Shales Death Blow?

[Bob_W + 37]

2 hours ago, wrs said:

Why not?  Banks have backed every oil boom so far.

Banks were becoming leery of shale drillers even when oil was at $50.

https://www.ft.com/content/187f8176-f4f4-11e9-b018-3ef8794b17c6

[wrs + 893]

27 minutes ago, Bob_W said:

Banks were becoming leery of shale drillers even when oil was at $50.

https://www.ft.com/content/187f8176-f4f4-11e9-b018-3ef8794b17c6

Pretty much everyone agrees that's the level that is profitable for the majority of producers. Look at ORO's chart on the rig count and you can see that $50 was the point where the rig count turned up in 2016 and where it rolled over in early 2019.  

[Rob Kramer + 696]

I like what WRS said early on. Every business is swimming naked .... because we have this "normal debt" . We have government business and civil debt to the ears and nobody will sacrifice or work together to get it in order. It's the opposite everyone is comparing with their neighbors.  Competing with the next company and trying to WIN . So the unforeseen makes us loose. 

And second like someone else said data is all scewed and only targeted areas are compared. Lifting cost, government cost, finding and developing  resources or replacement costs for shale. 

Great conversation.  Think it is agreeable that at 55$ and if producers to consumers were conservative we would all benefit.  (Mabey even little higher oil or higher gas used and price)

Also kinda interesting to relate the bigger countries effecting smaller ones. USA Russia . And the big picture.  I've always come back to every action has an equal and opposite reaction. Example The financial health of these oil companies would be much greater if trump didn't tweet the price down. Same could be said with 2014 price spike or other examples. Broken trust or usery has reactions. 

Edited April 20, 2020 by Rob Kramer
Addition last paragraph

[Gerry Maddoux + 3,627]

1 hour ago, Bob_W said:

The drilling boom was self-funded by the drillers?

No, sir, mostly not. Your question was, "will the banks be willing to finance another era of rampant drilling boom?" and my answer was "no, but they won't have to, there's plenty of money in the oil patch to finance a sound drilling and production company." Of course the banks funded the last boom, and the one before the last, but they may not fund any more--they've become unpopular ventures.

That doesn't mean Chevron, Exxon, BP and Pioneer aren't going to self-fund. The Permian is going to be drilled out primarily by those four companies, along with Occidental if they can get back on their feet. Oxy actually owns the most primo acreage in the Permian. Chevron is flush with money, even now--not getting the winning bid on Anadarko was a God-send to them. Exxon is a bit more strapped, but in addition to building out the humongous Stabroek Block off Guyana they hold vast joint venture positions with the Saudis in petrochemical companies and refineries--they can do their part.

Scott Sheffield powered Pioneer to where it is and also helped his son start Parsley, so yes, while it is wildly touted that the banks all got burned to death by financing shale, some didn't. Still, most of the shale is going to be drilled out and produced--responsibly--by Exxon, Chevron, Occidental, Pioneer, Parsley, along with Marathon, Hunt, Petro-Hunt, and some other folks called Crescent Point, PDC and Noble.

All these names know what they're doing and also have learned hard-fought lessons from the shale pioneers. They will spread out, so this thing called parent-child interaction that we used to hear about so much a year ago don't really factor in. They're going to drill so they don't produce a pressure sump in the basin. They have efrack fleets using well gas to produce electricity doing their completion work. Soon most everything will be piped in, piped out. Wage demand has come down right along with oil demand. Wells will cost not $6M but $4M. Fracking to the toe and gas-lifting will result in heavy-flow wells that pay out in two years and many of these will be refracked at half the primary cost.

Personally, I'm willing to bet that American shale oil will be flowing strong as the Saudis' fields flag. Providing the Saudi fields are still standing.  

[ronwagn + 6,290]

10 hours ago, wrs said:

Here is the problem with your OP, it's facile.  LTO is a solid money maker above $55 and the Saudis need $80 oil.  As long as they cut production to get $80 oil, there will be LTO.  As long as oil is selling for more than $60 there will be LTO and it will be profitable.

I am so tired of this bad business model that is constantly attributed to shale with no consideration for how every other business in the US is run that it's tiresome to refute this vacuous line of argument.  If all the other businesses in the US weren't being run the same way then there would be no need for PPP to float companies that can't even stand one month of interrupted income.

Everyone is swimming naked.

