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Paper oil and record oil futures trading volumes

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* ICE and CME both see record trading volumes in February

Traded volumes on the world's two biggest oil futures markets reached record levels in February, boosted by growth of close to 40 percent in futures and options trade on benchmark Brent and WTI contracts. Each contract is for 1,000 barrels

Intercontinental Exchange (ICE) (ICE.N) said the average daily trading volume for its futures markets rose 27 percent from the same month a year before to a record 1.74 million contracts. The total futures volume for the month was a record 33 million contracts.

Volume in energy futures traded on markets run by the CME Group CME.N, including the New York Mercantile Exchange (NYMEX), averaged 2.2 million contracts a day, up 26 percent from February 2010, CME said.

The driving force behind this strong growth was the trade in futures on the NYMEX light, sweet crude oil contract CLc1 known as West Texas Intermediate or WTI, which rose 39 percent to an average daily volume of 935,000 contracts.

The options contract rose 35 percent for the month and set its third daily volume record of the year with 325,000 contracts on Feb. 23 surpassing the previous record of 294,000 contracts set at the end of January.

ICE Brent crude LCOc1 futures, considered a rival benchmark to WTI, traded on average a record 576,681 contracts a day in February. The daily traded volume of Brent futures and options contracts combined rose 37.6 percent to 584,091.

Brent crude futures are listed on ICE Futures Europe, which posted a 39 percent jump in average daily volume from a year earlier to 1.24 million contracts, and set a new daily volume record of 1.70 million contracts on Feb. 24.

Unrest in the Middle East and North Africa sent Brent prices surging as high as $116 dollars a barrel earlier this week and reinforced its premium over WTI CL-LCO1=R. Europe is seen as more vulnerable to supply disruptions from Libya, traders say.

ICE has benefited from the attraction of Brent as an alternative global benchmark to WTI. Some analysts have suggested London will overtake New York as the biggest centre of crude and oil product futures trade this year. [ID:nN28184087] (Reporting by Nia Williams; editing by Christopher Johnson) 

JustSaying , 05/02/2016 at 1:25 pm

"Crude oil ended the month of April with the strongest monthly gain in 7 years, adding 22% to the price. The low price caused "production destruction" and strong demand put the market on a trajectory of market balance."

"We have said that oil prices have bottomed and the chief of the International Energy Agency (IEA) agrees. "In a normal economic environment, we will see the price direction is rather upwards than downwards," IEA Executive Director Fatih Birol said on Sunday during a G7 meeting of energy ministers in Japan as reported by Reuters. He took the words right out of my mouth. Barring any unforeseen economic catastrophes, the global oil market is at the low end of the cycle. We have said for some time that now is the time to start positioning for a long term bullish move. The low price that we saw in crude oil earlier this year may be the last time we see that for over a decade. "

"Even as some shale operators say that they may actually bring on rigs after we hit $50 a barrel, the truth is that many of the smaller operators will find it hard to bring rigs back on."

http://www.321energy.com/reports/flynn/current.html

 


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[Apr 25, 2019] Paper oil and QE

Apr 25, 2019 | off-guardian.org

BigB says Apr, 24, 2019

Overproduction of capital – seeking a high, no risk return – is a certainty. Especially with continuing QE. There is no end game now. That capital will find its way into derivative casino capital gambling – of which only 2% ends up as a commodity changing hands. The rest is hidden toxic exposure making the banking system untenable. Other outlets include mergers and acquisitions (toward oligopolies of power); leveraged buyouts; and asset stripping destroying any last real productive capacity for short term 'Global Death Protocol' (GDP returns – one of the sensible points Monbiot made it is no substitute Human Development Index). Pension fund raiding: there is thought to be a $30 tn black hole already – now they want to release $90tn 'locked assets' without even the slightest chance of ever getting an ROI. Overproduced capital will also find its way in to the tech bubble – funding our AI-redundancy. Oil-rent, commodity-rent, bio-pharma-rent, agi-rent, and tech-rent seems to be a major part of the capitalist death throes. But you cannot rent a host humanity by making them redundant. Now they also want to rent nature back to us. Add in spiralling exponential debt; EROI and a slow-burn falling net-energy crisis; and authoritarian states merging with bureaucratised corporate capital down to the local infrastructure level its humanity versus corporate state insanity.

And the bleated hope of sheep is that a nativist leader – like Jeremy Corbyn – will come along and save us. Reality is going to have to hit the majoritarian massif really hard in the face to wake people up to the systemic fragility of globalised capitalism. Unfortunately, its internecine internal contradictions may prove fatal before that. My hope is that something better may rise from the ashes: a humanist society contra all the fatal contradictions of relentless coercive capital accumulation. Given the level of political and ecological acumen we encounter on a daily basis I'm presently not too optimistic. But that can change, rapidly. Consciousness is not timebound or limited by causality (see below). Now! would be a good time for a consciousness evolutionary explosion a Big Bang of a new reality. Depending on what the Big Bang of the old leaves intact! There will be a solution. It might not be optimal though. I presently can't see any smooth transition taking place. Carpe deum and enjoy the ride over the ever quickening rapids of the net energy falls!

[Feb 27, 2019] Wall Street Loses Faith In Shale

Feb 26, 2019 | www.zerohedge.com
Authored by Nick Cunningham via Oilprice.com,

To Wall Street, the shale industry has lost a lot of its allure. A decade's worth of promises have failed to materialize, and Big Finance is cutting some of its ties with smaller shale drillers who have not delivered.

The Wall Street Journal reports that the shale industry only saw $22 billion in new bond and equity deals, down by more than half from 2016 levels, which was a much worse time for the market.

The steep decline in new debt and equity issuance is a sign that major investors are no longer rushing to finance unprofitable shale drilling. It's worth noting that this is a new development. For years Wall Street financed unprofitable drilling, holding out on the promise that rapid production growth would eventually pay off.

Shale wells suffer from precipitous decline rates, with as much as three quarters of a well's total lifetime production coming out in the first year or two. After an initial burst of output, shale wells enter a steep decline.

Of course, this has been known since the beginning and Wall Street has long been fully aware. But major investors hoped that shale companies would scale up, achieve efficiencies and lower breakeven prices to the point that they could turn a profit.

However, that has not been the case. While there are some drillers that are profitable, taken as a whole the industry has been cash flow negative essentially since its beginning in the mid-2000s. For instance, the IEA estimates that the shale industry posted cumulative negative free cash flow of over $200 billion between 2010 and 2014.

The red ink has narrowed since then, but so too has the patience from Wall Street. In 2018, even as oil prices hit their highest levels in years, new debt and equity issuance plunged. That makes it harder for small and even medium-sized companies to finance growth. It's not all that surprising, then, that a wave of spending cuts have cropped up in the last few months.

The WSJ notes that the credit environment also worsened when the market hit its nadir in 2016. Regulators tightened lending requirements, raising the cost of capital for indebted drillers. That, of course, made it even more difficult for these drillers to turn a profit.

To top it off, all of these pesky investors are much more demanding than they used to be, calling on companies to stop spending so much and instead return cash to shareholders. That leaves less capital available to inject back into the ground. Earlier this month Barclays issued a double-downgrade to Occidental Petroleum, lowering it from Overweight to Underweight, citing the company's deficit after dividends at a time when the driller still expected to aim for an aggressive production target.

But some companies are between a rock and a hard place. The WSJ notes that CNX Resources has lost over 20 percent since late January when it announced that it was bowing to investor pressure to cut spending. That led to speculation that the company wouldn't meet its production target. It's a no-win situation for some.

What to make of all of this? As Liam Denning of Bloomberg Opinion put it, "[t] the prevailing financial model for many frackers has hit a wall ." Denning points out that the shale industry has not posted a return on capital above 10 percent any year since 2006, which says is a "feature of shale, not a bug."

According to Rystad Energy, the 33 largest publicly-traded shale companies, accounting for 39 percent of U.S. shale output, will struggle to please shareholders while also trimming debt. "Shale E&Ps struggle to please equity investors and reduce leverage ratios simultaneously. Despite a significant deleverage last year, estimated 2019 free cash flow barely covers operator obligations, putting E&Ps on thin ice as future dividend payments remain in question," Rystad Energy senior analyst Alisa Lukash said in a statement .

Taking a step back, explosive shale growth was only possible because in the context of the post-2008 financial crisis and the response by the Federal Reserve to drop interest rates close to zero, something Bethany McLean argues in her book, "Saudi America." Cheap money financed the debt-fueled shale revolution.

Rystad finds that over half of the total debt pile for the 33 companies it analyzed is due within the next seven years. Ultimately, the industry may have to erase $4 billion in promised dividend payments. "The obvious gap in expected versus likely dividend payments confirms the industry's inability to deliver sustained investors' payback while simultaneously deleveraging," Lukash said.

That doesn't mean that production is going to fall off of a cliff. These days, the shale drilling frenzy is being pushed along increasingly by the oil majors, who have gobbled up smaller companies. ExxonMobil and Chevron, for instance, can take a long view, and put mountains of cash into drilling. Investor pressure is different for these multinationals and, in any event, they are much more profitable than smaller shale companies due to various assets in refining, chemicals, offshore and otherwise conventional production.

As such, production growth will continue for a while longer. But the go-go days are over.

[Feb 15, 2019] S>omething like $150B in shale companies debt comes due between now and 2023.

US reserves are estimated by some to about 50 billion barrels. Oil production, along with reserve estimates, are growing in the US for one reason and one reason only, the advent of shale oil. Reserve estimates before 2008 were based on conventional oil.
Onshore conventional oil production in the USA is in steep decline. Shale oil production is intrinsically connected with financing and it produce along with oil a stream of junk bonds. At some point investors might do not want them of the bubble start deflating. Then what.
Notable quotes:
"... Next three years for Shale Drillers may be a problem. I believe something like $150B in debt comes due between now and 2023. That's a lot of debt to roll over, as well as take on more debt to fund CapEx. ..."
Feb 15, 2019 | peakoilbarrel.com

TechGuy: 02/15/2019 at 1:23 pm

Hugo Wrote:

"Dennis, with his calculation of a peak in 2025 + or – 3 years is about right."

That really depends on how much debt the Shale Drillers can take on, and presumes there is not another global recession before 2025. Next three years for Shale Drillers may be a problem. I believe something like $150B in debt comes due between now and 2023. That's a lot of debt to roll over, as well as take on more debt to fund CapEx.

Without constant US Shale production increases, world production peaks.

[Jan 29, 2019] Bloodbath In Oil Gas Stocks Could Continue by Nick Cunningham

Notable quotes:
"... In the meantime, the strategy for oil and gas executives to appease investors is to focus on "quick cash, quarterly payouts and fast talk," Sanzillo says. "Either way the stocks lack a long-term value rationale." ..."
"... Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading. ..."
"... Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out. ..."
Jan 04, 2019 | finance.yahoo.com

Of course, that is largely just a reflection of the sharp decline in oil prices. But the share prices of most oil and gas companies are also largely based on oil price movements. So, the steep slide in oil prices in the final two months of 2018 led to disaster for investors in energy stocks.

"The stock market went to hell in December. And when it got there, it found that the energy sector had already moved in, signed a lease and decorated the place," Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA), wrote in a commentary .

The energy sector was at or near the bottom of the S&P 500 for the second year in a row, Sanzillo pointed out. And that was true even within segments of the oil and gas industry. For instance, companies specializing in hydraulic fracturing fell by 30 percent, while oil and gas supply companies lost 40 percent. "The fracking boom has produced a lot of oil and gas, but not much profit," Sanzillo argued.

Looking forward, there are even larger hurdles, especially in the medium- to long-term. Oil demand growth is flat in developed countries and slowing beginning to slow in China and elsewhere. The EV revolution is just getting started.

The last great hope for the oil industry is to pile into petrochemicals , as oil demand for transportation is headed for a peak. But profits in that sector could also prove elusive. "The industry's rush to invest in petrochemicals to maintain demand for oil and gas is likely to continue, but the profit potential in this sector is more limited than oil and gas exploration, and is likely to keep the energy sector at or near the bottom of the S&P 500," Sanzillo concluded.

In the meantime, the strategy for oil and gas executives to appease investors is to focus on "quick cash, quarterly payouts and fast talk," Sanzillo says. "Either way the stocks lack a long-term value rationale."

Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading.

Related: 2019 Could Make Or Break OPEC

"Two-thirds of projections made by the fracking companies between 2014 and 2017 in America's four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota," reporters for the WSJ wrote . "Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm."

Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out.

The upshot is that shale companies will have to step up spending in order to hit the promised production targets. However, so many of them have struggled to turn a profit, and the recent downturn in oil prices has put even more pressure on them to rein in costs.

That raises questions about the production potential not just from individual shale companies, but also from the U.S. as a whole.

By Nick Cunningham of Oilprice.com

[Jan 13, 2019] Catherine Austin Fitts – Federal Government Running Secret Open Bailout

Highly recommended!
Questionable, but still interesting perspective. Ignore marketing crap -- clearly there is marketing push within this presentation -- she wants your subscriptions. "This is Main Street vs Wall Street" dichotomy sounds plausible. Neoliberalism is, in essence, is the restoration of power of financial oligarchy.
But the idea of secret open bailout might explain why shale oil became so prominent despite high cost of producing it: Wall Street was subsidised via backchannels for bringing price downand supporting shale companies by the US goverment
Jan 12, 2019 | www.youtube.com

$21 trillion in "missing money" at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue. The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit.

Fitts says, "This is basically an open running bailout. Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it. There is no oversight whatsoever. You can't even know who is doing it. I'm telling you they just took the United States government, they just changed the governance model by accounting policy to a fascist government. If you are an investor, you don't know who owns those assets, and there is no evidence that you do. . . . If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities."

In closing, Fitts says, "We cannot sit around and passively depend on a guy we elected President. The President cannot fix this. We need to fix this. . . . This is Main Street versus Wall Street. This is honest books versus dirty books. If you want the United States in 10 years to resemble anything what it looked like 20 years ago, you are going to have to do it, and there is no one else who can do it. You have to first get the intelligence to know what is happening."

Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, Publisher of "The Solari Report." Donations: https://usawatchdog.com/donations/

Stay in contact with USAWatchdog.com: https://usawatchdog.com/join/

All links can be found on USAWatchdog.com: https://usawatchdog.com/secret-money-...

Bob T 20 hours ago

Greg, with all due respect I don't you understand what CAF is saying. Forget about a dollar reset. The fascists, using the Treasury, Exchange Stabilization Fund, HUD, DOD and any agency they choose, have turned the US government into a gigantic money laundering operation. And they maintain two sets of books - the public numbers are a complete sham. Any paper assets held by private citizens are not secure, are likely rehypothecated, and when convenient can be frozen or siezed by these fascists in Washington. There is no limit to how many dollars the FED can create secretly and funnel out through the ESF/Treasury to prop up and bail out any bank, black ops, pet project, mercenary army or paper assets they choose. The missing $21 trillion is probably a drop in the bucket as there is no audit and no honest books for us to examine. In sum, all paper asset pricing in dollars is a fraud and a sham. Any paper assets you think you own, whether it be stocks, bonds, or real estate are pure illusion: they can be repriced or stolen at any time; in reality, you own nothing. To the man and woman on the street I say this: get out of paper, get out of these markets and convert to tangibles in your physical possession - and do it secretly and privately, avoid insurances, records, paper trails. This mass defrauding of the American people by this corrupt government in Washington will come crashing down when the US dollar is displaced from reserve status; this is what China and Russia and the BRICS are setting the stage for: world trade without the US dollar. When this happens, your dollars will become virtual toilet paper and all of your paper assets will go poof.

D Loydel 18 hours ago (edited)

"We have to fix this". Ok how does the individual fix this? Private armies are running around doing whatever private armies do and I, the one man, is suppose to fix this. Please, will someone tell us what we are suppose to do, specific instructions not a mix of large words that say " we must fix this", damn, we need a leader. Greg you ask almost every person you interview what the middle class should be doing to protect themselves and you never get a "real" answer, just a dance around. Also you ask numerous people what this coming change is going to look like and again, just silence or dance music, no answers. Damn we need a leader. Your trying very hard to give us information that will help us weather the coming storm, so thank you for all you do, and you do more than anyone else out there.

Forrest Byers 19 hours ago

Question, why in part do I feel I am being lied to? Is it subscription hustle or is it, don't you believe your lying eyes!

Without knowing exactly what is what, anyone who would've watched Herbert Walker Bush's funeral with reactions from those who received cards, whether they be Bush family, the Clintons, the Obamas and entourage. Jeb Bush went from being proud and patriotic to panic like the funeral that he was at was for the whole family.

Joe Biden looked like he had a major personal accident and no way to get to the bathroom for cleanup.

George W. Bush after being asked a question, of which the answer was, "Yep" then proceeded to appear resigned and stoic! What ever was on those cards essentially amounted to, for all those receiving a card, "the gig is up" and it appears they all damn well knew it.

So, Catherine Austin Fitts, explain your, "Trump is colluding with the Bushies," I would say, that Canary in this mine of inquiry is dead. I'm just an old disabled Vietnam vet of plebeian background and certainly not a revolving door Washington DC Beltway patrician, so any explanation needs to be delivered in slow, logical step-by-step progression for I have not mastered the art of selling the sizzle in hopes that the dupes will later pay for the steak. I prefer, Greg, when you actually get more combative with Ms. Fitts. Make America, great again and do so, in the name of the Lord Jesus Christ, Amen.

sell siliconvalley 19 hours ago

35 min: Fitts gives a great synopsis of the problem. She never deviates in all of her interviews. greg doesn't seem to understand at all. She repeats herself MULTIPLE TIMES and greg is still asking the same irrelevant PREPPER questions. IT DOES NOT MATTER WHAT ASSETS YOU HOLD GREG, AND THAT INCLUDES GOLD!!!! WHEN YOU'RE EXISTING IN A TYRANNICAL SYSTEM THAT STEALS AT WILL FROM ITS' CONSTITUENCY YOU CAN'T actually OWN ANYTHING!!!! lord! only so many ways to say

Andy Mak 17 hours ago

She lost credibility when she said Trump has "made a deal with the Bushes." That defies logic. The Bushes made a deal with Trump! Trump has gained full control of the military with a $ 1 1/2 trillion war chest. Trump and Putin are putting the China toothpaste back in the tube.

Karen Lydon 19 hours ago

This woman clearly knows nothing about the plan..she has not even mentioned that the world bank president has resigned who was appointed by obumma. And that is HUGE. She was in government in the corruption, but she doesn't know how things will be fixed..she's not in that loop of current things in the new reset..shes coming from her own perceptions

A T 20 hours ago

This woman always make me sick to my stomach. She comes out and says a bunch of scary stuff and offers no solution. If it's too much for just one person, then we the people need to take control. We don't need a central bank. We need local and state banks like the Bank of North Dakota then we can migrate over to them and then shut down the Fed.

[Jan 04, 2019] Effect of "paper oil". You won't know anything until you find yourself sitting in a line waiting for gasoline. You won't see it coming. You won't predict it. It will just happen someday.

Jan 04, 2019 | peakoilbarrel.com

Watcher: 01/02/2019 at 3:32 pm

You guys insist on continuing to think money isn't created from thin air by the Fed and actually means something in the context of a substance that feeds you food. If you have to have it, and you do have to have it, things will be done for you to get it. Borrowed money that was created from thin air . . . who cares if you can't pay it back? You have to eat.

Consumption of oil is up. OPEC and Russia have reduced output. The price falls, because there is no meaning to anything created from thin air when applied to something that depends on physics.

You won't know anything until you find yourself sitting in a line waiting for gasoline. You won't see it coming. You won't predict it. It will just happen someday.

Soon.

GuyM: 01/02/2019 at 4:27 pm
Some truth to that Watcher. Simplistic thinking in investors. If we aren't making much money, the US won't be making much money, so the price of oil must go lower. Not just simplistic, flat out stupid.

And the number of people who think oil supply is limited is fairly scarce in relation to the population as a whole. Probably less than the number of people who think chocolate milk comes from brown cows.

[May 29, 2018] How Wall Street Enabled the Fracking 'Revolution' That's Losing Shale Oil Companies Billions naked capitalism

Notable quotes:
"... By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Justin has a degree in Civil and Environmental Engineering from Cornell University. Originally published at DeSmogBlog ..."
"... Wall Street caused the 2008 financial crisis, with some of its architects personally benefiting. However, while a few executives profited, the result was a drop in employment of 8.8 million people, and according to Bloomberg News in 2010, "at one point last year [2009] the U.S. had lent, spent, or guaranteed as much as $12.8 trillion to rescue the economy." ..."
"... JP Morgan (along with much of Wall Street) required large sums of money in the form of bailouts to survive the fallout from all of the bad loans made, which brought about the housing crisis. Is JP Morgan steering clear of making loans to the shale industry? No. Quite the opposite. ..."
"... To understand why JP Morgan and the rest of these banks would loan money to shale companies that continue to lose it, it's important to understand the gambling concept of "the vigorish," or the vig. Merriam-Webster defines vigorish as "a charge taken (as by a bookie or a gambling house) on bets." ..."
"... Wall Street makes money by taking a cut of other people's money. To a gambling house, it doesn't matter if everyone else is making money or losing it, as long as the house gets its cut (the vig) -- or as it's known in the financial world -- fees. ..."
"... Understanding this concept gives insight into why investors have lent a quarter trillion dollars to the shale industry, which has burned through it. If you take the vig on a quarter trillion dollars, you have a big pile of cash. And while those oil companies may all go bankrupt, Wall Street never gives back the vig. ..."
"... Trent Stedman of the investment firm Columbia Pacific Advisors LLC explained to The Wall Street Journal at the end of 2017 why shale producers would keep drilling more oil even when the companies are bleeding money on every barrel produced: ..."
"... "Some would say, 'We know it's bad economics, but it's what The Street wants.'" ..."
"... In 2017 "legendary" hedge fund manager Jim Chanos referred to shale oil companies as "creatures of the capital markets," meaning that without Wall Street money, they would not exist. Chanos is also on record as shorting the stock of heavily leveraged shale oil giant Continental Resources because the company can't even make enough money to pay the interest on its loans. ..."
"... The Wall Street Journal reports ..."
"... Growing production at any cost is the story of the shale "revolution." The financial cost paid so far has been the more than $280 billion the industry has burned through -- money that its companies have received from Wall Street and, despite the plea from Al Walker, continue to receive. ..."
"... Higher oil prices are yielding more stories about how 2018 will be the year that the shale industry finally makes a profit. Harold Hamm refers to it as Continental Resources' "breakout year." Interesting how potentially not losing money for a year is considered a "breakout year" in the shale industry ..."
"... I keep thinking that the whole enterprise was bankrolled specifically to crush oil prices and keep inflation tamped down, which provides much more profit to wall street via the assurance that the Fed's easy money policy lasts a lot longer. ..."
"... " If Wall Street is the bookie then who are the bettors?" It's a great question that leaves everyone guessing. My guess is pension funds, and calling them bettors is being kind. ..."
"... Bernie Sanders: The business of Wall Street is fraud and greed. ..."
"... I've mentioned this book a few times recently that I'm still in the middle of – Railroaded by Richard White . He points out that the 19th century railroad corporations were disorganized, poorly run, money losing enterprises. But that didn't stop people from investing in them and getting filthy rich. All you need is some fast talking and clever accounting. One example he mentions is that the railroads needed all kinds of supplies to keep things moving and so they would buy them from railroad logistics corporations or fuel from coal companies, etc. But guess who owned the suppliers? That's right, the railroad investors would set up separate companies to supply their own railroads and these companies were extremely profitable. ..."
"... But the pool of investors in these supplier companies was limited to the smart money in on the scam. In essence, the initial well heeled investors set up the railroads so that they could deliberately fleece them. He gives the example of one of the coal companies charging the railroad three times the going rate, which beggared the railroad but lined the pockets of the select few investors who owned stakes in both companies. ..."
"... I suspect that something similar may be going on in the fracking industry. So to figure out the whole scam, you would need to know if the logistics companies are making a profit and is there any common ownership between those companies and the frackers. ..."
"... The other book I recently read was The Whiskey Rebellion by William Hogeland which discusses finance and taxation during the period just after the American Revolution. Shorter version – Alexander Hamilton was a crook who deliberately set up a financial system to ensure that the rich get richer off the labor of the rest of us. ..."
"... The more you learn about the history of this country, the more you realize that there really is nothing new going on and the financial crooks of today are just following in the footsteps of their grifter forebears. And maybe someday they too will have cities named after them or at least a statue in the public square, because the US of A does love its con men. ..."
"... Hogeland's book Founding Finance is also great. Michael Perelman's book Railroading Economics is worth a read. The founders of economics in the US were looking at the example of the railroads and other corporations and acknowledging that competition was destructive and wasteful, but in their textbooks for college students they pushed the simplistic and misleading models that came to define neoclassical economics. ..."
"... Perhaps Wall Street and the banks are playing a larger game. When the U.S. had $4.00+ gasoline there was a real motivation to rework transportation systems and rely less on cars. Now, with the lower oil prices we are back to SUV's and pick-up trucks. So maybe a loss leader in the fracking scam has preserved a much larger cash cow in auto finance. There is also the whole oil services industry to consider. With new conventional discoveries at an all time low, what would the oil services sector do if there were no fracking? ..."
"... Can't help but wondering if this isn't all part of the neo-conservatives and their 'Great Games'. Since 1971 and the peak of conventional oil production in the US, the country has been a power in decline, economically if not militarily. If, as Frederick Soddy wrote almost a hundred years ago "Life is fundamentally a struggle for energy", then the country which controls that energy controls life on our planet. (I believe Kissinger said much the same thing.) This has all kinds of implications for issues from world (Middle East) peace and transitioning to renewable energy sources. Accidents of geology have left Middle Eastern countries with most of the world's remaining easily exploitable sources of conventional oil – and also as holders of much of the US and Western government debt upon which the international monetary system is based. ..."
"... Super (monetary) Imperialism ..."
"... I also can't help but wonder if Reagan shouldn't be most remembered for his instructions to White House maintenance personnel to 'take down those solar panels'. This is eight years after Hudson published Super Imperialism ..."
"... What the Saudis did in 2014 – 2016, maximizing output and spending ~2/3 of the 800 billion dollars equivalent in savings they then held to sustain their economy and regime, trying to bankrupt the U.S. oil industry (and secondarily, the Iranians, etc.) they quite literally cannot do again, anytime soon. They're close to broke, and fighting 1 – 2 wars. ..."
"... Regarding " The Saudis trying to bankrupt the U.S. oil industry" – The Saudis were not out to destroy the US oil industry. The US oil industry controls the Saudis through the US Military which keeps them in power. The Saudis were after the wildcat frackers who were not part of the global oil cartel (which includes US Big Oil). The wildcat frackers were not maintaining limited production quotas to maintain the monopoly oil price gouging. US Big Oil allowed the price collapse for long term goals with their Saudi partners. (Source: Antonia Juhasz) Apparently Wall Street was not in on the plan and kept the money flowing in the fracking Ponzi scheme. ..."
"... Luke is an oil man who brings to mind the Upton Sinclair quote "It is difficult to get a man to understand something when his salary depends upon his not understanding it." ..."
"... "There's a sucker born every minute" and Wall Street is P. T. Barnum directing investors with the sign "This Way to the Egress." The con will last as long as investors have cash to burn and think "product growth" is equivalent to "profit growth" – or in the words of Lucy "Well, uh maybe there is no profit on each individual jar, but we'll make it up in volume." ..."
May 29, 2018 | www.nakedcapitalism.com

How Wall Street Enabled the Fracking 'Revolution' That's Losing Shale Oil Companies Billions Posted on May 6, 2018 by Jerri-Lynn Scofield By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Justin has a degree in Civil and Environmental Engineering from Cornell University. Originally published at DeSmogBlog

The U.S. shale oil industry hailed as a "revolution" has burned through a quarter trillion dollars more than it has brought in over the last decade. It has been a money-losing endeavor of epic proportions.

In September 2016, the financial ratings service Moody's released a report on U.S. oil companies, many of which were hurting from the massive drop in oil prices. Moody's found that "the financial toll from the oil bust can only be described as catastrophic," particularly for small companies that took on huge debt to finance fracking shale formations when oil prices were high.

And even though shale companies still aren't turning a profit, Wall Street continues to lend the industry more money while touting these companies as good investments. Why would investors do that?

David Einhorn, star hedge fund investor and the founder of Greenlight Capital, has referred to the shale industry as "a joke ."

"A business that burns cash and doesn't grow isn't worth anything," said Einhorn, who often goes against the grain in the financial world.

Aren't investors supposed to be focused on putting money toward profitable companies? While, in theory, yes, the reality is quite different for industries like shale oil and housing.

If the U.S. financial crisis of 2008 has revealed anything, it is that Wall Street isn't concerned with making a "shitty deal" when it means profits and bonuses for its traders and executives , despite their roles in the crash.

Wall Street makes money by facilitating deals much like a Vegas bookie makes money by taking bets. As the saying about Las Vegas goes: "The house always wins." What's true about casinos and gambling also holds true for Wall Street.

Wall Street caused the 2008 financial crisis, with some of its architects personally benefiting. However, while a few executives profited, the result was a drop in employment of 8.8 million people, and according to Bloomberg News in 2010, "at one point last year [2009] the U.S. had lent, spent, or guaranteed as much as $12.8 trillion to rescue the economy."

JP Morgan (along with much of Wall Street) required large sums of money in the form of bailouts to survive the fallout from all of the bad loans made, which brought about the housing crisis. Is JP Morgan steering clear of making loans to the shale industry? No. Quite the opposite.

As shown in this chart of which banks are loaning money to shale company EOG Resources, while all of the big players in Wall Street are in on the action, JP Morgan has the biggest bet.

To understand why JP Morgan and the rest of these banks would loan money to shale companies that continue to lose it, it's important to understand the gambling concept of "the vigorish," or the vig. Merriam-Webster defines vigorish as "a charge taken (as by a bookie or a gambling house) on bets."

Wall Street makes money by taking a cut of other people's money. To a gambling house, it doesn't matter if everyone else is making money or losing it, as long as the house gets its cut (the vig) -- or as it's known in the financial world -- fees.

Understanding this concept gives insight into why investors have lent a quarter trillion dollars to the shale industry, which has burned through it. If you take the vig on a quarter trillion dollars, you have a big pile of cash. And while those oil companies may all go bankrupt, Wall Street never gives back the vig.

Trent Stedman of the investment firm Columbia Pacific Advisors LLC explained to The Wall Street Journal at the end of 2017 why shale producers would keep drilling more oil even when the companies are bleeding money on every barrel produced:

"Some would say, 'We know it's bad economics, but it's what The Street wants.'"

And "The Street" generally gets what it wants, even when it is clear that loaning money to shale companies that have been losing money for a decade and are already deep in debt is "bad economics." But Wall Street bonuses are based on how many "fees" an employee can bring to the bank. More fees mean a bigger bonus. And loans -- even ones that are clearly bad economics -- mean a lot more fees.

Shale Oil Companies Are 'Creatures of the Capital Markets'

In 2017 "legendary" hedge fund manager Jim Chanos referred to shale oil companies as "creatures of the capital markets," meaning that without Wall Street money, they would not exist. Chanos is also on record as shorting the stock of heavily leveraged shale oil giant Continental Resources because the company can't even make enough money to pay the interest on its loans.

And he has a point. In 2017 Continental spent $294.5 million on interest expenses, which is approximately 155 percent of its 2017 adjusted net income generation. When you can't even pay the interest on your credit cards, you are broke.

And yet in 2017, investor capital was still flowing, with Continental Resources among those bellying up to the Wall Street trough for another billion in debt.

" In 2017, U.S. [exploration and production] firms raised more from bond sales than in any year since the price collapse started in 2014, with offerings coming in at around $60 billion -- up nearly 30 percent from 2016, according to Dealogic. Large-cap players like Whiting Petroleum, Continental Resources, Southwestern, Noble, Concho and Endeavor Energy Resources each raised $1 billion or more in the second half of 2017."

How big of a problem is this business of loaning money to an industry burning through billions and burying itself in debt? So big that the CEO of shale company Anadarko Petroleum is blaming Wall Street and asking its companies to please stop loaning money to the shale oil industry. Yes, that's right.

In 2017, Anadarko CEO Al Walker told an investor conference that Wall Street investors were the problem:

" The biggest problem our industry faces today is you guys. You guys can help us help ourselves. It's kind of like going to AA . You know, we need a partner. We really need the investment community to show discipline."

The Wall Street Journal reports that Walker maintains: "Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means."

Imagine begging banks to stop loaning you money. And being ignored.

Growing production at any cost is the story of the shale "revolution." The financial cost paid so far has been the more than $280 billion the industry has burned through -- money that its companies have received from Wall Street and, despite the plea from Al Walker, continue to receive.

The Economist summarized the situation in 2017:

"It [the shale industry] has burned up cash whether the oil price was at $100, as in 2014, or at about $50, as it was during the past three months. The biggest 60 firms in aggregate have used up $9 billion per quarter on average for the past five years."

Higher oil prices are now being touted as the industry's savior but, as The Economist noted, the shale industry was losing money even when oil was $100 a barrel.

Still Wall Street keeps giving the shale industry money and the shale industry keeps losing it as it ramps up production. To be clear, this arrangement makes shale company CEO s and financial lenders very rich, which is why the trend is likely to continue. And why Continental Resources CEO Harold Hamm will continue to repeat the myth that his industry is making money, as he did at the end of 2017:

" For anybody to even put forth the suggestion we haven't had great expansion and wealth creation in this industry with horizontal drilling and all the technology that's come about the last 10 years, I mean, it's totally ridiculous."

No one will argue that Hamm and his partners on Wall Street are not extremely wealthy. That has happened despite Hamm's company and the rest of the fracking industry losing epic sums of money. The same year Hamm made that statement, his company couldn't even cover its interest expenses. To put that in perspective, Continental Resources couldn't even make the equivalent of the minimum payment on its credit card.

