Cline Shale News: Good, Bad, and Ugly

I thought one possibility might be that the newspaper misquoted, but the same language is found in a PIRA Energy press release. "Never" is very strong...absolute. I can not imagine PIRA would use the language lightly/loosely. Sweets spots? Geologic risk?

Odds are the primary reason that any well would be completed is the perception that well would not be economic based on info oerayor has obtained over time in that area based on performance from other wells. Info that eas not as well understood when wells were first drilled

From a generalized 30,000' overview that means the potential producing DUC horizontal wells will actually cost considerably more than originally projected. This seems to be confirming some of the criticism voiced by the presenter in the shale gas video shared early in this thread. Only 2400 producing wells from a universe of 3600 suggests a 50% increase, but this has to be reduced because 1200 of the wells will remain drilled but not completed, so perhaps a 20-25% increase in the cost of the producing wells, not accounting for leasing expenses, etc. [?]

Drilling and setting casing is the least capital intensive part of these wells. Completion/ frac’ing will probably rain 1.5 to 2 times the cost of the initial drilling phase.

Side note on these postings - sure wish others would decide to participate and share their ideas. Seems as if only a very limited number of individuals are willing to post comments, news and ideas. Just saying.

When stripper wells are stripped away, oil may rise

"Idle stripper wells also could amplify a decline in domestic oil production that’s already taking place. In the U.S. Lower 48, American drillers are putting out 450,000 barrels a day less than last April, when the nation’s production peaked at its highest point since 1970.

U.S. oil output growth outside of Alaska was 20 percent to 25 percent a year from 2012 to 2014 as technology advances boosted production from dense shale formations. As of October, production had grown only 1 percent from a year before.

Production growth is falling because at current prices, it costs an average $19 a barrel more to bring up crude than it’s worth. In a report this week, Goldman Sachs said many U.S. drillers are reaching the point where they will have to restructure. The financial firm projected that banks this spring will cut sharply the amount of money oil companies can borrow and that 8 percent of U.S. oil explorers will go into bankruptcy by year-end. Goldman said lenders could lower shale drillers’ borrowing bases by 14 percent to 30 percent during a semiannual review that begins in April.

Not covering costs

Shale drillers aren’t even close to generating cash flow that covers their costs, and their cost to borrow funds has climbed, said Bill Herbert, a top analyst at Houston investment bank Simmons & Company International.

Declining production eventually will cut into an international oversupply of oil and push prices up."




Good article. Question remains how long it will take for these factors to positively impact prices- and which companies will be around and “ready” to take advantage of upswing???

Q3 2015 Permian Basin "All-In Cost Per BOE" for seven companies

Some pretty eye opening information

Check out the FANG scenario analysis

Does a strong balance sheet with $35-45 and 2-3 rigs running mean lackluster profits/dividends?

"The current downturn is now deeper and longer than each of the five oil price crashes since 1970, said Martijn Rats, an analyst at Morgan Stanley.

Together, North American oil-and-gas producers are losing nearly $2 billion every week at current prices, according to a forthcoming report from AlixPartners, a consulting firm, that is set to be published later this week."

As Rig Count Plunges, Has U.S. Oil Reached Its Capitulation Point?

"If companies must finally pay for new wells out of cash flow, we might expect drilling to plummet in 2016 because tight oil companies have been spending other people’s money to pay for half their drilling as late as the third quarter of this year (Figure 2)."

PEAK PROSPERITY PODCAST INTERVIEW Arthur Berman: Why The Price Of Oil Must Rise

Less Than 2 Percent of Permian Basin Is Commercial at $30 Oil

“Our pricing formula is generally: Plains WTI + Argus PPlus + Argus Mid/Cush differential less a transportation and trucking charge. Transportation and trucking charges range from $1.83 to $3.45 per barrel for trucking. Argus PPlus was a positive $1.89 per barrel in December. Mid-Cush differential was down 71 cents per barrel, and Plains WTI Posted was $33.77 per barrel, consistent with Sunoco and Valero and close to the other postings for WTI.

“Putting all of that together, we were $4.20 to $5.82 per barrel below the New York Mercantile Exchange’s Cushing calendar month average for December, which was $37.33 per barrel. So $30 NYMEX WTI means we and our peers will be paid in the $25 range for our product,” he said.

“It’s horrible but unsustainable. We’ll start seeing stripper wells that fail, such as a rod parting, left shut-in as was the case in 1986-89 and 1998-99,” he said



Read more: Permian operators ponder deepening decline in oil prices - MRT.com:... http://www.mrt.com/business/oil/top_stories/article_5eed879a-bb17-1...
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Could see a domino effect here with stripper wells going off causing small operators to be forced to sell which leads to some companies with cash on hand to acquire those properties for below market prices

And I suppose this underscores why it is important to have a lease which does not allow deductions for transportation, trucking, etc. as a 25% royalty would effectively be reduced to less than 21% in the mentioned $30/bbl scenario. This generally squares with what I had read about the dangers of leases written for producers--unless you are a producer.

Totally agree but many of these stripper wells are tied to OLD leases that don't have cost free lease terms.

Although it is tough to do / prove, mineral owners need to maintain a close watch on marginal wells on their property. In general, if these are not economic / are losing money, mineral owner has the right to demand lease is invalid and that their minerals are now up for leasing to a new entity.

This is a very grey area - and very tough to prove / validate. Wording in leases should address this issue but it is highly variable

Saudis ‘will not destroy the US shale industry’

Yet oil demand is still growing briskly. The world economy will need 7m b/d more by 2020. Natural depletion on existing fields implies a loss of another 13m b/d by then...“If there is any shock the market will turn on a dime,” he said. The oil market will certainly feel entirely different before the end of this decade.

What it costs to produce oil

Pioneer CEO: $50-$60 oil needed for companies to survive

Indie oil hunter strikes a 'screamer'In Oklahoma, a smalltime oil e...

"Under a black light, oil will fluoresce and turn gold."

Oil exec: “It’s criminal the amount of oil and gas we’re leaving behind”

“It’s criminal the amount of oil and gas we’re leaving behind,” said Hans-Christian Freitag, vice president of integrated technology at Baker Hughes, during a panel on the third day of IHS Energy CERAWeek in downtown Houston.
...But 70 percent of unconventional wells don’t reach their production targets, and 30 percent of all perforation clusters aren’t yielding as much oil or gas as they should, Freitag said.



Read more: Oil exec: “It’s criminal the amount of oil and gas we’re leaving behind” - MRT.com: Top Stories http://www.mrt.com/business/oil/top_stories/article_1c1a2bd4-dcce-11e5-9ac5-cf6597f82185.html#ixzz43aHpSRV4