Which producers will shut in first?

[Mike Shellman + 548]

33 minutes ago, wrs said:

Did you do your part to cut supply?  Have you shut your dripping faucets off?  It's so funny to hear you spout about over producing when it's a benefit to you but not many other producers.  What makes you special?  If you are producing oil, you are adding to the oversupply just like shale.

I always expect your rude, condescending remarks to my comments and those remarks always make me want to go out in the yard and rinse off with a garden hose. If you believe overproducing at $19 is beneficial to "other" producers, you know less about the oil industry than even I imagined. 

I have no debt associated with my production whatsoever. Most of my "dripping faucets" are still profitable at $20.  I am off 20% across the board voluntarily and involuntarily; if the TRRC were to require me to reduce my production further, I would gladly do so. I would do that because it is in the best thing for my family and the families of my employees, for the people of Texas, and the long term energy security of my country. 

 

[Douglas Buckland + 6,308]

 

“So yes, the US can raise tariffs without drawing WTO ire. What is stopping them right now is more geopolitical. If they were to pull support from its oil allies in the ME, it risks Israel's security and puts Europe in an awkward position.”

 

What I get from this is that if the US would apply tariffs on Middle Eastern oil, the Middle Eastern countries would attack Israel, who isn’t even involved in the debate. Besides being asinine and childish, this is blackmail.

 

Also, how would this put Europe in an awkward position? Furthermore, who cares? Europe does whatever it likes regardless of it’s impact internationally (the Euro4 and Euro5 requirements for example), why should the US care if Europe is inconvenienced?

[Geoff Guenther + 317]

1 minute ago, Jan van Eck said:

do not grasp the idea of putting Europe  "in an awkward position."  If the US determines that offshore oil is not going to come in, that the US market is closed (except for heavy oil from Canada, of course) the that is one less market to absorb output and Europe can pick between suppliers, presumably KSA and Russia, and continue to gete lower and lower pricing. 

The awkwardness in Europe is simply due to energy security. The Middle East has been relatively stable because of heavy-handed presence of Americans and at times Russians. Until the last few years having a strong military force has been anathema to Germany, so Europe isn't ready to take over ME oil security yet.

The US and Europe could raise tariffs on oil to protect their own interests without going all the way to "banning foreign oil", though. For Europe that could mean using the funds further developing their own energy (and energy security), and for the US it could be to help unwind shale oil in a less destructive way.

[wrs + 893]

1 minute ago, Mike Shellman said:

I always expect your rude, condescending remarks to my comments and those remarks always make me want to go out in the yard and rinse off with a garden hose. If you believe overproducing at $19 is beneficial to "other" producers, you know less about the oil industry than even I imagined. 

I have no debt associated with my production whatsoever. Most of my "dripping faucets" are still profitable at $20.  I am off 20% across the board voluntarily and involuntarily; if the TRRC were to require me to reduce my production further, I would gladly do so. I would do that because it is in the best thing for my family and the families of my employees, for the people of Texas, and the long term energy security of my country. 

 

LOL!  The condescension is all yours, you are the high and mighty one that presupposes he has all the answers and knows what is real oil and what isn't.  Why don't you keep your whiny retorts to the facts.  As to profitable at $20, no.  You might barely break even there but I doubt you are profitable.  I am pretty aware of what stripper costs are because we have required those numbers from our stripper operators on a regular basis.  We are sick of that tired old junk cluttering up our property with no real economic benefit.  Our stripper operator is in debt, maybe he should go out of business for having debt?  LOL!

[Jan van Eck + 7,558]

1 minute ago, Geoff Guenther said:

The awkwardness in Europe is simply due to energy security.

Europe can obtain oil it does not itself produce from all sorts of places, including both the USA and Canada.  All it has to do is pay for it.  I find it difficult to believe that Alberta would frown on the Europeans constructing an upgrader out there, then shipping that material and WCS to deep ports in the East, or for that matter to Thunder Bay - Duluth and using smaller tankers down the St. Lawrence Seaway. They can have all the oil they want.  And at today's prices, not even that expensive. The crude is being sold at five bucks.  Cheap enough for you? 