Watch What the Industry Does, Not What It Says

Higher oil prices are yielding more stories about how 2018 will be the year that the shale industry finally makes a profit. Harold Hamm refers to it as Continental Resources' "breakout year." Interesting how potentially not losing money for a year is considered a "breakout year" in the shale industry .

As reported on DeSmog, the industry certainly got a huge boost from the recent tax law, which will help its companies' short-term finances. Continental Resources alone took home $700 million in tax relief.

Recent reports in the financial press detail how the new approach in the shale industry will be to focus only on profitable oil production, not just producing more barrels at a loss. As The Wall Street Journal put it in a headline: "Wall Street Tells Frackers to Stop Counting Barrels, Start Making Profits."

In that very article, Continental CEO Hamm assures that he is on board with this new approach, saying, "You are really preaching to the choir." But has Continental actually embraced this new approach of fiscal responsibility and restraint? Not so much.

The fracking firm appears to have done the opposite, increasing production to record levels along with the rest of the shale industry. Continental recently reported plans to drill 350 new wells at an estimated cost of $11.7 million per well, which adds up to over $4 billion in total costs on those wells. The company currently holds more than $6 billion in debt and less than $100 million cash.

How will Continental fund those new wells? Hamm has promised that going forward, there would be "absolutely no new debt." Perhaps Continental will fund it by selling assets because without more debt, Continental does not have the money to fund those new wells. However, if past is prelude, then Wall Street will happily lend Continental as much money as it wants. Why would Hamm say one thing and do another? Well, he personally has accrued billions of dollars while his company has burned through billions. Despite leading Continental to another money-losing year in 2017, Hamm took home a fat raise .


Louis Fyne , May 6, 2018 at 8:04 am

Funny how the news cycle will go nuts if -- insert public pension fund -- has 0.07% of its holdings in a gun stock.

But not a peep at 'golly aw shucks' Mr. Grandpa USA, Warren Buffet, over Wells Fargo its retail banking or its fracking enabling. or at (pal of chuck schumer and clintons) Jamie Dimon or USA-rescued Citi.

#resistance

johnnygl , May 6, 2018 at 8:21 am

Don't forget that warren buffet also owns the trains that eat a lot of the profits of the koch bros investments in the tar sands. That why they wanted that keystone pipeline soooooooo baaaad

Carolinian , May 6, 2018 at 9:05 am

The article could use an explanation -- for those of use who are financial dummies -- of who the investors are that are making these apparently foolish bets. If Wall Street is the bookie then who are the bettors? Or are the Wall Street banks using deposit money to invest in fracking?

On a recent drive through West Texas I noticed the landscape dotted with what looked like newish mini factories -- presumably fracking operations. Clearly it's not a low cost endeavor.

Gee , May 6, 2018 at 9:51 am

I keep thinking that the whole enterprise was bankrolled specifically to crush oil prices and keep inflation tamped down, which provides much more profit to wall street via the assurance that the Fed's easy money policy lasts a lot longer.

All the rest of this talk about profitability is just BS cover story. It's also an employment plan, in the same way that bankrolling student loan debt was a a huge employment plan for administration and construction, and soaked up unemployment by lifting enrollment rates and taking people out of the labor market.

I think we forget how so much of what happened after the financial crisis was a way of getting around the fact that they wanted the stimulus so much bigger than the 1 trillion they didn't even manage to get. I mean, look at the for profit school industry – that was an obvious total racket and a joke, yet they threw money at it, then pretended to clean up the shocking unexpected mess after when it was safe to do so (when the economy was more in the clear.)

The wall street insiders make a mint trading the junk stocks up, then short the hell out of them when they know the game is over and make a mint on the way down.

jsn , May 6, 2018 at 9:56 am

I've been wondering the same thing. There must be a huge pile of non-performing debt on someone's balance sheet or it's being moved around to where significant write downs are happening, but I have no idea where either of those two things might be. Who are the stuffees? Is German banks buying subprime again?

cnchal , May 6, 2018 at 10:14 am

" If Wall Street is the bookie then who are the bettors?" It's a great question that leaves everyone guessing. My guess is pension funds, and calling them bettors is being kind.

A bit off topic but yesterday in links was an article about the long time it takes to sue Goldman Sachs. Now, it's good to see a little bit of trouble coming their way but the article describes the lady doing the suing as a sweet innocent young thing being mauled by the male predators at Goldman and her specialty was the "sale of convertible bonds", a fee generating bullshit jawb that made her more money in a year than a deplorable can dream of making in a lifetime.

There were two problems however. One, the sexual predator grabbing her was a bit of a sideshow and from reading the guts of the article, the much bigger one is about money and how the ladies of Goldman were being cut out from their rightful share of the fee-loot generated at Goldman Sachs.

Bernie Sanders: The business of Wall Street is fraud and greed.

jsn , May 6, 2018 at 10:47 am

Pension funds is a good guess but one would think the consistent losses would start to show somewhere. The bezzle at this point has to be approaching trillions.

Stupendous Man - Defender of Liberty, Foe of Tyranny , May 6, 2018 at 11:28 am

The simple, short, response is "pension funds across the country, public and private, ARE evidencing/showing considerable shortfalls."

That doesn't equate with pension funds being involved in these types of investments, but we shouldn't be surprised if they are.

Michael Fiorillo , May 6, 2018 at 6:01 pm

In the case of public pension funds, many of not most of the "shortfalls" are in fact intentional under-funding of the plans, with contributions to the funds being skimmed off by state governments and diverted into the general operating funds, because Taxes Bad.

lyman alpha blob , May 6, 2018 at 11:34 am

No it isn't a low cost endeavor and that may be precisely how the scam works. Note that the article mentions at the end that Hamm who founded Continental has made billions personally while the corporation flounders.

So the question is, what else does he own?

I've mentioned this book a few times recently that I'm still in the middle of – Railroaded by Richard White . He points out that the 19th century railroad corporations were disorganized, poorly run, money losing enterprises. But that didn't stop people from investing in them and getting filthy rich. All you need is some fast talking and clever accounting. One example he mentions is that the railroads needed all kinds of supplies to keep things moving and so they would buy them from railroad logistics corporations or fuel from coal companies, etc. But guess who owned the suppliers? That's right, the railroad investors would set up separate companies to supply their own railroads and these companies were extremely profitable.

But the pool of investors in these supplier companies was limited to the smart money in on the scam. In essence, the initial well heeled investors set up the railroads so that they could deliberately fleece them. He gives the example of one of the coal companies charging the railroad three times the going rate, which beggared the railroad but lined the pockets of the select few investors who owned stakes in both companies.

I suspect that something similar may be going on in the fracking industry. So to figure out the whole scam, you would need to know if the logistics companies are making a profit and is there any common ownership between those companies and the frackers.

Also, for anyone interested in the shady world of corporate finance and how it came to be in the US, I can't recommend the book linked to above enough. One other aspect I found fascinating is how the railroad investors turned to Europe and specifically the Germans to buy their bonds when they couldn't find enough suckers stateside. Reminds me quite a bit of the mortgage crisis a decade ago that spilled into Europe.

The other book I recently read was The Whiskey Rebellion by William Hogeland which discusses finance and taxation during the period just after the American Revolution. Shorter version – Alexander Hamilton was a crook who deliberately set up a financial system to ensure that the rich get richer off the labor of the rest of us.

The more you learn about the history of this country, the more you realize that there really is nothing new going on and the financial crooks of today are just following in the footsteps of their grifter forebears. And maybe someday they too will have cities named after them or at least a statue in the public square, because the US of A does love its con men.

HopeLB , May 6, 2018 at 3:47 pm

Thank you very much for the book recommendations! Maybe their back up investments are in "fixing" the externalized, environmental costs e.g. water filtration systems that remove radiologocals/heavy metals from municipal supplies with the cost of purchasing being inversely portional to the extent of privatized ownership permitted?

SimonGirty , May 7, 2018 at 5:24 am

We spread the radium & strontium flavored "produced water" on as a replacement for road salt. Slickwater fracking of the Marcellus became sellable, after Katrina messed up Shell's deep water platforms in the Gulf (ie: a Democrat administration in PA, allowed fracking in a huge reservoir, 1/4 mile from two 40yr old reactors and "watering down" return water to "permissable levels" of toxic substances illegal to disclose to the 850,000 folks drinking "treated" water. (note the dates?)
https://vimeo.com/44367635 https://www.propublica.org/article/wastewater-from-gas-drilling-boom-may-threaten-monongahela-river

bones , May 6, 2018 at 6:22 pm

Hogeland's book Founding Finance is also great. Michael Perelman's book Railroading Economics is worth a read. The founders of economics in the US were looking at the example of the railroads and other corporations and acknowledging that competition was destructive and wasteful, but in their textbooks for college students they pushed the simplistic and misleading models that came to define neoclassical economics.

John k , May 6, 2018 at 12:29 pm

I know nothing, but: Banks can fund loans by creating deposits and then carry the debt on their books as assets. And they can be hidden there, their assets are secret. If the stuff can't be paid back it's toxic, just like subprime in 2008 .

And the party goes on until rising rates push the economy into recession, banks stop rolling over loans, the borrowers go to the Wall, etc.
And then what? The usual thing is for gov to bail out the Tbtf banks rather than take them over, and sack or jail the officers because can't hurt the biggest donors. But if it all hangs together until 2020 and Bernie wins there might be a change in the script.

drumlin woodchuckles , May 6, 2018 at 5:24 pm

If Sanders thinks of running again, he should say something basically like . . .

" If I am elected, I will have in place some responses ready to roll out and apply when the next crisis and depression breaks out during my term." And he could say why he is predicting a "next crisis and depression". If he were to get elected and then we had a next crisis and depression during his term, he would get public credibility for having predicted it. And he might have more political latitude for "doing the FDR thing" in response.

Carey , May 6, 2018 at 8:13 pm

I think that would be an excellent thing for him to do, with regard to the People, except it might well get him JFK'd.

rd , May 6, 2018 at 11:28 am

Many corporations, education institutions have pulled out of the fossil fuel industry investment funds, a cursory reading of the press will give you an update

drumlin woodchuckles , May 6, 2018 at 5:25 pm

Have they pulled out of the fossil fuel inVESTment industry as well as pulling out of the fossil fuel INdustry itself?

johnnygl , May 6, 2018 at 8:18 am

Great piece! Thanks for posting. I'm going to try and shop this around at work wish me luck

Jim M , May 6, 2018 at 8:28 am

My comment is a question – thanks in advance for your input: How does Wall Street fare when oil companies who they lent money to, go into bankruptcy?

lyman alpha blob , May 6, 2018 at 10:13 am

My guess is that even thought the banks aren't necessarily lending directly to the frackers and the fees they collect are lucrative, they still have some skin in the game somehow. The investors who are putting up the cash must have got the money from some bank or another. So the banks wouldn't put up this much money without some guarantee they would be made whole when it all goes belly up.

And I can't think of a bigger wink and a nod than what happened about ten years ago after the banks blew up the mortgage industry. If Uncle Sugar came to the rescue then, I think it's safe for them to assume it will happen again. After all, their friends run Treasury and the Fed.

bones , May 6, 2018 at 6:28 pm

And see article in FT posted in links a couple days ago "liquidity ousts debt as the big market worry." It provides some charts showing that banks are shifting away from holding debt and playing more of the role of broker (with some anti-regulation propaganda thrown it as editorial spin).

John Zelnicker , May 6, 2018 at 3:21 pm

@Jim M
May 6, 2018 at 8:28 am
-- --
One of the things the banks frequently do when their borrowers go into bankruptcy, is to participate in the debtor-in-possession financing that the bankruptcy court guarantees to be repaid. This allows them to earn some interest to offset any losses.

If the fracking companies don't go bankrupt, the debt will be rolled over continuously until the whole system collapses and the Fed bails out the banks again.

Rinse and repeat.

The Rev Kev , May 6, 2018 at 8:36 am

I guess that all the money pumped (no pun intended) into fracking must have originated in the several trillion dollars worth of Quantitative Easing funds created in the past decade. All that money sloshing around had to go somewhere. Maybe the only good news is that this will be all one way to cancel some of these excess funds. The bad news is that supporting an insupportable industry will screw up huge tracts of land and water supplies for god knows how long.

Jim Young , May 6, 2018 at 10:19 am

Though not as "profitable" as converting as much energy production as possible to solar, wind, and Pumped Storage Hydro (to store otherwise wasted "free" energy at 1/20th the cost of batteries), it seems inevitable that people will not keep paying so much extra for what should be much cheaper energy.

I don't know what price the planet and ones keeping us on too expensive energy will pay in the long run (financial market losses by suckers, or tax payers for Citizens United enabled politicians and phony regulators), but I suspect the ones that see the inevitable are getting as much profit as they can, while they can, and leaving so many more holding the bag (financially, and in abused environment).

There are some that will make wiser investments in more sustainable energy, as they accept lower returns more in line with energy production at much better cost benefit ratios (which are also less environmentally damaging).

See https://www.hydro.org/wp-content/uploads/2018/04/2018-NHA-Pumped-Storage-Report.pdf

kev4321 , May 6, 2018 at 9:45 am

Perhaps Wall Street and the banks are playing a larger game. When the U.S. had $4.00+ gasoline there was a real motivation to rework transportation systems and rely less on cars. Now, with the lower oil prices we are back to SUV's and pick-up trucks. So maybe a loss leader in the fracking scam has preserved a much larger cash cow in auto finance. There is also the whole oil services industry to consider. With new conventional discoveries at an all time low, what would the oil services sector do if there were no fracking?

steven , May 6, 2018 at 9:48 am

Can't help but wondering if this isn't all part of the neo-conservatives and their 'Great Games'. Since 1971 and the peak of conventional oil production in the US, the country has been a power in decline, economically if not militarily. If, as Frederick Soddy wrote almost a hundred years ago "Life is fundamentally a struggle for energy", then the country which controls that energy controls life on our planet. (I believe Kissinger said much the same thing.) This has all kinds of implications for issues from world (Middle East) peace and transitioning to renewable energy sources. Accidents of geology have left Middle Eastern countries with most of the world's remaining easily exploitable sources of conventional oil – and also as holders of much of the US and Western government debt upon which the international monetary system is based.

Free the world from its dependence on fossil fuels and you free it from its dependence reserve currencies, US government and Wall Street-created debt. I wish Hudson would return to the theme which introduced me to his work, Super (monetary) Imperialism . End it, i.e. replace the free lunch international monetary system from which the US and its 'exceptional people' derive the funds to spread murder and mayhem around the world, and you open at least the possibility for the world to enjoy a little peace and get to work on serious problems like climate change.

I also can't help but wonder if Reagan shouldn't be most remembered for his instructions to White House maintenance personnel to 'take down those solar panels'. This is eight years after Hudson published Super Imperialism – more than enough time for at least policy makers, drawn mostly from the ranks of finance, to understand 'the game' (and the orders from Saudi Arabia they must follow if they wished to keep playing.) Fracking is / was just a feeble attempt to show some independence which it and the rest of the world do NOT have so long as they remain hooked on the Middle East's 'ancient sunlight'.

pretzelattack , May 6, 2018 at 10:15 am

i'll always appreciate carter for putting them on.

Arizona Slim , May 6, 2018 at 2:42 pm

They were installed on the roof so that the White House kitchen could have hot water. And they didn't work well. So, Reagan had them removed. ISTR reading that a photovoltaic array was installed while Obama was president.

jsn , May 6, 2018 at 8:56 pm

"Life is fundamentally a struggle for energy"

This does appear to be at the core of human nature, particularly if you substitute "power" for energy as a term to include both physical BTUs, who's pursuit we share with all other animals, and the social relations that can be commanded with it which are a strictly human thing.

The question now front and center is, "is humanity capable of self-conscious restraint on power, even at the risk of extinction?"

I can only imagine survival for our species if we can make a religion of opposing "power" at the risk of life as a mater of faith. Power has to be a community resource used for community aims that intergenerationally sustain the community, but "the coordination problem" of large groups militates against this notion. A stretch I know, the limits of my creativity are showing!

Chauncey Gardiner , May 6, 2018 at 9:59 am

Thank you for posting this excellent piece. However, I question whether the domestic shale oil industry is financially unprofitable when it is considered in the aggregate, or if it is just the exploration and production sector. Setting aside for a moment the huge environmental, health and other social costs associated with this industrial activity, there is a vast network of entities that depend on this debt-fueled oil extraction and development. They range from oil and gas steel pipe manufacturers in Youngstown and drilling rig manufacturers in Texas to tank railcar manufacturers in Louisiana to major railroads to refineries and petrochemical facilities to pipeline companies and to some extent the domestic auto industry and military, etc. No question the domestic shale oil extraction sector itself is not cost competitive with other global suppliers, but I am wondering about the cumulative secondary and tertiary economic and employment effects.

The primary problems with this industry sector lie in the enormous long-term environmental and social costs it imposes, maybe even raising existential questions. Then there is the issue of oil pipeline companies being granted eminent domain to deliver this oil for export when the nation as a whole is a major net importer. Is that really a "public purpose" for which the eminent domain laws were intended, or simply to line the pockets of a few?

Bud-in-PA , May 6, 2018 at 10:22 am

You can thank our Federal Reserve for all of this!

Telee , May 6, 2018 at 12:51 pm

Considering the environmental impact of Non-conventional drilling ( fracking ) it should be noted that although denied by the industry wells have a considerable leak rate which puts methane aint the atmosphere and threatens potable water supplies. In addition the uptick in fracking has suppressed the development of non fossil fuel energy production which leads us headlong into the 1.5 to 3 degree temperature elevation that the Paris agreement seeks to avoid. The following links are a good introduction to these dangers. It seems likely that human intelligence will prove to be a lethal mutation.

https://www.youtube.com/watch?v=Dxis-vYGM_M
https://www.youtube.com/watch?v=PGfIjCG-zB4

Carey , May 6, 2018 at 1:29 pm

What happens when the true costs of fracking- to the land, soil, water, and communities- become part of the equation? That can't come soon enough, in my view. The squandering of vast natural resources here in the USA! is just so saddening.

jfleni , May 6, 2018 at 4:13 pm

At least the poor warehouse worker knows he doesn't have the time, so he carries his new P-bottle just in around in case; maybe the frack-daddies should wake up and start packing new bottles!

VietnamVet , May 6, 2018 at 7:22 pm

This is a good post. It is an existential question.

If I remember my lessons from NC, in 2007 it was clear that the subprime mortgage securitization scheme would tank as the housing market collapsed. The short spread bettors couldn't get anyone else to see what was really happening. Then suddenly Bear Stearns was sold, Lehman Brothers went bankrupt and AIG had to be rescued.

I assume that Wall Street will continue to make loans out of thin air and pocket the Vig. The Fed assures that the banks have an infinite money supply with deregulation and not forcing the banks to write off their bad loans. This is similar to the MMT funding of the military's never ending overseas wars. Wars end – badly most of the time. Fossil fuels are finite. When the fuel costs more money to produce than it can be sold; the system collapses. So, does that portion of civilization that is dependent on that energy source if there is no alternative available.

Luke , May 7, 2018 at 1:35 am

I work in the oil industry. My job is as a type of low-level geologist, actually living and working out on oil rigs for weeks or months at a time. (I drive to the nearest town with a ChinaMart about once a week or so to wash clothes and buy more groceries.)

Several observations:

1) What the Saudis did in 2014 – 2016, maximizing output and spending ~2/3 of the 800 billion dollars equivalent in savings they then held to sustain their economy and regime, trying to bankrupt the U.S. oil industry (and secondarily, the Iranians, etc.) they quite literally cannot do again, anytime soon. They're close to broke, and fighting 1 – 2 wars.

2) The U.S. oil industry cut costs dramatically over the 6-9 months from the end of 2014. That was done primarily by cutting WAY back on drilling (active rig counts in ND declined by 90-95% over that time) and reducing what they would pay drilling and service companies. Mudloggers, MWD, directional drillers, casing crews, etc., saw their wages go down by over HALF, if they even still had a job. (Many to most did not.)

3) The oil industry is pretty busy right now, but is running into some constraints. Tops is they are still in the early stages of raising wages back up; I only make about 3/5 as much per day as I did in October 2014 (and there has definitely been some inflation in the prices I pay for most everything since then). Many workers that left were older, so just completely retired or found retirement jobs. Some bought trucks/farms/small businesses, so are reluctant (especially at these still-depressed wages by 2014 standards) to uproot and come back. Many just can't see the math working, while others (or their wives, which = to the same thing) just can't stomach facing another inevitable downturn at some point, with inevitable job loss.

4) More than a few oil companies have leases on which they must drill, either in a certain time period before drilling rights expire, or must actually drill to retain them. Further, while many oil industry investors sadly poorly understand the delay between "let's drill there" and having oil to sell, many do. Some, perhaps a lot, of drilling is done in anticipation of eventually (likely almost certainly) higher prices at some point.

5) Oil companies actually aren't that bad on the environment most of the time. 5-10,000′ feet down where the zones of interest typically are located, WGAF what is pumped or spilled, as no one travels or lives there. (Very thick, impermeable casing hydraulically seals off those zones from interacting with the surface, with innumerable impermeable strata between fracked zones and surface water wells, the latter rarely even 1000′ deep, and usually more like <200'.) By comparison, ethanol (whether from grain or sugar cane) requires vast acreage be farmed, using POL for many aspects (~90% of commercial fertilizers and nearly all pesticides have oil origins), while windmills chop up tens of millions of environmentally desirable, often endangered or protected, birds every year in the U.S., with little or no sanctions on the windmill companies.

6) People working in the oil industry typically have the same attitude I have about anti-oil protesters. That is, let the ones who don't use petroleum, complain. That's not just gasoline, diesel, heating oil, kerosene, etc., but also lubricants, pesticides, fertilizers, plastics, thermal insulation used in most dwelling and commercial buildings, and anything produced or manufactured or transported by same. No food, no clothes, no utilities, no transport besides feet -- that would kill easily 90% of Americans within 6 months. This is part of why I figure all the sincere environmentalists have already committed suicide -- and the rest are hypocrites.

Tobin Paz , May 7, 2018 at 5:21 pm

No food, no clothes, no utilities, no transport besides feet -- that would kill easily 90% of Americans within 6 months.

That is the conundrum. However, abrupt climate change from continued burning of fossil fuels will kill many more.

James McFadden , May 7, 2018 at 6:30 pm

Regarding " The Saudis trying to bankrupt the U.S. oil industry" – The Saudis were not out to destroy the US oil industry. The US oil industry controls the Saudis through the US Military which keeps them in power. The Saudis were after the wildcat frackers who were not part of the global oil cartel (which includes US Big Oil). The wildcat frackers were not maintaining limited production quotas to maintain the monopoly oil price gouging. US Big Oil allowed the price collapse for long term goals with their Saudi partners. (Source: Antonia Juhasz) Apparently Wall Street was not in on the plan and kept the money flowing in the fracking Ponzi scheme.

Regarding: "while windmills chop up tens of millions of environmentally desirable, often endangered or protected, birds every year in the U.S., with little or no sanctions on the windmill companies." – This statement is just oil company propaganda. Quoting Stanford Prof. Mark Jacobson: "Wind turbines reduce bird kills relative to natural gas, coal, and oil for electricity and cause about the same bird death rate as nuclear power. A recent study published in Energy Policy found that wind turbines kill less than one‐tenth the bird deaths caused by each of natural gas, coal, and oil and similar deaths to that caused by nuclear power. As a result, wind turbines reduce bird kills relative to fossil energy sources. In addition, according to the American Bird Conservancy, the total number of bird deaths per year due to wind turbines (a few hundred thousand) is orders of magnitude lower than the numbers due to communication towers (10‐50 million), cats (80 million), or buildings (900 million)." Source: https://web.stanford.edu/group/efmh/jacobson/Articles/I/MythsvsRealitiesWWS.pdf

Regarding: "Oil companies actually aren't that bad most of the time." – The same can also be said of mass murders and child rapists. Oil company pollution and their global ruthlessness is well documented – and as the oil man I know once told me – to understand this industry all you need to do is watch the movie "There Will Be Blood."

Luke is an oil man who brings to mind the Upton Sinclair quote "It is difficult to get a man to understand something when his salary depends upon his not understanding it." He would have fit right in with those men cutting down the last tree on Easter Island -- unconcerned about the future of their people. He thinks climate change is a crock because if it is true, then his job is destroying the planet. For anyone paying attention to global pollution and climate change, it is clear we need a rapid transition to renewable energy (solar and wind), a reduction in consumption (transition to more leisure time), and stewardship for the planet rather than the get-rich-quick mining mentality that leaves a giant mess for future generations to clean up – assuming human civilization survives. The economic/engineering outlines for this needed rapid transition are discussed by Prof. Mark Jacobson in several publications – here is the one for California. ( https://web.stanford.edu/group/efmh/jacobson/Articles/I/CaliforniaWWS.pdf ) Current non-planning for the coming disaster just leave us "circling the drain" -- waiting for the ultimate collapse.

James McFadden , May 7, 2018 at 11:15 am

"There's a sucker born every minute" and Wall Street is P. T. Barnum directing investors with the sign "This Way to the Egress." The con will last as long as investors have cash to burn and think "product growth" is equivalent to "profit growth" – or in the words of Lucy "Well, uh maybe there is no profit on each individual jar, but we'll make it up in volume."

[Oct 29, 2017] One third of ECB bond buys were for bonds with negative yields. So those guys not only loaned money to the company, they paid the company interest for holding the bond.

Notable quotes:
"... And this is cool. As of July of last year, 35% of all ECB bond buys (aka lending to private companies with money from nothingness) were of individual bonds with -- get this -- negative yields. They not only loaned money to the company, they paid the company interest for holding the bond. ..."
"... And y'all think money is a meaningful metric for the overall circumstance of oil flow. hahahahahhaah How can it be? Schlumberger!!! Hell, they are funding US shale flow with money from nothingness. ..."
Oct 29, 2017 | peakoilbarrel.com

Watcher says: 10/27/2017 at 10:44 am

Not gonna scroll. Found some ECB corporate bond buys. Specific companies.

Daimler
Deutsche Bahn no idea what that is
BMW
Eni (!!!!!)
Air Liquide
Schlumberger (!!!!!)
Total (!!!!!)

The specific bond serial number (in the US it would be called CUSIP-like) of each purchase is known. The buy takes place on the secondary market. Much the same way the Fed never bought Treasury issuance direct from Treasury. There was always a go between -- which essentially means nothing. This was never discussed about Mort. Backed Securities. Bought them from who had them -- at about 1000X market price.

And this is cool. As of July of last year, 35% of all ECB bond buys (aka lending to private companies with money from nothingness) were of individual bonds with -- get this -- negative yields. They not only loaned money to the company, they paid the company interest for holding the bond.

And y'all think money is a meaningful metric for the overall circumstance of oil flow. hahahahahhaah How can it be? Schlumberger!!! Hell, they are funding US shale flow with money from nothingness.

[Mar 03, 2017] $200bn in debt looms over American oil and gas - RT Business

Mar 03, 2017 | www.rt.com
$200bn in debt looms over American oil and gas Published time: 7 Jan, 2015 17:44 Edited time: 20 Oct, 2016 14:13 Get short URL David McNew / Getty Images / AFP / AFP

[Feb 13, 2017] The report by the Hills Group claims to rely on thermodynamics arguments to predict oil's price-volume trajectory going forward. If does not stand up to scrutiny.

Feb 13, 2017 | peakoilbarrel.com
Seppo Korpela says: 02/10/2017 at 8:33 pm
The report by the Hills Group claims to rely on thermodynamics arguments to predict oil's price-volume trajectory going forward. If does not stand up to scrutiny.

Thermodynamic analysis of engineering systems is typically based on the first law of thermodynamics together with mass balances.
The second law of thermodynamics introduces the entropy as a thermodynamic property and the related concepts of reversible processes and reversible heat transfer.
Irreversibilities in real processes are taken into account by assigning a value of experimentally determined efficiency to equipment such as pumps, compressors and turbines and
this way the reversible processes are related to the actual ones.

A relatively recent development has been to develop a systematic use of an exergy balance to examine where in a complex energy system irreversibilities
take place. Exergy is defined as the maximum theoretical work that can be obtained from a system and its environment as the system comes to equilibrium
with its environment. By combining the first and second laws of thermodynamics an exergy balance can be written down.

Rudimentary exergy analysis can be found in the 1941 book Thermodynamics by Joseph Keenan. It was called availability analysis at that time. The most systematic development of the exergy analysis is in the textbook Fundamentals of Engineering Thermodynamics by M. Moran, H. Shapiro, D. Boettner and M. Bailey, 7th ed. John Wiley, 2011.

Although the entropy balance equation can be used (although typically only for steady state systems) to determine the entropy production, to carry it out requires that sufficient number of thermodynamic properties and interactions are known at the system boundaries. Since such a calculation needs to be carried out after the thermodynamic analysis has been completed, it is seldom carried out in engineering practice because the knowledge of the same properties allows the efficiency of the machine or system be determined.

The advocates of exergy accounting claim that knowing where the exergy destruction takes place in a system is a good way of allocating development money to improve it.
This kind of analysis has not taken hold in industry either, simply because, manufacturer, say of turbines know that the irreversibilities are quantified by measuring the efficiency of the turbine, and they direct their efforts toward understanding how the blades of the turbine can be shaped in order to reduce the irreversibilities. Such a task is based on aerodynamic calculations. Compressors and pump are by the nature of the flow through them machines with lower efficiency and their improvement requires again experts with fluid dynamic knowledge to improve them. Similarly improving the heat transfer in a heat exchanger is carried out by making improvements in the heat exchanger surfaces and reducing pressure losses.

If these improve the heat transfer, the entropy production is reduced. Here the expertise of a heat transfer specialist rather than a thermodynamicists is needed.

One interesting application of exergy analysis is to calculate the second law efficiency. A high second law efficiency means that the source of energy is well matched with the application.

Thus heating shower water with a thermal solar heater is a good match as unfocused solar energy raises the water temperature high enough to serve as shower water, but not nearly so high as to create superheated steam to power a steam turbine. Thus the most important insight to be obtained is to match the source of energy to the application, and once this insight is internalized, calculation of the second law efficiency adds only marginally to understanding. For this reason it is seldom used in industry. To be sure, optimization of a system's second law efficiency is still worth while, but using other metrics this can be done with topics based on heat transfer, fluid dynamics, stress analysis and the like.

Where thermodynamic analysis is helpful is in seeing how a thermodynamic efficiency of a system such as a coal or nuclear power plant can be improved by increasing the maximum steam temperature of the plant in which the turbine is but one component. This requires that blades are made of materials that withstand the stresses generated at these temperatures. Such developments have increased the maximum temperature of these power plants to about 1000 F, but further improvements have now stalled over the last half a century. For gas fired power plants combustion temperature is higher and and turbine designers implement both cooling technology for the blades and use high temperature materials, that today are made of single crystals, that withstand the hot combustion gases. Interestingly exergy analysis shows that most of the exergy
destruction takes place in the combustion of the fuel, but there is not much one can do to reduce this destruction. For this reason a naive application of exergy analysis may lead the poor allocation of development funds.

The report by the Hills Group proposes to use the second law of thermodynamics as the starting point. The unsteady entropy balance for a control volume with one exit and no inlet is given as

dS_cv/dt= Q^dot_j/T_j – m^dot_e s_e = \sigma^dot_cv

Next comes the assumption that at all times dS_cv/dt = m^dot s_e$. It is based on the observation that because at the end of oil production when the reservoir has been completely depleted the flow will stop and nothing much takes place, then both of these terms are zero. After cancelling these terms the entropy production is seen to be related to the heat transfer. But his assumption is clearly unjustified while the oil is being extracted and these two terms do not cancel each other. The neglect of the terms leads to an equation that omits the entropy production that is caused by the irreversibilities of the oil flow through the permeable reservoir rock.

The incorrect canceling leads to the equation

dot Q^dot_j/T_j = sigma^dot_cv or sigma^dot_cv= Q^dot_j/T_j

and this can be cast in these two forms, depending which term is known and which is unknown. The report by Hills Group does not tell the reader which is a known quantity and which is to be calculated. In fact, there is no indication in the report how the heat transfer is calculated? In thinking about the heat transfer, for a control volume that includes the reservoir only, it appears that the heat interaction between the system and the surroundings is mainly caused by the geothermal gradient. That is, heat enters from the lower boundary and leaves across the upper boundary. This is a passive process.

The fact that the oil and water in the reservoir have some average temperature in the geological setting only influences the viscosity of the fluids and thus how well they move through the reservoir, but from the energetic standpoint the sensible energy is not important. That is, there is no attempt made to extract this energy in a heat exchanger, nor is the high pressure used to extract energy in an expander. Rather the oil and water mixture flows through a set of throttling valves, in which the exergy is destroyed.

If the entropy production were known independently, then this equation could be used to calculate the heat transfer, but the answer would be incorrect because entropy production is caused by both heat transfer and irreversible processes taking place inside the control volume. For the control volume consisting of the reservoir, entropy production takes place mainly in the pores of the permeable reservoir rock as the flow is forced out.

This takes place by local viscous dissipation and although it can be calculated in principle, in practice such a calculation is nearly impossible to carry out from first principles. The entropy production rate for the system would then be calculated by integration of the local values over the entire reservoir.

Next in the analysis is a calculation of E_Tp. It is defined as the total production energy, or the total work required to extract, process, and distribute a volumetric quantity (a gallon) of crude oil. The report offers the equation

E_Tp = [(m_c C_c + m_o C_o ) (T_R-T_O)]/[m_c]

as a way to calculate it. But this is the energy of the sensible part of the oil-water mixture above the reference temperature T_O. It does not include the chemical energy of the crude oil and the formula cannot be reconciled with the definition of E_Tp.

