My 14 February 2014 wire began by warning Steer clear of Red Fork Energy. Its financial model seemed doomed to failure. Now, the company has flagged its assets are for sale for the very reasons referred to in the earlier wire. The same risk (and warning) applies to any of the companies buying into extremely short life US oil wells. The US energy scene is not as friendly as many had expected. News broke last week that the estimate of recoverable oil from the Monterey shale formation in California will be cut by 96% when the US Energy Information Administration updates its 2011 estimate, based on the analysis of an external consultant, in June. On a closer look, existing technology appears unable to cope with a far more complicated geological setting than the industry had been promoting.
This is clearly a game for the big oil and gas companies. The cost of technical failures on junior companies is too much of a burden for them to sustain.