[U_P + 22]

14 minutes ago, Mike Shellman said:

I always expect your rude, condescending remarks to my comments and those remarks always make me want to go out in the yard and rinse off with a garden hose. If you believe overproducing at $19 is beneficial to "other" producers, you know less about the oil industry than even I imagined. 

I have no debt associated with my production whatsoever. Most of my "dripping faucets" are still profitable at $20.  I am off 20% across the board voluntarily and involuntarily; if the TRRC were to require me to reduce my production further, I would gladly do so. I would do that because it is in the best thing for my family and the families of my employees, for the people of Texas, and the long term energy security of my country. 

 

Mr Shellman, leave it be, no need to actually waste your time here. Just know that you have my full admiration for the work you have been doing these past years, which has helped people like myself (who work for global oil giants in strategic planning) to have a much better understanding of some "hidden" dynamics within the industryphysically closer to the oil well. I really miss the informed discussions of the past on OILPRO.

Unfortunately here we an echo chamber with people with only a marginal understanding of the business.

Thanks again and keep up the good work!

[wrs + 893]

Maybe we should have asked who will go bankrupt first.

https://www.zerohedge.com/energy/whiting-petroleum-files-bankruptcy

Edited April 1, 2020 by wrs

[Gerry Maddoux + 3,627]

On 3/30/2020 at 11:35 AM, Gerry Maddoux said:

The next to fall could be Whiting. Their share price maxed out about five years ago at $90. They acquired Kodiac at top dollar. Today, Whiting is trading at $0.66/share and they've tapped a nonrevolver for $650 M--to squeeze the last paste from the tube. I'm actually rooting for them: despite making one poor choice, they've continued to improve completion techniques. Bankruptcy is in the air, however. 

To be fair, I posted the above only two days ago. But it could be seen that they were headed down the rabbit hole. I'll have to look into that $650M tap, as I'm sure others are doing so. At any rate, that big cash infusion puts them in a pretty spot for restructuring, I would imagine. I would think they checked all the boxes on this before they pulled the trigger. 

[Gerry Maddoux + 3,627]

The Whiting bankruptcy filing is just staggering: 1) They tapped their revolver for $650 million about three days ago. 2) They have reviewed the ownership tickets and feel that they can retain 3.4B in NOLs--thus paying no federal income tax on that amount. 3) They have $585M in cash. 4) The bondholders, of course, receive a staggering 97% of equity in the company (3% to shareholders--not sure about preferred). 

On the face of it, if they can get this through bankruptcy court, they will come out lean and mean, owning some great property to drill out during the remainder of the "Age of Petroleum." The sheer audacity of this filing stuns the imagination! 

But, going from a share price of $150 to $0.35 stuns the imagination too, especially when you consider how recklessly the company was managed. This, I'm sorry to say, is more representative of shale than the exception: CEO makes roughly $10M in the last five years, while steering the company toward eventual ruin, all the while getting up at energy conference after conference to reassure every fool how great the company was. Private equity is not coming back!

Note: This is not a Texas company. Whiting is a very good driller/operator in the Williston, and also in the D-J Basin. However, as one after another of these companies pulls the same lever--emptying the revolver, stashing NOLs and cash, but showing that at $10-20 oil and $1.80 gas there is no way to produce oil and gas at a profit--the stage is being set for another great push in the world of shale.

As someone who knows quite a bit about them, I can tell you without reservation that this company does about as good a job with drilling/completion as any--they just took on immense debt at precisely the wrong time. This right here is the reality of where the bulk of US onshore oil and gas is at the current time. There are 6,000 of these companies! Most of them smaller than Whiting!

This is going to be the most dramatic reset of the oil and gas industry the world has ever seen. The new new? No debt, gobs of tax write-offs, good substrate. Will a company like Whiting be able to produce oil and gas at a breakeven of $20/$1.80?  