The following equation also appears in the report

E_Tp = integral_{t_1}^{t_2} T_0 \sigma^dot_cv dt\]


Thus there are two equations to use for calculating E_Tp and there is no mention what the independent variables are and what is calculated using these equations.
If the value of E_Tp is calculated this way then how is the previous equation used? The only unknowns are the reservoir temperature T_R and the oil-water ratio, if the total flow rate is determined from the depletion rate equation. The reservoir temperature can be measured, so the unknown seems to be the water oil ratio. However, the report makes use of an empirical equation for the oil/water ratio as a function of the percent depletion of the reservoir.

Finally last equation can only be used to calculate the change in exergy, and this would necessitate a new symbol to be introduced for exergy, and this is not the same as energy.

The report next presents calculation of the oil extraction trajectory that is based on Hubbert's methodology. The calculations are in close agreement what others have found., with cumulative production 2357 Gb that is somewhat larger than what Campbell and Laherrere's value 2123 Gb. It is now well known that the in the calculations based on logistic equation there is a slow drift to large values of the ultimate production as more data has been included in the calculations with the passing of the

In the same section is also a discussion of the surface water cut as a function of the percent of oil extracted from a reservoir. The curve is then rotated in order to satisfy two criteria set by the authors. Now a rotation of a curve is a mathematical transformation and a curve cannot be arbitrarily rotated without destroying the underlying mathematical theory. Furthermore, the report states that E_Tp cannot exceed E_G, the crude oil's specific exergy. The terminology is again used loosely applied to both energy and exergy.

Returning to the calculation in Section 4.1 of the report for calculating $E_{Tp}$ by the equation

E_Tp = [(m_c C_c + m_o C_o ) (T_R-T_O)]/[m_c]

The statement on top of page 19 suggests that the water cut is an input parameter, in which case the value of E_Tp depends only on the reservoir temperature.

The reservoir temperature in turn is a function of the depth of the well, owing to the geothermal gradient. This would allow this equation to be used to calculate the sensible energy of oil-water mixture. But what purpose does this serve?

The sensible heat of the crude oil is not used in any significant way. The crude oil cools as it enters the ground facilities and it cools further as it is transported in the pipelines. No power is generated from the sensible part of the crude oil's energy. Only the chemical energy is valuable upon combustion. The rest of the report relates to how prices are linked to the energy delivered. There is no theory to predict how prices adjust to either temporary surplus or deficit.

From what has been discussed above, the thermodynamic analysis is incorrect and therefore any calculations and graphs based on this analysis must also be unreliable. Readers have noted that the so called analysis predicts a peak in oil production during the 2017-2018 time frame and troubles by 2023. That this coincides with the time others have judged the difficulties to appear, seems to give the report a superficial credibility.

If the authors have a better handle on how much energy is expended in oil production, they can form the EROIE ratio and it would constitute an independent check on the work of Hall and his coworkers on EROEI. Such an independent analysis would have some value

Rune Likvern says: 02/10/2017 at 10:34 pm
Seppo,
+1 000 000!
I am (and many others) now awaiting Hills rebuttal to this.

[Feb 12, 2017] Wall Street Pouring Money Back Into Oil And Gas

Feb 12, 2017 | www.zerohedge.com

Submitted by Nick Cunningham via OilPrice.com, Despite the near record increase in U.S. oil inventories last week – an increase of 13.8 million barrels – oil prices traded up on February 8 and 9 as traders pinned their hopes on a surprise drawdown in gasoline stocks, which provided some evidence of stronger-than-expected demand. The abnormal crude stock increase took inventories close to 80-year record levels at 508 million barrels, and is another bit of damming evidence that should worry oil bulls. But the oil markets were not deterred. In fact, that has been a defining characteristic of the market in recent weeks – optimism even in the face of some pretty worrying signals about the trajectory of the market "adjustment" process. More signs of optimism abound. Wall Street is pouring the most money into oil and gas companies in the U.S. since at least 2000, according to Bloomberg. In January alone, drillers and oilfield service companies raised $6.64 billion in 13 different equity offerings. "The mood is absolutely different," Trey Stolz, an analyst at the investment banking firm Coker & Palmer Inc., told Bloomberg. "Go back to a year ago and the knife was still falling. But today, it feels much, much better."

[Feb 12, 2017] People think LTO development in America will have a never ending source of funding, regardless of price, demand,

Notable quotes:
"... Several companies have already been through bankruptcy proceedings (Chapter 11 primarily) and affected bondholders accepted a haircut. Integrated companies have recognized impairments to their balance sheets. So if only those who makes/supports these claims could come up with documentation of the conduits by which the bondholders/creditors are made whole by central banks it would be helpful. ..."
"... The losses/haircuts/impairments will be spread over several years (perhaps decades) and in relative terms the amounts involved do not pose a systemic risk ..."
"... No, of course not. You're buried in normalcy confirmation bias that believes QE creation of 25% of GDP over about 6 years is completely consistent with markets operating in laissez faire fashion. When did you, oh hell, when did anyone last hear the phrase moral hazard? Think about that when you next posture yourself offended. ..."
Feb 12, 2017 | peakoilbarrel.com
Mike: 02/08/2017 at 11:29 am
Rune, thank you for this. People here I believe had been asking for it, now, unfortunately, it seems to have gone over most peoples heads. There is a fundamental detachment from reality here; people think LTO development in America will have a never ending source of funding, regardless of price, demand, http://oilprice.com/Latest-Energy-News/World-News/EIA-Slashes-Crude-Oil-Demand-Forecast.html or the economic/financial woes of the industry itself. I can't say that I understand that myself.
Rune Likvern: 02/08/2017 at 1:05 pm
Mike, thanks!

I did not expect my post would unleash an avalanche with unsubstantiated claims about central banks making bond holders/creditors whole for losses incurred by shale companies.

Several companies have already been through bankruptcy proceedings (Chapter 11 primarily) and affected bondholders accepted a haircut.
Integrated companies have recognized impairments to their balance sheets. So if only those who makes/supports these claims could come up with documentation of the conduits by which the bondholders/creditors are made whole by central banks it would be helpful.

The losses/haircuts/impairments will be spread over several years (perhaps decades) and in relative terms the amounts involved do not pose a systemic risk.

Ifcentral banks got involved it would be much easier (and better) to manipulate the oil price higher.

Watcher: 02/09/2017 at 3:27 am
Oh I didn't know this was still alive.

Dood what substantiation do you need for the claim that if global systemic risk exists financially from growing shale debt they will be bailed out? You got a problem with that claim? Where were you in 2008 when nominal and gross credit default swaps were measured in trillions? Know anyone at the ISDA or even the DTCC?

No, of course not. You're buried in normalcy confirmation bias that believes QE creation of 25% of GDP over about 6 years is completely consistent with markets operating in laissez faire fashion. When did you, oh hell, when did anyone last hear the phrase moral hazard? Think about that when you next posture yourself offended.

Normalcy is gone. It's not coming back. Oil scarcity is relentless and is the likely cause. I can offer you help in re-evaluating what is and isn't normal:. Have a look at the German 10 year Bund. 0.3%. German inflation? About 1.2%.

[Jan 28, 2017] Crude Oil: So Much For That Rally by Johanna Bennett

Notable quotes:
"... Light, sweet crude for March delivery recently fell 90 cents, or 1.67%, to $52.88 a barrel on the New York Mercantile Exchange. Meanwhile, brent, the global benchmark, dropped $1.02, or 1.8%, to $55.22 a barrel on ICE Futures Europe. ..."
"... We believe the market will soon get the catalyst it has been waiting for to push higher – better inventory stats. Getting ahead of this catalyst is a good risk-reward proposition in our view. ..."
blogs.barrons.com
If you were hoping crude oil prices would end the week on a positive note after yesterday's rally, you're likely to be disappointed.

U.S. and brent crude futures fell Friday as worries about U.S. drilling activity once again weighed on the market following the release of data showing that the number of active rigs rose for a second consecutive week.

Light, sweet crude for March delivery recently fell 90 cents, or 1.67%, to $52.88 a barrel on the New York Mercantile Exchange. Meanwhile, brent, the global benchmark, dropped $1.02, or 1.8%, to $55.22 a barrel on ICE Futures Europe.

Crude prices have oscillated between gains and losses over the past several weeks as investor sentiment has shifted almost daily. OPEC and its allies have so far followed through on promised production cuts, yet fears linger that U.S. drilling will hurt efforts to curb global supply.

Crude prices settled Thursday at their highest prices in several weeks. But today's decline pushed futures contacts into the red for the week. If U.S. and brent crude contracts settle at current levels, prices will fall more than 0.6% for the week.

But Vikas Dwivedi and his team at Macquaire recommend increasing oil exposure, pointing to a tightening sour crude market and storage trends. But he warns that 2018 looks challenging.

We believe the market will soon get the catalyst it has been waiting for to push higher – better inventory stats. Getting ahead of this catalyst is a good risk-reward proposition in our view. However, we caution against turning a rally into a structural trade. Our balances indicate the market is oversupplied again in 2018. Key 2018 drivers include the return of approximately 1.2 MM BPD of post-deal (OPEC and NOPEC ex U.S.) supply and 0.6 MM BPD of U.S. supply growth + global.

The Energy Select Sector SPDR Energy ETF (XLE) fell 1.3% in recent market action, while the iShares U.S. Energy ETF (IYE) dropped 1.2%.

Elsewhere in the ETF realm, the United States Oil Fund (USO) declined almost 1.8% and the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL lost 2%. The U.S. Brent Oil Fund (BNO) also fell 2%.

[Jan 08, 2017] The End Of The Oil And Gas Bankruptcy Wave

Jan 08, 2017 | oilprice.com

OilPrice.com :

"Even as oil prices are rebounding, we are closing out one of the worst years for the oil and gas industry in decades. In 2016, the U.S. oil and gas industry defaulted on $39 billion in high-yield energy debt, more than twice as much as the $15 billion in defaulted debt in 2015, according to Fitch."

[Dec 27, 2016] As of Dec. 14, 114 oil and gas producers had filed for bankruptcy in 2016 with $57 billion in total debt, more than double the number of filings in 2015,

Dec 27, 2016 | peakoilbarrel.com
sunnnv says: 12/26/2016 at 4:50 am
http://finance.yahoo.com/news/bonanza-creek-other-u-energy-162825818.html

"Bonanza Creek Energy Inc and two other energy firms announced on Friday plans to file for bankruptcy in coming weeks, joining a long list of U.S. energy companies that have succumbed to a drop in oil prices."

"As of Dec. 14, 114 oil and gas producers had filed for bankruptcy in 2016 with $57 billion in total debt, more than double the number of filings in 2015, "

"Among companies that provide well-site services to energy exploration firms, 110 had filed for Chapter 11 protection with $17 billion of debt as of Dec. 14, also more than double the 2015 number, according to Haynes & Boone."

224 total companies, $74 billion total debt – whoo whee, sounds like a lot of write downs

AlexS says: 12/26/2016 at 8:27 am
Dakota Plains Holdings Begins Voluntary Chapter 11 Proceeding

December 22, 2016
http://www.ogfj.com/articles/2016/12/dakota-plains-holdings-begins-voluntary-chapter-11-proceeding.html

Dakota Plains Holdings Inc. (NYSE MKT: DAKP) and six of its wholly owned subsidiaries filed voluntary Chapter 11 petitions in the United States Bankruptcy Court for the District of Minnesota on Tuesday, December 20, 2016, initiating a process intended to preserve value and accommodate an eventual going-concern sale of Dakota Plains' business operations.
.
Dakota Plains Holdings Inc. is an integrated midstream energy company operating the Pioneer Terminal transloading facility. The Pioneer Terminal is centrally located in Mountrail County, North Dakota, for Bakken and Three Forks related Energy & Production activity.

[Dec 13, 2016] A Real Opportunity For An Oil Price Recovery

Dec 13, 2016 | oilprice.com
by Dan Dicker

Dec 11, 2016 | OilPrice.com


The OPEC production agreement, which we called correctly, has already helped hoist the profitable oil stocks we held, but what about 2017? One way I've looked at oil and oil stocks is by looking at the crude curve – the differentials between monthly contract prices. And a recent big move in the curve makes 2017 look very positive indeed.

I've seen all kinds of futures curves in my 30+ years of trading oil, and many analysts believe that the crude curve is really predictive of the future –but more often than not, it is merely an outline of what traders and hedgers are thinking.

here's a look at Thursday's curve:

... ... ...

These numbers represent an enormous change from the numbers we saw even two weeks ago, before the big OPEC deal in Vienna. Since 2014, we had been seeing a deep contango market, where oil prices in the future were a lot higher than where they were trading in the front (present) months. But what does a contango market mean?

Many like to look at contango markets as a signal of crude storage, and that has merit – but I like to look at the curve through the eyes of its participants: when the oil market is collapsing, as it has been since 2014, players in the futures markets know that the costs of oil recovery fall well above the trading price, and will buy future oil contracts banking on a recovery. This drives buying interest away from the present and into the future and creates our contango. This kind of market is dominated by the speculators, who are willing to buy (bet) on higher prices later on.

In contrast, the hedging players are in retreat in busting markets, dropping capex and working wells and trying merely to survive to see the next boom. It's when prices begin to recover and they gain confidence in future prices that they try to hedge and plan for the coming up-cycle. This is when speculators, if they are buying, are likely to move closer to the front months if they're buying while producers (commercials) are looking to sell futures 12-24 months out. Suddenly, you have a curve that is being more dominated by commercial players, selling back months and creating the backwardation we're starting to see right now.

You may remember that I was able to nearly predict this year's bottom in oil prices by looking for that flattening move of the crude curve in February. This latest move from a discount to a premium curve has moved more than two dollars in the last week alone. This gives me added confidence in oil prices for 2017:

Let's look, as a practical matter, why a premium (backwardated) market is absolutely REQUIRED to see a long-term recovery in oil.

Imagine you're a shale producer and you've seen prices move from $45 to $52. You've been waiting for a move like this to restart some non-core acreage that you could have working by the middle of 2017. With a deep contango market, you might have gotten $55 or even more for a hedged barrel of crude in June of 2017.

But you're not alone in looking to come out of your bunker, hedge some forward production and restart some idle wells – every other producer is trying to do the same thing. If all of you could depend on a future premium, every producer would hedge out new production and ultimately add to the gluts that have been already slow to disappear.

Related: The OPEC Effect? U.S. Rig Count Spikes Most In 31 Months

If you think about it, a premium market works to DISCOURAGE fast restarts and quick restoration of gluts that a two-year rebalancing process has only slowly managed to fix – and this is a good thing. Producers have to be wary of adding wells so quickly, even in a market that is clearly ready to again rise in price. In a truly backwardated market, the futures work to keep the rebalancing process on track and production increases slow. That governor on production is the key to keeping a rallying market strong, and the frantic addition of wells at a minimum.

The proof of all this is in the type of curves we see depending on how the markets are trading.

Now, take another look at the December-December spread chart I put up and you'll see that a Contango market was a critical component to the bull markets we saw in oil prior to 2014. Unless something very strange is happening, a Contango curve is indicative of a strong market, while a backwardated one indicates a market under pressure. It's something I've watched closely for more than 30 years to help me find major trends.

And convinces me today that oil will have a constructive 2017.

By Dan Dicker for Oilprice.com

[Aug 16, 2016] Wall Street racket: BHP went from $8 billion profit to $6 billion loss based on latest results

Notable quotes:
"... BHP went from $8 billion profit to $6 billion loss based on latest results ..."
"... This is a typical Wall Street racket. In this case oil producers are victims. ..."
"... It's a classic quandary: that oil priced at over $75 a barrel in today's dollars tends to crush economies, and oil priced under $75 a barrel in today's dollars tends to crush oil companies. There is no real sweet spot between those two places. We're ratcheting between them and each one of them entails a lot of destruction. ..."
"... That's a terrible quandary that we're in and it's being expressed in banking and finance…and the people in charge of those things don't really know what else to do except continue the deformation of institutions and instruments. ..."
"... "U.S. shale oil production is expected to fall for a tenth consecutive month in September, according to a U.S. government forecast released on Monday, as low oil prices continue to weigh on production. ..."
peakoilbarrel.com
George Kaplan , 08/16/2016 at 7:41 am
BHP went from $8 billion profit to $6 billion loss based on latest results:

http://www.bhpbilliton.com/~/media/bhp/documents/investors/news/2016/160816_bhpbillitonresultsyearended30june2016.pdf?la=en

Capital cuts to be expanded next year.

"Capital and exploration expenditure declined by 42% to US$6.4 billion and is expected to decrease further to US$5.0 billion in the 2017 financial year (BHP Billiton share)(5)."

I don't know if there is enough detail to say how much came from oil and gas operations. The Samarco dam accident seems to be budgeted at $1.2 billion so far.

Petrobras made a small profit but less than expected:

http://marketrealist.com/2016/08/petrobrass-2q16-earnings-miss-estimates/

"In 2Q16, Petrobras's earnings attributable to its shareholders stood at $106 million compared to $171 million in 2Q15. This was on account of a fall in crude oil and natural gas prices, which impacted upstream earnings. Plus, crude oil and natural gas production volumes fell by 6.3% over 2Q15 to 2.1 billion barrels of oil equivalent per day in 2Q16."

Production has picked up recently though and there is more to come with several FPSOs in the pipeline, as long as they can avoid major unplanned outages.

likbez, 08/16/2016 at 8:14 pm
George,

This is a typical Wall Street racket. In this case oil producers are victims. As Kunstler said

http://www.zerohedge.com/news/2016-08-16/kunstler-rages-racketeering-ruining-us

=== quote ===
Societies have a really hard time understanding what they're doing, articulating the problems that they face and coming up with a coherent consensus about what's happening, and coming up with a coherent consensus about what to do about it. Combine that with another quandary, the relationships between energy and the dead racket for concealing real capital formation. I like to reduce it to one particular formula that is pretty easy for people to understand.

It's a classic quandary: that oil priced at over $75 a barrel in today's dollars tends to crush economies, and oil priced under $75 a barrel in today's dollars tends to crush oil companies. There is no real sweet spot between those two places. We're ratcheting between them and each one of them entails a lot of destruction.

That's a terrible quandary that we're in and it's being expressed in banking and finance…and the people in charge of those things don't really know what else to do except continue the deformation of institutions and instruments.

George Kaplan , 08/16/2016 at 2:51 pm

From Reuters and EIA

"U.S. shale oil production is expected to fall for a tenth consecutive month in September, according to a U.S. government forecast released on Monday, as low oil prices continue to weigh on production.

"Total output is expected to drop 85,000 bpd to 4.47 million bpd, according to the U.S. Energy Information Administration's drilling productivity report. That is the lowest output number since April 2014.

"The EIA's previous forecast calling for an output decline in August of 99,000 bpd was revised up to nearly 112,000 bpd, data shows.

"Bakken production from North Dakota is expected to fall 26,000 bpd, while production from the Eagle Ford formation is expected to drop 53,000 bpd. Production from the Permian Basin in West Texas is expected to rise 3,000 bpd, according to the data."

Ron's graphs summarised this better but I don't have the previous history to show it. Has anybody here explained why Eagle Ford drops are so much more than Bakken?

[Aug 16, 2016] Kunstler Rages Racketeering Is Ruining Us

Aug 16, 2016 | Zero Hedge
Submitted by Adam Taggart via PeakProsperity.com, If you don't understand what's causing a particular problem, then it's pretty difficult to come up with an effective solution.

Author, commentator and longtime friend-of-the-site James Howard Kunstler returns to our podcast this week to discuss the importance of accurate diagnosis -- in this case, of the scourge he sees as accelerating America's downslide into economic and social decline: Racketeering.

More associated with the organized crime bosses of a century ago, it's not a word used often these days. But that doesn't diminish in any way its relevance to and impact on our lives today:

The disorders in politics that we're seeing now are really expressions of the larger disorders in our economic life and our financial life. That just happens to be the avenue that the expression is coming out of. Another point I'd like to make is that the reason that people are against Hillary or dumping on Hillary or don't like her, is because she's a poster child for racketeering. I encourage people who are talking about our circumstances and people who are interested in the news and election, to use the word racketeering to describe what's going on in this country. You really need the right vocabulary to understand exactly what's going on.

Racketeering is just pervasive in all of our activities. Not just in politics but in things even like medicine and education. Obviously the college loan scheme is an example of racketeering. Anybody who has to go to an emergency room with a child whose broken their finger or something, is going to end up with a bill for $20,000. You know why? Because of medical racketeering. And so, these are really efforts to money-grub by any means necessary, often in ways that are unethical and probably illegal. Let's use that word racketeering to describe our national situation.

And let's remember by the way, the activities of the central banks is just another form of racketeering. Using debt issuance and attempting to control interest rates in order to conceal our inability to generate the kind of real wealth that we need to continue as a techno-industrial society.

Societies have a really hard time understanding what they're doing, articulating the problems that they face and coming up with a coherent consensus about what's happening, and coming up with a coherent consensus about what to do about it. Combine that with another quandary, the relationships between energy and the dead racket for concealing real capital formation. I like to reduce it to one particular formula that is pretty easy for people to understand. It's a classic quandary: that oil priced at over $75 a barrel in today's dollars tends to crush economies, and oil priced under $75 a barrel in today's dollars tends to crush oil companies. There is no real sweet spot between those two places. We're ratcheting between them and each one of them entails a lot of destruction . That's a terrible quandary that we're in and it's being expressed in banking and finance...and the people in charge of those things don't really know what else to do except continue the deformation of institutions and instruments.

Click the play button below to listen to Chris' interview with James Howard Kunstler (58m:21s).

[Aug 07, 2016] Oil giants have seen their debt double to a combined $138 billion, spurring concerns theyll need to keep slashing capital spending and that dividend cuts may eventually be necessary.

peakoilbarrel.com

Chart Monkey , 08/06/2016 at 10:36 am

Bloomberg – Crude Slump Sees Oil Majors' Debt Burden Double to $138 Billion – August 5, 2016

As crude trades well below $50 a barrel, Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants have seen their debt double to a combined $138 billion, spurring concerns they'll need to keep slashing capital spending and that dividend cuts may eventually be necessary.
The first-half results indicate that oil companies "are likely to generate large negative free cash flows for the full year," said Dmitry Marinchenko, an associate director at Fitch Ratings in London.

http://www.bloomberg.com/news/articles/2016-08-04/oil-slump-sees-majors-debt-double-to-138-billion shallow sand , 08/06/2016 at 12:12 pm

From my memory, but I am pretty certain XOM lost $1.4 billion in North American upstream in the first six months of 2016. $850 in Q1, $550 in Q2.

[Jul 19, 2016] Berman: Two years into the global oil-price collapse, it seems unlikely that prices will return to sustained levels above $70 per barrel any time soon or perhaps, ever

See much more realistic Fernando oil prices forecast
peakoilbarrel.com

texas tea , 07/16/2016 at 4:58 pm

Art also had this article out last month.

http://oilprice.com/Energy/Energy-General/Why-We-Can-Expect-Cripplingly-Higher-Oil-Prices-In-The-Near-Future.html

I like Art and now he thinks and writes but I also think that he as some Dennis Gartman blood in him, he holds many ideas at the same time and he can argue any of them very well. These articles seem to contradict each other a bit, but they are at least thoughtful..

and now for something completely different:
https://www.donaldjtrump.com/press-releases/an-america-first-energy-plan

Petro , 07/15/2016 at 5:51 pm

"Two years into the global oil-price collapse, it seems unlikely that prices will return to sustained levels above $70 per barrel any time soon or perhaps, ever. That is because the global economy is exhausted" ~A.Berman ca. July. 2016

"But from 2008 to 2015, oil production actually fell in 27 of 54 countries despite record high price. Thus, while peak oil critics have been proven right in North America they have been proven wrong in half of the World's producing countries" ~ E. Mearns ca. July, 2016

It looks like my posts at this fine blog for the past 2 – 2.5 years are finally being read and understood …..

Maybe one day even Dennis will get the message…….
……one can only hope…..

"…while indeed initiated by geology, this time "PEAK" shall be by the way – and in the form of low prices…" ~ Petro's main theme for the past 2 years on POB

Be well,

Petro

P.S.: a little hubris and arrogance is healthy now and then….

Fernando Leanme , 07/16/2016 at 8:06 am
Here's my forecast

Javier , 07/16/2016 at 9:22 am

Unlikely, Fernando. I see very high volatility in oil prices heading our way.

Sustained high prices are only possible with a very good economy or with a very low production (you only sell to the elites).

On the other hand the value of money could tank with a monetary crisis, and oil prices could rise to millions of dollars per barrel.

Stavros Hadjiyiannis , 07/16/2016 at 12:42 pm

I totally agree with you. I see the oil price rising well over 100 bucks per barrel before the end of the decade.

As for the persistent fantasies that Russian oil output will decline. The exact opposite will happen in the long-term. Russian oil reserves easily dwarf anybody else's.

http://www.ogj.com/articles/print/volume-98/issue-21/exploration-development/sw-siberias-jurassic-bazhenov-may-contain-much-larger-oil-reserves.html

The concluding paragraph on the oil reserves of the Bazhenov formation in SW Siberia reaches an unequivocal conclusion:

"Giant recoverable oil reserves contained in the fractures suggest that the Jurassic reservoir is a primary oil accumulation which has no analog all over the world. Therefore, we believe that Russia has the largest hydrocarbon reserves in the world."

shallow sand , 07/16/2016 at 6:07 pm
Any info on how the first wells in this play are performing. Seems it is difficult to find much information online about them.
Javier , 07/16/2016 at 4:53 am
Petro,

It is fine and dandy that you show some arrogance when the data is starting to support your hypothesis, however I must point out that a lot of people have been coming to the same conclusions at about the same time. There are a lot of clever people in the world.

Ron Patterson has been onto oil decline for a very long time from studying oil production data. He was about the first to realized that LTO was not a solution to the Peak Oil conundrum. He probably realized about the 2015 Peak long before he put it on writing. He can tell us. I seem to recall reading his prediction within the first half of 2015.

Euan Mearns seems to be reaching the same conclusion from the same background, his geological expertise, but only now have I read him put it on writing.

Art Berman has come to the same conclusion from a very different background, the energy investment field. This is also the first time I read him say it so clearly, but he probably reached his conclusion some time ago and only now he dares to write something so strong in his influential blog.

Myself I reached the conclusion that Peak Oil was imminent in September 2014, from economic insight after I clearly saw that the oil price crash was really bad news for the consumer long term, while most people thought (think) that is great news for the consumer. I studied oil production data and saw my fears confirmed. That is when I started my oil (and climate) blog, and my first prediction on writing of a 2015 Peak Oil is from November 2014, and again February 2015.

My understanding of macroeconomy is not as good as yours, but is good enough to understand that we are facing the end of the road and the can kicking will not continue much longer. Central Banks are buying some time through desperate measures that will make the fall harder while the elites hasten their preparations. We are contemplating the Peak of our civilization (in my opinion Peak Civilization took place in the early 70's) and its unraveling is going to be a very long stressful one.

Dennis Coyne , 07/16/2016 at 10:29 am
Hi Javier

I only disagree on the timing of the peak and never believed lto would have much effect on the peak.

I disagree with an analysis that suggests oil prices under $75/b for the 3 year average oil price forever.

Volatility is a good guess though Fernando's price scenario might be roughly correct for 5 year average oil prices.

Javier , 07/16/2016 at 11:09 am
Dennis,

You might be right and I might be wrong. What it is clear is that we see more or less the same situation but a completely different outcome.

Two things separate completely my analysis from yours:

The first is that I see a monetary crisis as unavoidable in the not too distant future. Most of the planet's wealth is in the form of electronic money (derivatives and financial instruments). The folly of Central Banks is hugely increasing those that are in the hands of the financial elite so there is less and less real wealth (land, resources, and productive industries) to support that virtual wealth. At some point the bubble is going to be so big and the leverage so high that there is going to be a run of that virtual wealth to become real at any cost and that is going to destroy every currency you can buy something of value with. Over here in Europe I am already seeing some worrying signs of what is coming, as payments in cash are being limited to ridiculously low amounts and governments are trying to force everybody to have their money in the banks. With a monetary crisis the price of oil in dollars has no point of reference and predictions have little value. The US has no experience for generations on monetary crisis, so that is going to be a real shock.

The second thing is that during economic crisis wealth gets distributed more unequally. The middle classes and low classes lose their savings and everything of value they have while some elite class fare quite well even if they lose part of their nominal wealth. This has several dire consequences. It can lead to bloody revolutions like the French or Russian revolutions. And in any way it leads to most people not being able to consume much. There won't be enough customers for oil, making your price predictions useless.

My own personal thought is that the current pricing system for oil based on margin pricing will have to be abolished once the shit hits the fan. It will simply not work. They'll think of something to avoid total collapse of oil production.

[Jul 15, 2016] Citibank We're Nearing A Bull Market For Oil by Charles Kennedy

OilPrice.com

Citigroup is "especially bullish" on commodities in 2017, the bank says.

"The oil market is treading water for now, but the oil price overshot to the downside earlier this year and this is clearly setting the stage for a bullish end to the decade," Citi analysts, led by Ed Morse, wrote in a research note published on July 11.

There is a quite a bit of volatility in commodity markets, especially for oil, but global demand continues to grow at a steady pace. Prices have crashed on oversupply, but with oil production going offline, particularly in the U.S., the markets could over-correct, creating the conditions for higher prices next year.

[Jun 28, 2016] US high yield energy bond defaults reached 13 billion in may while June trailing 12 month default rate for those bonds is approaching 5 persent

Notable quotes:
"... The June trailing 12-month (TTM) U.S. high yield bond default rate is closing inon 5%, reaching 4.7% after another $3 billion of defaults thus far this month, The $46.4 billion of recorded defaults this year is just $2 billion less than the total for the entire 2015. ..."
"... Through mid-June, energy and metals/mining accounted for 84% of defaults ($38.9 billion). The May energy TTM rate stood at 14.6% following $12.7 billion of sector defaults last month while the E&P rate is at 28.6%. The average high yield bid levels are at 92.9, up from 91.1 last month and from 83.7 in February when crude oil prices were at their low point ..."
peakoilbarrel.com

hole in head , 06/20/2016 at 10:08 am

It should have been posted on the earlier post ,but now since this is up ,I am going to post it here . This is for Denise (appreciate your work) who is far too optimistic . This is also for shallow sands who does all those fantastic analysis on the shale guys . SS I hope you outlast the punks , but frankly I am in Petro's camp "The music is playing but the party is over " . So here goes, a copy paste job from Fitch :

Addendum: Fitch Blurb

We just noticed this small blurb from Fitch in our mail, summarizing the latest developments in junk land:

U.S. HY Energy Defaults Tally $13 Billion in May; June TTM Default Rate Approaching 5%

The June trailing 12-month (TTM) U.S. high yield bond default rate is closing inon 5%, reaching 4.7% after another $3 billion of defaults thus far this month, The $46.4 billion of recorded defaults this year is just $2 billion less than the total for the entire 2015.

Through mid-June, energy and metals/mining accounted for 84% of defaults ($38.9 billion). The May energy TTM rate stood at 14.6% following $12.7 billion of sector defaults last month while the E&P rate is at 28.6%. The average high yield bid levels are at 92.9, up from 91.1 last month and from 83.7 in February when crude oil prices were at their low point

[Jun 20, 2016] Raymond James Get Ready for $80 Oil

finance.yahoo.com

Rebounding after a two-year collapse, it's only this month that oil prices have pushed up past $50 a barrel, but Raymond James & Associates says this is just the beginning for higher prices.

In a note to clients, analysts led by J. Marshall Adkins say West Texas Intermediate will average $80 per barrel by the end of next year - that's higher than all but one of the 31 analysts surveyed by Bloomberg.

"Over the past few months, we've gained even more confidence that tightening global oil supply/demand dynamics will support a much higher level of oil prices in 2017. We continue to believe that 2017 WTI oil prices will average about $30/barrel higher than current futures strip prices would indicate."

The team went on to lay out three reasons for their bullish call, all of which are tied to global supply - the primary factor that precipitated crude's massive decline.

Here's how the rebalancing of the global oil market will be expedited from the supply side, according to the analysts:

  1. First, the analysts see production outside the US being curbed by more than they had previously anticipated, which constitutes 400,000 fewer barrels of oil per day being produced in 2017 relative to their January estimate. In particular, they cite organic declines in China, Columbia, Angola, and Mexico as prompting this downward revision. "When oil drilling activity collapses, oil supply goes down too!," writes Raymond James. "Amazing, huh?"
  2. Adkins and his fellow analysts also note that the unusually large slew of unplanned supply outages will, in some cases, persist throughout 2017, taking a further 300,000 barrels per day out of global supply.
  3. Finally, U.S. shale producers won't be able to get their DUCs in a row to respond to higher prices by ramping up output, the team reasons, citing bottlenecks that include a limited available pool of labor and equipment.

Combine this supply curtailment with firmer than expected global demand tied to gasoline consumption, and Adkins has a recipe for $80 crude in relatively short order.

"These newer oil supply/demand estimates are meaningfully more bullish than at the beginning of the year. Our previous price forecast was considerably more bullish than current Street consensus, and our new forecast is even more so."

The only analyst with a higher price forecast for 2017, among those surveyed by Bloomberg, is Incrementum AG Partner Ronald Stoeferle. He sees West Texas Intermediate at $82 per barrel next year. The consensus estimate is for this grade of crude to average $54 per barrel in 2017.

Over the long haul, however, Raymond James' team sees WTI prices moderating to about $70 per barrel.

