Supplies are abundant,
after hundreds of billions
of dollars invested in shale.
But long-term demand
looks shaky, with the
transition to renewables.
“Oil companies have struggled
to reap the profits of old and
are falling out of favor
with investors amid fears
that electric vehicles and
renewable energy, along with
government regulations
to address a warming planet,
will constrain their futures,”
the Wall Street Journal concluded.
Chevron said it would
write down $11 billion
in assets in 4Q 2019,
mainly tied to natural gas
assets in Appalachia.
Due to a combination
of supply surpluses,
low prices, and the
struggle to make a profit
in large-scale shale drilling.
Chevron lowered its
long-term forecast
for oil and gas prices,
which directly impacted
the value of its assets.
The Wall Street Journal
said asset write downs
will spread, with Chevron
forcing others to:
“publicly reassess the value
of their holdings in the face
of a global supply glut and
growing investor concerns
about the long-term future
of fossil fuels.”
For shale gas drilling
in Appalachia, low prices
have led to a track record
of not producing any profits.
An IEEFA study found
that the seven largest
Appalachian gas drillers
burned through a half
a billion dollars in 3Q 2019.
“Despite booming gas output,
Appalachian oil and gas
companies consistently failed
to produce positive cash flow
over the past five quarters,”
the IEEFA report said.
Chevron is also
writing down some value
in its Canada Liquid
Natural Gas project.
Schlumberger took
a massive $12.7 billion
write down in October,
due to the slowdown
in shale drilling.
BP wrote down $2.6 billion
in assets in October.
Repsol took a $5 billion
write down recently.
Chevron is still heavily
investing in U.S Permian
shale drilling and hopes
to produce 900,000 bpd
from the Permian by 2023.
But after several years
of working in West Texas,
Chevron’s Permian business
has not yet achieved positive
cash flow !
During a third quarter
earnings call, Chevron’s
Executive Vice President,
Upstream Jay Johnson said
this about West Texas:
“We are still expecting to have
free cash flow positive next year.”
That confident promise
has been heard a lot,
over the years,
for U.S. shale drilling.