Bishop Hill Mistress of understatement
Jan 30, 2013 Energy: gas Prof Catherine Mitchell, who is professor of energy policy at Exeter, has written a critique of Dieter Helm's book (which I must get hold of soon).
I enjoyed the wonderful understatement on shale gas:
Helm’s final piece of the jigsaw, which he sees as the outcome of his solutions, is for gas to displace coal and to be the short to medium term transitional fuel until these ‘future’, including renewable energy, technologies kick in. This requires abundant global gas and although we know the recent shale gas finds have increased the global gas resource we still do not know what either its environmental or economic costs will be, particularly if large swathes of the globe move to gas. This policy therefore risks security and (increasing) price problems; including greater numbers of fuel poverty.
I don't think the expression "increased the global gas resource" quite does justice to the shale gas revolution of recent years.
As to not knowing the economic costs, that seems a bit of a stretch. The consensus is the USA seems to be that shale gas extraction will be economic at $6/mmBTU, a figure that will no doubt fall as the technology develops. In the UK, where shale gas seems to be in much thicker deposits, we might hope that extraction will be cheaper still.
The environmental costs again are very much a known quantity - fracking is of course a venerable technology and there can be little doubt that it can be done with minimal impact on the environment. Environmental risks seem to be very small. In fact it's hard to imagine a more benign form of energy.
I worry when university people speak about shale gas extraction as being an environmental concern because it suggests that they are publicly funded campaigners rather than objective researchers.
Reader Comments (83)
Vangel - c'mon then - give us a worked example I see a carnival of assertions resembling the (inverted) output of a share boiler room scam.
I suspect there is some substance in what you say but I think you are very close to the point where your arguments require the support of some hard evidence...
@Steve Jones
Isn't it amazing how knowledgeable the anti-fraccing brigade are about shale gas production methods and perceived problems but they fail totally to see the obvious problems with windmills.
That is because the lefties are driven by ideology and have a blind spot when it comes to the economics of wind, solar or other 'renewables'.
They know full well that shale gas has the potential to kill the renewable industry stone dead and the quicker it does the better.
The problem is that shale gas is not a solution because it has not been economic. As I pointed out, the American shale companies have been destroyers of capital and cannot make a profit because of the huge depletion rates that they are unable to deal with. Try looking at the SEC filings and you will see that there aren't any large scale shale gas projects that are self financing. This is exactly why the shale gas players are now trying to sell themselves as shale liquids players. While that won't work much better it gives them breathing room as they try to attract new investment capital.
What gets to me is that some of the core shale areas that make a bit of sense are not being drilled because the government gets in the way.
Vangel,
Would it make sense to you that the shale gas recovery industry is in the pioneering stage - trying to figure out how to do it efficiently and that the present participants are unlikely to be the ones who will make the real money, any more than the pioneers in the personal computer business did? It will be the follow-ons who do, (if anyone ever does) and they will do it using techniques or business arrangements so far unheard of.
The Henry Ford of fracking has yet to show up. it could well turn out that what appears to us to be the entire industry will turn out to be a small part of what is ultimately successful.
Oh dear. I think I can taste a hint of Kool-Aid on my lips.
A benign oddity of capitalism is that it can achieve huge and beneficial changes in society - even when the capitalists lose their shirts.
I once read in a US history book that the entire US railroad network, with all the progress it brought in its wake, was constructed at an average loss to its promoters and investors.
Similarly, the early days of the cheap air travel explosion resulted in most airlines running up huge losses for years - while their passengers lives were dramatically enhanced.
Nuclear power has underpinned secure energy in many countries with very little gain to its investors.
If the first wave of investors piling into shale lose their capital - but leave behind an infrastructure and technology platform for the industry to grow on - we will all be beneficiaries.
In a free enterprise system there are always winners and losers - the wonderful thing is that their continual struggle brings rapid progress for everybody else.
Vangel,
As I've already pointed out nothing you have highlighted is an exclusive problem for fracking. How do you think all that electricity is moved from windmills to end users? All the infrastructure for windmill farms HAS TO BE BUILT so that the fraction if a percent if power they generate can be delivered to the national grid.