Read Raymond James: Get Ready for $80 Oil on bloomberg.com

Related Stories
  1. America's new role in global oil markets is being 'put to the test' Bloomberg
  2. OPEC Sees Global Oil Market Balancing Toward the End of 2016 Bloomberg
  3. Why Is Nigeria Overshadowing the Crude Oil Market? Market Realist

[Jun 19, 2016] US Energy Sector now has twice as much debt as it did ten years ago at 370 billion as production declines

Notable quotes:
"... the U.S. Energy Sector is paying at least 50% of its operating profit now to just pay the interest on the debt. Q1 2016, it was 86% of their operation income just to pay the interest on the debt. ..."
"... Unless Uncle Sam comes in and BAILS OUT the U.S. Energy Sector, it's in serious trouble. ..."
peakoilbarrel.com

SRSrocco , 06/15/2016 at 2:37 pm

I tried to post this graph in a prior comment, but it did not work. So, here is a link:

https://srsroccoreport.com/wp-content/uploads/2016/05/U.S.-Energy-Sector-Interest-Payments-On-Debt-.png

I find it interesting that the U.S. Energy Sector now has twice as much debt as it did ten years ago at $370 billion… as production declines.

Furthermore, the U.S. Energy Sector is paying at least 50% of its operating profit now to just pay the interest on the debt. Q1 2016, it was 86% of their operation income just to pay the interest on the debt.

Unless Uncle Sam comes in and BAILS OUT the U.S. Energy Sector, it's in serious trouble.

steve

[Jun 19, 2016] Will shale get another round of crazy financing or this is it

Notable quotes:
"... I also doubt that oil prices will remain under $80/b long term (more than 5 years). I expect by 2021, oil at $80/b(2016$) will be considered cheap. ..."
"... Look at the second to last slide "Resilience of the three American gas plays (UFDsim)" decline around 15% during the first four years for shale gas. We live in interesting times. ..."
peakoilbarrel.com
Dennis Coyne , 06/17/2016 at 2:37 pm
Hi Petro,

The difference is simply the number of wells added per month. There is no a priori reason that the number of new wells will be limited to 105 new wells per month, perhaps there will be no financing available, but I doubt this would be a problem for Statoil or Exxon Mobil, they can do this out of cash flow if needed.

I also doubt that oil prices will remain under $80/b long term (more than 5 years). I expect by 2021, oil at $80/b(2016$) will be considered cheap.

George Kaplan , 06/16/2016 at 6:37 am
A different view from a Total engineer, looks to be using proprietary modeling software. Seems to capture the possibility of a fatter tail than the logistic curve does, but has already missed the flat peak area:

http://aspofrance.viabloga.com/files/PCharlez%20_ResilienceNon-conv.pdf

Martin , 06/16/2016 at 9:50 am
Look at the second to last slide "Resilience of the three American gas plays (UFDsim)" decline around 15% during the first four years for shale gas. We live in interesting times.

[Jun 19, 2016] Shale players were borrowing at 4-12 percent and have accumulated debt that most of them will never be able to repay.

Notable quotes:
"... Shale guys are not borrowing at negative rates. They were borrowing at 4-12% and have accumulated debt that most of them will never be able to repay. ..."
"... Now they are issuing new equity and diluting existing shareholders. That's another way to get free money in order to be able to drill new wells. ..."
"... AlexS. Only the Permian guys seem to be able to issue shares, mostly at least. ..."
"... One of them, Pioneer, is planning to offer 5.25 million new shares at about $827 million. Part of the proceeds will be used to buy Devon's upstream assets in the Permian. Pioneer Goes 'Bold' as Devon Retreats in Top U.S. Oil Field ..."
peakoilbarrel.com

AlexS , 06/16/2016 at 5:54 am

Shale guys are not borrowing at negative rates. They were borrowing at 4-12% and have accumulated debt that most of them will never be able to repay.

Now they are issuing new equity and diluting existing shareholders. That's another way to get free money in order to be able to drill new wells.

shallow sand , 06/16/2016 at 9:05 am
AlexS. Only the Permian guys seem to be able to issue shares, mostly at least.

Wonder when anyone will figure out most of those wells will never produce near the rate of the average middle Bakken well?

I have read several claims of $35 WTI profitability in the Permian for those wells.

I cannot make that work outside a small percentage of them.

Watcher , 06/16/2016 at 11:10 am
http://www.cnbc.com/bonds-france-treasurys/

Negative out to 8 yrs. Maybe Total can issue commercial paper overnight and collect. The gubmint is getting 1/2% out to 2 yrs.

http://www.cnbc.com/bonds-germany-treasurys/

AlexS , 06/16/2016 at 5:42 pm
shallow sand,

"Only the Permian guys seem to be able to issue shares"

One of them, Pioneer, is planning to offer 5.25 million new shares at about $827 million. Part of the proceeds will be used to buy Devon's upstream assets in the Permian. Pioneer Goes 'Bold' as Devon Retreats in Top U.S. Oil Field

http://www.bloomberg.com/news/articles/2016-06-15/devon-raises-858-million-in-asset-sales-including-pioneer-deal

[Jun 19, 2016] Probably n

Notable quotes:
"... Crude traders following Fibonacci rules. That's all. They took out the stops around 51, made their profits then went short. Pretty soon they'll go the other way again. Third quarter they'll go long and stay there. Guys already taking options on 100 a barrel. WTI will probably retest a 42 handle before it starts a steady climb. In the sixties in three months or so. Better dollars next year. ..."
"... 3/4 or more of the well bores will be abandoned and thrown on the backs of state governments if WTI and nat gas prices persist or go lower. ..."
"... At some point, there will be a rapid reversal, commodities become scarce, prices rocket up? One thing for sure, 1980s university finance professors never envisioned the kind of stuff going on. Crazy times. Hard to change long held views. ..."
peakoilbarrel.com
shallow sand , 06/16/2016 at 11:15 am
TT. I read that.

Not too happy to see prices are headed back down in the face of what appears to be strong demand and falling production. Strong dollar, negative rates. Ouch.

Petro. Are all commodities doomed, or just energy? How about grain?

texas tea , 06/16/2016 at 1:42 pm
I am going out on a limb here and say food and energy and precious metals will see money flow and the government will print money to make sure we have food and energy. Folks can do with out a lot but the streets will fill without food and energy. With respect to who will be right about US seeing past highs in C+C production, I have my doubts under normal business conditions, but i can envision that it could happen, but it would be under a "emergency" type all hands on deck scenario. Unlikely but possible, our industry has surprised doubters in the past in our ability to get the job done for the American people. lets make america great again
HR , 06/16/2016 at 6:09 pm
Crude traders following Fibonacci rules. That's all. They took out the stops around 51, made their profits then went short. Pretty soon they'll go the other way again. Third quarter they'll go long and stay there. Guys already taking options on 100 a barrel. WTI will probably retest a 42 handle before it starts a steady climb. In the sixties in three months or so. Better dollars next year.

We just have to keep starving for a few more months. Oil in storage isn't helping much either. By the end of the year, we should have a couple of reasons to smile for a change.

Cheers gentlemen, keep a stiff upper lip!

shallow sand , 06/16/2016 at 11:40 am
Petro.

One other thought. I take it you see major deflation on the horizon? So, if both crude price AND operating costs deflate, what is the difference, unless one has debt?

If one only has plugging liabilities, in a highly deflationary scenario, those liabilities also deflate (cost of labor and cement) in relation to cash on hand. Further, those with plugging liabilities and cash with no debt will, in my view, at least, have high leverage with state agencies as to negotiating a long term P & A agreement.

The US has over 1 million wellbores, if there is a "royal flush" of E & P's, due to massive deflation + high long term debts, I'd say anyone who agrees to P & A a few wells per year will be looked on favorably. 3/4 or more of the well bores will be abandoned and thrown on the backs of state governments if WTI and nat gas prices persist or go lower.

At some point, there will be a rapid reversal, commodities become scarce, prices rocket up? One thing for sure, 1980s university finance professors never envisioned the kind of stuff going on. Crazy times. Hard to change long held views.

clueless , 06/16/2016 at 3:35 pm
Shallow Sand – Here is the clueless take on things.

In general: Low interest rates are deflationary; High interest rates are inflationary. But, they are used to fight the opposite problem. Inflation rising: raise interest rates. Deflation on the horizon: print money and lower interest rates to cause inflation. However, at the extremes, eventually the desired result is obtained.

In the 1970's they kept raising interest rates to fight inflation. Result, more inflation – until we got to 14% annual inflation and 18% interest on a home mortgage. Then a recessionary collapse, and inflation was killed. Now we are in the reverse position – including negative rates in Europe, and everyone printing money. Result, deflation becoming more of a worry. At some future breaking point, likely a SURGE in inflation.

Why is this? Because if you have debt, when interest rates rise, you have NO choice. You must raise prices to pay it . There are no productivity gains; better way of doing things; more efficiency, etc. to solve the problem. If you have debt and interest rates rise, generally you HAVE to raise prices to pay the interest.

Now the reverse. Suppose long-term interest rates go to zero. You want to build a restaurant. You borrow the total cost of $2 million for 20 years. No interest, just a balloon payment at the end of 20 years. Okay, you can build your restaurant for zero cost of capital. For 20 years, you just have to cover the variable costs – food, labor, utilities and insurance. So, for 20 years, you can undercut the price of anybody that does have a cost of capital. Your restaurant is a booming success for 20 years, until you declare bankruptcy, since you have taken all of the profits as your salary and have no money to pay back the debt. Meanwhile you have lowered the cost of eating out in your market area for 20 years.

Dennis Coyne , 06/16/2016 at 12:12 pm
Hi Petro,

A mini model illustrating how the simple oil model works in chart below.

Basically well profile times number of wells added and add it all up.

Note that the well profile changes over time it is not fixed. Before 2008 there was a lower well profile, it increased and remained relatively stable from 2008 to 2013, the well profile increased in 2014 and 2015.
All of the well profiles and number of wells added each month from 2005 to 2016 (April), we don't know what the future well profile will be. All of this information is in the spreadsheet I linked earlier.

The minimodel is in the link below and illustrated in the diagram below.

https://drive.google.com/file/d/0B4nArV09d398ejQzek9Bem0yalU/view?usp=sharing

Dennis Coyne , 06/16/2016 at 12:16 pm
Hi Petro,

Chart that goes with spreadsheet above is below, shows a dual peak scenario, it is all about the number of wells completed, the peak only occurred because the number of completions fell from 200 per month to 45 per month in the ND Bakken/Three Forks.

clueless , 06/16/2016 at 3:53 pm
An open truly clueless question. For many years, much of the gas in the Bakken was flared. During that time, was measurement of gas as accurate and complete as when flaring no longer allowed and it is now being sold?

The reason that I ask, is to assess if historical gas/oil ratios are meaningful.

Toolpush , 06/17/2016 at 4:12 am
Clueless,

If you read the ND govt reports, you will see oil and gas figures per well each month. Yes gas produced has been counted all the way though. Gas captured and sold, is a separate number.

[Jun 19, 2016] We are now in a 60 dollars per barrel long term oil price environment

Notable quotes:
"... "I think the world is going to need Permian Basin oil production, and it's not going to grow until you get to $60 long term," he said. "When oil moves toward $60 per barrel, I believe a good $10 of it for a lot of companies will go toward paying off debt, or they'll start selling assets at decreased divesture prices. That extra $10 will be a huge difference for companies that have great balance sheets today. That's why I'm a firm believer we're in a $60 long term oil price environment." ..."
peakoilbarrel.com

texas tea , 06/17/2016 at 5:05 pm

http://www.rigzone.com/news/oil_gas/a/145084/Pioneer_CEO_60_Oil_Needed_for_US_Shale_Industry_to_Grow_Production

"I think the world is going to need Permian Basin oil production, and it's not going to grow until you get to $60 long term," he said. "When oil moves toward $60 per barrel, I believe a good $10 of it for a lot of companies will go toward paying off debt, or they'll start selling assets at decreased divesture prices. That extra $10 will be a huge difference for companies that have great balance sheets today. That's why I'm a firm believer we're in a $60 long term oil price environment."

Seems to have changed his tune somewhat. But $60 does not get in done in most LTO plays. PDX's production may be able to grow in the $60(60-69) but elsewhere not so much. But of course I will take 69 over $48 anyday

shallow sand , 06/17/2016 at 6:13 pm
PXD smart moves. Hedging better than most. Issuing shares as opposed to incurring more debt. Still not convinced Spraberry is superior to Bakken/EFS.

As I recall, only 11% of PV10 is in PUD per 2015 10K, despite 600,000+ acres which supposedly have multi stacked pays.

[Jun 18, 2016] it seems that we will see further declines in LTO output in the next several months due to delayed impact of low oil prices.

Notable quotes:
"... While oil prices will definitely reach $60 at some point and shale is still doomed at the current price range, there are some contrarian tendencies visible now. If the world economy slows down considerably the rise of oil prices will slow down even more. Let's hope for the best and prepare for the worst. ..."
peakoilbarrel.com

AlexS , 06/15/2016 at 12:11 pm

I remember Lynn Helms predicting a sharp drop in production for March. In fact, in March Bakken output declined only 8 kb/d, but was down 69 kb/d in April.

April number for ND Bakken is down 6.6% vs. March, 10.9% vs. April 2015 and 15.2% (176 kb/d) from the peak reached in December 2014.
Average output for January-April 2016 is 1044 kb/d, down 6.9% year-on-year.

As CLR's Harold Hamm and several other E&P CEOs are saying, $50 is a trigger for increased completion of the DUCs.
Rig count has also bottomed, but significant increase in drilling activity is unlikely until WTI reaches $60.

Nonetheless, it seems that we will see further declines in LTO output in the next several months due to delayed impact of low oil prices.

likbez , 06/17/2016 at 11:26 pm
Alex,

While oil prices will definitely reach $60 at some point and shale is still doomed at the current price range, there are some contrarian tendencies visible now. If the world economy slows down considerably the rise of oil prices will slow down even more. Let's hope for the best and prepare for the worst.

[Jun 18, 2016] Oil prices will rise, not US production Tom Ward

Interview (video) is more interesting.
www.cnbc.com
Until the capital markets open up and allow U.S. oil companies to spend outside of their cash flow, production will not increase and crude prices will continue to rise, Tapstone Energy CEO Tom Ward said Thursday.

"There's no increase in the capital spending, the debt side of the business is closed, and so until we have something fairly dramatic happen like maybe a doubling of the rig count, I don't think we can grow production in the U.S.," he said in an interview with CNBC's "Power Lunch."

Therefore, "I wouldn't be surprised at all if we saw above $60 or even $70 [a barrel] by the end of the year," added Ward, the co-founder of Chesapeake Energy.

His comments come on the heels of American oil billionaire Harold Hamm's prediction that oil will likely hit $69 to $72 per barrel by year's end.

... ... ...

Tapstone Energy currently has three rigs online, down from four, and Ward said there are no plans to add more rigs. It's the same across the industry, he said, because of the lack of access to capital markets.

"I think prices will have to move up even higher than we're talking about for there to be a big change in the rig count," said Ward. "We can't change the decline of the oil production in the United States without more capital, and right now that's just not available."

That said, as soon as funds open up, Ward plans to start spending.

"We will spend whatever you give us. As long as there is money to be had through the capital markets, then we'll use that to grow production, because that's what we're paid for."

[Jun 15, 2016] Rising Bankruptcies

Notable quotes:
"... Penn Virginia Corp., a company in which billionaire George Soros had a stake, booked paper wells in natural gas prospects where it hadn't drilled in years, according to letters from the SEC. ..."
"... Penn Virginia erased most of its undeveloped reserves this year. The company filed for bankruptcy May 12 with $1.2 billion in debt. Records show Soros sold his six million shares in the first quarter. ..."
www.bloomberg.com

Penn Virginia Corp., a company in which billionaire George Soros had a stake, booked paper wells in natural gas prospects where it hadn't drilled in years, according to letters from the SEC.

"Your actual drilling has consistently failed to follow schedules," the SEC wrote in an April 2015 letter. Penn Virginia responded that it had intended to get to the wells within five years but its plans changed when prices fell.

That's not what company executives told investors, according to conference call transcripts. H. Baird Whitehead, Penn Virginia's chief executive officer, said in a November 2012 call that "under almost no scenario" would the company resume gas drilling. Yet, when Penn Virginia filed its report with the SEC three months later, the prospects accounted for more than 40 percent of its reserves.

During an April 2013 call, Whitehead said, "We don't plan on drilling natural gas wells." Still, the undeveloped natural gas wells comprised 19 percent of the company's reserves at the end of that year. Patrick Scanlan, a spokesman for Penn Virginia, declined to comment.

The company intended to follow the SEC's five-year rule, according to a person familiar with Whitehead's thinking.

Penn Virginia erased most of its undeveloped reserves this year. The company filed for bankruptcy May 12 with $1.2 billion in debt. Records show Soros sold his six million shares in the first quarter.

[Jun 15, 2016] Why Billions in Proven Shale Oil Reserves Suddenly Became Unproven

Notable quotes:
"... Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues, it was worth almost $15 billion at its 2012 peak. ..."
"... Then came the bust. Almost half of Ultra's reserves were erased from its books this year. The company filed for bankruptcy on April 29 owing $3.9 billion. ..."
www.bloomberg.com

Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues, it was worth almost $15 billion at its 2012 peak.

Then came the bust. Almost half of Ultra's reserves were erased from its books this year. The company filed for bankruptcy on April 29 owing $3.9 billion.

Ultra's rise and fall isn't unique. Proven reserves -- gas and oil resources that are among the best measures of a company's ability to reward its shareholders and repay its debts -- are disappearing across the shale patch. This year, 59 U.S. oil and gas companies deleted the equivalent of 9.2 billion barrels, more than 20 percent of their inventories, according to data compiled by Bloomberg. It's by far the largest amount since 2009, when the Securities and Exchange Commission tweaked a rule to make it easier for producers to claim wells that wouldn't be drilled for years.

[Jun 12, 2016] U.S. oil production has entered the end game with output forecast to plummet

Notable quotes:
"... Long predicted as a natural development after the 2014 start of the collapse in the oil price the inevitable has been delayed by drillers squeezing every drop out of their wells, but that game is all but over. ..."
"... Declines in U.S. oil output set to accelerate ..."
"... A lack of drilling is about to catch up to US oil output. To maintain current production levels in the US requires 439 rigs, compared to the 280 in operation, according to ANZ Research. "If that trend persists, we could see production fall below 8.5mb/d by July," comments Daniel Hynes, commodity researach analyst. ..."
"... Financial stress could exacerbate this. Oil producers with sub investment grade debt maturing this year produced approximately 1.3mb/d of oil. We have also seen more downgrades of credit ratings in 2016 than over the past three years. ..."
"... This should see oil prices remain well supported over the next six months. ..."
peakoilbarrel.com

Ron Patterson, 06/03/2016 at 6:32 am

Oil Price Poised For A Boost From A Big Fall In U.S. Production

U.S. oil production has entered the end game with output forecast to plummet as drilling dries up and banks foreclose on oil companies teetering on the brink of insolvency.

Long predicted as a natural development after the 2014 start of the collapse in the oil price the inevitable has been delayed by drillers squeezing every drop out of their wells, but that game is all but over.

From a peak of more than 9.5 million barrels a day early last year current output has slipped to 9.1mb/d but if a fresh forecast is correct the number could be 8.5mb/d by July and possibly below 8mb/d in the September quarter…

Saudi Smiles

The Saudi view has consistently been that the oil market will fix itself with low prices forcing high cost producers out of business, leading to a sustainable price recovery.

What the ANZ has done with its report released earlier today is reinforce the Saudi position with the headline telling the story: "Declines in U.S. oil output set to accelerate".

Ron Patterson , 06/03/2016 at 6:37 am
And here is that story: Declines in US oil set to accelerate

London, 2 June 2016

A lack of drilling is about to catch up to US oil output. To maintain current production levels in the US requires 439 rigs, compared to the 280 in operation, according to ANZ Research. "If that trend persists, we could see production fall below 8.5mb/d by July," comments Daniel Hynes, commodity researach analyst.

Financial stress could exacerbate this. Oil producers with sub investment grade debt maturing this year produced approximately 1.3mb/d of oil. We have also seen more downgrades of credit ratings in 2016 than over the past three years.

This should see oil prices remain well supported over the next six months.

Oldfarmermac , 06/03/2016 at 7:02 am
It has always seemed perfectly obvious to me that the price would HAVE to go back up, and it has , quite a bit already.

The thing that surprised me is that it has taken as long as it has for the high cost producers to start falling by the wayside. In other industries, the blood would have been in the water MUCH quicker.

Does anybody have a figure for the "typical or average " cost of storing crude per barrel per year? How has the price of storage varied for the last couple of years?

[Jun 11, 2016] Short-term downward corrections are possible, but the general trend is upward

Notable quotes:
"... we get production decreasing at an annual rate of about 200 kb/d over the most recent 12 months. ..."
peakoilbarrel.com

AlexS ,

06/09/2016 at 4:32 am
shallow sand,

"hope this rally isn't a repeat of last year."

I'm sure it isn't.
Short-term downward corrections are possible, but the general trend is upward.

texas tea , 06/09/2016 at 5:09 am
I tend to agree, but it will not surprise me to get a soft patch in prices late summer, if it is shallow, no pun intended, we will have the episode be hide us and I would look at it as a time to add to pub co stocks. By then the production trends as highlighted in the work presented here will be very much in place. Who knows Dennis might have to adjust his trend lines on the C+C chart by that time and will need to use peak flow as the starting point.

Shallow you do not need to tell me, of the hundreds of thousands of people who work in oil an gas extraction the number of them "barons" would fit on one of the those new electric buses.

Dennis Coyne , 06/09/2016 at 9:57 am
Hi texas tea,

If we substitute Dean's better estimate for Texas into the EIA's US estimate (removing the EIA's Texas estimate from the US total) and use the data from the peak in April 2015 to the most recent monthly data point of March 2016 and fit a trend line using the method of least squares we get production decreasing at an annual rate of about 200 kb/d over the most recent 12 months.

See https://en.wikipedia.org/wiki/Least_squares

This is the method used by a spreadsheet when a linear trend line is fit to the data.

Reply

[Jun 10, 2016] Oil Is Set To Rally Beyond $50

Notable quotes:
"... Middle East oil producers turn to debt markets. ..."
"... Speculators gamble on $100 oil. ..."
oilprice.com

OilPrice.com

Middle East oil producers turn to debt markets. Oman sold $2.5 billion in bonds on Wednesday, as it seeks to improve its financial position. The Gulf state oil producer, who is not a member of OPEC, went to the debt markets for the first time in more than twenty years, a sign of how badly it has been damaged from low oil prices. The move comes after some of Oman's neighbors issued new bonds earlier this year – Qatar sold $9 billion in debt and Abu Dhabi sold $5 billion. Saudi Arabia is also expected to turn to the bond markets, perhaps selling as much as $15 billion worth of bonds. But the IMF warns that the Gulf States are going to need to do a lot more to cut spending in order for them to hold onto their currency pegs.

Speculators gamble on $100 oil. Bloomberg reports that some oil traders are buying contracts that will only pay out if oil surpasses $100 per barrel at some point in the next few years. The contracts do not suggest that such an outcome is necessarily likely, but only that some traders view it as a potential profitable position. The fact that traders are buying up these kinds of contracts suggests that the markets are starting to believe that today's severe cutbacks in exploration and development will create the conditions for a supply shortage somewhere down the line.

By Evan Kelly of Oilprice.com

[Jun 09, 2016] The Oil Futures Market Tells Us The Glut Is Over

OilPrice.com
According to consulting firm McKinsey, the current oil futures market is pointing to a coming balance between demand and supply-a balance which has the potential to render most oil and gas investments uneconomical.

The futures market is often a reliable guide to forcasting the future direction of oil prices, and analysts rely on both contangos or backwardation when determining their forecasts.

During a supply glut, a contango is typically observed. This is a condition where the spot price for future contracts is far higher than the current price for nearby contracts. This means that people are willing to pay more for a commodity sometime down the road than the actual price for the commodity.

Backwardation is noticed when the current demand is higher than the supply, thereby making the nearby contracts costlier compared to future contracts.

(Click to enlarge)

Until around 2005, backwardation was the normal condition, as seen in the charts. But since 2005, contango has become the normal condition, reports Reuters . Experts differ on their views regarding this shift.

Large contango is indicative of market bottoms. During the 2008-09 crude oil crash, the oil market witnessed a super-contango, when the price difference between the first month and the seventh month contract had reached up to $10 per barrel.

Similarly, during the current crisis, the contango reached $8 per barrel twice, once in February of 2015 and again in February of 2016, as shown in the chart below, after which, the markets bottomed out.

(Click to enlarge)

Related: Aviation Giants To Ramp Up Biofuels Usage

During the 1985-2004 period, the average backwardation was $1.07 per barrel, and during the 2005-2014 period, the average contango was $1.50 per barrel as shown in the chart below. The current contango hovers around $2 per barrel, which is close to the average during the 2005-2014 period.

(Click to enlarge)

The current oil crisis is unlike the oil crisis of 2008-2009, as there is no demand destruction this time. Demand for oil is on the rise and is likely to increase by 1.5 million barrels per day, both in 2016 and 2017, according to the latest Short-Term Energy Outlook by the U.S. Energy Information Administration.

In the short-term, the supply outages to the tune of 3 million b/d have supported oil prices by easing the supply glut and restoring the balance between supply and demand. If supply is restored, the oil markets will again return to a surplus, putting pressure on prices.

Due to low oil prices, billions of dollars in investments have either been scrapped or postponed. As and when the markets shift from surplus to deficit, new supply will find it difficult to catch up with increased demand. Markets need higher prices for investments to start trickling into the industry.

However, consulting firm McKinsey believes that oil demand will peak around 100 million barrels per day by 2030 from the current levels of 94 million barrels per day.

Related: Why Did Natural Gas Prices Just Rise 25% In Two Weeks?

"This change is driven by three factors: first, overall GDP growth is structurally lower as the population ages; second, the global economy is shifting away from energy-intense industry towards services; and third, energy efficiency continues to improve significantly," McKinsey's Occo Roelofsen said. "Peak oil demand could be reached around 2030", reports The Telegraph.

If oil demand behaves according to Mckinsey's expectations, most new investments into oil will be uneconomical due to weak demand in the future.

Though the long-term is slightly uncertain, balance is maintained in the short-term. Unless we see supply outages restored, prices are likely to remain in a small range following an impressive run.

By Rakesh Upadhyay of Oilprice.com

[Jun 07, 2016] Devon Energy Corp said it would sell assets in Texas for nearly $1 billion

peakoilbarrel.com

AlexS , 06/07/2016 at 7:31 am

Devon Energy to get nearly $1 billion from asset sales

Mon Jun 6, 2016
http://www.reuters.com/article/us-devon-energy-divestiture-idUSKCN0YS0Z6

U.S. oil and natural gas producer Devon Energy Corp said it would sell assets in Texas for nearly $1 billion and that it was making progress on the sale of other assets as part of its plan to improve its finances through divestitures.

Devon said on Monday it would sell producing assets in east Texas for $525 million and in Anadarko Basin's Granite Wash area for $310 million.

The company will also sell its royalty interests in the northern Midland Basin in the Texas region for $139 million.

With these sales, Devon's proceeds from divestitures of natural gas-focused assets would total $1.3 billion, Chief Executive Dave Hager said.

"Proceeds for the entire divestiture program are well on their way to achieving our previously announced range of $2 billion to $3 billion in 2016," Hager said.

The company said it expected to make an announcement within the next several weeks on the sale of its 50 percent interest in Canada's Access Pipeline, which carries heavy oil across northeastern Alberta.

Devon also said it was making progress toward selling more Midland basin assets that produced an average of 25,000 barrels of oil equivalent per day in the first quarter.

[Jun 06, 2016] 06/05/2016 at 6:11 pm

peakoilbarrel.com
Warren Resources files for Chapter 11

HOUSTON, June 3
http://www.ogj.com/articles/2016/06/warren-resources-files-for-chapter-11.html

Warren Resources Inc., Denver, filed for bankruptcy protection in a Houston federal court on June 2 after negotiating a debt-for-equity swap with a group of senior lenders led by Blackstone Group's GSO Capital Partners.
Senior lenders agreed to swap $248 million they are owed for an 82.5% stake in the reorganized company, court papers showed.

Warren Resources primarily focuses on oil in the Wilmington field in the Los Angeles basin of California, natural gas in the Marcellus shale in Pennsylvania, and the Washakie basin of Wyoming.
=========================================

Linc Energy Subsidiaries File Chapter 11

June 1, 2016
http://www.ogfj.com/articles/2016/06/linc-energy-subsidiaries-file-chapter-11.html

On May 29, 2016, US subsidiaries of Linc Energy Ltd. filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code.

Linc Energy is a global business with oil and gas operations primarily onshore in the USA (Alaska, Texas, Louisiana & Wyoming); exploration for shale oil and gas in the Arckaringa Basin in South Australia; developing a proprietary technology for the extraction of heavy oil; and a number of opportunities to apply its proprietary Underground Coal Gasification (UCG) technology in target markets including Asia and Africa.

[Jun 02, 2016] SCHWARZMAN The oil market is making everyone a bozo

Notable quotes:
"... When the price's around $60, I asked Rex, "What do you think?" He said, "Well, it's going to be between $20 to $120, and we're set up for all of those environments. I think it'll go a little lower than higher, but what do I know? I've just been doing this my whole life." And I thought, he's kidding, but he really wasn't. ..."
finance.yahoo.com

The oil price is making a fool of everyone. That's according to Steve Schwarzman, cofounder of private-equity giant Blackstone. The billionaire investor was speaking at the Bernstein Thirty-Second Annual Strategic Decisions Conference 2016 on Thursday, and talked about the volatile oil price.

He said:

Let's just take energy first because it's in the news a lot. And talk about a crazy business where there's almost not one person who knows what they're doing, right? At $120, it was going to $140 a barrel. When you were at $80, it was going to stabilize at $60. And when you're in $60, you didn't quite know, but maybe it would be $50 to $70. And then when it went to $24, everybody is a bozo, right? And then it was going to stay there, sort of $25 to $35 or maybe $40 for the next year or two, and now it's $50.

We've seen crazy swings in oil prices this year, largely driven by slowing demand, increased supply, and speculation over a potential coordinated cut in the production of oil. US oil prices ended slightly lower on Thursday after briefly rising above $50 a barrel in intraday trading.

Schwarzman said that his favorite person to talk to when trying to make sense of the oil market was Exxon CEO Rex Tillerson. He said:

When the price's around $60, I asked Rex, "What do you think?" He said, "Well, it's going to be between $20 to $120, and we're set up for all of those environments. I think it'll go a little lower than higher, but what do I know? I've just been doing this my whole life." And I thought, he's kidding, but he really wasn't.

[Jun 02, 2016] Oil Speculators No Longer Confident In Price Crash naked capitalism

Notable quotes:
"... Most probably you are wrong. LTO producers lost access to unlimited financing from Wall Street. They can't finance expansion from their cash flow (which is still negative), so they are cooked. Wells you are talking about were drilled, but not fracked. Drilling is only one third of the total cost of the well. So those two-thirds that are needed to complete the well is a problem. And will the particular well generate positive cash flow if oil price remains in $50-$60 range is another problem. Money spend on drilling are debt. Most shale wells will not compensate with their total production the amount of debt and interest. ..."
"... They need around $80 per barrel to revive their operations. ..."
naked capitalism
PlutoniumKun , May 31, 2016 at 4:27 am

Its interesting – I've been baffled by the apparent confidence of the markets in rising prices, and so far it seems they've been right. But I think we'll only know for sure later in the year. I suspect $50 will be the signal for a lot of struggling tight oil operators to open up their fracked but sealed wells, so there might be an unpleasant surprise for the bulls in the US market, if not elsewhere.

rjs , May 31, 2016 at 7:33 am

oil bulls were saved by the Fort McMurray wildfire and the Niger Delta Avengers; see the graphic from Goldman here: http://focusonfracking.blogspot.com/2016/05/update-on-oil-prices-whats-moving-them.html

likbez , June 1, 2016 at 9:11 pm

I suspect $50 will be the signal for a lot of struggling tight oil operators to open up their fracked but sealed wells

Most probably you are wrong. LTO producers lost access to unlimited financing from Wall Street. They can't finance expansion from their cash flow (which is still negative), so they are cooked. Wells you are talking about were drilled, but not fracked. Drilling is only one third of the total cost of the well. So those two-thirds that are needed to complete the well is a problem. And will the particular well generate positive cash flow if oil price remains in $50-$60 range is another problem. Money spend on drilling are debt. Most shale wells will not compensate with their total production the amount of debt and interest.

They need around $80 per barrel to revive their operations.

[Jun 02, 2016] Venezuela is unable to pay for their imports of dissilate for mixing with hevay oil from the US

Notable quotes:
"... "Four tankers carrying over 2 million barrels of U.S. crude are stuck at sea and cannot discharge at a Caribbean terminal because Venezuela's PDVSA has not yet paid supplier BP Plc (BP.L), according to two sources and Thomson Reuters vessel tracking data. ..."
"... The deal was to import some 8 million barrels of West Texas Intermediate (WTI) crude so Venezuela could dilute its extra heavy crudes and feed its Caribbean refineries. ..."
peakoilbarrel.com
GoneFishing , 06/01/2016 at 7:47 am
Venezuela PDVSA is not paying for their imports from the US.

"Four tankers carrying over 2 million barrels of U.S. crude are stuck at sea and cannot discharge at a Caribbean terminal because Venezuela's PDVSA has not yet paid supplier BP Plc (BP.L), according to two sources and Thomson Reuters vessel tracking data.

The cargoes are part of a tender Petroleos de Venezuela [PDVSA.UL], known as PDVSA, awarded in March to BP and China Oil. The deal was to import some 8 million barrels of West Texas Intermediate (WTI) crude so Venezuela could dilute its extra heavy crudes and feed its Caribbean refineries.