[Ward Smith + 6,615]

4 hours ago, Mike Shellman said:

Mr. Smith, thank you; my day will be much better knowing I am not a moron. I was not able to see your comments to what I assume is this article of mine? 

https://www.oilystuffblog.com/single-post/2020/03/15/The-SPR-Fiasco

Two weeks ago my math was spot on. The filling of the SPR was designed to help the US shale oil sector at what was then a price of $35 and a net back price of below $10 after all extraction costs are deducted from a gross barrel, including G&A and interest expense per incremental BO. That 77MM BO into the SPR would have been nothing more than pissing into a norther and getting it all over your pants leg. My total public and private debt estimates for US shale oil are good; the US shale oil sector has to pay $18 some odd billion a year to pay interest on that debt. I stand by my work. Now, of course, all of that is irrelevant as the deal is off the table and in all shale oil plays in America  the net back oil price is now negative. For the oil industry the SPR thing is a nothing burger.  

Tariffs on the 600K BOPD of Saudi imports, or stopping KSA imports completely, is yet another government fake fix. It  will not work and destroy 23% of our refinery capacity along the GC. It would be a tax on the consumer.

The mighty US shale oil industry needs to go to the corner and take a time out. Its leveraged overproduction is destroying itself, and the rest of the American oil industry. From 2016-2020 OPEC and Russia reduced their production to keep the price of oil propped up worldwide; to return the favor the US put 4MM MORE BOPD on the market, all on credit, and took OPEC and Russia market share. Now we're getting paid back. America must slow shale oil production development commensurate with worldwide market conditions to ensure a higher price, stability and job security. Texas can do that, within its statutory resource laws, and we don't need permission from Washington or anywhere else. I have proposed the TRRC go back to Statewide Rule 37 and 1200 foot spacing between wells until the market is balanced again, and Texas helps the rest of the world to KEEP that market balanced. There is also recent news regarding proration efforts again before the TRRC, which I also support...as should all Texas concerned about their last remaining hydrocarbon resources being negligently wasted.

Anger and hatred against OPEC and Russia is emotional and not rooted in reality. We, the US, Texas, need to join with the entire rest of the world to limit production...before there is nothing left of the oil and natural gas industry. 

Have a good day, sir! 

Sir, in my defense, I was coming to your defense, after someone mistakenly assumed you were with the government, which we all know is infested with morons. He's since apologized so all is good. 

My math comment had to do with all the bits between some $2.6 billion and the $650 million your article mentioned. You've filled in your details a bit more, so now I know how you got to your number. Much of the SPR has been filled "in kind" rather than in cash, that is, royalties. I'm pretty sure some offshore folks complained to their friendly neighborhood lobbyists to protect their own interests. 

I agree about TRRC and meant to link a world oil article interviewing Christian on that very subject, but squirrels. 

Cheers my man, nothing but respect. Stay safe

[Ward Smith + 6,615]

Yahoo's list of the unlucky 7

Edited April 1, 2020 by Ward Smith
Cleaned double post

[Ward Smith + 6,615]

8 hours ago, U_P said:

May I ask to point out the flaws in Mike Shellman math?

Regarding the SPR tainting, if you think the ship were the problem, you are teling me that huge sophisticated organization would go after the US government first rather than move a claim against the cargo operator?

I guess I have read enough sir, I am truly sorry for your poor understanding of the complexities of modern crude logistics and the legal and commercial implications of it all.

If you're going to take, as gospel an article in freaking popular mechanics then that's your problem. I'd prefer to see a source like World Oil, OGJ, SPE, you know in the business you claim you're in! I wasn't at the last joint meeting of the COQA/CCQTA but was at a previous meeting where contamination in transit was discussed at length. But yeah, you're the expert. Enjoy your basement big shot

[Dan Clemmensen + 1,011]

9 hours ago, Gerry Maddoux said:

Yes, the market can be oversupplied for a very long period of time. If it is, storage will fill up. And that very thing has been happening for well over a year. There is a lot of storage out there and for a while the exponential growth of LNG worked its magic, but then even LNG couldn't keep up with the tremendous amount of natural gas being expelled from the earth. 

Your comment, Dan, was surely made about wholly rational people running a rational business. Rational is not a word you'll hear used a lot in the shale basin. This rout has been looking for a time to nest for quite some time. That time is now. 

