US are operating.

Understood. My background is in mining/geotechnical/structural, so I know very little about refining. I did read an article that both Chevron and Exxon had lower than expected first quarter 2019 profits. Primarily due to refining weakness.

https://www.reuters.com/article/us-e...-idUSKCN1S21BR

Exxon posted the first loss in its refining business since 2009, citing the worst refining margins on gasoline and other profits it had seen in a decade. Chevron reported its refining and chemical profits fell 65 percent.

Whether the problem is due to their US refineries or global refineries was not spelled out.


I do want to add that, contrary to popular belief, oil from fracking is far from the cheapest oil. The cheapest would be Saudi Arabia at the bottom left of the graph at $9 per barrel break even point.

[Ghostpanther]

We export oil because in the early 2000s the majority of the Gulf Coast refineries were converted to process heavy and sour crude from middle eastern countries, Mexico, and a host of South American countries (including Venezuela). Those refineries are not capable of refining the light and sweet fracking crude. There are several facilities capable of processing light and sweet crude in the east coast, but the majority is located in California. The problem is that there is a dearth of pipelines connecting the fracking states with California. Rather than building new pipelines or converting the facilities to refine fracking crude, it is cheaper to export the light and sweet crude overseas and import the heavy and sour crude to be processed in the US for local consumption. Not to mention Aramco (i.e. Saudi Arabia) owns a lot shares in US Gulf Coast refineries and they want to keep those refineries processing their crude since they don’t have enough refining capacity in their own country.

Some good info. Thanks. So do we export oil which we will not use ourselves in the US? If so, I would prefer we retrofit/convert our own refiners so we only do what is necessarily for ourselves. I understand this is may not be a popular thing to do from a business or political point of view.

[Rasulis]

Some good info. Thanks. So do we export oil which we will not use ourselves in the US? If so, I would prefer we retrofit/convert our own refiners so we only do what is necessarily for ourselves. I understand this is may not be a popular thing to do from a business or political point of view.

It looks like there are efforts to do just that (per Michh). That may account for the decrease in Exxon and Chevron refinining's profit.

[Ghostpanther]

It looks like there are efforts to do just that (per Michh). That may account for the decrease in Exxon and Chevron refinining's profit.

Well, good to hear!!

[Vash The Stampede]

At this point in history, public and privately owned vehicles should be regulated to electric by law while heavy duty work vehicles should be the only ones authorized to use gas.

But that makes too much sense. We have to keep burning fuel until we’re 100% out. Then we can try to work on powering bulldozers with the fucking sun.

I would agree with you except that 50% of Americans can't afford the cheapest brand new car which is $14k. To make matters worse the cheapest electric car is $30k which is the Nissan Leaf. I would switch to electric in a heart beat but like most Americans I can only afford used cars. Used electric cars aren't exactly trickling down in the used auto market. If there's anyone to blame it's the overpriced auto market where they push $30k to $70k as normal prices.

[Ihavewaffles]

Fracking means ur a moron scraping bottom of the barrel, want a quick buck n fuck the environment n ur country attitude...

It's a bubble, not sustainable, once its over, enjoy the scars n ruined water...

[Fantomen]

I would agree with you except that 50% of Americans can't afford the cheapest brand new car which is $14k. To make matters worse the cheapest electric car is $30k which is the Nissan Leaf.

Who need a brand new car? Take Iphone a new iphone cost about $1000, but you can get a second-hand refreched iphone 5S (the oldest iphone that have the latest iOS) for about $70

In the near future, there will be a large second hand market for used electric cars. That will be much cheaper then a brand new electric car.

[melodramocracy]

Good. The more of them that fold, the better.

[unbound]

It's from 1/22/2018, but The Wall Street Journal, the biggest business paper in America thinks frackers make money.

My finance professor was a top trader at Solomon Brothers (yeah, I'm old). One of the things he emphasized with us is that whatever you read in the WSJ is nothing more than what the PR departments are pushing out; if it is printed in the WSJ, he said you can very much bet that something else is actually going on behind the scenes.

And this was long before WSJ was bought out by the tabloid magazine magnet (Rupert Murdoch).

[Rasulis]

My finance professor was a top trader at Solomon Brothers (yeah, I'm old). One of the things he emphasized with us is that whatever you read in the WSJ is nothing more than what the PR departments are pushing out; if it is printed in the WSJ, he said you can very much bet that something else is actually going on behind the scenes.

And this was long before WSJ was bought out by the tabloid magazine magnet (Rupert Murdoch).

The problem is that the person that linked the article did not actually read the article carefully. The article said the industry could, not that they did, and they ended up not making a profit in 2018.

The reality is that WSJ has published hundreds of articles on fracking industry, and not all of them agree with each other. The same WSJ that published that article also published this graphic and this article which reveal just how much money the shale industry has been losing compared to traditional oil. If the graph is to be trusted, the shale oil industry only generated free positive cash flow pumping oil for one brief period in the last seven years.


Wall Street Tells Frackers to Stop Counting Barrels, Start Making Profits

Twelve major shareholders in U.S. shale-oil-and-gas producers met this September in a Midtown Manhattan high-rise with a view of Times Square to discuss a common goal, getting those frackers to make money for a change.

In the months since, shareholders have put the screws to shale executives in ways that are changing the financial calculus of hydraulic fracturing and could ripple through the global oil market.

- - - Updated - - -

Also, Halliburton Q1 2019 Earnings Conference Call Transcript.

https://www.fool.com/earnings/call-t...rence-cal.aspx

The pertinent part of the transcript.

Halliburton will significantly reduce North America hydraulic fracturing CapEx this year. We have sufficient size and scale in the market today and see no reason to invest in growth when it comes at the expense of returns. The capital that we do spend will be mostly directed toward improving efficiency, reducing emissions, and refurbishing equipment. I'm frequently asked, when will we add hydraulic fracturing capacity again. Let me tell you, I don't see that happening until the market has better supply and demand balance and substantially better pricing, and despite the ongoing market rebalancing I just described, the market conditions are not conducive to adding capacity. In this market, we're focused on maintaining the right level of capital spending to support our business, but most importantly, on continuing to deliver strong cash flow and industry-leading (ph) returns.

Basically, Jeff Miller is saying that their fracking division is losing money like crazy, so they are cutting back investment in fracking. Keep in mind fracking is only a small part of Halliburton worldwide operation.