While three cargoes for this tender were delivered in April, seven other vessels, including BP's four hired ones, are waiting to discharge, leaving up to 3.85 million barrels of WTI in limbo. "

http://uk.reuters.com/article/uk-oil-pdvsa-bp-idUKKCN0YM1VK

[Jun 02, 2016] Oil Speculators No Longer Confident In Price Crash OilPrice.com

oilprice.com

If the whims of oil speculators are anything to go by, then another oil price downturn looks increasingly unlikely.

Oil prices have gained more than 80 percent over the past three months, bouncing off of $27 lows in February to hit $50 last week. Those sharp gains raised the possibility of another crash in prices because the fundamentals still appeared to be bearish in the near term.

By early May, oil speculators had built up strong net-long positions on oil futures, extraordinary bullish positions that left the market exposed to a reversal. Speculators had seemingly bid up oil prices faster than was justified in the physical market.

But the physical market got some help. The massive supply outages in Canada (over 1 million barrels per day) and Nigeria (over 800,000 barrels per day) provided some support to prices, erasing some of the global surplus.

Related: When Will Solar Overtake Oil?

Now speculators who had started to short oil in May have retreated, pushing short bets down to an 11-month low. "If you've been short since February this has been a very painful ride," Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management, told Bloomberg in an interview. "There are always a few die-hards but otherwise you'd want to get out. This is indicative of the improving fundamentals."

[May 26, 2016] US oil production is now in its freefall phase and this makes some people optimistic about future oil prices

Notable quotes:
"... US oil production is now in its freefall phase and this makes me very optimistic about future oil prices. ..."
"... But the health of the USA economy in late 2016 and 2017 is a big open question and it might provide the celling for the oil prices. One of the key factors that prevented sliding of the US economy into the continuation of Great Recession in 2014 was the dramatic drop of oil prices, which started in the second half of 2014. So in 2014-2016 the resilience of the US economy was partially due to this "low oil price" factor. ..."
"... Impoverishment of the low 80% of population makes the recovery impossible; neoliberalism makes the redistribution of gains in favor of lower 80% impossible (most of the gains go to the top 0.1% - the financial oligarchy; top 20% probably hold their own; everybody else are gradually sliding into poverty). So this is a deadlock situation. ..."
"... So when oil price recovers to $80-$100 price band the stimulating role of low oil prices on the economy will be gone. From this point it might be a bumpy ride… ..."
peakoilbarrel.com

Heinrich Leopold , 05/25/2016 at 9:48 am

The weekly status report for last week is out:
http://ir.eia.gov/wpsr/overview.pdf

Production fell just 24 000 b/d and week. However, the previous number has been revised downwardly by around 50 000 b/d and the recent number is down over 70 000 b/d, which is enormous and contributes very much to the recent oil price rise. US production is down by over 6.4% and net product exports fell considerably. This is exactly the right thing to do to bring oil prices up again.

US oil production is now in its freefall phase and this makes me very optimistic about future oil prices.

likbez , 05/25/2016 at 1:53 pm
US oil production is now in its freefall phase and this makes me very optimistic about future oil prices.

Not so fast.

I am pretty positive that the worst days for the conventional oil are over, and "carpet drilling" days for LTO are also history.

But the health of the USA economy in late 2016 and 2017 is a big open question and it might provide the celling for the oil prices. One of the key factors that prevented sliding of the US economy into the continuation of Great Recession in 2014 was the dramatic drop of oil prices, which started in the second half of 2014. So in 2014-2016 the resilience of the US economy was partially due to this "low oil price" factor.

But the effect was pretty small; due to this the FED was not able to "normalize" interest rates (they made only one hike) and now can face the new phase of the recession with all the ammunition already fired.

Impoverishment of the low 80% of population makes the recovery impossible; neoliberalism makes the redistribution of gains in favor of lower 80% impossible (most of the gains go to the top 0.1% - the financial oligarchy; top 20% probably hold their own; everybody else are gradually sliding into poverty). So this is a deadlock situation.

Ves wrote something about his views on this subject in this thread and as far as I recall he thinks that without artificially low interest rates the game is over.

So when oil price recovers to $80-$100 price band the stimulating role of low oil prices on the economy will be gone. From this point it might be a bumpy ride…

Ron Patterson , 05/25/2016 at 3:08 pm
The EIA's Monthly Energy Review is out today with production data for April. US C+C production fell 123,000 barrels per day in April to 8,915,000 barrels per day. US lower 48 fell 100,000 bpd while Alaska fell 23,000 bpd.

This data matches the weekly data very close. 8,915 K barrels per day is the average for April, not the production on the last day or the last week. The EIA has production for the third week in April at 8,767 K barrels per day. So it looks like US production will fall about the same amount in May as it fell in April, about 125,000 barrels per day.

US C+C production has fell 779,000 barrels per day since peaking one year ago in April.

 photo US CC_zpsnu8gpafj.jpg

[May 26, 2016] WTI and Brent spread has closed quite up lately. Anybody heard what the crooks at the tbtf mega banks are giving as an excuse

Notable quotes:
"... Anybody got a handle on overall accurate storage stats? I believe that we are heading into a period that oil in storage and market sentiment will be more important than production at some point. At least I'm hoping we are getting there. That'd be a great idea for a new post Dennis. Oil in storage. But there are no stats on private storage in the lower 48 right? Hell, me and my two best business buddies have 25 thousand barrels in our tank farms right now. And we are small fry compared to the gangster bank backed shale guys. ..."
peakoilbarrel.com

HR , 05/24/2016 at 6:50 pm

WTI and Brent spread has closed quite a bit lately. Anybody heard what the crooks at the tbtf mega banks are giving as an excuse?
Citi just announced that crude was headed to 50 a barrel in Q3, that's a pretty amazing call seeing as how it's pushing 49.50 right now. Those "analysts" probably will get a huge bonus for making that call right?

Anybody got a handle on overall accurate storage stats? I believe that we are heading into a period that oil in storage and market sentiment will be more important than production at some point. At least I'm hoping we are getting there. That'd be a great idea for a new post Dennis. Oil in storage. But there are no stats on private storage in the lower 48 right? Hell, me and my two best business buddies have 25 thousand barrels in our tank farms right now. And we are small fry compared to the gangster bank backed shale guys.

[May 24, 2016] I do not believe that debt and oil works together

Notable quotes:
"... If on the other hand you have paid your share of drilling and completion costs with CLR, and lease operating expenses, and you are pleased with the outcome of your investment. Congratulations. You are one of very few. ..."
peakoilbarrel.com
Mike , 05/22/2016 at 5:48 pm
Mr. Tea, up hole you have said, I believe, this: "I have participated in LTO wells with CLR and others in Oklahoma (we own minerals)…" It is understandable that your glass might be half full regarding the shale oil business if all your income associated therewith is free and clear of all costs. If on the other hand you have paid your share of drilling and completion costs with CLR, and lease operating expenses, and you are pleased with the outcome of your investment. Congratulations. You are one of very few.

Don't be dumbfounded, sir; I am an operator myself and do not believe that debt, and oil, works together. It has not worked in the US LTO industry to date, and it will not in the future. Believe it or not there are a lot of us experienced oil and gas professionals out here that feel the same way.

[May 24, 2016] Halcon Resources plans to file a Chapter 11 bankruptcy

Notable quotes:
"... Those one after another announcements compose into something resembling a Requiem (aka Mass for the dead; Latin: Missa pro defunctis) for LTO boom and "low oil price forever" gambit (with due apologies for the deviation from your neoclassical supply-demand article of faith ;-). ..."
peakoilbarrel.com

AlexS , 05/23/2016 at 6:16 pm

Halcon Resources plans to file a Chapter 11 bankruptcy plan if enough lenders agree to the terms, the company said Wednesday in a press release.

Since the start of 2015, 138 oilfield service companies and oil and gas producers have gone bankrupt owing more than $61 billion, law firm Haynes & Boone said in an April 29 report.

http://www.bloomberg.com/news/articles/2016-05-18/halcon-resources-to-seek-bankruptcy-under-restructuring-proposal

likbez , 05/23/2016 at 7:33 pm
Alex,

Halcon Resources plans to file a Chapter 11 bankruptcy

Since the start of 2015, 138 oilfield service companies and oil and gas producers have gone bankrupt owing more than $61 billion, law firm Haynes & Boone said in an April 29 report.

Those one after another announcements compose into something resembling a Requiem (aka Mass for the dead; Latin: Missa pro defunctis) for LTO boom and "low oil price forever" gambit (with due apologies for the deviation from your neoclassical supply-demand article of faith ;-).

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." Sir Winston Churchill

[May 24, 2016] LINN Energy LLC and LinnCo LLC have been delisted from The NASDAQ

peakoilbarrel.com
AlexS , 05/24/2016 at 2:11 pm
LINN Energy, LinnCo Delisted From NASDAQ

May 24, 2016
http://www.ogfj.com/articles/2016/05/linn-energy-linnco-delisted-from-nasdaq.html

LINN Energy LLC and LinnCo LLC have been delisted from The NASDAQ Stock Market. Trading of LINN and LinnCo securities were suspended prior to the open of the market today, Tuesday, May 24, 2016.

On May 11, 2016, LINN Energy, LinnCo, certain of the company's direct and indirect subsidiaries, and Berry Petroleum Co. LLC, filed voluntary petitions for reorganization under Chapter 11.

[May 24, 2016] We never have seen debt play such an enormous role in oil extraction as today

Notable quotes:
"... I think $80/b will be enough for the current average well to be profitable. I agree that eventually average new well EUR will decrease and higher prices will be needed for profitable wells. The figure below shows debt was being paid down in 2013, based on Rune Likvern's analysis. ..."
"... It is just hilarious that you got call from WSJ just right now to have a chat after all has been printed regarding fake shale "technology improvements", "efficiency", and "energy revolution" in general. If you get ever invite by CNBC/Bloomberg for live TV appearance please let us now so we can all watch :-) ..."
"... But I know that they don't want you near their parking lot because their audience is not ready to handle the truth. They will bring Mr. Ward who is not really independent analyst but he was part of shale for so many years so of course he knows the numbers. But he will only say things in small dosages, one tea-spoon at the time so audience can absorb the news in small bits. ..."
peakoilbarrel.com

Mike , 05/22/2016 at 1:28 pm

Mr. Tea; I am familiar with the history of LTO development, thank you; I have interest in shale wells, sat them, know what they cost, seen and heard all the technology bells and whistles up close and personal and have watched my checks dribble to nothing. I have spent a half century of economic analysis on wells I have drilled with my own money; I can add and subtract. Most of the time when I am analyzing shale oil economics I am subtracting.

I have also heard all the hubbub about the shale oil miracle that I can stand; much obliged.

The "long history of the US oil and gas business model" has absolutely nothing to do with shale oil extraction. The two have little to do with each other.

We have NEVER seen debt play such an enormous role in oil extraction as today, not in the 80's, never in history.

Shell and BP got out of the shale biz early, Chevron never got in. CNOCC does not send CHK Christmas cards anymore, I promise you and if you could get a straight answer from Exxon, Statoil and BHP they'd probably say they screwed up, big time. We'll see who buys what. I'd say if this shale stuff was so valuable there would be fierce competition to buy the stuff at low oil prices, now, when folks are so eager to get out of trouble; Mr. Alex is correct, thus far no major integrated oil company has even whiffed at shale oil acquisitions.

Hoping for higher oil prices is not a plan for long term sustainability, Mr. Tea. Good luck, sir.

Mike

Dennis Coyne , 05/22/2016 at 2:38 pm
Hi Mike,

I would consider XOM and Statoil as major oil companies. Both are involved in LTO.

Rune Likvern showed the Bakken LTO players were cash flow neutral before the price crash, but perhaps there are no more good wells left to drill.

I think $80/b will be enough for the current average well to be profitable. I agree that eventually average new well EUR will decrease and higher prices will be needed for profitable wells. The figure below shows debt was being paid down in 2013, based on Rune Likvern's analysis.
Since that time well costs have decreased and lower prices may be adequate ($80/b rather than $100/b).

Ves , 05/22/2016 at 3:16 pm
Thanks Mike.
When 2 years ago at the time of oil price collapse I first looked at this "black box" called LTO the only people that made sense regarding LTO economics were you, shallow, Mr Berman, and Mr. Likvern. 4 people in the whole English speaking world!! There was one more person in Russian language that I have read his thoughts where he touched on LTO economics but more in context of general oil depletion. So 1000's of blogs, 1000's of tv channels, 1000's of newspapers and only 4 people that made sense regarding this LTO subject in English!!! So after 2 years when shale economics are crystal clear there are still 4 people in English speaking world talking common sense!! Unbelievable.

It is just hilarious that you got call from WSJ just right now to have a chat after all has been printed regarding fake shale "technology improvements", "efficiency", and "energy revolution" in general. If you get ever invite by CNBC/Bloomberg for live TV appearance please let us now so we can all watch :-)

But I know that they don't want you near their parking lot because their audience is not ready to handle the truth. They will bring Mr. Ward who is not really independent analyst but he was part of shale for so many years so of course he knows the numbers. But he will only say things in small dosages, one tea-spoon at the time so audience can absorb the news in small bits.
Have a nice day.

[May 21, 2016] Could Sabotage Cause A Surge In Oil Prices

oilprice.com

OilPrice.com

There have always been three routes out of the unsustainably low prices: natural decline/growth of supply/demand, collaboration constraints on supply, and military conflict. Since January, while the talk of a growth freeze had no effect whatsoever on actual supply, the natural decline/growth did reduce the overhang by a couple of hundred thousand barrels of oil per day. Meanwhile, two little-discussed and less-understood military interventions took a combined 900,000 bopd out of supply in a virtual instant.

The history of attacks by rebels on oil infrastructure in the Niger Delta and the coincident prosecution of a former rebel superficially suggested that this attack was another in protest. On the other hand, responsibility for the attack was first claimed two months after the fact and by a group not previously known to exist, namely the Niger Delta Avengers. Moreover, the sophistication of the attack diverges from the historical airboat-and-AK style of rebels in the region.

A similarly mysterious outage affected 600,000 bopd out of northern Iraq. Located in a region of multi-lateral conflict and poor transparency, this interruption could be easily dismissed. Nevertheless, the fact remains that the exact cause of this major supply interruption was not publicly claimed or understood by any of the parties.

[May 20, 2016] Yes another bancrupsy with three billion of debt

Notable quotes:
"... Yet another BK, as Rune notified me today. Halcon, ticker HK, with operations in the Bakken and EFS. $3+ billion of debt. ..."
"... One of the Permian guys here mentioned that those of us who survive this debacle need to hoist a few cold ones sometime. I'm ready, once I am sure the debacle has passed. ..."
"... From todays article regarding Halcon: "it plans to file for a prepackaged bankruptcy that would wipe out $1.8 billion in debt and help it survive the drop in crude prices." ..."
"... It is the game of pretending where debt is wiped out as Kramer from Seinfeld would say "Jerry they write it off (debt). They do all the time". And then magically a "new" set of investors show up with newly printed or digitally created numbers on the account and start process again. And start drilling cash into the ground in order to get any oil left regardless of monetary paper loss/gain. What that tells you that current economic system is completely broken. It is running on fumes. ..."
peakoilbarrel.com
shallow sand , 05/18/2016 at 11:07 pm
Yet another BK, as Rune notified me today. Halcon, ticker HK, with operations in the Bakken and EFS. $3+ billion of debt.

Further, Mr. McClendon's new company, American Energy Partners, announced they are winding down and closing up shop.

One of the Permian guys here mentioned that those of us who survive this debacle need to hoist a few cold ones sometime. I'm ready, once I am sure the debacle has passed.

Ves, 05/19/2016 at 9:43 am

SS,

This is not bankruptcy in real sense.

From todays article regarding Halcon: "it plans to file for a prepackaged bankruptcy that would wipe out $1.8 billion in debt and help it survive the drop in crude prices."

It is the game of pretending where debt is wiped out as Kramer from Seinfeld would say "Jerry they write it off (debt). They do all the time".
And then magically a "new" set of investors show up with newly printed or digitally created numbers on the account and start process again. And start drilling cash into the ground in order to get any oil left regardless of monetary paper loss/gain. What that tells you that current economic system is completely broken. It is running on fumes.

[May 18, 2016] Oil Climbs Higher As Goldman Sachs Sees Glut Shift To Deficit

Those criminals from Goldman Sacks...
oilprice.com

Goldman Sachs ... pronounced that the oil market is shifting into a deficit 'much earlier than expected', as a fourth Nigerian crude grade, Qua Iboe, comes offline due to a damaged pipeline. As demand growth continues to show strength, and outages start to add up, Goldman Sachs suggests that the market has shifted into a deficit this month:

[May 18, 2016] Oil Price Spike Is Not As Far Away As Many Think

Notable quotes:
"... On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5 ..."
"... U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending May 6, 2016 ..."
"... Gasoline inventories declined by 1.231 million barrels ..."
"... Distillate stockpiles fell by 1.647 million barrels ..."
"... When the oil markets are oversupplied, the speculators which control the oil futures markets tend to ignore supply outages that they consider short-term. ..."
"... The oil sands projects shut in by the fires are now coming back on-line, but it will take months before production is fully restored. ..."
"... Oil price cycles do not end well. The big ones, and this is one of the biggest ever, overshoot the mark and result in a supply shortage. With OPEC now producing flat out, there is very little excess production capacity in the world. After the end of 2016, when oil supply and demand are back in balance, all significant supply outages (i.e. Canadian fire, Nigerian militants, ISIS attacks in the Middle East, etc.) will send crude oil prices skyrocketing. The Wall Street analysts that are saying we will never see oil over $100/bbl again will be eating those words. ..."
OilPrice.com
On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5, 2016. In the same weekly report:

• The International Energy Agency (IEA) say the annual summer spike in demand for transportation fuels has begun.

When the oil markets are oversupplied, the speculators which control the oil futures markets tend to ignore supply outages that they consider short-term. For example, the forest fires in Alberta that shut-in more than a million barrels per day of Canadian heavy oil products in early May did not seem to have much impact on the price of oil. As supply and demand move back into balance, an outage of that size will send the NYMEX strip prices sharply higher. The oil sands projects shut in by the fires are now coming back on-line, but it will take months before production is fully restored.

Nigeria has much bigger problems

On Friday, May 13 an explosion closed a second Chevron facility in Nigeria, Africa's biggest oil producer. The explosion was the result of an attack by militants who are upset with their government. 70 percent of Nigerians live on less than $1/day. They see the "Top 1 Percenters" living like kings, while they have trouble finding enough food to eat. Apparently, they have money enough for guns and explosives.

Exxon Mobil also reported on May 13 that a drilling rig damaged a pipeline, shutting off more production of crude. Nigeria's oil production was already down 600,000 barrels per day before these two incidents, primarily the result of militant attacks. Shell is now evacuating workers from its offshore Bonga oilfield following a militant threat. Shell's Forcados export terminal has been shut down since a February bombing. To say Nigeria is a mess is an understatement.

Adding to the country's problems is the fact that they are over a year behind in paying invoices for oilfield services. Schlumberger Ltd. (SLB) has pulled personnel and equipment out of Nigeria, apparently tired of running up the bad debts.

Venezuela: Another OPEC nation on steep decline

Latin American oil production is now down close to 500,000 bpd from year ago levels.

On May 6, Bloomberg reported that Halliburton (HAL) has joined rival Schlumberger in curbing activity in Venezuela due to lack of payment during the oil industry's worst financial crisis.

"During the first quarter of 2016, we made the decision to begin curtailing activity in Venezuela," Halliburton, the world's second-largest oil services provider, said May 6th in a filing with the U.S. Securities and Exchange Commission. "We have experienced delays in collecting payment on our receivables from our primary customer in Venezuela. These receivables are not disputed, and we have not historically had material write-offs relating to this customer," the company said.

Halliburton's receivables in Venezuela rose 7.4 percent in the first quarter to $756 million compared to the end of 2015, representing more than 10 percent of its total receivables, the Houston-based company said. If you own Halliburton stock, prepare yourself for a big bad debt expense later this year.

On the demand side of the equation, May is the beginning of an annual spike in demand for hydrocarbon based liquid fuels. In their monthly Oil Market Report dated May 12, 2016 the International Energy Agency (IEA) forecasts that demand will increase by 1.66 million barrels per day from the first quarter of this year to the third quarter.

If history repeats itself, the demand spike will be even larger. In 2010, the final year of the last major oil price cycle, the IEA began the year forecasting a 1.0 million barrel per day increase that year. Actual demand growth was 3.3 million barrels per day. The forecast error made in 2010 was that IEA's formula for calculating demand, did not consider the impact of lower fuel prices on demand. I believe they've made the same mistake this time around.

Key points from the IEA report:

During the first quarter, oil prices were under pressure from predictions that China's demand for oil would soften this year. Chinese demand growth has slowed down from the rapid pace of the prior ten years, but it is still going up. This is thanks in part to sales of SUVs that are still climbing in China. Apparently the Chinese people are becoming more status driven (like Americans), owning an SUV in China indicates your family has joined the Upper Middle Class.

Per the IEA report, India is rapidly becoming the leader in global demand growth. Oil demand in India increased by 400,000 barrels per day year-over-year in the first quarter.

Related: Does Tesla Care About Its Stock Price?

(Click to enlarge)

Conclusion: History Repeats Itself

I have worked in the upstream energy sector for 38 years. During my career the industry has survived six major and a few minor oil price cycles. It will survive this one because the products made from crude oil, natural gas and natural gas liquids (NGLs) are critical to the world economy. Our high standard of living depends on a steady supply of oil.

Oil price cycles do not end well. The big ones, and this is one of the biggest ever, overshoot the mark and result in a supply shortage. With OPEC now producing flat out, there is very little excess production capacity in the world. After the end of 2016, when oil supply and demand are back in balance, all significant supply outages (i.e. Canadian fire, Nigerian militants, ISIS attacks in the Middle East, etc.) will send crude oil prices skyrocketing. The Wall Street analysts that are saying we will never see oil over $100/bbl again will be eating those words.

Oil prices do not go up or down in a smooth line, as you can see in the chart above. Investors that can look past the short-term noise and invest in the best companies will harvest market beating gains as this cycle moves back to the long-term trend.

By Dan Steffens for Oilprice.com

[May 17, 2016] SandRidge Energy files for bankruptcy with $4.1B in debt

permianshale.com

SandRidge Energy filed for bankruptcy protection Monday, saying it hopes to convert $3.7 billion of long-term debt into equity while allowing the company to keep its operations going.

The Oklahoma City-based company filed the Chapter 11 paperwork in the U.S. Bankruptcy Court for the Southern District of Texas. The petroleum and natural gas exploration company said it had the support of creditors who hold more than two-thirds of its $4.1 billion in total debt.

...Under the bankruptcy plan, the company would restructure $3.7 billion of long-term debt into equity, including $300 million of debt that would later convert to equity in the reorganized company. The company would still owe about $425 million in reserve-based lending facility debt.

[May 16, 2016] Many LTO companies have interest expense in excess of five dollars per barrel

Notable quotes:
"... Of course, as you mention, none of the companies are able to pay for wells right now out of cash flow. All have interest expense, many have interest expense in excess of $5 per barrel. Then, the question is when will any of these companies begin to use cash flow to reduce debt principal. Some have reduced debt, by buying back their own debt at distressed levels, and/or exchanging the debt with creditors for reduced principal new debt, but at much higher interest rates and more stringent terms (liens upon company assets as opposed to unsecured bonds). ..."
"... Many of the LTO companies sold their gathering and/or produced water disposal infrastructure in order to raise cash. They now are required to pay $X per barrel or mcf of gas in order to get their products to market. ..."
"... I would also note, 20% is a "base case" for Bakken royalties. ..."
peakoilbarrel.com
shallow sand , 05/16/2016 at 3:18 pm
Dennis. Looks good to me.

Of course, as you mention, none of the companies are able to pay for wells right now out of cash flow. All have interest expense, many have interest expense in excess of $5 per barrel. Then, the question is when will any of these companies begin to use cash flow to reduce debt principal. Some have reduced debt, by buying back their own debt at distressed levels, and/or exchanging the debt with creditors for reduced principal new debt, but at much higher interest rates and more stringent terms (liens upon company assets as opposed to unsecured bonds).

Also, another expense I have noticed with more frequency are gathering expenses. Many of the LTO companies sold their gathering and/or produced water disposal infrastructure in order to raise cash. They now are required to pay $X per barrel or mcf of gas in order to get their products to market.

I would also note, 20% is a "base case" for Bakken royalties. The actual figures can range from 12.5% (1/8) to over 25% (1/4). If one is looking at the EFS or Permian, I suggest using a "base case" royalty of 25% (1/4). However, taxes in TX are less than ND.

[May 16, 2016] Breitburn Energy Partners and Sandridge filed for bankruptcy protection, EXCO is next

peakoilbarrel.com
shallow sand , 05/16/2016 at 7:13 am
Breitburn Energy Partners filed BK this am. Over $3 billion of debt. Conventional oil and gas producer.

Rumors are Sandridge will any day.

If they do, $20 billion of BK oil and gas debt in May alone.

shallow sand , 05/16/2016 at 8:33 am
Sandridge did also. EXCO is next.

[May 16, 2016] One of the auctioneers in West Texas said they are getting about fifteen cents on the dollar for oil field equipment at auction.

Notable quotes:
"... Breitburn's estimated proven reserves, which were valued at $4.5 billion at the end of 2014, were worth only $1.3 billion as of the end of 2015. ..."
"... On another part of this debacle….one of the auctioneers in West Texas saidthey are getting about $.15 on the dollar for oil field equipment at auction. ..."
"... I think this bust is trying to claim the top prize for most brutal oil and gas bust, ..."
peakoilbarrel.com
Longtimber , 05/16/2016 at 9:37 am
HC Debt disease spreads to California
-About $3 billion of Breitburn's debts are bank and bond debt, topped by $1.25 billion in loans from lenders led by Wells Fargo Bank, NA. Breitburn is carrying $650 million of senior secured second-lien bonds and $1.1 billion in unsecured bonds.
-Breitburn's estimated proven reserves, which were valued at $4.5 billion at the end of 2014, were worth only $1.3 billion as of the end of 2015.
-Breitburn has crude oil and natural gas assets in the Midwest, Ark-La-Tex, the Permian Basin, the Mid-Continent, the Rockies, the Southeast and California.
"Crude Oil" ??
http://www.wsj.com/articles/breitburn-energy-partners-files-for-chapter-11-bankruptcy-1463400009
http://www.wsj.com/articles/sandridge-energy-files-for-bankruptcy-protection-1463404621
John S , 05/16/2016 at 10:34 am
On another part of this debacle….one of the auctioneers in West Texas saidthey are getting about $.15 on the dollar for oil field equipment at auction.
shallow sand , 05/16/2016 at 12:09 pm
I also see the C & J services is rumored to be filing BK. I am not familiar with them, from my reading they are a very large well completion company. Looks like their CEO passed away unexpectedly at age 46 back on 3/11/16.

I think this bust is trying to claim the top prize for most brutal oil and gas bust,

[May 15, 2016] U.S. energy bankruptcy wave surges despite recovering oil prices

Notable quotes:
"... Prices have bounced back to $46 a barrel from February lows in the mid-$20s ..."
"... That will not help smaller producers built for far higher prices. These companies have largely exhausted funding alternatives after issuing more equity and debt, tapping second-lien loans and shedding assets over the last two years to stay afloat as banks trimmed credit lines. ..."
"... Some companies are in more acute distress, faced with the expiration of derivative contracts that had allowed them to sell oil above market prices. ..."
"... "Everybody was able to hold on for a while," said Gary Evans, former CEO of Magnum Hunter Resources, which emerged from bankruptcy protection this week. "But once the hedges roll off you can't support that debt." ..."
"... Founded in 2003, Linn has about $10 billion in debt, about twice that of Samson Resources Corp and Energy XXI Ltd, two of the largest oil and gas companies to file recently. Linn was designed as a high-yield investment vehicle, which received beneficial tax treatment in return for paying out the bulk of its profits to unitholders. Because of this structure, it took on significant debt to grow through acquisitions. ..."
peakoilbarrel.com
AlexS , 05/14/2016 at 4:19 am
U.S. energy bankruptcy wave surges despite recovering oil prices

http://www.reuters.com/article/us-usa-energy-bankruptcies-idUSKCN0Y42BK

The wave of U.S. oil and gas bankruptcies surged past 60 this week, an ominous sign that the recovery of crude prices to near $50 a barrel is too little, too late for small companies that are running out of money.

On Friday, Exco Resources Inc, a Dallas-based company with a star-studded board, said it will evaluate alternatives, including a restructuring in or out of court. Its shares fell 35 percent to 62 cents each.

Exco's notice capped off one of the heaviest weeks of bankruptcy filings since crude prices nosedived from more than $100 a barrel in mid-2014.

Prices have bounced back to $46 a barrel from February lows in the mid-$20s , but the futures market shows investors do not expect U.S. benchmark crude to rise above $50 for more than a year.

That will not help smaller producers built for far higher prices. These companies have largely exhausted funding alternatives after issuing more equity and debt, tapping second-lien loans and shedding assets over the last two years to stay afloat as banks trimmed credit lines.

Some companies are in more acute distress, faced with the expiration of derivative contracts that had allowed them to sell oil above market prices.

"Everybody was able to hold on for a while," said Gary Evans, former CEO of Magnum Hunter Resources, which emerged from bankruptcy protection this week. "But once the hedges roll off you can't support that debt."

Bankruptcy filers this week included Linn Energy LLC and Penn Virginia Corporation. Struggling SandRidge Energy LLC, a former high flyer once led by legendary wildcatter Tom Ward, said it would not be able to file quarterly results on time.

The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecommunications sector bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com.

Linn's bankruptcy was the biggest among energy companies so far in this downturn, even though the company is a modest producer of about 59,000 barrels of oil per day, and 607 million cubic feet of gas per day.

Founded in 2003, Linn has about $10 billion in debt, about twice that of Samson Resources Corp and Energy XXI Ltd, two of the largest oil and gas companies to file recently. Linn was designed as a high-yield investment vehicle, which received beneficial tax treatment in return for paying out the bulk of its profits to unitholders. Because of this structure, it took on significant debt to grow through acquisitions.

Exco's warning showed that the crude price rout has not spared companies with highly experienced management. Exco has reported a loss for the last five quarters in a row. It has a number of big-name board members including billionaire investor Wilbur Ross and executive chairman John Wilder, who engineered the giant leveraged buyout of TXU.

Valued at about $495 million as of Thursday's stock market close, Exco had long-term debt of $1.32 billion on March 31, according to a regulatory filing.

One probable outcome, as Exco said on Friday, may include getting rid of debt by having debtholders become shareholders, possibly wiping out existing equity owners.

Penn Virginia's strategy is similar. "Once the restructuring is implemented, the Company will have substantially less debt and a much stronger balance sheet," Penn Virginia's Chairman and interim CEO Edward Cloues said in a statement.

(Reporting By Terry Wade; Editing by Luc Cohen and David Gregorio)

[May 15, 2016] One of oil giants is having a yard sale in order to make ends meet short term

peakoilbarrel.com
Oldfarmermac , 05/14/2016 at 3:34 pm
http://www.telegraph.co.uk/business/2016/05/14/shell-eyes-40bn-non-core-asset-spin-off-to-cut-its-huge-debt-pil/

One of the very biggest of the big boys is having a yard sale in order to make ends meet short term.

[May 14, 2016] There are rumored to be a couple more multi-billion dollar bankruptcies being filed next week

Notable quotes:
"... There are rumored to be a couple more multi-billion dollar bankruptcies being filed next week. As I have stated, I was not paying attention in 1986. I feel that things are worse in this bust than in 1998-1999. ..."
"... Well, the '86 bust was bloody terrible for me; I had kids in university then. Of course it was much worse for some of the other guys. At least my wife had her teaching/research job in Sweden so we managed. On a personal level I'd say it depends on where you're sitting. Sometimes I feel like a shit babbling on here when some very smart, productive and capable people, like you, are in the thick of it. ..."
peakoilbarrel.com
shallow sand , 05/13/2016 at 4:26 pm
Doug.

There are rumored to be a couple more multi-billion dollar bankruptcies being filed next week. As I have stated, I was not paying attention in 1986. I feel that things are worse in this bust than in 1998-1999.

Wonder if there is a way to determine which of the three busts has been the worst so far (I do not think the current one is over yet, it could last quite a while)?

Doug Leighton , 05/13/2016 at 5:30 pm
Hi Shallow,

Well, the '86 bust was bloody terrible for me; I had kids in university then. Of course it was much worse for some of the other guys. At least my wife had her teaching/research job in Sweden so we managed. On a personal level I'd say it depends on where you're sitting. Sometimes I feel like a shit babbling on here when some very smart, productive and capable people, like you, are in the thick of it.

[May 14, 2016] Three bankruptcies this week shows that $45 a barrel oil isnt enough to rescue energy companies on the verge of collapse

Notable quotes:
"... …Since the start of 2015, 130 North American oil and as producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined." ..."
"... They survived by selling shares, junk bonds and flipping leases against a background of relentless/stupid hype. People were desperate to believe; finance lent and that was all that mattered … and matters today. ..."
"... A few more months of low(ish) prices and the hype will be unmasked as fraud. Two years = 730 tomorrows. How many more before utopia arrives … ? ..."
"... Never. $45/barrel = too low for drillers yet it is still too high for (broke) customers who would rather spend the spare change they have left on alcohol and beignets. ..."
peakoilbarrel.com
Doug Leighton , 05/13/2016 at 8:48 am
OIL AT $45 A BARREL PROVING NO SAVIOR AS BANKRUPTCIES PILE UP

"Three bankruptcies this week shows that $45 a barrel oil isn't enough to rescue energy companies on the verge of collapse…

…Since the start of 2015, 130 North American oil and as producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined."

http://www.bloomberg.com/news/articles/2016-05-12/oil-at-45-a-barrel-proving-no-savior-as-bankruptcies-add-up

steve from virginia , 05/13/2016 at 10:08 am
Not surprising as some (most) of these firms were underwater @ $110/barrel.