Yet somehow in the twisted mind of the catastrophiliac it's only an issue for fracking.
Secondly, let the gas companies build and pay for the infrastructure needed to get all that gas to the market. Let them use their capital and their investors money so that not one single penny of tax payers money is squandered away like it is now on sources of energy that cannot deliver electricity when it's most needed, ie when it's cold and dark! And let them benefit from their investment!
You know what, if it doesn't work out then at least we won't have p1ssed billions of pounds of tax payers money away on fracking like we are right now on windmills and mirrors. Not one single penny in subsidies will be needed for fracking but I think it can only work IF big gas is allowed to benefit from their investment!
The writing is on the wall for the catastrophiliacs.
Mailman
Catherine Mitchell is an academic.
From the 1950s onwards, British Academia was a prime objective for Marxists (I have since discovered that things were not dissimilar in the rest of the English-speaking world, though the USA was a much tougher nut to crack - at least initially).
By the end of the 1970s, the Marxists were–psychologically and ideologically–in control. Not everyone was a Marxist, but they and their sympathisers operated effectively as a bloc. Staff and student bodies alike were run by them. I know, I was there.
To this day, avowed Marxists operate openly throughout the education system. Their influence is pervasive and powerful.
Despite clear evidence of Marxism and other strains of Socialism failing when the dogma has been put into practice, Marxists retain their world view. Academia is now their natural home, and they have succeeded in divorcing much academic study from real life.
By way of an example, our neighbours' daughter, charming as she is, took Media Studies at Uni. She went on to MA level, writing many serious papers about all aspects of the media industry and landscape. I work in the media and, at one point, I offered to put her in touch with some of the most senior and respected practitioners in the industry, so she could gain some insights or perhaps even get a job. But, oh no, that wouldn't do AT ALL.
The daughter went on to teach media studies in New Zealand and at Universities in the UK, moving up the tenured ranks. The aloof, academic version of the media industry remains in her head, uncorrupted by reality. What the media landscape is actually like; what it does, creates, succeeds at; the lives and careers of its practitioners–none of this can be allowed into her experience because it would simply shatter the preconceptions, shibboleths, totems and dogma that she has learned. And that she passes on to the next intake of students.
Little wonder, then, that when anyone in our industry has tried to recruit Media Studies graduates they find them hopelessly ignorant. They are, in fact, worse than useless because they're full of their own self-importance and incredibly slow to learn.
That is what Academia does. So please do not be surprised that Prof Mitchell is a complete ignoramus. That is her job.
Vangel is at about the same level as a troll; every time he posts he makes the same single point (in the US shale gas does not make money) and every time he posts his arguments are knocked down. I do not propose to waste any more time on him.
As many BH regulars have said over the last few years; we are not going to understand what shale gas the UK will benefit from until companies are allowed to start fracking.
When the coalition finally gave permission for fracking I thought the flood gates would open but that has not happened.
The hoops that companies must jump through before fracking can be authorised are doing their job really well. Cuadrilla are bending over backwards to fall in line but still do not have planning permission to start fracking. This week they installed "a comprehensive suite of monitoring equipment at its Anna’s Road site so that it can undertake seismic and fracture monitoring in the area." This is to make sure that fracking does not cause earth tremors that breach the government's idiotically low required seismic event target.
Cuadrilla are putting the money in but many many other companies who want to frack dare not invest until they understand the government's position.
My God, Gixxerboy, that's brilliant. Every single word. Also true.
As I've already pointed out nothing you have highlighted is an exclusive problem for fracking. How do you think all that electricity is moved from windmills to end users? All the infrastructure for windmill farms HAS TO BE BUILT so that the fraction if a percent if power they generate can be delivered to the national grid.
My point is that even when you do not look at the distribution costs you still can't make any money producing shale gas. The American producers are destroying capital because the wellhead prices are less than half the marginal cost to produce the gas.
Yet somehow in the twisted mind of the catastrophiliac it's only an issue for fracking.
