Well heck, my *hope* for $70 Brent and $65 WTI for 2019 is a year too late. Those are the numbers for 2018. Hrmmppphh.

[Tom Kirkman + 8,860]

Jeez, seems my hope for $70 Brent next year was a year too late.  Already happened this year, according to this article:

Geopolitical fears, demand and oversupply cloud global oil mart

Ongoing geopolitical fears, as well as global demand and oversupply issues continued to clout the mercurial nature of the oil and gas (O&G) industry in 2018, with Brent crude, an international benchmark for crude oil prices, averaging above US$70 per barrel against US$54.22 last year.

Crude oil prices were generally higher throughout 2018, riding on supply concerns to influence price movement, while geopolitical risks with developments in Iran, Venezuela and the Middle East, weighing on such narratives.

Moody's Investors Service Corporate Finance Group Managing Director Steve Wood pointed out that Brent had averaged US$72 per barrel year-to-date, with West Texas Intermediate (WTI) at US$66.

[Frank Oil + 1]

Hi Tom, 

Enjoy reading your posts on US Shale.   Do you think the cost of production of 1b US Shale is south of $35.00?  

I am trying to learn this and studied reports suggesting the technology gains recently have higher up front costs for the rigs and start up drilling which lower average costs per barrel per well.   Is this hype or is it fair to say the Costs do fall over the life of the rigs? 

I am seeing profits well south of $50, and assume this is why, with a depressed WTI, the US is adding rigs.  

Thank You, 

 

Rick

 

 

[Justin Hicks + 162]

35 minutes ago, Tom Kirkman said:

Jeez, seems my hope for $70 Brent next year was a year too late.  Already happened this year, according to this article:

Geopolitical fears, demand and oversupply cloud global oil mart

Ongoing geopolitical fears, as well as global demand and oversupply issues continued to clout the mercurial nature of the oil and gas (O&G) industry in 2018, with Brent crude, an international benchmark for crude oil prices, averaging above US$70 per barrel against US$54.22 last year.

Crude oil prices were generally higher throughout 2018, riding on supply concerns to influence price movement, while geopolitical risks with developments in Iran, Venezuela and the Middle East, weighing on such narratives.

Moody's Investors Service Corporate Finance Group Managing Director Steve Wood pointed out that Brent had averaged US$72 per barrel year-to-date, with West Texas Intermediate (WTI) at US$66.

 

Happens....😊

[Tom Kirkman + 8,860]

12 minutes ago, Frank Oil said:

Hi Tom, 

Enjoy reading your posts on US Shale.   Do you think the cost of production of 1b US Shale is south of $35.00?  

I am trying to learn this and studied reports suggesting the technology gains recently have higher up front costs for the rigs and start up drilling which lower average costs per barrel per well.   Is this hype or is it fair to say the Costs do fall over the life of the rigs? 

I am seeing profits well south of $50, and assume this is why, with a depressed WTI, the US is adding rigs.  

Thank You, 

 

Rick

Rick, thanks for your kind words.  While some shale wells can have a break even cost below $35, most do not.

Some of the accounting methods leave me suspicious.  Legacy costs and previous debt costs seem to be curiously omitted from much of the media hype.

@Mike Shellman  to the white courtesy phone please.

Mike should be able to give you a better back of the envelope calculation on WTI break even costs than I can.  He's in Texas oil & gas, while I'm halfway around the world.

Meantime, here are some earlier articles on WTI:

 

[Justin Hicks + 162]

Was going to say about $42 seems to be the breakeven in the Permian

[Tom Kirkman + 8,860]

3 hours ago, Justin Hicks said:

Was going to say about $42 seems to be the breakeven in the Permian

I'll reiterate ...

Pay attention to the simple numbers in the Forbes article.  Also note that the Permian is a "sweet spot" for fracking, and it seems pretty likely that the economic numbers for fracking outside of the sweet spots won't fare as well.

... The story indicated that overall, companies spent $1.13 for every $1 they took in. It further noted that “Oasis Petroleum Inc. spent $3.27 for every $1 it made in cash, while Parsley Energy Inc. spent almost $2 for every $1 it made in cash.”

[Jan van Eck + 7,558]

On 12/28/2018 at 11:41 PM, Frank Oil said:

Hi Tom, 

Enjoy reading your posts on US Shale.   Do you think the cost of production of 1b US Shale is south of $35.00?  

Frank, I don't think it is really relevant.  I suspect I will get a lot of flack for that rather brassy statement. 

But here's why:  there is a vast ton of debt built up in the shale oil part of the oilpatch.  I suggest none of it, or maybe a little bit, will ever be paid.  The investors already have investment tax credits, and they will take capital losses for more tax credits.  The drillers will be forced into the bankruptcy courts, but even that is likely not that interesting.  The "shale oil" will continue to be produced, but not from shale.  My hunch is that what was once produced from shale will be replaced by oil produced from oilsands.  And the reason I say that is because of the stunning developments in the use of special solvents, themselves totally recyclable, to extract the oil. 

Oilsand oil requires no drilling; ergo, little CAPEX  (capital investment).  All you do is bring in a dragline to strip away the overburden, perhaps 10 to 30 feet thick, set that soil aside, then use payloaders to scoop up the layer of oilsands and dump trucks to bring the stuff over to the semi-portable plant that processes the stuff.  The sand gets dumped into the intake, the solvent is put in in a spray under pressure, the stuff gets some heat, and voila, the oil comes free of the sand. 

The sand is nice and clean, so you can go sell it (more profit), or put that sand back, then have your bulldozer push the soil back on top, land is all restored, so plant some trees and some grass.  Move on to the next patch of oilsand. Meanwhile you separate the solvents and out comes nice clean oil.  OK, it is "heavy oil," not the light stuff out of shale, but so what?  The heavy oil can be cracked and upgraded in a refinery. 

There is enough oilsands out there to drown the USA in oil for the next 500 years.  As you do not need drill rigs, it will be cheap enough to extract.  Once that solvent technology gets sorted out for mass production, the USA will be awash in oil. And the extraction cost will be well below $25. 

Edited December 31, 2018 by Jan van Eck
typing error