They survived by selling shares, junk bonds and flipping leases against a background of relentless/stupid hype. People were desperate to believe; finance lent and that was all that mattered … and matters today.

A few more months of low(ish) prices and the hype will be unmasked as fraud. Two years = 730 tomorrows. How many more before utopia arrives … ?

Never. $45/barrel = too low for drillers yet it is still too high for (broke) customers who would rather spend the spare change they have left on alcohol and beignets.

[May 13, 2016] Shale companies survived by selling shares, junk bonds and flipping leases against a background of relentless stupid hype

peakoilbarrel.com
Doug Leighton , 05/13/2016 at 8:48 am
OIL AT $45 A BARREL PROVING NO SAVIOR AS BANKRUPTCIES PILE UP

"Three bankruptcies this week shows that $45 a barrel oil isn't enough to rescue energy companies on the verge of collapse…

…Since the start of 2015, 130 North American oil and as producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined."

http://www.bloomberg.com/news/articles/2016-05-12/oil-at-45-a-barrel-proving-no-savior-as-bankruptcies-add-up

steve from virginia , 05/13/2016 at 10:08 am
Not surprising as some (most) of these firms were underwater @ $110/barrel.

They survived by selling shares, junk bonds and flipping leases against a background of relentless/stupid hype. People were desperate to believe; finance lent and that was all that mattered … and matters today.

A few more months of low(ish) prices and the hype will be unmasked as fraud. Two years = 730 tomorrows. How many more before utopia arrives … ?

Never. $45/barrel = too low for drillers yet it is still too high for (broke) customers who would rather spend the spare change they have left on alcohol and beignets.

[May 12, 2016] Energy Sector Hit With Two More Big Bankruptcies

Notable quotes:
"... Linn Energy LLC filed for chapter 11 bankruptcy after reaching a deal with lenders to restructure its $8.3 billion debt load and obtain $2.2 billion in fresh financing. In its bankruptcy filing press release, Linn announced that the holders of more than 66 percent of its credit facility have agreed to the "broad terms" of a debt restructuring but didn't provide further details. ..."
"... energy producer Penn Virginia also filed for chapter 11 bankruptcy protection Thursday. And just like Linn, the Pennsylvania-based explorer and producer deals said it had reached a prepackaged agreement with holders of 87 percent, or $1.03 billion, ..."
May 12, 2016 | OilPrice.com

In the first case, oil and gas producer Linn Energy LLC filed for chapter 11 bankruptcy after reaching a deal with lenders to restructure its $8.3 billion debt load and obtain $2.2 billion in fresh financing. In its bankruptcy filing press release, Linn announced that the holders of more than 66 percent of its credit facility have agreed to the "broad terms" of a debt restructuring but didn't provide further details. The lenders also agreed to let Linn Energy spend the cash securing their debt, known as cash collateral, and to help fund a new $2.2 billion term loan.

... ... ...

In the day's second bankruptcy, energy producer Penn Virginia also filed for chapter 11 bankruptcy protection Thursday. And just like Linn, the Pennsylvania-based explorer and producer deals said it had reached a prepackaged agreement with holders of 87 percent, or $1.03 billion, of its total funded-debt obligations to restructure under chapter 11 protection and eliminate long-term debt by more than $1 billion.

[May 12, 2016] Linn Energy Files for Bankruptcy, SandRidge Misses Quarterly Filing

Notable quotes:
"... And just think. Linn Energy, only a month or two ago, maxed out their line of credit, paid the upper crust extra bonuses and 18 months pay. I wonder what they saw coming? So is this good luck or fraud? ..."
peakoilbarrel.com

Toolpush, 05/11/2016 at 7:32 pm

Another one bites the dust!

Or make that two.

http://www.downstreamtoday.com/news/article.aspx?a_id=52127

Linn Energy Files for Bankruptcy, SandRidge Misses Quarterly Filing

HOUSTON, May 11 (Reuters) – Linn Energy filed for bankruptcy on Wednesday, and SandRidge Energy Inc said it could not file quarterly results in a timely manner, the latest sign of the turmoil a deep price crash has caused among small firms in the U.S. oil and gas sector.

Linn's filing for creditor protection brings to about 60 the number of U.S. oil and gas companies to go bankrupt since oil prices entered a slide in mid-2014.

And just think. Linn Energy, only a month or two ago, maxed out their line of credit, paid the upper crust extra bonuses and 18 months pay.
I wonder what they saw coming? So is this good luck or fraud?

I shake my head sometimes, when it come to white collar crime, because this is just criminal in any view of the law, other than the letter of the law!

[May 06, 2016] Most of conventional producers have much more affordable debt levels than the shale guys

Notable quotes:
"... In the US, all producers are feeling pain to varying degrees at Q1 prices, less so but still pain at current prices. ..."
"... For some reason investors are very accepting of US oil and gas losses, and only seem to get worried when there are signs that bank lines will be slashed below present balances and/or interest cannot be paid. ..."
"... It is not surprising that oil producers, both in and outside the U.S., "are feeling pain to varying degrees" at the bottom of the cycle. But most of conventional producers have much more affordable debt levels than the shale guys. ..."
"... Very true. And this is a big, I would say, decisive difference. ..."
peakoilbarrel.com
Ves , 05/04/2016 at 11:20 am
Alex,

"Money" suddenly stopped working and that is what market will realize. It is no coincidence that same thing is happening at the same time to oil, gas, nuclear (it was article about that on 35 billion Hinckley plant) or Tesla. We are running on fumes

AlexS , 05/04/2016 at 11:42 am
Ves,

In many "old" industries, "money" is still working. Companies are sticking to prudent financial policies. BTW, this refers to most conventional oil producers.

Ves , 05/04/2016 at 12:07 pm
Alex,

Conventional is only losing less than shale per barrel. If they don't replace reserves as even the most majors didn't last year than that it is just race to the bottom.

shallow sand , 05/04/2016 at 5:36 pm
AlexS,

In the US, all producers are feeling pain to varying degrees at Q1 prices, less so but still pain at current prices.

There are a lot of US industries that are showing good earnings. These are across a wide variety of industries. Also, many of the smaller banks are also showing good results. I do not own large banks, but have shares in some smaller regional banks, all posted record earnings.

For some reason investors are very accepting of US oil and gas losses, and only seem to get worried when there are signs that bank lines will be slashed below present balances and/or interest cannot be paid.

AlexS , 05/04/2016 at 6:02 pm
shallow sand,

It is not surprising that oil producers, both in and outside the U.S., "are feeling pain to varying degrees" at the bottom of the cycle.
But most of conventional producers have much more affordable debt levels than the shale guys.

likbez , 05/04/2016 at 10:52 pm
Alex,

Very true. And this is a big, I would say, decisive difference.

[May 06, 2016] Beleaguered Chesapeake to Sell Off More Assets to Reduce $9B Debt

OilPrice.com
Chesapeake announced yesterday that it would sell around 42,000 acres in the Stack field in Oklahoma, which currently produces around 3,800 barrels of oil equivalent per day.

The assets will go to Newfield Exploration Co. for an estimated price of $470 million.

Furthermore, due to low oil and gas prices, the company will seek to sell additional assets that will bring between $500 million and $1 billion in its coffers by the end of the year.

"We anticipate subsequent divestitures during the second and third quarters," Chief Executive Doug Lawler said in a statement.

[May 06, 2016] Wall Street is desperately trying to preserve the unnatural and ultimately destructive level of rent extraction from the oil industry they have managed to create

Notable quotes:
"... It is very easy to destroy an industry. And neoliberals proved to be pretty adept in this task while fattening their valets. In this case the USA oil industry. Generally destruction is a much easier task that building/rebuilding something. Nothing new here, move on. ..."
"... "After me deluge" mentality might eventually lead to some neoliberals hanging from the lamp posts. They consider themselves to be aristocracy, so that will be pretty fitting. ..."
"... "Let them eat cakes" did not work too well in the past. Same with oil shortages. "History Does Not Repeat Itself, But It Rhymes" - Mark Twain. ..."
peakoilbarrel.com
likbez , 05/05/2016 at | 8:13 pm
there ain't nobody there to fight the good fight

Judging from price action today there are efforts to kill oil rally. I think if banks profits from oil trading can drop like a stone, we collectively will be better off. They desperately try to preserve the unnatural and ultimately destructive level of rent extraction from the oil industry they've managed to create.

Looks like the whole Wall Street is now in "apres moi, le deluge"(after me deluge, https://en.wikipedia.org/wiki/Apr%C3%A8s_nous_le_d%C3%A9luge ) mode.

Greenbub , 05/05/2016 at 10:09 pm
All these disruptions and oil is still trading down. Don't make no sense.
shallow sand , 05/06/2016 at 7:36 am
Greenbub. I can only give a sarcastic response.

First: Tesla is going to sell so many electric cars so soon, based on their CC from yesterday.

Second: Continental Resources announced a wonderful quarter, and apparently $30 oil and $1.75 natural gas is no big deal.

I need to stop reading conference call transcripts. Never have I seen so much happy talk from two companies who are in debt up to their eyeballs and posting losses quarter after quarter.

Oh, I forgot, both are changing the world.

Greenbub , 05/06/2016 at 7:53 am
Even with the dollar down, oil is still down. What gives?
likbez , 05/06/2016 at 3:03 pm
Don't be so silly. Oil price below the cost of production is an anomaly and normalization is inevitable despite all efforts by Wall Street, the US government and EU to slow down this process to preserve neoliberal globalization, which is threatened by high oil prices.

They might have a year to run of fumes, but I doubt that more then that. And as a result of their valiant efforts the normalization might happen at the level above $80/bbl. Then what?

It is very easy to destroy an industry. And neoliberals proved to be pretty adept in this task while fattening their valets. In this case the USA oil industry. Generally destruction is a much easier task that building/rebuilding something. Nothing new here, move on.

"After me deluge" mentality might eventually lead to some neoliberals hanging from the lamp posts. They consider themselves to be aristocracy, so that will be pretty fitting.

"Let them eat cakes" did not work too well in the past. Same with oil shortages. "History Does Not Repeat Itself, But It Rhymes" - Mark Twain.

likbez , 05/06/2016 at 6:29 pm
Hi Shallow Sand,

Massive debt is now like the sword of Damocles hanging over the whole shale industry. And that created qualitatively new situation with reaction of the industry on rising oil prices delayed and more muted then at times of "carpet drilling". Even money to complete DUCs are now a scarce commodity. Everything goes to debt repayment. In addition many companies will be forced to sell assets like Chesapeake:

http://oilprice.com/Energy/Natural-Gas/Beleaguered-Chesapeake-to-Sell-Off-More-Assets-to-Reduce-9B-Debt.html

Here are thoughts from
http://oilprice.com/Energy/Oil-Prices/Why-Oil-Prices-Will-Rise-And-Many-Pundits-Will-Be-Caught-By-Surprise.html
that pretty well resonate with your line of thinking about the problem.

Prices have dropped to levels destroying capital, bankrupting businesses, idling massive amounts of equipment and manpower. The cycle is reversing now. The weekly EIA numbers are showing steady declines in production (this is a balancing item – not real production estimates) and also increasing demand – In the United States.

The IEA is showing the same thing in their monthly report that has a decent look at the G7 countries and attempts to look at the G20. Between these two, there is a large world with little accurate measurement. China for instance jailed a Platts reporter for espionage when he tried to put together a fundamental energy statistics database.

Inevitably, we will have another price shock – or at minimum an upside surprise. It's unavoidable at this point.

Oil never transitions smoothly. Just like all the oil bulls had to be run out during the declining price stage, all the price bears, like Dennis Gartman, will be run out when fundamentals hit them over the head. Gartman, to his credit, will change his tune 180 degrees when he sees the actual data shaping up. That's how he has survived so long and profitably as a trader.

But by then it will be too late, the world will want incremental supplies immediately – yet the industry cannot scale in real time. In order to motivate producers to get busy and provide incremental supplies, prices must increase sharply from current levels.

My prediction – $80/bbl in 18 months, but it won't last very long. I think $60 – $70/bbl is a healthy range.

[May 05, 2016] JP Morgan reported that its non-performing loans jumped by 665 percent in the first quarter

www.resilience.org

Peak Oil Review A Midweek Update - May 5

JP Morgan reported that its non-performing loans jumped by 665 percent in the first quarter from $0.2 to $1.7 billion with most of the bad loans coming from the oil and gas industry. Loans considered to be a problem are now at $21.2 billion

[May 04, 2016] US oil industry bankruptcy wave exceeds the size of telecom bust

Notable quotes:
"... "I think we'll see more filings in the second quarter than in the first quarter," ..."
"... U.S. oil and gas companies sold about $350.7 billion in debt between 2010 and 2014, the peak years of the oil-and-gas boom, with junk bonds making up more than 50 percent of all issuance, according to Thomson Reuters data. ..."
finance.yahoo.com
likbez , 05/04/2016 at 12:40 am
LTO companies debt and energy junk bonds problem can't be swiped under the carpet. It is just too big for that. We are talking about around 350 billion of debt with half on them in junk bonds. That's probably half of the gain of the US economy from oil prices crash (and, of course, not all this debt will convert into direct losses; recovery in the range of 20% is still possible).

What form the day of reckoning will take is very difficult to predict. Much depends on debt repayment schedule and bond maturity dates. But this level of debt completely undermines chances of quick revival of LTO production in case oil prices jump up, as new capital to finance drilling will not be here. So any talk about quick revival of the US LTO production as a reaction on higher oil prices does not take into account the fact that that it will be very difficult to finance new mass drilling this time. And drilling 1000 wells is around 6 billion. 1500 - 9 billions.

https://finance.yahoo.com/news/u-oil-industry-bankruptcy-wave-040735270.html

The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com. Charles Gibbs, a restructuring partner at Akin Gump in Texas, said the U.S. oil industry is not even halfway through its wave of bankruptcies. "I think we'll see more filings in the second quarter than in the first quarter," he said. Fifteen oil and gas companies filed for bankruptcy in the first quarter.
… … …
Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but lately some lenders have tightened their purse strings. A widely predicted wave of mergers in the shale space has yet to materialize as oil price volatility makes valuations difficult, and buyers balk at taking on debt loads until target companies exit bankruptcy.

… … …

In the debt market, there are also signs that lots of money could be lost this time around, especially in high-yield bonds. During its boom, U.S. oil and gas companies issued twice as much in bonds as telecom companies did in the latter part of the 1990s through the early 2000s.

Between 1998 and 2002, about $177.1 billion in new bonds were sold in the U.S. telecommunications sector; less than 10 percent were junk bonds. U.S. oil and gas companies sold about $350.7 billion in debt between 2010 and 2014, the peak years of the oil-and-gas boom, with junk bonds making up more than 50 percent of all issuance, according to Thomson Reuters data.

[May 02, 2016] Two more US Drillers Just Filed For Bankruptcy

Notable quotes:
"... Oklahoma-based Midstates Petroleum Company and Texas based Ultra Petroleum have now filed for bankruptcy, citing combined debts of more than US$5.8 billion blamed on a long run of low commodity prices that have led to irreparable financial damage ..."
"... According to a recent Deloitte analysis , which examined 500 oil and natural gas exploration and production companies worldwide, 175 of the companies (or around 35 percent) were at high risk of going bankrupt. Together, these companies have more than $150 billion in debt. The report added that the situation is "precarious" for 50 of these companies due to negative equity or leverage ratio above 100. ..."
peakoilbarrel.com

likbez, 05/02/2016 at 4:43 pm

Two more oil companies have filed for Chapter 11 bankruptcy protection, as crude oil prices hover just above $45 per barrel and financial woes take their toll.

Oklahoma-based Midstates Petroleum Company and Texas based Ultra Petroleum have now filed for bankruptcy, citing combined debts of more than US$5.8 billion blamed on a long run of low commodity prices that have led to irreparable financial damage.

... ... ...

Since early last year, some 70 North American oil and gas companies have filed for bankruptcy. The numbers aren't stark: They only account for about 1 percent of U.S. output, but there are fears the trend could pick up pace.

According to a recent Deloitte analysis , which examined 500 oil and natural gas exploration and production companies worldwide, 175 of the companies (or around 35 percent) were at high risk of going bankrupt. Together, these companies have more than $150 billion in debt. The report added that the situation is "precarious" for 50 of these companies due to negative equity or leverage ratio above 100.

[May 02, 2016] The low price that we saw in crude oil earlier this year may be the last time we see that for over a decade

Notable quotes:
"... In a normal economic environment, we will see the price direction is rather upwards than downwards ..."
"... he low price that we saw in crude oil earlier this year may be the last time we see that for over a decade ..."
"... Even as some shale operators say that they may actually bring on rigs after we hit $50 a barrel, the truth is that many of the smaller operators will find it hard to bring rigs back on ..."
peakoilbarrel.com

JustSaying , 05/02/2016 at 1:25 pm

"Crude oil ended the month of April with the strongest monthly gain in 7 years, adding 22% to the price. The low price caused "production destruction" and strong demand put the market on a trajectory of market balance."

"We have said that oil prices have bottomed and the chief of the International Energy Agency (IEA) agrees. "In a normal economic environment, we will see the price direction is rather upwards than downwards," IEA Executive Director Fatih Birol said on Sunday during a G7 meeting of energy ministers in Japan as reported by Reuters. He took the words right out of my mouth. Barring any unforeseen economic catastrophes, the global oil market is at the low end of the cycle. We have said for some time that now is the time to start positioning for a long term bullish move. The low price that we saw in crude oil earlier this year may be the last time we see that for over a decade. "

"Even as some shale operators say that they may actually bring on rigs after we hit $50 a barrel, the truth is that many of the smaller operators will find it hard to bring rigs back on."

http://www.321energy.com/reports/flynn/current.html

[May 01, 2016] Oil could rebound to US$60 to US$70 a barrel by the end of this year according to Jarand Rystad.

Notable quotes:
"... Mr Jarand Rystad told a forum yesterday that with oil companies cutting back heavily on investments, the crude oversupply will quickly turn into shortage and, in turn, drive prices up. ..."
"... In his keynote speech at the Offshore Marine Forum yesterday, Mr Rystad, managing director of Norwegian-based energy consulting firm Rystad Energy, added that oil could reach US$105 a barrel by 2020. ..."
"... "This is just a classic commodity cycle… not a structural shift," he said, noting that global oil consumption is still robust, while alternatives such as liquefied natural gas will likely have a visible impact on energy demand patterns only decades later. ..."
"... But the bigger worry, he warned, is that the massive investment cutbacks could lead to another period of cost inflation. "It is very dangerous to start to scale the industry," he said, citing how oil companies are adjusting their capacity to only a quarter of what it needs to be on a sustainable basis. ..."
peakoilbarrel.com
AlexS, 05/01/2016 at 7:24 pm
Rystad's projection for shale oil and gas production has always been more optimistic than forecasts made by the EIA, IEA and OPEC.

Rystad's current upbeat outlook can be partially explained by their oil price forecast.

From an article in "Straits Times":

http://www.straitstimes.com/business/oil-tipped-to-rebound-to-us60-this-year

Oil could rebound to US$60 to US$70 a barrel by the end of this year as increasing demand starts to cut into the supply glut for the first time in years, according to an industry analyst.

Mr Jarand Rystad told a forum yesterday that with oil companies cutting back heavily on investments, the crude oversupply will quickly turn into shortage and, in turn, drive prices up.

In his keynote speech at the Offshore Marine Forum yesterday, Mr Rystad, managing director of Norwegian-based energy consulting firm Rystad Energy, added that oil could reach US$105 a barrel by 2020.

"This is just a classic commodity cycle… not a structural shift," he said, noting that global oil consumption is still robust, while alternatives such as liquefied natural gas will likely have a visible impact on energy demand patterns only decades later.

But the bigger worry, he warned, is that the massive investment cutbacks could lead to another period of cost inflation. "It is very dangerous to start to scale the industry," he said, citing how oil companies are adjusting their capacity to only a quarter of what it needs to be on a sustainable basis.

"Oil companies and oil service companies are laying off too many people. If you're starting to scale, you will end up with far too low a capacity. Then you'll have to hire new people (when the industry recovers) and then you're back to the problem of cost inflation."

[Apr 29, 2016] A Great Opportunity To Buy Oil For The Long Term by Dan Dicker

April 15, 2016 | OilPrice.com

the fundamentally unsustainable pricing that we've seen for much of 2016, particularly after the 2nd failed OPEC meeting, has been much more dependent upon speculative short positions in the market, particularly from algorithmic momentum funds. We could track the speculative short positions against the price of crude almost exactly as prices dropped below $40 the first time, with long positions decreasing to their lowest levels in five years as crude dropped under $30 a barrel.

[Apr 21, 2016] $91 Billion In Capex Cuts, A Serious Hangover For Oil by Matt Smith

Notable quotes:
"... A study by Wood Mackenzie (chart = h/t @WoodMacKenzie ) highlights that the trend of lower investment is set to persist. Their study projects $91 billion in capex cuts across 121 upstream companies this year: ..."
"... EIA has analyzed the annual reports of 40 publicly-traded U.S. oil producers, highlighting the significant differences in their financial situations. The group as a whole saw combined losses of $67 billion last year, although these losses varied wildly from company to company. ..."
OilPrice.com
IEA's chief Fatih Birol has chimed in on the topic today, highlighting low oil prices have cut investment by about 40 percent over the past two years, and how the sharpest falls have been in the U.S., Canada, Latin America and Russia.

4) A study by Wood Mackenzie (chart = h/t @WoodMacKenzie) highlights that the trend of lower investment is set to persist. Their study projects $91 billion in capex cuts across 121 upstream companies this year:

... ... ...

6) Finally, the EIA has analyzed the annual reports of 40 publicly-traded U.S. oil producers, highlighting the significant differences in their financial situations. The group as a whole saw combined losses of $67 billion last year, although these losses varied wildly from company to company.

Eighteen of the forty companies experienced losses in 2015 in excess of 100 percent of their equity (termed as high loss companies – HGLs). The driving force behind the HLG's deteriorating financial conditions was leverage; their long-term debt-to-shareholder equity ratio averaged 99 percent, compared to the non-HLGs whose debt was at much-lesser level of 58 percent of shareholder equity.

Not only were the HLGs the most leveraged, but their assets were revised down the most too. Last year the 18 HLGs saw a 21 percent reduction in proved oil reserves, while the non-HLG group saw a drop of just 6 percent. The lower reserves for the HLG group caused impairment charges, decreasing the value of their assets. This lower asset value is ultimately reflected in lower credit availability to these companies.

[Apr 21, 2016] Oil slides as dollar rebounds; glut worry grows after rally

Notable quotes:
"... non-OPEC production would fall this year by the most in a generation. ..."
"... IEA chief Fatih Birol said low oil prices had cut investment about 40 percent over the past two years, with sharp falls in the United States, Canada, Latin America and Russia. ..."
finance.yahoo.com

Oil rose in early trade after the International Energy Agency (IEA) said non-OPEC production would fall this year by the most in a generation.

IEA chief Fatih Birol said low oil prices had cut investment about 40 percent over the past two years, with sharp falls in the United States, Canada, Latin America and Russia.

[Apr 19, 2016] Why Doha no-deal is actually great for oil prices

Incredible joy in Western MSM due to the fact that OPEC did not agree to freeze oil prices, with KAS playing the role of a spoiler. And here is GS with its "talking your own book" forecasts...
Notable quotes:
"... Goldman said on Monday that it was maintaining its fourth-quarter 2016 forecast of $45 a barrel for WTI crude and said that its full-year 2017 average WTi forecast was $58 a barrel ..."
www.cnbc.com

Global oil prices and stock markets tumbled on Monday after major oil producers failed to agree on a deal to freeze output, but analysts are insisting that no deal is actually the best possible outcome for markets.

... ... ...

Despite the collapse of talks, oil market watchers said the lack of a "Doha deal" would be better in the long term and would mean that a rebalancing process of supply and demand can continue to its natural conclusion.

... ... ...

Goldman said on Monday that it was maintaining its fourth-quarter 2016 forecast of $45 a barrel for WTI crude and said that its full-year 2017 average WTi forecast was $58 a barrel, Reuters reported. In the short-term it said its forecast for $35 a barrel for WTI in the second quarter was now "more likely" following the decision not to freeze production.

[Apr 19, 2016] Forget Doha, oil oversupply gone this year Hamm

Notable quotes:
"... Hamm foresees crude prices soaring to $60 a barrel by the end of the year, as lower oil prices are unsustainable. ..."
www.cnbc.com
The founder and CEO of Continental Resources, who previously told CNBC that "the fundamentals of supply and demand were really close," reiterated during a "Power Lunch" interview on Monday that this year's third-quarter will absorb most of the excess oil supply, which in turn will lead to "stronger pricing."

The billionaire suggested that oil is past an inflection point and prices have surged 50 percent from previous lows. Hamm foresees crude prices soaring to $60 a barrel by the end of the year, as lower oil prices are unsustainable. He contends, however, that even when the oil "overhang goes away," ramping up production will take U.S. producers a long time, as rig counts are at an all-time low.

He added that U.S. rig counts "are down 77 percent."

...Hamm argued that oil producers in the Middle East are "pretty much tapped out."

[Apr 19, 2016] Analysts from Sanford Bernstein believe that growing demand may bring one more super-cycle in oil prices

Notable quotes:
"... Emerging market economies will increase global oil demand about 1.4 percent a year through 2020, stronger than the past decade, Bernstein analysts said in a research note e-mailed today. ..."
"... The world is well supplied with oil, which will keep the average price between $60 and $70 a barrel through the end of the decade, Bernstein said ..."
"... Emerging economies will spur global oil demand growth from 94.6 million barrels a day last year to 100 million by 2020 and 108 million between 2030 and 2035. In developed countries, crude demand is beginning to shrink amid improvements in energy efficiency and as consumers switch to alternative fuels, outweighing expanding populations and economic growth. ..."
peakoilbarrel.com

AlexS , 04/19/2016 at 9:06 pm

Analysts from Sanford Bernstein believe that growing demand may bring one more super-cycle in oil prices.

From Bloomberg:

Forget Doha, Oil Demand Could Create Another Super-Cycle by 2030

http://www.bloomberg.com/news/articles/2016-04-18/forget-doha-oil-demand-could-create-another-super-cycle-by-2030

Emerging market economies will increase global oil demand about 1.4 percent a year through 2020, stronger than the past decade, Bernstein analysts said in a research note e-mailed today. Demand will peak between 2030 and 2035, creating a window for one final spike in prices before the fossil fuel begins its inexorable slide to irrelevance amid greater fuel efficiency and more electric vehicles.

"We still believe that there could be one more super-cycle in oil before demand peaks in 2030-35," Bernstein said in its note. "Assuming tight oil peaks out before demand does, it could result in another period of supply tightness as OPEC becomes a dominant force in supply, just as it did in the 1970s."

The world is well supplied with oil, which will keep the average price between $60 and $70 a barrel through the end of the decade, Bernstein said. The relatively low prices will lead to more use, with demand growth from 2016-2020 expected to be the highest since 2001-2005.

Emerging economies will spur global oil demand growth from 94.6 million barrels a day last year to 100 million by 2020 and 108 million between 2030 and 2035. In developed countries, crude demand is beginning to shrink amid improvements in energy efficiency and as consumers switch to alternative fuels, outweighing expanding populations and economic growth.

If U.S. shale oil production peaks before demand does, the world will have to go back to higher cost oil production, such as deepwater and Canadian oil sands, necessitating higher prices to justify investment. In previous super-cycles in the 1970s and 2000s, inflation-adjusted oil prices rose about tenfold, Bernstein said.

In the long run, oil demand will peter out to about 20 million barrels a day by 2100 as the world becomes more energy efficient and switches to lower-carbon energy sources. As that happens, the intensity of oil decreases and economic growth no longer creates crude demand growth.

[Apr 13, 2016] Banks are slashing credit lines for struggling energy companies

peakoilbarrel.com
AlexS , 04/13/2016 at 9:25 am
Related:

Oil Drillers Feel the Pain as Banks Slash Their Credit Lines

http://www.bloomberg.com/news/articles/2016-04-12/oil-drillers-feel-the-pain-as-banks-slash-their-credit-lines

Lenders including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are slashing credit lines for struggling energy companies. It's a tacit acknowledgment that energy prices aren't coming back, and represents an abrupt turnaround from last year when banks were lenient on struggling drillers in the hope that better times were coming.
Since the start of 2016 lenders have yanked $5.6 billion of credit from 36 oil and gas producers, a reduction of 12 percent, making this the most severe retreat since crude began tumbling in mid-2014, according to data compiled by Bloomberg.

And it isn't over yet. Banks are in the middle of a twice-yearly review of energy loans, where they decide how much credit they are willing to extend to junk-rated companies based on the value of their oil and gas reserves. With crude hovering near $40 a barrel, drillers' assets are worth far less than they were two years ago.

Banks are cutting their oil and gas exposure in part because they are facing pressure from regulators and investors to rein in risk.

"The banks are walking a tightrope," said Spencer Cutter, a credit analyst with Bloomberg Intelligence. "They don't want to push the companies into bankruptcy, but on the other hand they're getting a lot of heat from regulators and investors. They can't keep kicking the can down the road like they did last year."

A bank that denies credit to a company could find itself liable for damage to the borrower, said David Feldman, a restructuring lawyer at Gibson Dunn & Crutcher LLP.
"Lenders are very torn because it's a difficult call," Feldman said.

Borrowers are feeling the pinch. At least 15 companies have seen their credit lines cut, including Whiting Petroleum Corp., Rex Energy Corp., and Halcon Resources Corp. Goodrich Petroleum Corp.'s lenders cut its credit line in January to $40.3 million from $75 million, limiting how much the cash-starved company could draw. The oil and gas driller gave creditors until May 6 to vote on a reorganization plan.

Last month, in exchange for waiving Energy XXI Ltd.'s loan covenants, lenders led by Wells Fargo cut the company's credit line to $377.7 million, the amount the oil producer had already borrowed under what had been a $500 million facility. The lenders also required Energy XXI to cash out its oil hedges and use the money to pay down the loan, according to Securities and Exchange Commission filings.

Banks are setting aside more money to cover losses on energy loans. Wells Fargo, which had $17.4 billion in outstanding oil and gas loans at the end of 2015, set aside $1.2 billion to cover potential losses. JPMorgan, which had $14 billion in outstanding oil and gas loans, said in a February presentation that it will boost its energy loan loss reserves to $1.3 billion in the first quarter, a $500 million increase from the end of the year.

Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America and Citigroup could need an additional $9 billion to cover souring oil and gas loans in the worst-case scenario, Moody's Investors Service said in an April 7 report. Still, the lenders would be able to absorb such losses out of one quarter's earnings.

Silicon Valley Observer , 04/13/2016 at 1:07 pm
Thanks AlexS, great article. I think this comes under the general heading of closing the barn door after the cows are gone. Which is normal operating procedure for banks. I laugh at the idea that banks are walking a tightrope. Of course they are - they built the tightrope and jumped onto it happily. The only question for the banks at this point is how do you unwind this thing without killing it, and themselves, in the process.

[Apr 12, 2016] Have We Seen The Bottom In Oil Prices

OilPrice.com

Oil traders see the bottom for crude prices. After nearly two years of a down market, oil traders are growing confident that we have passed the low point. "The down market is behind us," Torbjorn Tornqvist, CEO of Gunvor Group Ltd., said on Tuesday at the FT Global Commodities Summit in Lausanne. "It is the beginning of the end of that for sure." Although there will be a lot of volatility for quite a while, Tornqvist said that "from here on, the trend is up." The CEO of Trafigura Jeremy Weir echoed that sentiment at the commodities summit. "I believe we've seen the bottom unless there is some sort of catastrophic situation political or otherwise," he said. Glencore's (LON: GLEN) top executive was a little more cautious, arguing that a rebound would not be quick because of the large stockpiles of oil that need to be worked through.

... ... ...

U.S. banks hit by energy. Major U.S. banks are set to report earnings this week, and many are facing regulatory pressure from the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency to reduce their exposure to risky energy companies. Most banks insist that energy is a small part of their portfolio, but the FT reports that the banks' trading and investment banking units could report their worst quarter since the financial crisis in 2009, although much of that is likely due to turmoil in global financial markets. Still, credit re-determinations are wrapping up, and many analysts expect cuts of 15 to 20 percent on average to the credit line for oil and gas companies.

[Apr 12, 2016] Oil hits four-month high on commodities rally, Doha meeting hopes by Jessica Resnick-Ault

Notable quotes:
"... Researchers at Bernstein expect global oil demand to increase at a mean annual rate of 1.4 percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade. ..."
finance.yahoo.com

Researchers at Bernstein expect global oil demand to increase at a mean annual rate of 1.4 percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade.

"We expect oil markets to rebalance by the end of 2016. This will allow prices to recover towards the marginal cost of $60 per barrel," Bernstein said, adding that it expects global demand to reach 101.1 million bpd by 2020, from the current 94.6 million bpd.

[Apr 12, 2016] 70-90% Decline In Well Completions Raises Hope For Oil Gas

Notable quotes:
"... Producers are not just shrinking production; they are also laying off staff in the thousands. Over the short-term, this will help them, or at least some of them, to survive. In the medium-term, however, production curbs and layoffs will benefit the energy industry in another way: it will make them temporarily less capable of responding to the growing demand for oil and gas. ..."
"... A report from Bernstein puts the mean growth rate for oil demand at 1.4 percent annually for the next five years, up from 1.1 percent for the last decade. The International Energy Agency expects average annual demand growth of 1.3 percent, much of which will come from non-OECD economies. ..."
OilPrice.com
There's not much money in new well drilling these days. In fact, the latest figures from the American Petroleum Institute (API) reveal a 70 percent annual decline in new natural gas well completions along with a staggering 90 percent drop in new oil wells as of the start of April.