It isn't just an issue. But as with other sources you can take out the distribution costs and see what the producers are getting. And in the case of shale gas we cannot spin our way around the fact that the producers have been destroying capital.
Secondly, let the gas companies build and pay for the infrastructure needed to get all that gas to the market. Let them use their capital and their investors money so that not one single penny of tax payers money is squandered away like it is now on sources of energy that cannot deliver electricity when it's most needed, ie when it's cold and dark! And let them benefit from their investment!
I have no problem with having investors speculate with their own capital no matter how stupid I think a venture may be. But in the case of shale there is no way to build sufficient infrastructure to handle the current production levels because of the depletion issue. A gas line built today would not have much gas that goes through it in five years because of the 75% of so decline in production after 12-16 months of drilling and fracking. Newer wells will be drilled in lower quality areas and will deplete even faster. That means that the size of the pipe can only be a certain size and that in turn means more supply than capacity and lower prices for producers. The Bakken is very close to topping already. To see what will happen to aggregate shale production all you need do is look to one of the Bakken's best fields, (which is found in a dolomite formation), the Elm Coulee. Its production profile looked great as new drilling brought an exponential rise until 2006 or so. From that time the production level has been in a steady collapse and we are still losing around 1% of production per day. The production profile is easy to understand if you can follow the simple math that is driven by depletion. But for some reason people who hate the useless wind and solar alternatives seem to have a blind spot about shale because they just want to believe. But no amount of wishing will change reality and the math will be what it will be no matter what narrative you try to spin. Shale gas is a bubble. End of story.
You know what, if it doesn't work out then at least we won't have p1ssed billions of pounds of tax payers money away on fracking like we are right now on windmills and mirrors. Not one single penny in subsidies will be needed for fracking but I think it can only work IF big gas is allowed to benefit from their investment!
I have never said that any of the green alternatives made any sense except for some unique applications. I certainly oppose any subsidies at all for anything and believe that taxation is theft. My preference is for a free market without any government oversight of voluntary transactions. But the fact that government wastes money of green white elephants does not mean that shale investment is wise. And let me point out again that the shale bubble is driven by government meddling. If the central banks did not manipulate rates the producers would not be able to attract any loans given how well they have proven to be able to destroy capital. It is only because the parasitic financial system has access to free money that it can gamble on idiotic ideas like shale gas. Let interest rates be set by the markets and shale will pop just as quickly as the tech and housing bubbles did. But even if rates stay manipulated for a while there is no way to avoid the day of reckoning. When that comes coal, nuclear, and conventional reserves will carry the day. (And you better have a lot of gold and silver to protect you.)
@ Gixxerboy
To this day, avowed Marxists operate openly throughout the education system. Their influence is pervasive and powerful.
What do you expect when taxpayers are robbed and forced to send their children to 'free' private schools? Academia is protected from competition. That is why it tolerates Marxists, Keynesians, and other fools.
Vangel
Every time I have responded to your posts you have ignored my comments, why is that?
Your position is unique amongst those who comment on shale gas, the greens despise it because it will displace renewables and the deniers praise it for the same reason. As a denier I can not object to your opposition to a consensus however your position is even more extreme and out on a limb than any denier.
Should you be proved right then whole industries (like the chemical industry) who are now repatriating to the USA because of shale gas have miscalculated. All the companies who are staying in shale in the USA have miscalculated. Cuadrilla (who have seen everything that has happened in the USA) have miscalculated. The Chinese, the Australians, the South Africans have miscalculated. All these people are aware of what has happened in the USA so why are you the only one who knows the truth? Remember these people are betting their own money, not taxpayer's money.
When the US is able to export gas then the glut will be over and prices will rise.
Jan 31, 2013 at 4:03 AM | Vangel
"My preference is for a free market without any government oversight of voluntary transactions."
It would be good for the government to get out of the way of Cuadrilla losing lots of money then... at least we would then have experimental proof that shale gas was uneconomic. Are you trying to state it has a negative energy return?
