WE have a suicidal player in the energy industry

[cloudslicer + 6]

I'm sure you are all aware of Alexander Novak, the destroyer of worlds, who is using Russia's sovereign wealth fund to subsidies oil at below break even costs to kill US/Canadian OIL.

So what are our alternatives?

If we have a market place under attack from a political driven entity I think we leave such a marketplace were price is driven by supply and demand. Does anyone have any ideas?

I propose we use our domestic energy only and disconnect from the outside world oil and gas import/export until Novak changes his mind or winds up being removed. This is not a global marketplace it is now a political policy tool of a madman.

 

[SERWIN + 749]

I agree, we need to cut off the outside suppliers as much as we can for a while, let the industry stabilize and while doing so keep our oil infrastructure intact. If these games keep on and we don't force buying from domestic sources then we run the risk of destroying what we have, and then when something causes a disruption we are back to the gas lines of the 70's. Call it for "National Security" purposes....

[wrs + 893]

The only problem is that "we" do not own the oil that is produced.  Oil in the US is produced under a mostly free market and so it's a joint endeavor between mineral owners, operators and the states in which the oil is produced. The federal govt has no say whatsoever in oil production.

[Justin Hicks + 162]

Tell ya what you do.

You hang on for a ride that " medium oil" producers like Continental Resources pushed for and created when they failed to curtail production when OPEC was originally making cuts to stabilize the market.

You actually believe the Saudis or Russia are in any way shape or form concerned with what happens to US shale??

April's coming, you ain't seen nothing yet.

[surrept33 + 609]

Novak just does what Putin and his cronies (Sechin from Rosneft) tell him to do. I feel like Russia, felt that they thought they were well positioned to let the OPEC deal expire instead of cutting more (with reduced demand from COVID, this would have just ceded more market share to shale). For better or worse, the Russian current account, ruble, and budget were much better prepared for low oil prices than they were in 2014. Of course, I don't think they wanted oil prices to go down as much as they have; that was more of MBS's doing.

[BLA + 1,666]

28 minutes ago, Justin Hicks said:

Tell ya what you do.

You hang on for a ride that " medium oil" producers like Continental Resources pushed for and created when they failed to curtail production when OPEC was originally making cuts to stabilize the market.

You actually believe the Saudis or Russia are in any way shape or form concerned with what happens to US shale??

April's coming, you ain't seen nothing yet.

JH  isCorrect.  Ain't seen Nothin yet.

We are looking at 20 to 25 mm bbls/day glut coming in April.

Saudi and Russia just desperation moves.  They have to try something.  They have to have a sacrificial lamb (U.S.) to blame when the cut the 20,000 princes their stipend is cut in half.  

This was coming over next two years.  Virus just accelerated it. 

 

Edited March 30, 2020 by BLA

[Yoshiro Kamamura + 274]

7 hours ago, wrs said:

The only problem is that "we" do not own the oil that is produced.  Oil in the US is produced under a mostly free market and so it's a joint endeavor between mineral owners, operators and the states in which the oil is produced. The federal govt has no say whatsoever in oil production.

I find it hard to believe that oil in the US is produced under "a mostly free market" when most of the frackers operate at a loss, depend on constant influx of loans and investment money. These lenders probably have a deal with the government that they will be bailed out 2008 style, so the whole thing is financed by anyone who buys dollar as a "safe harbor". The whole oil and gas sector is also subsidized by tax exemptions, etc.  

Or if I am wrong, then please explain me how you can sustainably operate in "mostly free market" at a loss? AFAIK Shale production decline rates are very high, 66 percent first year, so more and more holes must be drilled, and thus due to inherently lower ROI, shale can never compete with conventional oil. 

https://www.ft.com/content/76c15898-52a2-11ea-90ad-25e377c0ee1f

 

[wrs + 893]

12 hours ago, Yoshiro Kamamura said:

I find it hard to believe that oil in the US is produced under "a mostly free market" when most of the frackers operate at a loss, depend on constant influx of loans and investment money. These lenders probably have a deal with the government that they will be bailed out 2008 style, so the whole thing is financed by anyone who buys dollar as a "safe harbor". The whole oil and gas sector is also subsidized by tax exemptions, etc.  

