Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke

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In an instant, Chesapeake Energy Corp. will erase the equivalent of 1.1 billion barrels of oil from its books.

Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel.

Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.

But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years.

Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers’ reserves. The reckoning is coming in the next few months, when the companies report 2015 figures.

More at Bloomberg: http://www.bloomberg.com/news/articles/2015-12-10/billions-of-barrels-of-oil-vanish-in-a-puff-of-accounting-smoke

[99th_Monkey]

1. Last gasps of a dying industry,

or the beginnings of the last gasps (at the very least).

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3. Assuming...

that it actually happens and they don't get congress to give them an out.

[99th_Monkey]

7. true dat. n/t

[arcane1]

2. Wow. This explains so many things this week!!

[Warpy]

4. Well, it's all still there, they just can't get to it

because it would cost so much to extract and the feasibility was based on $100/barrel oil.

I just hope the rock bottom prices don't get fools buying SUVs and monster trucks again.

[Tab]

5. Would not the price go up?

It's not my area of expertise, but if the write-offs were tossed, wouldn't the price go up? We're not the only ones influencing the price, but we're a good chunk.

[Warpy]

6. Dunno, it had a big drop day before yesterday

I don't know if this will get people thinking they'll make a killing on cheap spot market futures or not. I do know hedge funds worldwide are not getting the returns they got used to when Stupid was in office before the crash and I know they heavily influence commodities markets, so I would expect the price to go up over the next several days.

The main pressure keeping it low is geopolitical pressure, cutting ISIL's income stream by 2/3.

[JDPriestly]

9. We should go with Bernie's plan to change more quickly to alternative energy sources than

we have been doing. We should impose high taxes on oil products and use the money to invest in renewable energy.l It will be tough for a while, but we have to do it. As it is our economy is beholden to foreign and sometimes hostile interests. We should wise up.

[Spitfire of ATJ]

11. Put those roughneck oil drillers to work drilling geothermal.

[Warpy]

14. Putting the Pentagon on a diet would help

since they're the biggest single fossil fuel user. It would also help a lot to start growing industrial hemp again. Not only would that decrease the need for wood pulp and help reforestation, the oil from hemp seed can replace a lot of petroleum products.

We'll still need petroleum type products, especially in agriculture.

Research into carbon fixing bacteria also needs to be better funded.

We've actually been transitioning to cleaner energy my whole lifetime: coal central heating to natural gas or oil; wasteful incandescent lights to LEDs and CFLs; a move away from heavy, inefficient, heavily polluting vehicles to lighter cars with catalytic converters and now a move to hybrids and EVs. Even major appliances have increased efficiency. Without being particularly inconvenienced, we've all been cutting down our carbon footprints without much realizing it. We've even gone from energy sucking CRTs to LED screens. Even the conversion away from land lines and cable TV saves energy by not needing the production of millions of miles of infrastructure.

I feel pretty optimistic that we will manage not to cook the planet completely. The transition is likely to get more difficult as more area faces desertification.

We just need to learn how to kick the conservatives in both parties out of our way.

[JDPriestly]

16. Great ideas. Great post. Thanks.

[pampango]

17. Nice post. Now is a good time to put "high taxes on oil products" since prices are low.

It would be much harder to do once oil prices go up again. Progressive countries have high oil and gas prices and promote mass transportation and renewable energy. We can do the same.

[Rex]

8. Chump change. The CEOs needed some extra xmas money.

[Spitfire of ATJ]

10. I say LET them loose their money for being asshole enough to not give a damn about the earth.

[arikara]

12. I hope they all go belly up

Fracking is an ugly, insane industry. Whoever came up with the sick idea deserves to rot in hell.

[newfie11]

13. +1

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15. + more

Fracking for me is a NIMBY (not in my back yard) and frankly it shouldn't be in anyone's back yard.

I don't live where it's in my yard anyway, but I would be pissed if I was in that area, and I have always been frustrated to read these things about people in a fracking state where they have sulphur in the water or whatever. I have yet to hear a thing that comes close to justifying the continued procedure. The original test(s), sure, but now we have communities and major lawsuits and we're continuing in the face of denials and now it reminds me of many industries - same crap over tobacco and global warming.

This stuff is nasty, but our policies are ruining our own country, never mind other countries (via other policies). We don't have enough respect for our own country.