With WTI stuck around $20, nearly every producer is a long way from being able to cover costs let alone develop again.

That statement applies to about 80% of the oil produced in the WORLD.  The bad business model you guys hate is the one that Wall Street pushes on the companies that it backs.  So maybe the problem is that shale was a story packaged to sell for Wall Street.  However, most of the businesses today are run the same way, growth by leverage and that means DEBT!  It also means revenue and sales growth at the expense of  profit.

JC Penney is an example of a company that has been debt fueled and near bankruptcy for 20 years almost.  Why take your ire out on shale? The number of bankruptcies filed as a result of CV-19 is going to shock everyone and I am sure it will include plenty of oil companies around the world and particularly the oil sands.  We can see that Venezuela is bankrupt, PDVSA for example.  How about Iran?  How about Nigeria?  Libya?  Iraq? all bankrupt or headed there in a hurry.

Anyway, I do agree with the conclusion and in fact, that model is how my independent is operating but I am afraid he is going to lose everything in spite of him being conservative.

 

What is the argument against setting tariffs on all imported oil under $40 or whatever? Anyone?

[wrs + 893]

3 minutes ago, ronwagn said:

What is the argument against setting tariffs on all imported oil under $40 or whatever? Anyone?

I am not sure but I think the majors are reported not to want that.  I am not sure what the best response is short of shutting in wells below $35.  The excess will be used up and then when prices rise, the taps can be turned on and there won't be an exogenous event that kills demand resulting in a suprise oversupply.  I think things were going OK before CV.

[JCR + 7]

Capitalism without Bankruptcy is like like Religion without Hell.

[0R0 + 6,251]

2 hours ago, Bob_W said:

Russia in Syrian oil:

https://oilprice.com/Geopolitics/Middle-East/Russia-Strengthens-Its-Grip-On-Syrian-Oil.html

Russia in Iranian oil:

https://oilprice.com/Energy/Crude-Oil/The-Two-Global-Powers-Controlling-Irans-Oil-Sector.html

Russia in Iraqi oil:

https://www.reuters.com/article/us-rosneft-iraq-insight/the-great-russian-oil-game-in-iraqi-kurdistan-idUSKBN1HQ1R3

 

Absolutely. 

These are precisely the issues that convince me that Saudi is trying on bankrupting Russia and causing permanent damage to their oil fields, if they manage to get the Russian export chain clogged that far. That is their goal - to get Russia out of the Gulf. Particularly if Iran can be crushed in the process. 

The US is stuck in the ME so long as the Russians and Chinese have plans to control its oil and gas and to use it as a transport hub. Europe is trying to not be dependent on oil and gas - which is why they are being so obtusely "green" with the expectation of a closed economy that would "save" them from international entanglements. That while the German economy at the core of Europe is export driven and the continent as a whole is demand challenged due to aging demographics.

The EU plan is simply a dream of hope with insufficient reality to fill it. They will have to decide soon if they join in with the bulk of the burden (military and/or financial/trade concessions) with the US to secure the Gulf, or put in as vassal states to China and its Russian attack dog. 

On the other side of this Wuhan coronavirus scare is substitution of driving for flights and public transport. At least for a number of years, and a move out of dense city centers to suburbia. Then the buildout of redundancies into the supply chain to take out fragility and reliance of China. That will increase oil demand to the extent there is a recovery, to beyond where it was before, but only temporarily. As the transition to cheap gas continues to take market share from oil, and overall oil demand falls due to declining demographic trend in the entire industrialized world.  It is a 3-5 year bump and it will be very exciting in oil land.

I am sure the Saudis see all this coming and already observed the evacuation of used car lots in China as their city folk no longer find the cost saving of public transport worth the risk. 

[0R0 + 6,251]

41 minutes ago, wrs said:

46 minutes ago, ronwagn said:

What is the argument against setting tariffs on all imported oil under $40 or whatever? Anyone?

I am not sure but I think the majors are reported not to want that.  I am not sure what the best response is short of shutting in wells below $35.  The excess will be used up and then when prices rise, the taps can be turned on and there won't be an exogenous event that kills demand resulting in a suprise oversupply.  I think things were going OK before CV.

I don't expect tariffs on oil to come even as a temporary measure. The US economy is the most oil dependent of all industrial economies. It can not but benefit overall from persistent low oil prices. 

While there is demand damage done now due to CV19, the future past it is far more oil intensive than the slightly oversupplied market pre CV19, for a period. 