Or if I am wrong, then please explain me how you can sustainably operate in "mostly free market" at a loss? AFAIK Shale production decline rates are very high, 66 percent first year, so more and more holes must be drilled, and thus due to inherently lower ROI, shale can never compete with conventional oil. 

https://www.ft.com/content/76c15898-52a2-11ea-90ad-25e377c0ee1f

 

If you believe everything you read then I guess you would conclude that all frackers are losing money and that's just not true.  The guy that developed my section in Culberson county has been out there in the oil business for 35 years.  He got the lease from us back in 2009 and drilled the first well in 2014 at the end of the option.  He did spend a lot of money on that well but it's produced 400kbbl of oil in 6 years and it's still producing over 200bbl/day.  All he gets from that above the lifting costs is pure profit now. 

That guy was one of the first out there and he knows what he is doing.  He consolidated his operation so that he has his own frac water service, his own water disposal service, his own roustabouts and he has deals with the pipelines and gas processors out there from the beginning.  He has run cash flow positive for several years.  He did take on a partner but he drilled 4 more wells for us over the years and they cost him a lot less.  He has about 30kbbl/day of production and I think all his wells are free and clear except the three he drilled for us last fall.

Those were doing great until the CV hit.  Between $55 and $60/bbl good operators like him have significant FCF.  Below $50 it is not so good but it's manageable, below $40, probably marginal and we have agreed to let him shut ours in below $35.  I don't even want to sell the oil that cheaply.  Let the Saudis and Russians give away their oil, they won't last doing that.

Finally, the issue with the decline rates is not such a big deal if you are looking at well payout. It just means that the first year of production is critical to be in a rising or stable price market.  When you are selling your first production into a falling market is when it's not a good model.  The main thing is getting the well paid for and that is why the unstable market hasn't been so good for shale because since prices have been cycling between profitable and not profitable, it's tough to time it.

Our other property was developed by XOM and they spent probably $150m developing 20 wells of which 12 are currently producing.  They are a big company in it for the longer term and I have no insight into their FCF but I would imagine that they were doing very well at $60 before this BS happened.  They told us that $55 was their sweet spot five years ago, if prices stayed there they would make good profits.  So I know this isn't the environment they want and they didn't develop until 2016 when prices had started to rise again.  They were planning to start at the end of 2014 but held off due to the poor pricing environment.

[U_P + 22]

10 minutes ago, wrs said:

If you believe everything you read then I guess you would conclude that all frackers are losing money and that's just not true.  The guy that developed my section in Culberson county has been out there in the oil business for 35 years.  He got the lease from us back in 2009 and drilled the first well in 2014 at the end of the option.  He did spend a lot of money on that well but it's produced 400kbbl of oil in 6 years and it's still producing over 200bbl/day.  All he gets from that above the lifting costs is pure profit now. 

That guy was one of the first out there and he knows what he is doing.  He consolidated his operation so that he has his own frac water service, his own water disposal service, his own roustabouts and he has deals with the pipelines and gas processors out there from the beginning.  He has run cash flow positive for several years.  He did take on a partner but he drilled 4 more wells for us over the years and they cost him a lot less.  He has about 30kbbl/day of production and I think all his wells are free and clear except the three he drilled for us last fall.

Those were doing great until the CV hit.  Between $55 and $60/bbl good operators like him have significant FCF.  Below $50 it is not so good but it's manageable, below $40, probably marginal and we have agreed to let him shut ours in below $35.  I don't even want to sell the oil that cheaply.  Let the Saudis and Russians give away their oil, they won't last doing that.

Finally, the issue with the decline rates is not such a big deal if you are looking at well payout. It just means that the first year of production is critical to be in a rising or stable price market.  When you are selling your first production into a falling market is when it's not a good model.  The main thing is getting the well paid for and that is why the unstable market hasn't been so good for shale because since prices have been cycling between profitable and not profitable, it's tough to time it.

