This was a question my dear friend and mentor Rick Rule of Sprott asked the Energy Panel at the New Orleans Investment Conference.
A good question, I think, because there’s a lot of misinformation in the media about shale, and for many years in these missives I have been trying to bring the facts to light.
For example, on August 6, 2013, in an article titled “The Coming Shale Writedowns,” I wrote:
Not all shales are equal. Some shales are deeper than others; and some are dry gas, while others are gas with liquids. In North America, billions of dollars have gone into developing all types of shale formations to extract as much natural gas, natural-gas liquids, and oil as possible. ….
Remember, not all shale formations are the same, similar to how not all gold deposits are the same.
The growth of US and Canadian oil production from shale has been very impressive. To put it in context, the graph below, using data from the US Energy Information Administration (EIA), shows how important it’s been for the two countries.
However, the oil price has averaged US$87.50 per barrel since 2009, which fueled the exploration and production of many shale formations.
I’m a big believer in technology, and it’s been advancing in the oil patch at an extraordinary rate—such that today’s unconventional extraction methods will be considered conventional tomorrow.
So back to the question: is shale oil a Ponzi scheme at $75 per barrel?
My answer is no. Though there are some shale formations that don’t work at such a low oil price, there are formations—and specific sections within those shale formations—that are very profitable even at $75/bbl.
The best companies in the field use advanced technologies to unlock the oil from the shale and increase their margins, and that’s where the growth seen in the above chart comes from.
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