OK, we are not quite on the same page. I'm trying to discuss physical production, storage, and consumption of crude oil, not all of the bookkeeping that surrounds it. At the physical level,  change in storage must equal production minus consumption.  change in storage must average to zero in the long run because storage is finite. So I think we differ in perception of "a very long time". During the year 2019, (i.e., prior to Covid-19) what was the change in storage?Take that number and divide by 365 to get change in storage measured in bbl/day. That number is quite small. My guess is it's less than 1 million bbl/day, so yes, production and consumption were roughly in balance. But now, production already exceeds consumption by more than 10 million bbl/day and is projected to exceed 20 million bbl/day by mid-May. This must physically stop when all possible storage is filled, no matter what kind of numbers the bookkeepers come up with and no matter how irrational the producers are.

[Dan Clemmensen + 1,011]

10 hours ago, Douglas Buckland said:

So, the price of gasoline goes down to the point where the gas stations cannot afford to stay in business (and make a profit), so they all close down....is that correct?

Yes, that is correct in essence. They stay in operation as convenience stores and they call up their gasoline supplier and tell them to not send the next gasoline tanker because their storage tanks are still full. On average we are driving half as much so on average each station needs half as many deliveries as they did in January. They will keep dong this until we are able to come out of lockdown. In this regard they are in pretty much the same situation as all of the other retailers in the state.

Edited April 1, 2020 by Dan Clemmensen

[wrs + 893]

2 hours ago, Dan Clemmensen said:

Yes, that is correct in essence. They stay in operation as convenience stores and they call up their gasoline supplier and tell them to not send the next gasoline tanker because their storage tanks are still full. On average we are driving half as much so on average each station needs half as many deliveries as they did in January. They will keep dong this until we are able to come out of lockdown. In this regard they are in pretty much the same situation as all of the other retailers in the state.

It's the gas that sells the stuff in the store, not the other way around.  If  no one stops for gas, no one buys their overpriced in store items.

Edited April 1, 2020 by wrs

[Dan Clemmensen + 1,011]

11 minutes ago, wrs said:

It's that gas that sells the stuff in the store, not the other way around.  If  no one stops for gas, no one buys their overpriced in store items.

True, mostly. They are also neighborhood stores, and not everybody wants to go to the big grocery stores right now. They are not any different than all the other retailers with radically reduced revenue, like restaurants who can only do carry-out or delivery. They are slightly better off than bars, malls, and retail shops that do not sell non-essential goods, where revenue is now zero. I am not describing a theoretical situation. I am describing the current situation in my state, my city, my neighborhood.

[Bob D + 562]

Filled up at $1.59/gallon this morning.  Houston TX

 

[Gerry Maddoux + 3,627]

45 minutes ago, Dan Clemmensen said:

OK, we are not quite on the same page. I'm trying to discuss physical production, storage, and consumption of crude oil, not all of the bookkeeping that surrounds it. At the physical level,  change in storage must equal production minus consumption.  change in storage must average to zero in the long run because storage is finite. So I think we differ in perception of "a very long time". During the year 2019, (i.e., prior to Covid-19) what was the change in storage?Take that number and divide by 365 to get change in storage measured in bbl/day. That number is quite small. My guess is it's less than 1 million bbl/day, so yes, production and consumption were roughly in balance. But now, production already exceeds consumption by more than 10 million bbl/day and is projected to exceed 20 million bbl/day by mid-May. This must physically stop when all possible storage is filled, no matter what kind of numbers the bookkeepers come up with and no matter how irrational the producers are.

We're not only not on the same page, we're not in the same book.

Storage in the oil market means global storage. As such, it's notoriously difficult to measure. China, for example, has been "storing" an awful lot of oil--they have a SPR second only to the US. Is China's storage filled up? You tell me. The US had active plans to buy 65 million barrels and fill our own SPR back to brimming, but had to use the money for the $2T stimulus package instead. 

Storage is measured by analytical agencies via subscriptions to satellite imaging. This only works when "the lid is off." All of the US SPR is underground, in caverns that line the crescent of the Gulf Coast. China has underground SPR too. For all we know, the Chinese may be using the Spratley Islands for storage. There is storage capacity floating around the world's oceans, as we speak. It is looking for a home. 