Our other property was developed by XOM and they spent probably $150m developing 20 wells of which 12 are currently producing.  They are a big company in it for the longer term and I have no insight into their FCF but I would imagine that they were doing very well at $60 before this BS happened.  They told us that $55 was their sweet spot five years ago, if prices stayed there they would make good profits.  So I know this isn't the environment they want and they didn't develop until 2016 when prices had started to rise again.  They were planning to start at the end of 2014 but held off due to the poor pricing environment.

Yes the old "i know a guy" argument... LOL

Well let's look at these other guys, shall we?

https://ieefa.org/wp-content/uploads/2020/03/Shale-Producers-Spilled-2.1-Billion-in-Red-Ink-Last-Year_March-2020.pdf

[wrs + 893]

Just now, U_P said:

Yes the old "i know a guy" argument... LOL

Well let's look at these other guys, shall we?

https://ieefa.org/wp-content/uploads/2020/03/Shale-Producers-Spilled-2.1-Billion-in-Red-Ink-Last-Year_March-2020.pdf

I don't care to read about some overall view of the business because as in any business, there are a lot of weak players.  Too bad if you are one, I am not one nor are my two operators.

[U_P + 22]

6 minutes ago, wrs said:

I don't care to read about some overall view of the business because as in any business, there are a lot of weak players.  Too bad if you are one, I am not one nor are my two operators.

Ok, what is your weight in the overall market? 

Any "Data Generating Process" is bound to produce small (rare) outcomes that deviate substantially from the mean:

Data generating process

From Wikipedia, the free encyclopedia

 

The term data generating process is used in statistical and scientific literature to convey a number of different ideas:

• the data collection process, being routes and procedures by which data reach a database (particularly where these may change over time);
• a specific statistical model that is being used to represent supposed random variations in observations, often in terms of explanatory and/or latent variables
• a notional and non-specific probabilistic model (not directly described or explicitly set down) that would include all of the random influences that combine together to lead to individual observations, where one instance would be the supposed justification of the "common occurrence" of the normal distribution in terms of a combination of multiple random additive effects

Edited March 31, 2020 by U_P

[wrs + 893]

2 minutes ago, U_P said:

Ok, what is your weight in the overall market? 

Any "Data Generating Process" is bound to produce small (rare) outcomes that deviate substantially from the mean:

Data generating process

From Wikipedia, the free encyclopedia

 

The term data generating process is used in statistical and scientific literature to convey a number of different ideas:

• the data collection process, being routes and procedures by which data reach a database (particularly where these may change over time);
• a specific statistical model that is being used to represent supposed random variations in observations, often in terms of explanatory and/or latent variables
• a notional and non-specific probabilistic model (not directly described or explicitly set down) that would include all of the random influences that combine together to lead to individual observations, where one instance would be the supposed justification of the "common occurrence" of the normal distribution in terms of a combination of multiple random additive effects

What's the weight of XOM and CVX in the Permian?  Think they will fail?  

[U_P + 22]

Define failure, for your information I have been working on lots of projects by XOM and CVX around the world and I have seen them fail a few times

[wrs + 893]

1 minute ago, U_P said:

Define failure, for your information I have been working on lots of projects by XOM and CVX around the world and I have seen them fail a few times

I am sure they do have failures.  Everyone does.  I don't think they got into shale to fail but maybe they will.  The stripper operators have to be dying right now, that's probably worse than failure, they will not recover from this if it goes for long at all.

[Geoff Guenther + 317]

12 hours ago, Yoshiro Kamamura said:

I find it hard to believe that oil in the US is produced under "a mostly free market" when most of the frackers operate at a loss, depend on constant influx of loans and investment money. These lenders probably have a deal with the government that they will be bailed out 2008 style, so the whole thing is financed by anyone who buys dollar as a "safe harbor". The whole oil and gas sector is also subsidized by tax exemptions, etc.  

