Fracking boom and related RE boom ending?

8 Replies

With Europe looking more and more like it is sliding into recession, the surging dollar and the Saudis not cutting back on their much cheaper to produce crude oil production, there is a potential for the fracking boom to end.  According to the WSJ "while fracking costs run the gamut, producers often break even around $80 to $85."  West Texas intermediate crude closed at $85 a barrel yesterday.  Obviously, fracking is here to stay, but the levels of production are the key to a continued boom and without the boom RE prices in heavy fracking areas such as Texas, Northern Colorado and North Dakota may be negatively affected so be aware!

Of course, there are several heavy oil producing countries, such as Venezuela and Russia, who need high crude oil prices to sustain their weak economies.  Would it surprise anyone if Putin does something to heighten international tensions and thus push crude oil prices higher.  Also, if the US could ever realize now would be a good time to be exporting LNG, particularly with ongoing tensions from Putin's invasion of Crimea and his support for Russian rebels in Ukraine. 

Sorry I'm not trying to argue geopolitics here, but I think those of you in areas with a lot of fracking you need to be thinking about  what happens if/when the boom ends.  See what happened to Texas in the late 80s when the price of crude dropped.  Yes, I know that Texas is much less dependent upon crude as in the past, but it will still have strong effects if the boom turns to bust.  

One last point, undoubtedly technology and experience will lower fracking costs, but there are a lot of costs which will not be affected by improved technology or a concentration on winning techniques. 

I hope you are wrong!  I just signed a lease on a 35 acre plot a land I own the minerals on in Northern Colorado.  The land man told me the break even number was $75 a barrel.  I'd love to see all ten proposed wells deliver me a health check for a few years.  It would help the travel fund.......

@Cal C.  

You forgot one of the biggest Petrocracies immediately to your north ;-)   It would be nice to see prices put the tar sands genie back in the bottle for a bit before our governments wholesales all of the resource to China.

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I read article on WSJ article says even drop to $53 on Eagle Ford Shale area on Texas still Profitable to drill.

"Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices. An analysis by Robert W. Baird & Co. said prices could drop to $53 a barrel in certain parts of the Eagle Ford and still be profitable to drill."

I just find it hard to believe that the price of oil would ever drop low enough to where it was too cost ineffective to pull out of those areas.  Maybe something temporary would cause that to happen. But I just can't imagine any type of pricing scenario like that could occur for any significant period of time.

I'm not suggesting a complete pull out far from it.  I'm saying  the level of production might not increase or it might decrease from current levels. 

The offshore oil and gas has also took a hit.  I work on a drilling rig and there's plenty that are idle(without contract to drill).  I hope this market turns around pretty soon.  I never thought I would ever hear we have to much oil.  

This is from a website that tracks oil rigs in use.  

Year-over-year oil exploration in the U.S. is up 17.7 percent. Gas exploration is down 13.3 percent. The weekly average of crude oil spot prices is 14.6 percent lower than last year and natural gas spot prices are 4.8 percent higher than last year. 

It doesn't take a genius to figure out that if exploration drills are up 18% while crude is down 15% something has to change.  

If interested check out http://www.wtrg.com/rotaryrigs.html

Small aside, the publisher of the website lives in a very small town not far from where I grew up.  The publisher's town is known for having two nuclear power plants, there has to be some irony in that.   

With oil below the breakeven level for almost all American shale basins, I just don't see how it's possible for shale production expansion to continue in the near term. In fact,  with the corresponding drop in fracking company stock prices it may be difficult to even fund current production levels.  I don't think most of the fracking companies have significant cash reserves and with the significant decline in stock prices selling more stock to raise cash may not be a viable option.  

Here Are The Breakeven Oil Prices For America's Shale Basins



Read more: http://www.businessinsider.com/shale-basin-breakeven-prices-2014-10#ixzz3LuKDxJ6e