"To see what will happen to aggregate shale production all you need do is look to one of the Bakken's best fields.."
I thought the Bakken was an oil formation and not Shale gas?
Vangel, you talk as though fracking was a brand new technique, it's been around since the first wells were drilled in 1949, and around 90% of the oil wells in the USA use fracking in one way or the other. What has happened recently is that reserves of gas and oil have been found in places where fracking can extract them. I'm not sure your analogy with Nortel holds much water either, Nortel and Lucent found themselves in an extremely competitive market place with the wrong R&D strategies. They simply couldn't compete on price because of their cost base, I'll grant you Clarence's investments for Nortel weren't a success, but that's not what brought them down, the market did, because they couldn't control their costs.
If you have citations for the capital costs of the wells costing more than the energy that can be extracted I'd appreciate it if you could let us have them.
jferguson
Thanks!
I do wish Vangel would stop shouting
@Gixxerboy - yes...
and then some.
I suspect it is a matter of some pride in the Soviet spook community that they managed to comprehensively emplace agents of influence across the West and manipulate them effectively.
It goes a lot further back (1920s, 30s &40s) - the Soviets had some considerable success in the good old USofA. There is irrefutable evidence that Harry Hopkins (FDR's Mr. Deputy POTUS) gave the entire Manhattan project to Joe Stalin - bypassing all project security. There were many others who were - like Blunt et al protected by their social position. This is a matter the Yanks have (and still do) put considerable effort into covering up.
The Soviet intelligence organisations cultivation of western academia was a comprehensive and major undertaking and we are seeing the fruits of all that investment - they did after all come up with the term "useful idiot".
It was never a matter of individuals arriving at a philosophy - once key manipulators are in place it's easy to subvert a system. Delingpole makes a good case for Watermelons - as I commented earlier there are deeper currents beneath the surface - look at the connections between Russian government and oligarchs and the intelligence community.
That the old operators and original purpose of the machine are gone doesn't mean it's stopped working - there are some organisations that I thought long dead that have lurched back into life in recent years with apparently a refreshed sense of purpose and magic funding.
Vangel harping on about the suicide of shale gas reminds me to remind everybody that Nigeria flares off more gas in 28 days then the U.K actually consumes in a year...
I think the matter of egregious waste should have a place in the debate :-)
Dung, when you say, "...whole industries (like the chemical industry) who are now repatriating to the USA because of shale gas have miscalculated." and then later "When the US is able to export gas then the glut will be over and prices will rise.", do you see an unfortunate connection there (for those relocating).
Geronimo, watch the video I posted earlier to get a different perspective on the age of fracing as applied to shale (here). It is not the "venerable" technology you and others imagine.
Jan 31, 2013 at 12:52 PM | BitBucket
I think you're reading a bit too much into Tony Ingraffea's talk. He clearly says that "fracking" is an evolving technology (and infers that it will be that almost indefinitely due to "Mother Nature" being involved!) - I personally think he labors the novelty of shale fracking a bit too much - the techniques may not have been used as a recipe before but individually they are older (not by much in some cases) than he asserts I think.
He harps on about calculated risk but he also manages to drift off from his own early proclamation that without rich inputs and validation - models are worse than useless. His repeated assertions that we should engage and find out about things is admirable - way too much of the "debate" about fracking has been framed by ignorant dishonest activist gits (Think Josh Fox)
In all though a useful talk.
It would be good for the government to get out of the way of Cuadrilla losing lots of money then... at least we would then have experimental proof that shale gas was uneconomic. Are you trying to state it has a negative energy return?
Let me be clear. I have been looking at the financials for shale producers for nearly a decade. While I have seen some very good wells in core areas of good formations I have yet to see a company that has a self financing shale gas operation. Cash flows are negative and debt has been exploding as the EURs have been proven to be way too optimistic by the production data. This does not mean that the companies have adjusted their previous earnings reports to reflect the higher depreciation costs. That is yet to come. But before it comes we will hear the shale gas producers tell us how much better shale oil (and other liquids) are and try to raise capital for shale oil wells.