[ronwagn + 6,290]

3 minutes ago, 0R0 said:

I don't expect tariffs on oil to come even as a temporary measure. The US economy is the most oil dependent of all industrial economies. It can not but benefit overall from persistent low oil prices. 

While there is demand damage done now due to CV19, the future past it is far more oil intensive than the slightly oversupplied market pre CV19, for a period. 

I keep thinking we should switch to natural gas for trucking, ships, etc. but you are probably right. Sad to say. China may lead the way though. 

[0R0 + 6,251]

Just now, ronwagn said:

I keep thinking we should switch to natural gas for trucking, ships, etc. but you are probably right. Sad to say. China may lead the way though. 

That LNG transition will not stop. Even with <$20 oil NG is cheaper. A CNG station just opened nearby in a derelict commercial district at the edge of the city. Bays were full with trucks filling up. 

[Gerry Maddoux + 3,627]

Oil futures just hit $15. 

Going to be hard to get a bid on some of the LTO barrels in a week or so. 

I doubt that any wells are going to be completed during this massacre. 

I don't know for sure, but I doubt this can go much further without some metal flying through the air. 

[SGT-Craig + 2]

With the presidential election just around the corner President Trump will have to take action. If the frackers all implode that does not bode well for the Texas vote and you have to win Texas for a Republican to win.

So heres the question. Lets assume we want to invest in the oil market. What are the best companies that have the greatest odds of surviving this given a 3-5 year time frame?

I'm looking at ConocoPhillips (Ticker COP). Good balance sheet.
Cactus (WHD) balance sheets looks ok.

Any other names people?

Edited April 20, 2020 by SGT-Craig
bla bla bla

[James Regan + 1,776]

2 hours ago, Gerry Maddoux said:

I don't know for sure, but I doubt this can go much further without some metal flying through the air. 

My worry also Gerry, it would be different scenario though this time, Iran or one of its proxies don't have much to lose just now and any spark at this point will set it off. The straights of Hormuz would give a decent production cut by default.

[James Regan + 1,776]

THIS IS STARTING TO GET REAL NOW - SOMETHING WILL GIVE SHORTLY

[Cletus + 7]

I don't really understand why the other countries would reduce their production to a level that makes shale oil producers profitable, and at the moment it doesn't look like they could even if they wanted to with the reduction in demand. As far as I understand it the US is the biggest producer in the world at the moment, surely the answer is for the US production to fall either through capping wells or bankruptcies? I just don't understand why there is any debate over this, the reason why the WTI price has dropped so much is because storage is running out, that doesn't seem to be happening in other parts of the world so clearly it's a localised over-production problem. I don't see how the US government propping up unprofitable producers is going to change that.

[Douglas Buckland + 6,308]

2 hours ago, SGT-Craig said:

With the presidential election just around the corner President Trump will have to take action. If the frackers all implode that does not bode well for the Texas vote and you have to win Texas for a Republican to win.

So heres the question. Lets assume we want to invest in the oil market. What are the best companies that have the greatest odds of surviving this given a 3-5 year time frame?

I'm looking at ConocoPhillips (Ticker COP). Good balance sheet.
Cactus (WHD) balance sheets looks ok.

Any other names people?

Since when do frackers represent Texas?

[Douglas Buckland + 6,308]

21 minutes ago, Cletus said:

I don't really understand why the other countries would reduce their production to a level that makes shale oil producers profitable, and at the moment it doesn't look like they could even if they wanted to with the reduction in demand. As far as I understand it the US is the biggest producer in the world at the moment, surely the answer is for the US production to fall either through capping wells or bankruptcies? I just don't understand why there is any debate over this, the reason why the WTI price has dropped so much is because storage is running out, that doesn't seem to be happening in other parts of the world so clearly it's a localised over-production problem. I don't see how the US government propping up unprofitable producers is going to change that.

Lack of storage will be an issue for other producers shortly.

[James Regan + 1,776]

55 minutes ago, Cletus said:

I don't really understand why the other countries would reduce their production to a level that makes shale oil producers profitable, and at the moment it doesn't look like they could even if they wanted to with the reduction in demand. As far as I understand it the US is the biggest producer in the world at the moment, surely the answer is for the US production to fall either through capping wells or bankruptcies? I just don't understand why there is any debate over this, the reason why the WTI price has dropped so much is because storage is running out, that doesn't seem to be happening in other parts of the world so clearly it's a localised over-production problem. I don't see how the US government propping up unprofitable producers is going to change that.

