Peak oil researcher says shale profits proving ephemeral

A prominent proponent of peak oil theory — the idea that global petroleum production will peak and then begin dropping off permanently — says that recent Big Oil profit drops show that profits from shale are more elusive than commonly expected.

Many of the oil industry’s big players wrote down the value of their shale assets for second quarter — a move that indicates the continuing challenge of making many of the shale plays financially viable, according to Art Berman, a petroleum geologist and director of the Association for the Study of Peak Oil. Berman, a Houston-area geologist, has been questioning the economics of shale gas for years, particularly in terms of the potential reserves.

Last week, Shell reported a 20 percent profit drop for second quarter, which it partially attributed to write-offs of some of its shale positions rich in natural gas liquids and oil, according to Simon Henry, Shell’s chief financial officer, at the second quarter earnings call.

“Recent revelations and write-downs of shale assets in North America by Shell, ExxonMobil and Chevron support our research that big companies cannot make money on low rate-low volume shale wells,” wrote Art Berman in an article on Petroleum Truth Report.

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Berman said that when ExxonMobil purchased XTO Energy in 2010, it began the acceptance of shale reserves as a potential income driver, and optimistic estimates were made about the potential production of many of these wells. But falling oil and gas production helped push earnings down 57 percent for the second quarter.

Berman predicts that the companies will begin to move out of the shale plays because of the difficulty in making them profitable.

“I believe that we are seeing the slow liquidation of these organizations but they cannot let the investment public know that this is what is occurring,” Berman wrote. “Hence the cornucopian rhetoric about the shale revolution and North American becoming the next Saudi Arabia –pure poppycock, of course.”

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Shell says it is carefully reviewing its investment for possible cuts.

“We are now entering a period of focusing our portfolio down to our best liquids plays, whilst maintaining key dry gas assets for longer term integration value,” Simon said. “We have some nine operational theaters in North America. I think you can take that this will reduce to about half that number overtime as we focus down this portfolio while growing our business.”