I thought the Bakken was an oil formation and not Shale gas?
The Bakken has oil and gas but the oil is more profitable. That is why many of the gas formations were set aside as the shale companies ran to cash in from the better liquids plays. The problem is that even the oil production is not very profitable and is still showing negative cash flows as well production turns out to be lower than projections.
The fact is that shale is a scam. The energy costs in producing shale oil and gas are imbedded in the costs of drilling and production. Unfortunately for speculators in the sector those costs are higher than the revenues that come from selling the products that are being produced.
Vangel, you talk as though fracking was a brand new technique, it's been around since the first wells were drilled in 1949, and around 90% of the oil wells in the USA use fracking in one way or the other. </v>
Let us be clear. Conventional wells are very different than shale wells. Fracking in shale is necessary because of the poor porosity and permeability of shale. The oil is there but you can't get it out of the reservoir because it is trapped. That is where the very expensive facking and horizontal drilling comes in. A geologist told me that the same length of pipe in a conventional field would yield more than 10,000 bpd versus a 150 bpd in a shale formation. Not only that but you would not need any fracking to get that production going. That is a huge difference that we cannot ignore. Shale is the bottom of the barrel, not some new province that will yield great returns.
What has happened recently is that reserves of gas and oil have been found in places where fracking can extract them.
But that is not exactly true. We did have wells in many of the same places. Horizontal drilling and facking have simply opened up other resources as an option. But for those resources to be true reserves they have to be economic. And if you look at the SEC filings you will quickly find that shale gas has not been very economic at all. While some wells are very profitable the average shale well is not economic. Given the current technology and situation I would argue that reserves should be written down by more than 90% in most formations. Eventually the government geologists will come around just as they did on the question of depletion of conventional fields.
I'm not sure your analogy with Nortel holds much water either, Nortel and Lucent found themselves in an extremely competitive market place with the wrong R&D strategies. They simply couldn't compete on price because of their cost base, I'll grant you Clarence's investments for Nortel weren't a success, but that's not what brought them down, the market did, because they couldn't control their costs.
It is very appropriate. The companies were reporting profits by not depreciating their assets properly. That is exactly what we have in the shale sector where wells that are assumed to produce 3.0 Bcf wind up producing less than 1.5 Bcf. The assumptions allow the producers to overstate their returns for a while but they will eventually have to restate their earnings just as Nortel and Lucent did. Just like with Nortel and Lucent the shale producer balance sheets and cash flow statements are telling investors a clear story but most investors choose not to pay attention because they like the positive narrative from the promoters much better.
If you have citations for the capital costs of the wells costing more than the energy that can be extracted I'd appreciate it if you could let us have them.
This topic has been covered in a lot of detail over the past few years. I suggest that you start with Arthur Berman's analysis, an example of which you can find at: http://www.theoildrum.com/node/8212
I also suggest that when the book comes out this May you look at Bill Powers', Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth. You can find it at the link below. Appropriately enough, Berman wrote the introduction.
http://www.amazon.com/Cold-Hungry-Dark-Exploding-Natural/dp/0865717435/ref=ntt_at_ep_dpt_1
Regarding Nortel, I was under the impression that their financial difficulties stemmed from booking sales in advance...and then never receiving cash for those sales. I was not aware that it had anything to do with not depreciating assets.
As far as I am aware, Lucent also mis-stated its profit figures by "erroneous" booking of sales. The company was simply priced out of the market by Cisco and emerging Chinese suppliers and had to merge with Alcatel. Again nothing to do with not depreciating assets.
Regarding Nortel, I was under the impression that their financial difficulties stemmed from booking sales in advance...and then never receiving cash for those sales. I was not aware that it had anything to do with not depreciating assets.
As far as I am aware, Lucent also mis-stated its profit figures by "erroneous" booking of sales. The company was simply priced out of the market by Cisco and emerging Chinese suppliers and had to merge with Alcatel. Again nothing to do with not depreciating assets.
