Posted on 07/24/2015 11:13:14 AM PDT by bananaman22
The plunge in oil prices last year led many to say that a decline in U.S. oil production wouldn't be far behind. This was because almost all the growth in U.S. production in recent years had come from high-cost tight oil deposits which could not be profitable at these new lower oil prices. These wells were also known to have production declines that averaged 40 percent per year. Overall U.S. production, however, confounded the conventional logic and continued to rise--until early June when it stalled and then dropped slightly.
Anyone who understood that U.S. drillers in shale plays had large inventories of drilled, but not yet completed wells, knew that production would probably rise for some time into 2015--even as the number of rigs operating plummeted.
Shale drillers who are in debt--and most of the independents are heavily in debt--simply must get some revenue out of wells already drilled to maintain interest payments. Some oil production even at these low prices is better than none. Only large international oil companies--who don't have huge debt loads related to their tight oil wells--have the luxury of waiting for higher prices before completing those wells.
(Excerpt) Read more at oilprice.com ...
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Crude Oil Sep 15 (CLU15.NYM)
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My best friend works as an accountant for an oil and gas firm. If economist believe that there is a detailed understanding of what price point the ROI fails per well, they are seriously mistaken.
No doubt that there are controls in place to keep the company financially viable, but the idea that they understand the detailed costs per well is a mistake.
I’ve allowed myself to drift on this today... I’ve tried to ignore it all since I can’t do a thing about it.
Maybe the shale thing was supported by the fraclog... can make sense.
Some musings.
One slide, slide #49, is about all you need to know about the long term.
http://www.iea.org/oilmarketreport/2014_06_18_Oslo_MTOMR%202014.pdf
Fundamentals are not good and that is clear. IEA is a mixed bag and changes their number like I change shirts but their trends tend to hold water. The data says that we are still awash in oil and the people who trade think that picture will get worse instead of better for prices because of Iran now.
https://www.iea.org/oilmarketreport/omrpublic/
I misread the tea leaves this time and so far. I thought that we would be coming back into balance by now and that we would be seeing solid 70s with brightening prospects but not a surge. I figured the firming would take place about now and that the increase would be moderated by the end of summer driving season and the turn-arounds in refineries of winter.
I did not see the Saudis increasing production so much. Didn’t think they had the capacity. They allegedly have 1.9 mmbo in projects available but pickled for now. I also figured the Iranian picture was already factored in. The only thing I got right or close was consumption and I underestimated the growth of that. Shale has somehow held up much better than ever anticipated though IEA suggests this is falling soon. Domestic production is actually up according to EIA instead of down. I may tune my model this weekend but I’m having less interest in it now since it is just a serious game with some changeable rules that I can’t predict or control... it will be what it will be in spite of all I do... the only thing I can do is respond, somehow.
US stocks were falling nicely until the last few weeks... can’t quite figure that out. It was falling almost on track with my model.
All that said.. my production / consumption / storage forecast did not predict stocks or imbalance falling until about now. The price forecast I made was based on rational thought and bubbling up of outlook... it has not happened... obviously.
If I did not mistrust myself for being guilty of wishful thinking I might think I was seeing stocks peak and production beginning to turn downward.
http://www.eia.gov/petroleum/weekly/crude.cfm
Some of the bigger players... see firming next year in the summer season making this a nearly two year bottom. With oil, that is too far out. Too much can happen we just don’t know about. It is a geopolitical and fundamentals driven commodity with long term development factors. Geopolitical trumps all.
The bigger players are now starting to batten down the hatches. I’m seeing it in manufacturing and service companies and hearing it in the operator side. We
will see slaughter in the upstream by fall if things don’t improve as they feel the need to entrench of for a very long winter when they finish the first draft of the planning cycle this next month. You have done planning... there is always planner’s droop and the response is almost always cautious.
They say it is always darkest before the dawn but it has to quit getting darker first. Like back in the day I was in Scouts spending the night in a sleeping bag too thin for the cold, I’m waiting for the sun.
?
The Saudis have long been overproducing to deliberately undermine U.S. domestic producers.
What happens when the now-empowered Iranian regime starts exporting their oil with the same intent?
Thanks a lot, Bammie!
Mostly true. On large projects I worked on I can tell you with certainty that going in they know as much about gearing of the project and risk to price, cost, production and reserves as they can with all sorts of contingency in the numbers.
Once the trigger is pulled on a large project they monitor but just keep going... they have no choice really once the trigger is pulled.
On a well by well basis it is much the same. I did the same thing for small wells and small companies that I’ve done for mega-projects. I can’t say that about many others... in the small oil company game it is not so sophisticated.
Drill, baby, drill!
;-)
The Iran deal was a way for Obama to avoid making a very difficult choice. Unfortunately, that choice was “who do I hate more- Israel or US oil producers?” Instead, he believes he has found a way to destroy both instead of picking just one.
You nailed it!
If prices drop, how many of us will drive more? I used to go on “adventures” all the time because driving was the one thing I would spend my money on to do something for free, mostly go to parks. Not anymore.
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