In a manner of speaking, you're right. There was an equilibrium of sorts. But crude oil was going into more and more flexible storage long before the Covid-19 pandemic began in earnest. And your last sentence is exactly what has happened: production in America is set to slow more profoundly than any time in history. As companies go bankrupt, the ones able to negotiate bankruptcy court will emerge lean and mean. Some of them will hold significant holdings. In the interim, with back-prices of WTI basically at $10-20/bll, US production will fall. 

The conundrum for the Saudis and also the Russians is that US production is not going to fall off a cliff. There are hundreds of thousands of producing stripper wells and it's still cheaper to service them than to pay the $30,000 to plug one--you have to plug 10% of end-of-life wells each year. Then, also, Guyana production by Exxon/Hess is ongoing, picking up steam, and they've already ordered their Liza Destiny and Liza Unity units--each capable of managing horrendous volumes of natural gas so they've found a lot of oil. The entire buildout of Stabroek Block (20 finds) is moving ahead. With each month, there will be more production down there. Additionally, not all the shale production is going to be shut in: it will be at best prorated and I would imagine that case by case consideration will be given. 

The result of all this is going to be that bloodbath shown on the Internet this morning: derricks slurping out red oil. As the price of WTI falls more and more--as the pandemic drags on and people withdraw from activity outside their homes--more and more companies will have to take say $5 for their oil. Or perhaps even pay to give it away. Crack spreads have deteriorated to upside down. Resulting from this will be an estimated 4,200 failures of small to medium-sized shale drillers, along with countless oil service companies, shedding hundreds of thousands of workers who will never come back to oil. Laid down rigs and entire fracking fleets are going to rust in the West Texas sun. A few of those companies will be worthy of negotiating a restructuring . . . and some will actually be able to make a buck at $30 oil. 

But storage? Gee, that's going to take a long time to work off, globally. China is obviously storing oil with the long view. The US, unfortunately, has allowed her SPR tanks to go un-topped-off, primarily because it has been presupposed for some time now that we were energy-independent. In the current situation, both oil production companies and refineries are on their way to going broke. There is no easy fix. The president is obviously loath to intervene, for whatever reason. The bankruptcy wave is upon us now--they're shooting at our regiment and their aim is good. I'm not particularly blaming the Saudis--American shale bankruptcy was coming, hell or high water, long before they declared jihad--but the Saudis can't hang on until this utter bloodbath gets rinsed down the drain--this is not Jamal Khashoggi. They will try, and in the process probably lose (forever) about the same as they lost 2014-2016 (a reported $550B from their sovereign wealth fund). 

You obviously want to hear about so many tanks filled to a certain level, up and down, measurable. That's not how the world of oil works. Storage? Who knows how much is out there. Is it full? No. Should be price be higher? Well, duh!

[Dan Clemmensen + 1,011]

5 minutes ago, Gerry Maddoux said:

We're not only not on the same page, we're not in the same book.

Storage in the oil market means global storage. As such, it's notoriously difficult to measure. China, for example, has been "storing" an awful lot of oil--they have a SPR second only to the US. Is China's storage filled up? You tell me. The US had active plans to buy 65 million barrels and fill our own SPR back to brimming, but had to use the money for the $2T stimulus package instead. 

Storage is measured by analytical agencies via subscriptions to satellite imaging. This only works when "the lid is off." All of the US SPR is underground, in caverns that line the crescent of the Gulf Coast. China has underground SPR too. For all we know, the Chinese may be using the Spratley Islands for storage. There is storage capacity floating around the world's oceans, as we speak. It is looking for a home. 

[...]

You obviously want to hear about so many tanks filled to a certain level, up and down, measurable. That's not how the world of oil works. Storage? Who knows how much is out there. Is it full? No. Should be price be higher? Well, duh!

Thanks for your detailed response. Just to calibrate: if we hit a physical production surplus of 20 million bbl/day, the available US SPR capacity can store just over two day's worth of surplus.  The SPR has a physical max fill rate of about 2 million bbl/day, so there would need to be 10 such facilities in the world and they would fill in 20 days.  Each day's surplus will fill more than 6 VLCCs. Three days' surplus would fill Cushing all the way up if it started from empty.