Both companies carried assets on their books that were worthless because the technology was obsolete. The chip makers do this when they depreciate a fabrication plant over ten years even though it might be useless after five because the new manufacturing methods made the plant obsolete. I was asked some time in 1998 or 1999 to look at Potash, Nortel, and Franco Nevada. At the time Nortel was selling for more than $80 while my analysis said that it was worth $0.68-$0.75 and that was with a number of generous assumptions. When I asked an accountant friend to figure out where I went wrong he came up wit a slightly lower valuation because he used more realistic assumptions. The people who bet on Nortel at that time were wiped out while boring old Potash has managed to return 1,300% since then and Franco got taken out at a very nice premium. (Franco is back now and remains just as good a bet as it was before.)
The trick for the tech companies was to ignore reality for a while and to keep beating expectations by a penny. After a while they would do 'one-time' write-offs and start the game over again until the next 'one-time' write-off. The game ended only when the bubble burst. I expect a replay in the shale sector but anyone wishing to take a flyer on the economics of shale should be free to do so.
Vangel,
You keep talking about Shale gas being uneconomic, in spite of the fact that because of shale gas prices have tumbled for Americans...which in turns aids economic output by making it cheaper for business to make things (or to keep things running), yet you have not provided one single piece of evidence to back your claim up.
You can keep talking about how uneconomic shale gas is BUT at least do us all a favour and hack your claims up. In other words, provide a link or it never happened...and Im not talking about a link to a book that talks about a theory or some other touchy feely academic activity but actual hard core evidence (ie. something real).
Mailman
Vangel - so you agree that the problems faced by Nortel and Lucent were to do with cash flow - and not to do with depreciation. Thank you. Of course this also sheds light on the validity of your analysis of shale gas economics.
You keep talking about Shale gas being uneconomic, in spite of the fact that because of shale gas prices have tumbled for Americans...which in turns aids economic output by making it cheaper for business to make things (or to keep things running), yet you have not provided one single piece of evidence to back your claim up.
I simply point you to the SEC 10-K filings. Go and pick any American shale gas company and take a look at their cash flow statements and balance sheets. The companies are not self financing and debt has been exploding. The proof is all there. The question is why aren't you aware of this?
As for losing money to help other businesses, that might be an acceptable approach in the UK but it isn't in a capitalist economy. The idea for a company is to satisfy its customers by giving them a good product at a good price. But if that price is less than the cost of production the company goes out of business.
You can keep talking about how uneconomic shale gas is BUT at least do us all a favour and hack your claims up. In other words, provide a link or it never happened...and Im not talking about a link to a book that talks about a theory or some other touchy feely academic activity but actual hard core evidence (ie. something real).
Here you go: http://www.csmonitor.com/Environment/Latest-News-Wires/2012/0912/Chesapeake-Energy-sells-assets-to-focus-on-oil
This is typical. Companies buy land packages and drill as much as they can. There is a glut that drives prices well below the cost of production and debt is taken on the balance sheet to continue drilling. Eventually the negative cash flows and debt loads become a problem and the company has to sell off good assets to close the funding gap. When that does not work they fire the CEO and directors as they look to merge or simply declare bankruptcy.
Chesapeake is hardly alone. Even Rex Tillerson admitted that Exxon was losing money on shale gas after spending a lot of time denying the fact that the company was being hurt by low prices.
http://online.wsj.com/article/SB10001424052702303561504577492501026260464.html
It seems to me that you are simply looking at narratives from the promoters in the financial press and industry and do not look at any of the financial statements that have to be filed with the SEC. Do the work yourself. Pick ANY primary shale producer and dig up the latest 10-K on the EDGAR system. Look at the financial statements and notes and if you have the time listen to the latest conference call that is archived on the company web site. Pay particular attention to the cash flow and debt situations and listen for discussions about how funding gaps are to be closed. If you do that, as I have done, you will find that there aren't any shale gas companies that are not having major difficulties and will see most of them talk about repositioning themselves as shale liquids players as they try to sell off gas assets to other companies looking to do the same thing.
@diogenes
Vangel - so you agree that the problems faced by Nortel and Lucent were to do with cash flow - and not to do with depreciation. Thank you. Of course this also sheds light on the validity of your analysis of shale gas economics.