Or if I am wrong, then please explain me how you can sustainably operate in "mostly free market" at a loss? AFAIK Shale production decline rates are very high, 66 percent first year, so more and more holes must be drilled, and thus due to inherently lower ROI, shale can never compete with conventional oil. 

https://www.ft.com/content/76c15898-52a2-11ea-90ad-25e377c0ee1f

America's version of "free market" works differently than anywhere else in the world for many reasons. When your average person reads about the free market they think about a widget company raising or lowering prices to try to optimise its margins, or discontinuing a product line when it can't make a profit, or going out of business when it can't find a margin in things anymore.

In America, that still applies, but on a grand scale. Americans are reared on frothy markets, where prices bubble up and pop. And they love the stories of the guy who sold his stake at just the right time.  American investors are willing to take a shot at making a fortune and will pump huge amounts of money into startups that may be the next big thing.

The amazing thing is how often it works! Google and Amazon are two examples of companies that had NO idea how to make money, but promised their investors that if they pumped more and more and more money in they would figure out a way to do that. Tesla is another company that may (or not) be following their path. And there is a shed load of smaller firms just like that.

Yes, you have one entire industry in the doldrums now, but shale could have been more than America's short-term energy savior and it could have made its backers good money if there had been better governance rather than the pump-like-hell that happened.

[U_P + 22]

26 minutes ago, wrs said:

I am sure they do have failures.  Everyone does.  I don't think they got into shale to fail but maybe they will.  The stripper operators have to be dying right now, that's probably worse than failure, they will not recover from this if it goes for long at all.

The large players will succeed the moment they act as the marginal players the shale companies are supposed to be (as high cost producres): pumping more or less depending on the market condition, and not expecting some lower cost producers to balance the market instead.

That's the way all commodity markets work, and that is exactly the way large payers think because they can use their large and diversified portfolio to rely upon during the ups and downs.

Smaller E&P fail not because they are less apt at what they do, they just are a one-trick-pony that has no optionality regarding their operations, especially when loaded with debt. Really, it is that simple.

[JoMack + 547]

The   crude in New Mexico is primarily owned by us, or should say the federal  government ,so the BLM has a say on the oil  produced. There are also other states such as Colorado, Montana , Wyoming, Alaska California and offshore production so we do have leverage.  However, we don't produce enough to actually have control of oil prices unless we impose an import fee to give the oil and gas industry a boost since at $20 oil, less discounting at Cushing, will bring the industry to its knees.  Perhaps if Trump lifted sanctions on Russia it would give in and cut production. Will Trump do it?   He and Pompeo are realizing that the U.S. will lose millions of bbls if today's prices continue.  Stripper oil which is a hefty contributor to the market cannot sustain production and once Operators decide to pull the plug, those barrels will never come back.  Something has got to give, since we're watching two oil titans throwing oil around the globe with no one to catch it.  Will either one of these power mad goobers, Salman or Putin stop pushing the oil markets into full collapse?  Who knows, but the way this is going, no one appears to be able to stop them.  One thing seems to be coming to light is that  SA and Russia will also go down with the ship and this one is looking like the Titanic.

 

 

[Douglas Buckland + 6,308]

@wrs
 

“If you believe everything you read then I guess you would conclude that all frackers are losing money and that's just not true.  The guy that developed my section in Culberson county has been out there in the oil business for 35 years.  He got the lease from us back in 2009 and drilled the first well in 2014 at the end of the option.  He did spend a lot of money on that well but it's produced 400kbbl of oil in 6 years and it's stillproducing over 200bbl/day.  All he gets from that above the lifting costs is pure profit now. “

I need some terminology help here. Keep in mind that I have never been involved with shale oil operations.

In the above quote from your earlier post you seem to say that a ‘fracker’ drilled your well in 2014. In my mind, a drilling contractor would drill your well and a service company would frack it.

What exactly is the definition of a ‘fracker’ in shale oil terminology?
 