The drop hardly comes as a surprise, especially in the light of the continual reduction in active drilling rigs across the U.S. as reported on a weekly basis by Baker Hughes. As of April 8, there were 354 active oil rigs-8 fewer than the week before, and 406 fewer than a year ago. The number of active gas rigs was 89, down from 225 on April 8, 2016.

Given the low oil and gas prices that have pushed many energy firms to the brink of bankruptcy, these developments were only to be expected, although they are certainly worrying with regard to the resilience of some players in the sector. Yet, gloomy as the news seems, its implications for the future are rather positive.

Prices of crude oil and natural gas are at multi-year lows. Producers are not just shrinking production; they are also laying off staff in the thousands. Over the short-term, this will help them, or at least some of them, to survive. In the medium-term, however, production curbs and layoffs will benefit the energy industry in another way: it will make them temporarily less capable of responding to the growing demand for oil and gas. And demand will grow.

A report from Bernstein puts the mean growth rate for oil demand at 1.4 percent annually for the next five years, up from 1.1 percent for the last decade. The International Energy Agency expects average annual demand growth of 1.3 percent, much of which will come from non-OECD economies.

See also: How The Oil Crisis Has Impacted Military Spending

[Apr 08, 2016] Oil Stages Comeback On Bullish EIA Data by Evan Kelly

oilprice.com

OilPrice.com

The U.S. saw oil production fall by 14,000 barrels last week. The U.S. oil industry has posted consistent declines in recent months, and while the weekly data from the EIA is sometimes inaccurate, the best guess is that the U.S. is producing 9.008 million barrels per day right now. While it could take weeks or months to know conclusively, the U.S. could be about to drop below the key threshold of 9 million barrels per day in oil production.

... ... ...

A massive fire hit ExxonMobil's (NYSE: XOM) refinery in Baytown, Texas on April 7, spewing black smoke into the air. The fire was extinguished and there were no injuries reported.

[Apr 06, 2016] $85 Crude Oil By Christmas – An Interview With Mike Rothman

OilPrice.com

Oilprice.com: The IEA has been accused of overestimating global supplies. The WSJ says that somewhere around 800,000 barrels per day are unaccounted for, meaning they are not consumed nor have they ended up in storage. Are these "missing" barrels a big deal?

Mike Rothman: The issue has not been one of the IEA over-estimating supply, but rather under-estimating demand. There are basically two ways to arrive at figures for global oil demand. The IEA methodology is built on an estimate of GDP and an assumed ratio of oil demand growth to GDP growth.

... ... ...

OP: The oil industry is making massive cuts in investment. Should we be bracing ourselves for a price shock at some point in time? If yes when do you see this occurring?

MR: You cannot cut CAPEX and reduce upstream activity and somehow think future production growth goes unaffected. We forecast non-OPEC supply to contract this year for the first time since 2008. That was a way-out-of-consensus call to make a year-ago when most pundits vigorously argued non-OPEC production would still expand even with the drop in oil prices. What we've communicated to our clients – and those we deal with directly in OPEC – is that the spike down in oil prices is basically setting up an eventual spike up.

OP: Will bankruptcies in the U.S. shale industry do anything to balance the market?

MR: We expect that it will feed into the contraction we forecast for U.S. output. We also see the credit availability issue as likely being a limiting factor moving forward, sort of like what we saw in 1986 and then again in 1999.

... ... ...

OP: Lenders to the oil and gas industry have been fairly lenient with companies. Do you believe that the banks will start to tighten the screws a bit more as the periodic credit redetermination period finishes up?

MR: The old joke is that bankers are the guys who will lend you an umbrella and then ask to have it returned as soon as it starts to rain. Yes, we think lending will become much more highly scrutinized and financing less readily available.

[Apr 05, 2016] $120 Oil As Soon As 2018 by Dan Dicker

Notable quotes:
"... What's critical to note is how the media, and surprisingly most analysts, see global oil merely through the prism of U.S. independent shale players. To me, this is the critical grave mistake they make. Recent lease outcomes in the Gulf of Mexico, problems in Brazil and the likely end of spending for all new Russian oil projects are just a few of the other gargantuan gaps in global production we're likely to see after 2016. ..."
"... the shale players, even with their low well drilling costs and backlog of 'drilled but uncompleted wells' (DUCs) cannot in any way repeat their frantic production increases they achieved from 2012-2014 ever again. I believe this because of financing constraints and the lack of quality acreage among other reasons – but I don't have to even "win" this predictive argument. ..."
"... Chevron estimated in 2013 that oil companies would have to spend a minimum of $7-10 trillion dollars to 2030 to merely keep up with demand growth and the natural decline of current wells. And this was without factoring in the drop in exploration spending that is occurring now and throughout the next two years. Severe capex cuts from virtually every oil company and state-run producer over the last two years has put this necessary spending budget way behind schedule. ..."
"... You can see why I tend to have a much more radical view of the decline line in production beginning in late 2016 and lasting, in my view, at least until the middle of 2018, when production again only begins to get the funding (and time) it needs to try and "catch up". ..."
oilprice.com

OilPrice.com

...most analysts agree that the sharp drop in Capex budgets, not just among shale producers, will have its effect on sharply lowering production this year and putting growth in reverse, efficiencies and well cost reductions notwithstanding. What's critical to note is how the media, and surprisingly most analysts, see global oil merely through the prism of U.S. independent shale players. To me, this is the critical grave mistake they make. Recent lease outcomes in the Gulf of Mexico, problems in Brazil and the likely end of spending for all new Russian oil projects are just a few of the other gargantuan gaps in global production we're likely to see after 2016.

... ... ...

While the EIA and most other analysts agree that sharp capex drops will begin to have their halting effects on oil production, they tend to argue over when those production drops come and how steep they will be. In all cases, they argue that any drop in production will be answered by a rally in oil prices, to the degree that U.S. shale players again 'turn on the spigots' and reestablish the gluts that have kept us under $50 a barrel for most of the last year. In this scenario, production never – or at least exceedingly slowly – rebalances to match demand.

I see it much differently. I could argue that the shale players, even with their low well drilling costs and backlog of 'drilled but uncompleted wells' (DUCs) cannot in any way repeat their frantic production increases they achieved from 2012-2014 ever again. I believe this because of financing constraints and the lack of quality acreage among other reasons – but I don't have to even "win" this predictive argument.

Longer-term projects from virtually all other conventional and non-conventional sources that have not been funded for the past two years will see their results, in that there won't be the oil from them that was planned upon. Chevron estimated in 2013 that oil companies would have to spend a minimum of $7-10 trillion dollars to 2030 to merely keep up with demand growth and the natural decline of current wells. And this was without factoring in the drop in exploration spending that is occurring now and throughout the next two years. Severe capex cuts from virtually every oil company and state-run producer over the last two years has put this necessary spending budget way behind schedule.

You can see why I tend to have a much more radical view of the decline line in production beginning in late 2016 and lasting, in my view, at least until the middle of 2018, when production again only begins to get the funding (and time) it needs to try and "catch up".

... .... ....

of Oilprice.com

[Apr 03, 2016] Is the Oil Price-GDP Link Broken

Notable quotes:
"... there was a series of bubbles generated from the futures market that created the belief higher oil prices were here to stay. ..."
www.nakedcapitalism.com

naked capitalism

  1. Chauncey Gardiner

    Interesting post. Presumably "Expectations" = Crude Oil Futures Contracts. If so, who controls the price of Oil futures contracts and made the decision to throw the Bakken under the bus, along with more than a few sovereign nations who rely to a significant degree on oil exports economically and to maintain domestic political stability?

    Role of demand suppression from high levels of consumer debt, China's economic slowdown, ongoing fallout from the 2008 financial collapse, neoliberal government austerity policies, improvement in energy efficiency, emergence of renewables, and other factors were understated here IMO.

    In the past here has also been a variable time lag between low oil prices and rising levels of economic activity.

    But maybe this development is overall not such a bad thing given global warming considerations.

    Reply
    1. TiPS

      CG, I was thinking something similar, that "expectations" is the euphemism for speculation in the futures markets, which, as most know from this site, is now dominated by investor-speculators. The model they used refers to Killian who is one of the handful of academics who try to refute anyone who argues speculators have influenced oil (and other commodity) prices.

      My own take (anyone interested can read it here) is there was a series of bubbles generated from the futures market that created the belief higher oil prices were here to stay.

      Reply
      1. Chauncey Gardiner

        Interesting blog post. Thanks, TiPS.

        Noted your article was written before the Central Banks-Primary Dealer cartel renewed pumping equities on February 11 IMHO. Jury is out on whether they've jumped the shark. Also, whether they care.

        Reply
  2. Jim Haygood

    'The observed drop in oil prices should have a slightly positive impact on the EU economy.'

    Probably true. But likely there's a "J-curve effect."

    That is, the initial deflationary shock hikes corporate bond spreads (driven by the energy sector) and feeds recession fears. Such fears encourage investors to seek the safe haven of government bonds, at the expense of stocks and credit bonds.

    Later as confidence returns, the beneficial effect of lower energy costs (including bolstered consumer demand) can actually be realized.

    Arguably, Jan-Feb 2016 constituted the bottom of the "J." We'll see.

[Apr 02, 2016] I would be surprised if we had not reached 100 dollars per barrel before 2018 unless there is a severe global recession between 2016 an 2018

Notable quotes:
"... there is one thing I do know, that is if oil prices remain in the region of $39 a barrel then production will definitely continue to fall and fall rather dramatically. And that is not just in the USA but around the world. ..."
"... A prolonged price of $39 dollars a barrel would be devastating for the oil industry. ..."
"... they will have to rise to a lot higher than $39 a barrel, or even $50 a barrel. $50 a barrel will not be high enough to cause world production to start to increase again. ..."
"... That is because oil at above $100 a barrel did not cause oil in the rest of the world, outside the US and Canada to increase in the last five years. Well, that is outside of OPEC. OPEC, or Persian Gulf OPEC, is another matter. That is because politics come into play here and not just geology. ..."
"... I would be surprised if we had not reached $100/b by then unless there is a severe global recession between 2016 an 2018. ..."
peakoilbarrel.com
Ron Patterson , 03/31/2016 at 5:04 pm
North Dakota rig count finally breaks the big 3 0… It just hit 29 with one still listed to stack.

And to think, this happened while oil was at the amazing high of $39 per barrel. Or somewhere near there anyway. :-)

Dennis Coyne , 03/31/2016 at 7:30 pm
Hi Ron,

WTI averaged $30/b for the month of February. Do you believe oil prices will remain under $40/b for the remainder of 2016? I do not. Output will fall by 700 kb/d in the US to 8450 kb/d by the end of the year and oil prices will rise, to $50/b or more in my opinion.

Ron Patterson , 03/31/2016 at 7:55 pm
Dennis, I have no idea where oil prices will remain for the remainder of 2016. But there is one thing I do know, that is if oil prices remain in the region of $39 a barrel then production will definitely continue to fall and fall rather dramatically. And that is not just in the USA but around the world.

A prolonged price of $39 dollars a barrel would be devastating for the oil industry.

Yes, I do believe oil prices will rise. But they will have to rise to a lot higher than $39 a barrel, or even $50 a barrel. $50 a barrel will not be high enough to cause world production to start to increase again.

Any increase in production caused by an increase in price to above $50 a barrel would have to come from the US and Canada. That is because oil at above $100 a barrel did not cause oil in the rest of the world, outside the US and Canada to increase in the last five years. Well, that is outside of OPEC. OPEC, or Persian Gulf OPEC, is another matter. That is because politics come into play here and not just geology.

Dennis Coyne , 04/01/2016 at 8:51 am
Hi Ron,

I agree, $39/b will not cause the decline in output to stop, but my guess is that the decline would be faster at $30/b than at $40/b and faster at $40/b than it would be at $50/b. In fact at $50/b the decline might stop eventually, but I agree with Guy who suggested $60/b will be needed to get drilling to increase and probably more like $80/b for 6 months before any noticeable increase in US and Canadian output. That might not occur until 2018, it will depend on the World economy and demand for oil. I would be surprised if we had not reached $100/b by then unless there is a severe global recession between 2016 an 2018.

[Apr 02, 2016] Some observations and thoughts on the oil price

Notable quotes:
"... Any forecasts of oil (and gas) demand/supplies and oil price trajectories are NOT very helpful if they do not incorporate forecasts for changes to total global credit/debt, interest rates and developments to consumers'/societies' affordability. ..."
"... (ref also figure 02) ..."
"... (refer also figure 05) ..."
"... {This will go on until it cannot!} ..."
Mar 12, 2016 | FRACTIONAL FLOW
Any forecasts of oil (and gas) demand/supplies and oil price trajectories are NOT very helpful if they do not incorporate forecasts for changes to total global credit/debt, interest rates and developments to consumers'/societies' affordability.

The recent weeks oil price volatility has likely been influenced by several factors like short squeezes, rumors and fluid sentiments.

Near term factors that likely will move the oil price higher.

[Apr 02, 2016] A spike in oil prices to over 150 dollars per barrel is to be expected

Notable quotes:
"... Your prediction looks sensible to me. A few years with oil prices below $70/b will reduce supply, let's say until 2018, then maybe by 2019 oil prices rise to $100/b or more, if they remained under $125/b for 5 years (and more than $100/b) the World might be able to muddle along at slow growth of 1% to 2%, but that scenario does seem far fetched. ..."
peakoilbarrel.com
Rune Likvern , 04/01/2016 at 9:25 am
Loooong is less than 100 years, but several years. Several years with oil prices, say below $70/b, will affect the supply side.
In this context a sustained oil price [$100+/b] lasts more than 5 years.
Sorry, I think it is difficult to be more precise as everything increasingly now seems to become fluid.
Dennis Coyne , 04/01/2016 at 11:39 am
Rune,

I appreciate your answer, that clarifies your statement a lot. I agree predictions in this environment are difficult, yours would be much better than mine, in my opinion.

Your prediction looks sensible to me. A few years with oil prices below $70/b will reduce supply, let's say until 2018, then maybe by 2019 oil prices rise to $100/b or more, if they remained under $125/b for 5 years (and more than $100/b) the World might be able to muddle along at slow growth of 1% to 2%, but that scenario does seem far fetched.

More likely is a spike in oil prices by 2022 or sooner to over $150/b (2016$) and then a severe recession within a year or two which will bring oil prices below $100/b.

This may not be what you have in mind, but it roughly matches a few years under $100/b and less than 5 years at more than $100/b and seems moderately plausible, at least to me.

[Apr 02, 2016] Impatient Banks A Real Red Flag For The Oil Patch

www.zerohedge.com

Zero Hedge

Submitted by Nick Cunningham via OilPrice.com,

Lenders to the oil and gas industry have been extraordinarily lenient amid the worst downturn in decades, allowing indebted companies to survive a little while longer in hopes of a rebound in oil prices. But the screws are set to tighten just a bit more as the periodic credit redetermination period finishes up.

Banks reassess their credit lines to oil and gas firms twice a year, once in the spring and once in the fall. While the lending arrangements vary from bank to bank and from borrower to borrower, lenders largely punted on both redetermination periods last year, providing a grace period for drillers to wait out the bust in prices. But oil prices have not rebounded much since the original crash in late 2014.

Time could run out for companies that have been hanging on by a thread.

Debt was not seen as a big problem in the past, as triple-digit oil prices had both lenders and borrowers eager to see drilling accelerate and spread to new frontiers. Indeed, debt rose even when oil prices exceeded $100 per barrel. According to The Wall Street Journal, the net debt of publically-listed global oil and gas companies grew threefold over the past decade , hitting a high of $549 billion last year. In fact, debt accumulated in the sector at a faster rate between 2012 and 2015 – a period when oil prices were exceptionally high – than in previous years.

With oil prices down more than 60 percent from the 2014 peak, piling on ever more debt to a loss-making operation looks increasingly untenable. Distressed energy loans – loans in danger of default – account for more than half of the energy portfolio at several major banks.

"When oil was at $100 a barrel, debt was easy to get," Simon Thomson, CEO of Cairn Energy, told the WSJ in an interview. "What we're seeing today is a number of people suffering the hangover of having secured that debt and now possibly having trouble servicing it."

About 51 oil and gas companies from North America have filed for bankruptcy since early 2015, but there are 175 more that are in danger of not being able to meet debt payments. For context, 62 oil and gas companies fell into bankruptcy during the financial crisis in 2008 and 2009.

Companies struggling with debt payments and shrinking revenue could see the taps shut off or at least reduced. Some analysts see cuts to credit lines on the order of 20 to 30 percent.

Whiting Petroleum, for instance, announced in early March that its credit line would be slashed by more than $1 billion, a reduction that could be one of the industry's largest. Whiting had a $2.7 billion loan revolver at the end of 2015, and the company's CEO expects to have "at least $1.5 billion" left after this spring redetermination.

Regulators are also pressing banks for more scrutiny, and lenders are increasingly using the metric of classifying loans to companies with debt exceeding four times EBITDA as "substandard" or lower. According to Oil & Gas 360 , banks are moving loans with a debt-to-EBITDA ratio exceeding 4x to their workout units.

"This has the makings of a gigantic funding crisis," the head of Deloitte's restructuring department, William Snyder, told the WSJ.

Oil & Gas 360 says that banks are also marketing their troubled debt to hedge funds, marking down distressed debt to cents on the dollars. Hedge funds could buy up discounted debt in hopes of repayment.

Meanwhile, although the credit markets are squeezing drillers, equity markets remain open, at least to some. Reuters reported last week that about 15 companies have announced new equity offerings in 2016, and most have not been adversely impacted. Most of the 15 companies issuing new stock have performed better than an oil and gas producer index by about 3 percent on average. Of course, only relatively strong firms have decided that the equity markets would be open to them. Around $10 billion in fresh equity has been issued so far this year.

The credit redeterminations are currently wrapping up and the details of many of them could soon be released. The deeper banks cut their credit facilities, the more likely struggling oil and gas companies could be forced into bankruptcy.

firstdivision

So basically Yellen is behind the scenes sucking off bankers to hold off on O&G companies. I'm guessing we will get some sort of QE plan starting by June whereby the FRB will buy up the loans off the banks books. It has to be soon as mark-to-market is actually going to be implimented again...well until TPTB find out how shitty the books and market are, then be promptly suspended again.

pebblewriter

Nick,

Any good insider sources for bank lending exposure in O&G? I have a good friend at a major bank who swears most of the majors have syndicated or otherwise laid off almost all of their risk.

Hohum

Because half of all US oil production is from wells completed in 2014 or later, you better keep the juice flowing, banks.

Faeriedust

Just another demonstration of the failures of "free market" economics. Sound companies MUST borrow as much as they can get their hands on, in order to withstand competitors who borrow and spend on rapid growth. He who lags last, no matter how sound his management, is eliminated from the competition by those who get bigger feeding on funny money. Then the funny money goes away and the entire industry collapses. Big Banking eventually destroys any industry they touch, but it's always blamed on wayward executives and mismanagement. In fact the system forces management to make decisions which are guaranteed to be unsound in the long term, in order to assure short-term survival (and the size of their own retirement funds for when it all goes bust).

Strict banking regulation is a NECESSARY component of any large-scale market, as nations from ancient Babylon to Ancien Regime France have proven, each in their own ways. It's not optional; failure to keep bankers in their places leads to economic collapse each and every time it's tried, while well-regulated nations such as Ptolomaic Egypt or Tokugawa Japan are stable and prosperous.

[Mar 30, 2016] Investors see shale production falling and demand continuing to rise

The collapse in oil prices has demolished investment in new projects, the results of which will be felt in the 2018 to 2021 timeframe, due to multiyear lead times
www.yahoo.com
Oil prices have hovered at $40 per barrel for much of the last week, as the markets try to avoid falling back after the strong rally since February.

Investors see shale production falling and demand continuing to rise, which point to the ongoing oil market balancing.

But it is unclear at this point if the rally from $27 per barrel in February to today's price just below $40 per barrel is here to stay. Fundamentals, while trending in the right direction, are still weak.

[Mar 29, 2016] Investors start shorting Texas banks

OilPrice.com

Short sellers have begun targeting Texas banks with ties to the energy industry, betting that damaged oil and gas drillers will impair their lenders as well. Short bets on regional banks in Texas increased by 35 percent so far this year. Energy loans typically make up only a small portion of most banks' lending portfolio. But for banks where energy makes up more than 4 percent of their portfolio, their share prices have plunged more than 22 percent.

[Mar 29, 2016] Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February

Notable quotes:
"... "There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning." ..."
"... Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed. ..."
finance.yahoo.com

OPEC and other major suppliers, including Russia, are to meet on April 17 in Doha to discuss an output freeze aimed at bolstering prices.

But with ballooning global inventories, signs some OPEC members are losing market share, plus little evidence of a strong pick-up in demand, analysts said oil is likely to trade in a range.

"There is a rebalancing on the way, but we are still running a surplus and stocks are building up as far as we can see," SEB commodities analyst Bjarne Schieldrop said.

"There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning."

Data on Monday from the InterContinental Exchange showed speculators hold the largest net long position in Brent futures on record. [O/ICE]

U.S. commercial crude oil stockpiles were expected to have reached record highs for a seventh straight week, while refined product inventories likely fell, a preliminary Reuters survey showed late on Monday.

Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed.

[Mar 29, 2016] Jefferies Has 3 Top Oil Stocks to Buy for a Return to $50 Oil

247wallst.com

While the recent surge of oil seems to have run into a wall at $40, one thing seems to be in place. The market lows appear to have been put in with the drop into the mid-$20s and subsequent bounce back, and at least one top firm we cover here at 24/7 Wall St. thinks the low for the cycle is in.

A new Jefferies research note says that for the first time in history global capital expenditures in the energy industry will have fallen for two consecutive years. In addition, a combination of demand growth and non-OPEC production declines could very well set the stage for a $50 price handle by the end of this year.

[Mar 28, 2016] Despite High Debt Levels Energy Investors Remain Undaunted

Mar 25, 2016 | OilPrice.com
Bad energy debt to exceed good energy debt. The number of energy loans that are in danger of default could jump above 50 percent this year, according to The Wall Street Journal, presenting some problems for several major banks. Lenders are starting to back away from new loans, declining to renew credit, and selling off bad debt. That could slash the available credit lines for some struggling oil and gas producers this year, potentially raising some liquidity pressure on E&P companies. (Coming to the Oil Patch: Bad Loans to Outnumber the Good )

An estimated 51 oil and gas companies have fallen into bankruptcy since early 2015. The periodic credit redetermination period is coming up, which could result in credit lines offered to energy companies being reduced by 20 to 30 percent. The total debt in the entire oil and gas sector hit $3 trillion in 2014, or about three times higher than 2006 levels.

... ... ...

Oil industry still able to access capital. Despite posting record losses in potentially seeing credit lines cut, several oil companies have returned to the equity markets, where they are still being welcomed with open arms. Reuters reports that at least 15 oil companies have announced new offerings in 2016, with minimal damage to their share prices. The companies surveyed have outperformed an oil and producers index by 3 percent on average.

But another way of looking at that statistic is that only well-positioned companies have issued new stock.

Companies like Pioneer Natural Resources (NYSE: PXD), Callon Petroleum Co (NYSE: CPE), and Oasis Petroleum (NYSE: OAS) have performed better than some of their peers since announcing new stock offerings. Shareholders seem willing to provide companies with new cash infusions.

"People would rather they have money in their pocket and survive," Irene Haas, analyst at Wunderlich Securities, told Reuters. "They'll worry about dilution later." U.S. oil and gas exploration companies have issued a combined $10 billion in new equity this year.

[Mar 25, 2016] An interesting article on resilience.com on shale debt

Notable quotes:
"... That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020? ..."
"... Still this is "too late to drink mineral water to cure your liver, damaged by binge drinking" type of the situation. ..."
peakoilbarrel.com

Heinrich Leopold , 03/24/2016 at 10:33 am

There is an interesting article on resilience.com on shale debt:
http://www.resilience.org/stories/2016-03-25/shale-euphoria-the-boom-and-bust-of-sub-prime-oil-and-natural-gas

That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020?

AlexS , 03/24/2016 at 10:44 am
Heinrich Leopold,

The chart from Bloomberg shows cumulative debt payments, not annual.

likbez , 03/24/2016 at 10:54 am
Alex,

Still this is "too late to drink mineral water to cure your liver, damaged by binge drinking" type of the situation.

AlexS , 03/24/2016 at 10:59 am
You think Borjomi won't help? :-)

[Mar 25, 2016] Expect big swings in the price of oil

peakoilbarrel.com

Verwimp , 03/21/2016 at 6:48 pm

@ Dennis,
I was out in the woods last weekend, so I didn't have the opportunity to respond to your questions in last Ronpost.

Dennis: "if you think that LTO output of 4.5 Mb/d can go to zero and OPEC, Canada, and Russia can make up that difference, I believe you are incorrect."
I believe LTO output of 4.5 Mb/d will go to (nearly) zero rather soon (5 or 6 years, so 2021 or 2022), but I do not believe OPEC, Canada and Russia can make up that difference.

"Is that your assumption? Do you believe OPEC will fill that 4.5 Mb/d gap"
No. My assumption is that gap will not be filled. My assumption is the world will encounter Peak Oil very soon (if not yet).

"What are your assumptions about the future price of oil?"
That's a tough one. Despite the model provided above by Ian Schindler. Let me take a wild guess: WTI in the $70-$80 range by december 2016. $110 by mid 2017 followed by another collapse of the price, due to real problems in China or India.

"Do you think the Brent oil price will be $35/b in Dec 2016 (STEO forecast)?"
See above: Brent versus WTI will vary within a 15% margin from eachother – mayby Brent being the cheaper one during 2016. (If you ask why?: This is just gut feeling.)

likbez , 03/21/2016 at 10:12 pm
Verwimp,

Thank you for your input. Very interesting considerations, that actually correlate with my own thoughts on the subject. Especially possible return to recession in the second half of 2017 . I also feel that Brent might be very close to WTI from now on. Lifting export ban eliminated premium. Unless "artificial WTI" shipments spoil the broth.

One question. If we assume that is the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ?

One feature of the return to recession is the collapse of junk bond market, which makes financing of both shale and oil sands more difficult. And it typically happens before the actual economic downturn. That will make ramping up shale oil production in 2017 extremely challenging. High oil prices will be only of limited help, as there is no return to "good old days" of Ponzi financing of shale.

Even speculative financing (revolving credit, aka evergreen loans) is already under threat and will remain in this condition for the foreseeble future.

So shale players might have no money to re-start "carpet drilling" again.

I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land.

Of course they may be propped by the next administration for strategic reasons. Who knows…

Verwimp , 03/22/2016 at 7:15 pm
Hi Likbez,

I don't know. Really. I'm just trying to get grip on things like most of us. I't been a tough day in here in Belgium today. A lot of game changers might come to surface very soon. I mean very soon.

I don't know.

Sincerely,
Bruno

Nathanael , 03/23/2016 at 2:14 am
This is not investment advice, but I think both of you are correct.

I've been working from an old Deutsche Bank analysis which expects big swings in the price of oil. The high prices cause demand to drop and the low prices prevent exploration from happening. Result: total oil production declines continuously.

[Mar 25, 2016] Another Denver oil company files for bankruptcy

Denver Business Journal

Citing the "dramatic decline in oil prices, the continued low prices of oil and natural gas, and the general uncertainty in the energy markets," another Denver energy company has filed for bankruptcy protection.

Emerald Oil Inc. ( NYSE: EOX) said it's filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware. Its oil and gas operations are located in the Williston Basin of North Dakota and Montana.

... ... ...

Emerald headquarters are at 200 Columbine St. in Denver and the company has 42 employees, according to YahooFinance.

It's the second Denver energy company bankruptcy filing this month: On March 18, Venoco Inc., an oil and gas company focused on pumping oil in southern California, filed a voluntary petition for Chapter 11 bankruptcy protection.

[Mar 25, 2016] Reuters on shale companies hedging:

Notable quotes:
"... The contango, as the structure is known, narrowed to $5.82 on Monday, its lowest in almost nine months, and down nearly two thirds from about a month ago. ..."
"... Surely they don't. They think that the oil price rally is not sustainable, so they want to lock in prices in low $40s, for 2016 and $45-50 for 2017-18. ..."
"... Locking in through 2017 scores of wells completed in 2015 that will never payout. ..."
"... "locking in the high side at these levels also locks in a long period of little cash flow " Exactly. That's why I think they will hedge only a small part of their sales at current prices. According to IHS, as of the beginning of 2016, North American E&Ps have hedged just 14% of their total oil production volumes for 2016 and 2% for 2017. ..."
"... Sub $50 WTI simply doesn't work for US onshore lower 48 production to any significant scale. There is a big media disconnect between LOE and CAPEX. Although a broad generalization, the lower the current LOE, the newer the well and the higher the decline rate in the next year, etc. ..."
"... I have been looking at Q1 2016 earnings estimates for US E&P, as well as FY 2016 earnings estimates. Horrible. Two years in a row of record losses are coming, with year 2 worse than year 1. ..."
03/23/2016 at 12:13 pm

Scrambling for cover, U.S. shale producers ramp up hedging

http://www.reuters.com/article/us-usa-oil-hedging-idUSKCN0WP09X

Struggling U.S. shale producers have scrambled to sell future output at their fastest pace in about six months in recent weeks, curbing a rebound in prices and potentially prolonging the oil market's worst rout in a generation, traders say. As spot prices of crude rallied almost 60 percent from 12-year lows touched in mid-Feb, turnover in the long-dated oil contracts has soared to record highs, as producers started to lock in prices in the $40s, traders have said. Turnover in the U.S. crude contracts for December 2017 surged to record highs of over 30,000 lots this past Friday while volumes in the December 2016 delivery touched an all-time high of nearly 94,000 lots.
Combined, that equates to almost 125 million barrels of oil worth over $5 billion, a small portion of overall daily volume in U.S. crude futures, but enough to catch traders' attention.

Now, brokers and traders say that has turned into execution, with some producers willing to hedge in the high $30s or low $40s in 2016 and between $45-50 next year, levels that are just about breakeven for many.

That is also below the $50 psychological threshold that many had thought would be necessary to prompt producers to seek price protection, suggesting drillers have accepted a new reality of lower-for-longer prices as

"The cost of production has declined to the point where at mid-40s they can hedge actively to remain viable." Piling on hedges could prevent prices rallying through $45 a barrel while the extra protection may delay further U.S. production cuts, seen as key to eroding the glut

The impact of the pickup in hedging activity was most conspicuous in longer dated oil contracts.

The 2017 WTI price strip has risen only about 15 percent over the past six weeks, much lower than the prompt contract's gains, while the selling has almost erased the far forward contract's premium over spot.

The contango, as the structure is known, narrowed to $5.82 on Monday, its lowest in almost nine months, and down nearly two thirds from about a month ago.

John Saucer, vice president of research and analysis at Mobius Risk Group in Houston, said he saw a "material" increase in producer hedging, with most action in this and next year's contracts, but extending through the whole of 2018.

Lack of forward buying by major consumers, like the airlines, has also meant prices have not received any boost as producers have been selling, adding to the pressure on prices.

To be sure, many hope for prices to go even higher.

"If prices recovered to that range north of $60, we'll be seriously considering hedging," billionaire wildcatter Harold Hamm said on a conference call.

Eulenspiegel , 03/23/2016 at 12:22 pm
Do they really make money on these prices, since most of them where barely profitable at 100$+ oil?

Or do they just log in to make profit by pumping from their already drilled holes while ignoring front load costs?
If they would make money after hedging, why isn't there a new boom where everybody drills like mad?

AlexS , 03/23/2016 at 12:53 pm
"Do they really make money on these prices …?"

Surely they don't. They think that the oil price rally is not sustainable, so they want to lock in prices in low $40s, for 2016 and $45-50 for 2017-18.

shallow sand , 03/23/2016 at 4:47 pm
AlexS,

One wonders if much of the hedging is being required by banks.

Hedges at these levels likely locks in enough cash flow to pay LOE, taxes, G &A and interest. However, locking in the high side at these levels also locks in a long period of little cash flow for CAPEX and/or retiring debt principal.

An interesting exercise once the hedges are fully disclosed would be to insert the resulting revenue number into cash inflows in the SEC 10K, and then calculating both undiscounted and discounted future net cash flows.

Also, assume we have a Bakken well that produces 120,000 barrels after royalties, that was completed 1/1/15 and has been hedged at an average price of $47 WTI for 2015-17.

A $7 discount puts us at $40. 10% severance puts us at $36.

Our $6-9 million well has only grossed $4.3 million in its first three years. Hedging at these levels locks in many wells to no hope of payout, as we will likely need to subtract another $6-8 per barrel, or more for LOE and $2-3 more for G & A. Oh yes, and another $4-7 more per barrel of interest expense.

Locking in through 2017 scores of wells completed in 2015 that will never payout.

AlexS , 03/23/2016 at 6:44 pm
shallow sand ,

"locking in the high side at these levels also locks in a long period of little cash flow " Exactly. That's why I think they will hedge only a small part of their sales at current prices. According to IHS, as of the beginning of 2016, North American E&Ps have hedged just 14% of their total oil production volumes for 2016 and 2% for 2017.
[ http://press.ihs.com/press-release/energy-power-media/north-american-oil-and-gas-companies-face-difficult-year-2016-stron ]

In January-February, they were not hedging; and some of distressed companies were even unwinding hedges in order to raise much-needed cash.