Of course they had cash flow problems. But they hid their problems by pretending that they were making profits that later had to be written down. The old plants and equipment should have been written down early in the game. But had the equipment manufacturers done that they would not be able to go to the market to issue new equity or to get new loans. Of course, all of us who looked at the financials could see the problem because the cash flow statements and balance sheets showed debt rising and programs that were not self financing. This is exactly what you have with the shale gas sector. The cash flows are negative and debt has been exploding on the balance sheets. That has not been a concern for investors because the income statements showed profits. The problem is that those profits were created by using depreciation rates that could not be justified by the production data. If you use a hyperbolic decline rate that gives you a 35 year well life but find that your wells do not last more than 7 years there is a problem that will eventually have to be disclosed. I have no clue why this is such a difficult concept for what seem to be intelligent individuals to grasp.
Link Vangel or it never happened.
The beautiy of using private money is that if something truly isn't working then money fries up and that something stops happening.
Sadly this is not the case for windmills and mirrors. Everyone abd their dog outside if the weirdosphere greens inhabit can see renewables is a major failure abd disaster yet because its being propped up by public money means the gravy train is divorced from reality.
Post a link to these so called shale gas companies going bust.
Mailman
Oh my, Vangel has run out of personality and only troll remains.
@mailman
Here you go: http://www.sec.gov/edgar/searchedgar/companysearch.html
Plug in any shale gas company and look at its latest 10-K. None will have positive cash flows from operations or balance sheets that show that debt has not been growing.
Here is another problem: http://i.bnet.com/blogs/laherrere-n_dakota_bakken-only-production.jpg
See the exponential rise in wells? Why isn't the average production going up?
http://tinyurl.com/b5nwsmz
And here is an admission that shale gas has been a loser. If the leading shale gas company has lost its shirt and is now moving to shale liquids you better pay attention rather than listen to narratives that have no factual support.
" The problem is that those profits were created by using depreciation rates that could not be justified by the production data. If you use a hyperbolic decline rate that gives you a 35 year well life but find that your wells do not last more than 7 years there is a problem that will eventually have to be disclosed. I have no clue why this is such a difficult concept for what seem to be intelligent individuals to grasp."
Maybe that is why intelligent people look at the EBITDA line. Or preferably we look at the cash and borrowings figures from the balance sheet, as well as at the EBITDA . Depreciation of past capital expenditure is meaningless. Profit is a derived figure, although EBITDA is slightly better because it ignores that depreciation stuff you are so interested in. Cashflow is real. As long as a company can service its operations and debt through cashflow, it is healthy. Who cares about depreciation in the short term? Of course, for long-term continuity, a company needs to generate enough cash to replace its capital stock. But, rather than asking us to plough through loads of 10k and 20f filings, why not just point out a few companies that are about to go belly-up?
Maybe that is why intelligent people look at the EBITDA line. Or preferably we look at the cash and borrowings figures from the balance sheet, as well as at the EBITDA . Depreciation of past capital expenditure is meaningless. Profit is a derived figure, although EBITDA is slightly better because it ignores that depreciation stuff you are so interested in. Cashflow is real. As long as a company can service its operations and debt through cashflow, it is healthy. Who cares about depreciation in the short term? Of course, for long-term continuity, a company needs to generate enough cash to replace its capital stock. But, rather than asking us to plough through loads of 10k and 20f filings, why not just point out a few companies that are about to go belly-up?
Who cares about the true cost of production over the short term? I suggest that would be prudent investors who are interested in something other than short term speculation. The facts on this are very clear. The shale companies have been using a lot of debt and equity dilution to finance projects that are not self financing. Since the depletion rates are so large we get a very good idea if shale gas is economic quite early in the game. Now that the deception cannot continue the shale gas companies in the US have admitted that their operations are not viable and have moved on to shale liquids.
That last bit should tell you all that you need to know about shale gas. But only if you are interested in reality and want to know the facts.
bye bye vangel...