 

[wrs + 893]

5 minutes ago, Douglas Buckland said:

@wrs
 

“If you believe everything you read then I guess you would conclude that all frackers are losing money and that's just not true.  The guy that developed my section in Culberson county has been out there in the oil business for 35 years.  He got the lease from us back in 2009 and drilled the first well in 2014 at the end of the option.  He did spend a lot of money on that well but it's produced 400kbbl of oil in 6 years and it's stillproducing over 200bbl/day.  All he gets from that above the lifting costs is pure profit now. “

I need some terminology help here. Keep in mind that I have never been involved with shale oil operations.

In the above quote from your earlier post you seem to say that a ‘fracker’ drilled your well in 2014. In my mind, a drilling contractor would drill your well and a service company would frack it.

What exactly is the definition of a ‘fracker’ in shale oil terminology?
 

 

I was just using frackers as shorthand for shale producers.  You are right about fracking and drilling being different contractors.  The operator is the guy who is responsible for everything getting done and eventually producing the oil.  He is like the general contractor in building.  He hires the drilling rigs, the drilling crews, the frack contractor and all the other specialists that get the well producing.  Then he takes over most of the day to day operations after that.  He still hires specialists for things like swabbing and gas-lift or tubing.

[Douglas Buckland + 6,308]

1 minute ago, wrs said:

I was just using frackers as shorthand for shale producers.  You are right about fracking and drilling being different contractors.  The operator is the guy who is responsible for everything getting done and eventually producing the oil.  He is like the general contractor in building.  He hires the drilling rigs, the drilling crews, the frack contractor and all the other specialists that get the well producing.  Then he takes over most of the day to day operations after that.  He still hires specialists for things like swabbing and gas-lift or tubing.

Thanks for that! Thought I’d missed something. I consult (or used to...) for operators and the usual set up is as you described.

I thought that perhaps in the shale patch the drilling contractor may have been responsible for the fracking as well. Thanks for the clarification.

[Chris555 + 8]

On 3/30/2020 at 3:23 PM, cloudslicer said:

I'm sure you are all aware of Alexander Novak, the destroyer of worlds, who is using Russia's sovereign wealth fund to subsidies oil at below break even costs to kill US/Canadian OIL.

So what are our alternatives?

If we have a market place under attack from a political driven entity I think we leave such a marketplace were price is driven by supply and demand. Does anyone have any ideas?

I propose we use our domestic energy only and disconnect from the outside world oil and gas import/export until Novak changes his mind or winds up being removed. This is not a global marketplace it is now a political policy tool of a madman.

 

No, there is no government subsidy in place to any Russian oil company. On the contrary, production and profits of those oil companies are heavily taxed by the government. It is the U.S. shale that has never been profitable, not even at $100/bbl oil price, still attracted a lot of "investment", like any other Ponzi scheme.

Edited March 31, 2020 by Chris555

[El Nikko + 2,145]

No deal on any cuts after call between Trump and Putin

Oil's heading down to $10

Waiting for a better source to confirm, this one is Russian

Edited March 31, 2020 by El Nikko

[Chris555 + 8]

5 minutes ago, El Nikko said:

No deal on any cuts after call between Trump and Putin

Oil's heading down to $10

How do you know? Oil prices and oil stock prices are soaring at the moment.

[El Nikko + 2,145]

11 minutes ago, Chris555 said:

How do you know? Oil prices and oil stock prices are soaring at the moment.

Yeh sorry think I jumped the gun, the 'source' was speculating with a headline that made it sound like there was no deal.

Hopefully discussions are still going on, as I've said before I am 100% sure there will be far more involved than just cuts. The sanctions must be hurting severely.

 

Edited March 31, 2020 by El Nikko

[El Nikko + 2,145]

I'd like to get in touch with my Russian friend to ask him what he thinks but he's probably drowning himself in vodka right now as we work/worked together lol

Last time we spoke he said that the Government/Media has been talking about war i.e. preparing their population for hardships to come. As we all know they've stated they can survive very low oil prices for years...not so sure about that though

Edited March 31, 2020 by El Nikko