In my last column, I tried to draw a few long range conclusions about U.S. production of shale oil, using the terrific graphics from Enno Peters of Shaleprofile.com. In this column, I promised to focus on the kind of Oil Company you’d want to be invested in, based on those conclusions. If you haven’t seen those representations of shale production from the Bakken shale play and the Eagle Ford, I invite you to take a look at them again.
(Click to enlarge)
(Click to enlarge)
The fantastic color coding of the chart not only makes clear the total production of oil, but also when each part of that production was initiated, and how efficient the wells from each year have proven to be.
One fundamental idea is that as each year goes by, a percentage of production must be re-initiated in order for total production to remain the same and a logically greater percentage in order to increase production, as has happened in every year except this one.
I know this is obvious, but it bears repeating, and these charts scream out: Oil wells cost money to drill and inevitably run dry. They need to be constantly replaced with fresh drilling to maintain output. Those drilling and maintenance costs sometimes overwhelm the returns of the oil being sold, as is the case this year and the previous two, and sometimes the returns greatly outpace the costs, as was the case before the bust in 2014. We know that most of the…