When production exceeds consumption, then in a market economy the price falls, so I don't know what you mean by "should the price be higher"? In a free market (that OPEC has suppressed for the last 50 years) The price falls to the cost of production plus an  acceptable profit. All of this is bookkeeping. That bookkeeping is vitally important to everybody in the industry and to all of consumers (i.e., to the entire economy) but does not immediately affect the basic equation of physical production, consumption, and storage.

[Mike Shellman + 548]

5 hours ago, U_P said:

Mr Shellman, leave it be, no need to actually waste your time here. Just know that you have my full admiration for the work you have been doing these past years, which has helped people like myself (who work for global oil giants in strategic planning) to have a much better understanding of some "hidden" dynamics within the industryphysically closer to the oil well. I really miss the informed discussions of the past on OILPRO.

Unfortunately here we an echo chamber with people with only a marginal understanding of the business.

Thanks again and keep up the good work!

Thank you very much for your support. My apologies to the community once again for my posting, which always seems to draw the ire of a few. 

[0R0 + 6,251]

On 3/30/2020 at 8:27 PM, Ward Smith said:

We've been flattening the curve with closed schools etc. The CDC in a case of criminal negligence would not allow the University of Washington medical school to perform its own tests. Then when they couldn't stand it after two weeks of inaction, they risked approbation and performed the test. CDC demanded they stop testing!! The CDC contacted the FDA who likewise demanded they stop testing. This after they found positive Covid19! They risked their medical school qualification to continue testing. Otherwise we'd be even further along in the bad curve. 

There is plenty of blame to go around here. And before everyone blames Trump, these were leftover bunglecrats from the Obama administration. 

Deliberate sabotage. Like the caricature says, Dems don't want a cure, don't want the disease to go away but want an epidemic and for it to be Trump's fault. They must be CCP agents. This version of the democratic party, a leftover of the Soviet propaganda machine of the 1930s has to be exposed as partners with the CCP. 

[John Snyder + 4]

On 3/30/2020 at 12:35 PM, Gerry Maddoux said:

You're lucky to be in the sweetest of the sweet spots with a savvy operator. Lots of companies are going to be claimed; some of them quite good. 

The next to fall could be Whiting. Their share price maxed out about five years ago at $90. They acquired Kodiac at top dollar. Today, Whiting is trading at $0.66/share and they've tapped a nonrevolver for $650 M--to squeeze the last paste from the tube. I'm actually rooting for them: despite making one poor choice, they've continued to improve completion techniques. Bankruptcy is in the air, however. 

Pretty soon, going to be awful hard to stop this destruction. Not sure of the answer, or if there even is one. Maybe best to just let her rip and see how it plays out. One thing is for sure: someone will always pick up the pieces and try to build something from them. I don't believe that either the prince or Putin fully understand that.  

WHITING PETROLEUM CORPORATION REACHES AGREEMENT IN PRINCIPLE WITH CERTAIN OF ITS NOTEHOLDERS TO PURSUE CONSENSUAL FINANCIAL RESTRUCTURING

[John Snyder + 4]

http://whiting.com/restructuring-information/

[Tom Kirkman + 8,860]

7 hours ago, U_P said:

Mr Shellman did not use other people's money to pump his oil, just to lose it all mr wrs, but alas, I think global industry dynamics and the interchange between monetary policy, resource extraction and depletion is beyond you. Again, mr Shellman does not need me to come to his defence and has had my utmost respect since 2014-2015 when he used to post on OILPRO forums and has so far been spot on with his analysis along with Art Berman. 

You just made my day.  Mike was a fellow moderator over on the old Oilpro forum, and I have a very high respect for the gentleman.

[Tom Kirkman + 8,860]

53 minutes ago, Mike Shellman said:

Thank you very much for your support. My apologies to the community once again for my posting, which always seems to draw the ire of a few. 

No need to apologize, Mike.  Please do take note of the number of supporters you have here.

And you can borrow my old tag line if you wish...

Just my opinion; as always, you are free to disagree.