The spread between the benchmarks has been growing daily was -33% last week now almost -100%, this is most definitely an issue affecting the USA hardest, why?

It's obvious really each day we see more proof of how fragile the LTO sector is, expect a mega manoeuvre shortly to try and drag WTI closer, don't see Brent free falling as WTI is currently, its out of control.

COVID19 restrictions obviously impacting the USA harder than the rest of the world. Tipping point ahead, rocketing the economy against health risks, its a bold call to make, not looking good damned if you do damned if you dont - CATCH22

[0R0 + 6,251]

2 hours ago, James Regan said:

My worry also Gerry, it would be different scenario though this time, Iran or one of its proxies don't have much to lose just now and any spark at this point will set it off. The straights of Hormuz would give a decent production cut by default.

Only that Iran would be stuck there just the same as everyone else. What they would do is a repeat of the missile and drone attack on Saudi. With whatever consequences they can get that way. They would gladly cut off the straights of Hormuz if they had the Russians make a financial commitment, but I very much doubt they would get one, nor that any of their relationships outside of Russia would survive the episode. 

[0R0 + 6,251]

40 minutes ago, James Regan said:

The spread between the benchmarks has been growing daily was -33% last week now almost -100%, this is most definitely an issue affecting the USA hardest, why?

It's obvious really each day we see more proof of how fragile the LTO sector is, expect a mega manoeuvre shortly to try and drag WTI closer, don't see Brent free falling as WTI is currently, its out of control.

COVID19 restrictions obviously impacting the USA harder than the rest of the world. Tipping point ahead, rocketing the economy against health risks, its a bold call to make, not looking good damned if you do damned if you dont - CATCH22

The next round of the outbreak after opening up will not get Presidential support for any shut downs. Governors contemplating this will find that their budget deficits would not be refilled from the Federal coffers. It would not surprise me to have the elections conducted during a full break out. 

There will be a general rejection of the goal of stopping the virus, instead just letting it expand at a controlled speed so that it does not overwhelm medical facilities. The current media and democrat (and other) panic mongering and power grab is going to lose them elections. 

I want a prosecution of the governors who imposed arbitrary and capricious restrictions, particularly against protests and people outing. Freedom of assembly is not something the government has the authority to prohibit at all in any for for any reason but to keep roads open. Risk of Pandemic spread is a personal choice and right of those who wish to assemble. It is not open to the government's discretion. Even in a contagion, health is not public.

The notion of contact tracing having any use has been disproven by those who applied it most intensively as their outbreak continued, slowly enough so there was no crisis, but that was not a useful outcome. They can't stop their programs till the virus is stamped out. Which they can't without universal testing. Besides which, virus transmission can occur without direct contact at all by touching contaminated surfaces. The passing by someone with the disease is only a risk if neither of you are wearing a mask. 

 

[Rasmus Jorgensen + 1,169]

13 hours ago, Gerry Maddoux said:

Yet the Saudis are pulling some very ballsy gambits: price war, pedal to the metal production, buying almost $2B of Total, BP, ENI, Equinor. They're obviously expecting much higher prices. What do those clever fellows know?

The best simplest way to keep oil in the ground could be to control more acreage? 

I wonder if the Saudis will set up a fund to buy distressed LTO assets ? 

[wrs + 893]

Here we are at $12.50/bbl. No one makes money, everyone is losing their ass on this.  I have 5 that are shut in, I hope XTO shut the others in.  No way I want to give away oil.

 

Furthermore, the shorts are going to get killed when people shut in because there won't be any oil to get out of their shorts with.  

 

There will also be no oil to run the economy on.  This is not good for anyone.  How do you claim a booming economy or stocks with growth if the fuel that everything runs on is so cheap due to no demand?  If oil is this cheap, stocks are waaaaaaaay over priced.  Time to short the market 100%.

Edited April 20, 2020 by wrs

[James Regan + 1,776]

CANNON BALL COMING - THIS IS ALMOST LAUGHABLE - HAR FAR WILL SHE GO?

 

[wrs + 893]

6 hours ago, Douglas Buckland said:

Since when do frackers represent Texas?

Texas is built on oil.  It diversified after the 80s but if you don't think oil is the most important business in Texas then you don't understand Texas at all.