[ http://www.reuters.com/article/us-usa-oil-producers-hedge-idUSKCN0VL224 ]

Now hedging activity is increasing, but I think most of the future production will remain unhedged.

shallow sand , 03/23/2016 at 8:59 pm
AlexS,

Sub $50 WTI simply doesn't work for US onshore lower 48 production to any significant scale. There is a big media disconnect between LOE and CAPEX. Although a broad generalization, the lower the current LOE, the newer the well and the higher the decline rate in the next year, etc.

For example, California Resources corporation has LOE around $20 per barrel, yet lower decline rates, while US LTO is around $6-9 per barrel, but has high decline rates. Further, CRC LOE will be more stable over time. Without addition of substantial new wells, US LTO LOE will surpass that of companies like CRC in less than 5 years IMO.

Again, I am speaking in broad terms, each well is different from every other, and each varies over time.

My view is Bakken wells producing under 1000 barrels net of royalties per month have LOE of $15+ generally.

I do apologize for mixing up OPEX and LOE over the last year plus.

I guess OPEX includes royalties, lifting costs and severance taxes?

LOE is lifting and operating expense. Same is calculated on net barrels, after royalties are paid. Expenses such as severance taxes, interest and general and administrative expenses are not included in LOE.

Further, always be aware that LOE is calculated in BOE, so gas and NGLs are included. Gas is on a 6 to 1 ratio with oil.

Many US LTO are touting reduced LOE, when the reality is the company wide gas to oil ratio is increasing. One BOE of gas is selling for $6-10 at the well head right now.

CLR is a good example. Their gas to oil ratio has went from 30:70 to 40:60 in about three years. So, part of the LOE per BOE is directly offset by lower realized per BOE prices. Further, gas is usually cheaper to produce than oil on a BOE basis in the US, so this also must be factored in.

I have been looking at Q1 2016 earnings estimates for US E&P, as well as FY 2016 earnings estimates. Horrible. Two years in a row of record losses are coming, with year 2 worse than year 1.

[Mar 24, 2016] In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year.

peakoilbarrel.com
Longtimber , 03/23/2016 at 10:15 pm
"The U.S. mining industry-a sector that includes oil drillers-lost more money last year than it made in the previous eight."
http://davidstockmanscontracorner.com/us-energymining-losses-in-2015-wiped-out-eight-years-of-profits/
In reference to Russia's Military Threat to NATO:
"But that was all based on the world's one-time boom in oil, gas, nickel, aluminum, fertilizer, steel and other commodities and processed industrial materials."
http://davidstockmanscontracorner.com/trump-is-right-dump-nato-now/
Again Yep.. says so : "the world's one-time boom in Oil, …" Got PV yet?

Heinrich Leopold , 03/24/2016 at 10:33 am
There is an interesting article on resilience.com on shale debt:
http://www.resilience.org/stories/2016-03-25/shale-euphoria-the-boom-and-bust-of-sub-prime-oil-and-natural-gas

That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020?

AlexS , 03/24/2016 at 10:44 am
Heinrich Leopold,

The chart from Bloomberg shows cumulative debt payments, not annual.

[Mar 24, 2016] Totally wrong reporting by Australian public broadcaster in March 2016

Notable quotes:
"... Totally wrong reporting by Australian public broadcaster in March 2016 ..."
tally%20wrong%20reporting%20by%20Australian%20public%20broadcaster%20in%20March%20201

Matt Mushalik, 03/24/2016 at 3:37 pm

Totally wrong reporting by Australian public broadcaster in March 2016

18/3/2016

Oil output rises even as US rig count falls to historic lows http://www.abc.net.au/news/2016-03-18/oil-output-rises-even-as-us-rig-count-falls/7259566?section=business

[Mar 24, 2016] Oil and gas Debt fears flare up

Notable quotes:
"... "Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative easing policies," says Spencer Dale, the chief economist of BP, who formerly held that role at the Bank of England. "That was a potent mix." ..."
March 21, 2016 | FT.com

It was a classic bubble, says Philip Verleger, an energy economist. "It was irrational investment: expecting prices to rise continually. Companies that borrowed heavily when prices were high are going to have a very tough time."

...In June 2014, a barrel of Brent crude for 2020 delivery was $98. And central banks' post-crisis monetary policies pushed investors towards riskier assets, including oil and gas companies' equity and debt.

"Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative easing policies," says Spencer Dale, the chief economist of BP, who formerly held that role at the Bank of England. "That was a potent mix."

From 2004 to 2013, annual capital spending by 18 of the world's largest oil companies almost quadrupled, from $90bn to $356bn, according to Bloomberg data. The assumptions used to justify that borrowing were fuelled by a textbook example of disruptive technological innovation: the advances in hydraulic fracturing and horizontal drilling that made it possible to produce oil and gas from previously unyielding shales. The success of those techniques added more than 4m barrels a day to US crude production between 2010 and 2015, creating a glut in world markets that has sent prices down 65 per cent since the summer of 2014.

The expectations of sustained high prices have vanished: crude for 2020 delivery is $52 a barrel. Oil is now back to where it was in 2004, but most of the debt that was taken on in the boom years is still there.

In the US and Europe, banks have been quick to reassure shareholders that, while their losses are mounting, they are entirely manageable. French banks account for four of the 10 banks with the highest exposure. Crédit Agricole, whose $29.8bn credit exposure to energy is the second highest in Europe, has told investors that 84 per cent of the portfolio was investment grade. The disclosures were largely effective in soothing fears about energy debt.

... "It's alarming that things are getting pulled forward so much," says Julie Solar, an analyst at Fitch Ratings. "The pace of deterioration is coming quicker than what was previously disclosed."

... Since crude prices began to fall in the summer of 2014, investors in oil and gas companies have lost more than $150bn in the value of their bonds, and more than $2tn in the value of their equities, according to FT calculations.

... At Machinery Auctioneers, Mr Dickerson has been stocking up on cut-price oilfield equipment. He bought four mobile sand containers used in fracking, with list prices of up to $275,000, for $17,000 apiece. When the industry recovers, he expects to sell them for up to $100,000 each. But before that recovery comes there are likely to be plenty more bargains on his lots.

[Mar 23, 2016] Record Loss For Petrobras As Political And Economic Crisis Worsen

Mar 23, 2016 | Zero Hedge

The state-owned Brazilian oil company announced that it lost more than 36 billion reals in the fourth quarter, or USD$9.6 billion, a 40 percent increase compared to the fourth quarter of 2014.

the company has enough cash flow from its operations to meet all of its obligations through the end of 2017 at least, even if it fails to realize the planned $14 billion in asset sales. "Even if we hit a road-bump we have sufficient cash through 2017," Bendine said. "This doesn't mean if we have good opportunities to raise cash or lengthen maturities we won't do it."

[Mar 22, 2016] The Oil and Gas Fire Sale How Bad Will Losses to Banks and Investors Be

Notable quotes:
"... From 2006 to 2014, the global oil and gas industry's debts almost tripled, from about $1.1tn to $3tn, according to the Bank for International Settlements. The smaller and midsized companies that led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic about taking on additional debt. ..."
March 21, 2016 naked capitalism

I strongly urge you to read the Financial Times account in full. Key points:

Distress in the oil and gas industry is acute . Many companies are being liquidated or forced to cut to the bone:

About 600 people packed on to the Machinery Auctioneers lot on the outskirts of San Antonio, Texas, last week to pick up some of the pieces shaken loose by the oil crash.

Trucks, trailers, earth movers and other machines used in the nearby Eagle Ford shale formation were sold at rock-bottom prices. One lucky bargain hunter was able to pick up a flatbed truck for moving drilling rigs - worth about $400,000 new - for just $65,000.

Since the decline in oil prices began in mid-2014, activity in the Eagle Ford, one of the heartlands of the shale revolution, has slowed sharply. The number of rigs drilling for oil has dropped from a peak of 214 to 37, and businesses, from small "mom and pop" service providers to venture capital companies, are trying to offload unused equipment.

Terry Dickerson, Machinery Auctioneers' founder, says sales doubled last year, in part thanks to the oil crash. Sellers are sometimes disappointed by low prices for oil-related assets, but they have to accept reality, he says. "I feel like a funeral director," he adds. "I'm the one that has to tell them the bad news."

Lenders went on a spree . While this is a notoriously cyclical industry, the shale gas frenzy drew in a lot of newbies, particularly among investors. The fact that so many players made heavy use of borrowings, with the Fed's negative real interest rate policies all too successfully pushing lenders into risky assets, has amplified the damage. From the story:

From 2006 to 2014, the global oil and gas industry's debts almost tripled, from about $1.1tn to $3tn, according to the Bank for International Settlements. The smaller and midsized companies that led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic about taking on additional debt.

oil and gas borrowing binge

The hangover has only just begun :

Standard & Poor's, the credit rating agency, assesses oil companies based on an assumption of an average crude price of $40 this year. On that basis, 40 per cent of the US production and oilfield services companies it covers are rated B-minus or below. "B-minus is a very weak rating," says Thomas Watters of S&P. "You don't have a long lifeline."

Make no bones about it: a B- or worse means you are barely hanging on. To illustrate:

Linn Energy, one of the 20 largest US oil and gas producers, warned last week that it expected to breach its debt covenants. It has net debts of $3.6bn, but only $1m in borrowing capacity. Many US producers are now having their borrowing limits, which are based on the value of their reserves, redetermined by their banks. The falling value of those reserves means loan facilities will be cut back, leaving some companies without enough liquidity to stay afloat.

Even when companies can be restructured, lenders are taking big hits :

When oil and gas companies go into bankruptcy, there are often slim pickings for creditors. Quicksilver Resources, a Texas-based gas producer, went into Chapter 11 bankruptcy protection last year with about $2.4bn of debt. This year it announced sales of its US assets for just $245m, and some of its Canadian assets for $79m. Its creditors are on course for losses of about $2bn.

Do the math. That's an 83% loss of principal. The story reassuringly points out that even bigger amounts are at risk at national oil companies like PDVSA of Venezuela and Petrobras.

In a worrisome parallel to subprime risk before the crisis, investors are getting rattled by banks increasing their forecasts of losses:

"It's alarming that things [bank loan loss estimates are getting pulled forward so much," says Julie Solar, an analyst at Fitch Ratings. "The pace of deterioration is coming quicker than what was previously disclosed."…

Since crude prices began to fall in the summer of 2014, investors in oil and gas companies have lost more than $150bn in the value of their bonds, and more than $2tn in the value of their equities, according to FT calculations.

The grim reaper tone of the article suggests that things will get worse in energy-land before they get better. The oil bust in 1980-1981, which was a regional affair in the US, was bloody and took down pretty much all of the Texas banking industry. It's hard to know from this far a remove what the trajectory will look like, particularly since even with things his visibly dire, the incumbents all have strong incentives to make things appear less bad than they are. Any reader intelligence would be very welcome.

craazyman , March 22, 2016 at 7:07 am

every real man wants to keep drilling until the money runs out. And if you can't keep drilling, you have to find a new hole. That's what they say. Some holes cost more than others, but a real man needs a hole. What does a man do now, when his hole is dry and he can't drill? Or if drilling doesn't get him where it used to? Those were the days, when a man could drill around and have it be good every time. Each real man has to face the day when just showing up with his drill doesn't work anymore. He better hope the hole he has is good. And he better not have drilled on borrowed cash, because once a hole is dry for a man there's no going back to the good times, that's for sure.

john bougearel , March 22, 2016 at 8:36 am

My dad got stuck into KYN, a high yield energy-related MLP back in 2011 – considered suitable for IRAs.
The dividend got its first 16% haircut in Dec. The div was maintained in Q1 2016. But when I took a cursory glance at the financial statements of the top five holdings that comprised 48% of this MLP, this is what I uncovered:

Collectively, these 5 companies had a combined net income of ~40m and ended 2015 with 849m in cash. One of these companies had a negative (~ -1.5b) net income. Collectively, they paid out ~13b in dividends in 2015. The funding of those 13b in dividends was largely accomplished through ~17b in financing activities, via issuing debt and selling stock. Needless to say, they are all heavily in debt and the financing activities doesn't even address financing interest expenses and the like.

The reason I mention the above is to cite the caption "companies have borrowed heavily to fund their growth" in the EIA chart above as a gross mis-characterization. Their financing activities were funding their dividends in 2015, and without access to the same funding channels in 2016, not only will the divs l be zeroed out – they will all be fighting for survival with little cash cushion and little net income to see them through to another day.

fajensen , March 22, 2016 at 11:37 am

Maybe we could use the high yield to buy Credit Default Swaps on the high-yield fund and retire on those?

Peabody Energy is going tits-up. Similar story, gorged itself on roid's in the form of cheap debt to fuel "growth" and now all of that bulk is pulling it down the drain. A -800% return on the stock in last 4 years. Impressive. Almost 99 % yield on the unsecured bonds. Chapter 11 seems to be priced in.

Dino Reno , March 22, 2016 at 9:13 am

From what I've read, the investment arms of banks have been busy issuing new stocks and bonds in energy companies with bad loans on the parent bank's books. The proceeds go to repay these outstanding bank loans, mitigating some or all the damage banks face. What's left will be largely unsecured loans that the banks could care less about since they belong to some other sucker. Of course the stocks when issued have declined sharply in price thus burning shareholders as well. It appears banks may have learned their lesson from previous meltdowns by farming out the losses.

Damian , March 22, 2016 at 9:43 am

"One lucky bargain hunter was able to pick up a flatbed truck for moving drilling rigs - worth about $400,000 new - for just $65,000."

Lucky? @15 cents vs new? 86′ the bottom fishing was at 9% or less – sold in many cases by the pound

The First Liens of the Banks are seriously underwater especially in Canada. The surge in oil prices and the associated refinancing of bonds and secondary stock offerings will get some high profile company exposure off the books of the banks as they take the liquidity for a pay down – but the decline will last far beyond the momentary manipulation.

This exposure extends well beyond oil and gas to all natural resources worldwide – in 86′ the problem was isolated. The previous five years had interest rates for Treasuries north of 9% – in fact deep double digits by 85′ – so the cancer of debt issuance was more limited for that reason plus Junk Bonds 82′ to 85′ were in their market infancy and so were the Commercial Banks acceptance since the Investment Banks were unrelated entities.

This debacle will prove the integrity of the principles of Glass Steagall between Commercial and Investment Banking are absolutely necessary as the separation of Church and State.

Jim Haygood , March 22, 2016 at 11:13 am

'The grim reaper tone of the article suggests that things will get worse in energy-land before they get better.'

It's often the case that "grim reaper" articles from the MSM mark important inflection points.

BofA Merrill Lynch's High Yield spread (over Treasuries) has receded from 8.87 percent on Feb. 11th to 6.65 percent yesterday. FRED chart:

http://tinyurl.com/qcl6lyz

Merrill Lynch's junk index includes all corporate sectors. But energy is the most troubled, and arguably the driver of the spread.

April crude is at $39.91 this morning, just under the magic $40 lower bound. Translation:

"Ford's in his flivver, and all's well with the world!"

Jim Haygood , March 22, 2016 at 11:55 am

Oops, that's a stale quote - April crude expired yesterday.

May crude (CLK6) is at $41.35. Chart:

http://tinyurl.com/z92sa82

Yves Smith Post author , March 22, 2016 at 2:52 pm

Supposedly smart insiders like banks also caught the falling safe of the subprime market by buying mortgage servicers in the supposed bottom of January 2007.

Pwelder , March 22, 2016 at 5:56 pm

I think Haygood's on the right track here.

Everything in the FT piece is true, and it's a useful read. But there's a problem with the timing. This thing is likely to go into the books alongside the famous Business Week cover story on "The Death of Equities".

Two things about oil: First, the glut is not as big as you think. IMO games are being played – in effect painting the tape with big imports that show up in US storage (where the reporting is most transparent) and are hyped by players with agendas. More important, there are 10 – 15 people in the world who can collectively decide – within broad limits – where oil should trade. They can't put it back at $100 – not right away, not this year – but they can pop it $20 from here with no trouble at all. That will happen soon, because they need it to.

If you're feeling lucky you can rummage through that pile of junk debt, and find yourself an issuer that might not go bankrupt. Then buy the bonds – not the stock.

Lambert Strether , March 22, 2016 at 12:19 pm

Readers, I know (perhaps better than anyone) how addictive the horse race can be… But this is a very important post.

craazyman , March 22, 2016 at 1:05 pm

If a man lives by drilling from bed to bed on borrowed cash, it's not likely to end well. A real man knows when the holes runs dry to him and the cash is gone it's time to hit the road - because the bed don't work no more.

If you're a man who lent money to a man who's hole's ran dry and has nowhere to drill, and not even a bed, then it's time for you to look in the mirror and see the way a real man sees. The way a cowboy looks at the blue sky, out from under the shade of his hat, and thinks about God.

Left in Wisconsin , March 22, 2016 at 1:22 pm

Honest stupid question: so if a bunch of oil drillers and the bankers/investors who funded them go belly up, what does that mean for the rest of us?

craazyman , March 22, 2016 at 1:59 pm

it means there'll be a lot of holes open to drills that still have cash to spend. If your drill is tired, you can upgrade to a huge new drill and a truck for next to nothing and drive around hoping to get lucky. But if you do, make sure it's a hole you want to live with, because it might dry up on you and your drill may lose its juice. When it does, you won't want to hit the road anymore. That's a game for a man with a drill that's just getting going.

James Levy , March 22, 2016 at 3:14 pm

At the very least, it means many people with high-paying jobs going on unemployment, a lot of areas whose real estate prices rose seeing them fall, and a lot of loans not being made as credit dries up as banks try to meet their reserve obligations as they write off the loses. At worst, it means another round of bank bail-outs and even greater political anger and strife here in the home of fracking, the good old US of A.

oho , March 22, 2016 at 1:35 pm

"Honest stupid question: so if a bunch of oil drillers and the bankers/investors who funded them go belly up, what does that mean for the rest of us?"

some random things-FDIC fund dries up. your local auto parts factory starts laying off people cuz Texans aren't buying $50,000 pick-ups anymore.

Banks tighten lending standards. Your state's teachers' pension fund falls further behind cuz it had investments in "can't lose" oil deals.

Basically once again the middle class bails out the "smart money."

[Mar 22, 2016] Drillers Cant Replace Lost Output as $100 Oil Inheritance Spent

www.bloomberg.com

Bloomberg Business

A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones.

About 3 million barrels a day will come from new projects this year, compared with 3.3 million lost from established fields, according to Oslo-based Rystad Energy AS. By 2017, the decline will outstrip new output by 1.2 million barrels as investment cuts made during the oil rout start to take effect. That trend is expected to worsen.

"There will be some effect in 2018 and a very strong effect in 2020," said Per Magnus Nysveen, Rystad's head of analysis, adding that the market will re-balance this year. "Global demand and supply will balance very quickly because we're seeing extended decline from producing fields."

A lot of the new production is from deepwater fields that oil majors chose not to abandon after making initial investments, Nysveen said in a phone interview.

... ... ...

Companies cut capital expenditure on oil and gas fields by 24 percent last year and will reduce that by another 17 percent in 2016, according to the International Energy Agency. That's the first time since 1986 that spending will fall in two consecutive years, the agency said Feb. 22.

[Mar 22, 2016] what was the effect of cheap funding?

Notable quotes:
"... According to Art Berman, during the 5 year period (2008-2012), Chesapeake, Southwestern, EOG, and Devon spent over 50 billion dollars more than they took in. Such a great profitability. ..."
peakoilbarrel.com

R DesRoches , 03/20/2016 at 11:23 am

The question that needs answering is what was the effect of cheap funding?

The LTO oil boom was the result of companies making a nice return at $100+ oil. At that price range production increased at a rate of one million barrels a day for three years.

If the cost of funding was say 3 to 5% higher what would have been the results?

Companies would still be making money, and they would also be borrowing, but the amount borrowed would have been lower.

At a lower amount of borrowing, production growth would not have been one million per year. One estimate that growth would have been around 750 kbd.

So after three years, U.S. Production would have been 750 kbd lower than it was.

At that growth rate world production would have stayed in balance, prices would have stayed in the $100 range, and the Saudis would not have ramped up production by 1 to 1.5 million a day.

So IMO the net effect of cheap money was to grow production more than the market could use and then crash prices.

In either case, with or without cheap money, the LTO boom would still have happened.

likbez , 03/20/2016 at 2:50 pm
I believe that $100 plus oil prices was the real fuel that fed the growth in LTO production. At that price a very good ROR was made and fund were provided.

It was simply the situation in which Wall Street needed a place to dump money provided by Fed and shale came quite handy.

According to Art Berman, during the 5 year period (2008-2012), Chesapeake, Southwestern, EOG, and Devon spent over 50 billion dollars more than they took in. Such a great profitability.

R DesRoches , 03/21/2016 at 9:39 am
Most of the companies you talked about are Nat gas production companies. We are talking about LTO.

But Art only talked about what was spent. If you look at LTO what was gotten was in increase in production of about 4 million barrels a day of production. That is a rate of 1,460, 000,000 barrels a year.

That generates sales at $100 oil of $146,000,000,000 per year.

AlexS , 03/21/2016 at 12:20 pm
Art Berman talked about what these companies have spent (capex) and what they got (operating cashflow). During the whole period of the shale boom, shale companies' capex significantly exceeded their operating cashflows.

That doesn't mean that all that cash was "burned". Operating cashflow is what they get from today's sales. Capex is what is spent on tomorrow's production. Given that until recently production volumes were rapidly increasing, that partly justified cash overspending.

[Mar 22, 2016] There is a huge difference between daily price curve and average quarterly price curve.

Notable quotes:
"... Don't waste your time calculating something that is so fuzzy as breakeven price. Price of oil went up 55% in month and half? So demand went up that much? In middle of winter? :-) In the middle of "glut" and oil storages bursting from that overflow of oil? :-) Just like that with a snap of finger. ..."
"... There is a huge difference between daily price curve and average quarterly price curve. Using average price for a longer period instead of daily price helps to smooth abrupt price movements and allow models like presented above to look more reasonable. Think about price curve as the result of juxtaposing of several sinusoid waves with different periods like in Fourier transform. Using average for a longer period essentially filters waves with a short period. ..."
peakoilbarrel.com
Ves , 03/21/2016 at 12:04 pm
Daniel,
Don't waste your time calculating something that is so fuzzy as breakeven price. Price of oil went up 55% in month and half? So demand went up that much? In middle of winter? :-) In the middle of "glut" and oil storages bursting from that overflow of oil? :-) Just like that with a snap of finger.

likbez , 03/21/2016 at 10:35 pm

Ves,

Your critique is of course valid. But…

There is a huge difference between daily price curve and average quarterly price curve. Using average price for a longer period instead of daily price helps to smooth abrupt price movements and allow models like presented above to look more reasonable. Think about price curve as the result of juxtaposing of several sinusoid waves with different periods like in Fourier transform. Using average for a longer period essentially filters waves with a short period.

There was pretty long exchange between me and Alex on this subject some time ago that covered those issues.

[Mar 22, 2016] Will the next oil price slump happen in 2017 and if so how deep will it be?

Notable quotes:
"... One question. If we assume the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ? ..."
"... I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land. ..."
peakoilbarrel.com

Verwimp , 03/21/2016 at 6:48 pm

@ Dennis,
I was out in the woods last weekend, so I didn't have the opportunity to respond to your questions in last Ronpost.

Dennis: "if you think that LTO output of 4.5 Mb/d can go to zero and OPEC, Canada, and Russia can make up that difference, I believe you are incorrect."
I believe LTO output of 4.5 Mb/d will go to (nearly) zero rather soon (5 or 6 years, so 2021 or 2022), but I do not believe OPEC, Canada and Russia can make up that difference.

"Is that your assumption? Do you believe OPEC will fill that 4.5 Mb/d gap"
No. My assumption is that gap will not be filled. My assumption is the world will encounter Peak Oil very soon (if not yet).

"What are your assumptions about the future price of oil?"
That's a tough one. Despite the model provided above by Ian Schindler. Let me take a wild guess: WTI in the $70-$80 range by december 2016. $110 by mid 2017 followed by another collapse of the price, due to real problems in China or India.

"Do you think the Brent oil price will be $35/b in Dec 2016 (STEO forecast)?"
See above: Brent versus WTI will vary within a 15% margin from eachother – mayby Brent being the cheaper one during 2016. (If you ask why?: This is just gut feeling.)

likbez , 03/21/2016 at 10:12 pm

Verwimp,

Thank you for your input. Very interesting considerations, that actually correlate with my own thoughts on the subject. Especially possible return to recession in the second half of 2017 . I also feel that Brent might be very close to WTI from now on. Lifting export ban eliminated premium. Unless "artificial WTI" shipments spoil the broth.

One question. If we assume the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ?

One feature of the return to recession is the collapse of junk bond market, which makes financing of both shale and oil sands more difficult. And it typically happens before the actual economic downturn. That will make ramping up shale oil production in 2017 extremely challenging. High oil prices will be only of limited help, as there is no return to "good old days" of Ponzi financing of shale.

Even speculative financing (revolving credit, aka evergreen loans) is already under threat and will remain in this condition for the foreseeable future.

So shale players might have no money to re-start "carpet drilling" again.

I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land.

Of course they may be propped by the next administration for strategic reasons. Who knows…

[Mar 21, 2016] Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed

Notable quotes:
"... The key factor here is that the amount of oil to replace natural depletion of existing wells that can be extracted at prices below $70 is low to compensate natural depletion. For example, despite all this buzz about rising efficiency of shale production, the US shale does not belong to this category. ..."
"... Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed. Essentially in plain English that is a message to oil importing countries "f*ck yourself". ..."
"... The next step will be agreement to limit production based on natural decline rates and low capex environment. The huge, paranoid level of fear of such an agreement is clearly visible now in MSM. And of course the US state department along with EU will do the best to crash such a possibility. ..."
"... In other words this shale/Saudi induced price crash just speeded up the day of reckoning by several years and will make the next spike of oil prices much closer and much higher. ..."
"... How long the oil prices can be suppressed by the threat of resumption of shale production remain to be seen, but if there will be a bounce in shale production at below $80 prices it will be a "dead cat bounce" and will not last long as if prices drop again all those guys who tried to anticipate higher price environment and started "carpet bombing", sorry, drilling, again will be swimming naked again. Shale is a Red Queen race in any case. That means that shale will add to amplitude of the oscillations of the oil prices and might somewhat prolong the agony, but can't prevent oil price rise to above $80 level. ..."
peakoilbarrel.com

likbez, 03/17/2016 at 7:35 pm

Ves,

All I am sure that none of us know what will happen.

What do you mean? Here most posters are adherents of the peak oil hypothesis. If so, this is a nonsense statement.

Bets when oil will , say, above $80 belong to the casino, but if trend is predicted right then it is clear that the prices should rise at least to the max level they reached before (above $100) within some reasonable period (say before magic 2020). And to above $70 within much shorter time period. Probably with some crazy spikes in both directions in between. When Wall Street speculators see profits around 25% a quarter they are ready to kill own mother.

The key factor here is that the amount of oil to replace natural depletion of existing wells that can be extracted at prices below $70 is low to compensate natural depletion. For example, despite all this buzz about rising efficiency of shale production, the US shale does not belong to this category.

It will be more difficult to induce the second oscillation of oil prices by repeating the same trick again with forcing debt burdened producers to produce at a loss. When oil producers were caught naked in 2014 with a lot debt to service they have no choice but to continue production. That was an interesting neoliberalism induced wealth redistribution play in which oil producing countries started to subsidize oil importing countries (aka G7) to the tune of 0.5 trillion a year. They did it instead of working together on conservation and keeping oil price at reasonable level they destabilized the system using Saudi in a bait and switch fashion. It might be an Obama attempt to bring Russia to knees, attempt to save economy from secular stagnation or sling to new recession, whatever. What is done, is done. But this racket can't run forever. And what can't run forever will eventually stops.

Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed. Essentially in plain English that is a message to oil importing countries "f*ck yourself".

The next step will be agreement to limit production based on natural decline rates and low capex environment. The huge, paranoid level of fear of such an agreement is clearly visible now in MSM. And of course the US state department along with EU will do the best to crash such a possibility.

But if such an agreement materialize despite all efforts to block it, it will have effect of the A-bomb on Wall street speculators and the second nail into "oil price forever" myth coffin. The same speculators who drove the oil price down from this point will drive it up like there is tomorrow. And as GS trading desk change their bets, those despicable presstitutes from Bloomberg instantly will change tone and start crying loud about coming oil crisis. Financial oligarchy has no allegiance to any country, only to their own bank accounts.

In other words this shale/Saudi induced price crash just speeded up the day of reckoning by several years and will make the next spike of oil prices much closer and much higher.

How long the oil prices can be suppressed by the threat of resumption of shale production remain to be seen, but if there will be a bounce in shale production at below $80 prices it will be a "dead cat bounce" and will not last long as if prices drop again all those guys who tried to anticipate higher price environment and started "carpet bombing", sorry, drilling, again will be swimming naked again. Shale is a Red Queen race in any case. That means that shale will add to amplitude of the oscillations of the oil prices and might somewhat prolong the agony, but can't prevent oil price rise to above $80 level.

[Mar 20, 2016] There has been a long history of oil price model failures.

Notable quotes:
"... There has been a long history of oil price model failures. I was wondering whether you could comment on how your model has overcome the weaknesses of earlier models. I have the impression that the oil price in the short, medium but also long term depends on many highly non-linear factors. That just makes it difficult for me to see how any model, even just theoretical, could make reasonable predictions. ..."
peakoilbarrel.com

Enno , 03/20/2016 at 5:09 am

Ian,

Thanks for the post.

There has been a long history of oil price model failures. I was wondering whether you could comment on how your model has overcome the weaknesses of earlier models. I have the impression that the oil price in the short, medium but also long term depends on many highly non-linear factors. That just makes it difficult for me to see how any model, even just theoretical, could make reasonable predictions.

Suppose there was such a model, that had a little better predictive power than the market. Wouldn't market participants then not rush in to make money using the model, which would again destroy its predictive power?

Schinzy , 03/20/2016 at 6:41 am
Hi Enno,

The idea to use autocorrelation came from just eyeballing Figure 1. Low prices seemed to be associated with constant rates of growth. If the rate of growth decreases or stops, the price pops. I gave a bunch of variables to Aude (who is a statistician) and asked her to look for correlations. She fiddled around with the data for some time trying different transformations. When she came back with what worked I slapped myself and wondered why I hadn't told her to try that first.

As I said in the introduction, this work is preliminary and there is a lot we don't know. What I believe is going on is that many variables normally associated with demand are hidden in past extraction data. Exactly which variables are included and which excluded is to be determined.

I think that if traders started using this model to estimate prices the model would work better. It would be a self fulfilling prophecy. The reason for this is that I think price speculation is not included in the variables used, so if the speculators were closer to the "right" price, there would be less variation.

If data were available it would be interesting to split the model by API density using the average price for each tranche of density. The model explained past data much better with EIA C & C data than it did with the BP data that included NGL (as Dennis thought it would).

If you have references to other price models, I am interested as well.

[Mar 20, 2016] One of the problems with using historical models to make predictions is that when disruptive technology comes along this type of model may have errors that are hard to adjust for

Notable quotes:
"... Since the EIA analysis is based on current production, changes in EURs and future areas of derisked production are not included. For example the Permian, and Three Forks have zones that have little production history and are not included. Also plays that are just opening up, like the Unita, which has 1.2 trillion barrels of OOIP, is just now seeing horizontal wells with good results being drilled in zones that has never see this type of drilling. ..."
"... With respect to LTO extraction, in my opinion the big revolution is that because of high initial flow rates and short investment cycles, LTO extraction has introduced boom bust economics to oil extraction. In terms of the price model LTO extraction could bring on a faster decline in oil extraction by scaring investors away from longer cycle extraction projects such as deep water. ..."
"... The Saudis recognized that LTO production growth was a product of cheap and plentiful financing. They set out to pop the bubble and they have. The bankruptcies are piling up. LTO economics are overstated. The wells will not produce anything close to what the companies claim. LTO could come back if the banks and debt investors are dumb enough to lend to the companies. My guess is that any debt financing will have much higher costs and tighter covenants. Borrowing for 10 years unsecured at 4-5% probably won't be coming back. ..."
peakoilbarrel.com

R DesRoches , 03/19/2016 at 10:09 am

One of the problems with using historical models to make predictions is that when disruptive technology comes along this type of model may have errors that are hard to adjust for.

Many believe that Light Tight Oil (LTO, also known incorrectly as shale oil), is only a high priced flash in the pan, that will quickly die. Over the past few years both of these assumptions are proven to be quite wrong.

The EIA on Sept 24, 2015 came out with an updated report under "Analyisis & Projections" called "World Shale Oil Assessments"

This analysis places the U.S. LTO resource potential at 78.2 billion barrels. A detailed breakdown can be seen by clicking on "US" in the
table.

The U.S. analysis is a bottoms up analysis taking (1) the area of potential, (2) well spacing, (3) EUR per well to determine what they call the "Technically Recoverable Resource " (TRR). When doing a Peak Oil Analysis, these is what the ultimate recoverable is.

It should be noted that EURs can change quite a bit so for example for the Bakken they sub divided it into 41 subregions.

The other piece of the disruptive technology is the cost of production. Over the last few years this has come down much more than many believe. The lower costs can be seen in two ways.

The first place is in the EIAs monthly "Productivity Report" which shows that rig production in barrels per day per month, for the last five years, in the Bakken has gone from 100 to 230, and in the Eagle Ford it has gone from 100 to 300. This equates to a major reduction in costs.

The second way lower costs can be seen is what ROR the oil and gas companies are expecting. For example EOG is estimating that their ATROR for five different plays is 30% at a WTI price of $40. Just a few years ago the threshold price of LTO was throught to be $80 to $100.

Since the EIA analysis is based on current production, changes in EURs and future areas of derisked production are not included. For example the Permian, and Three Forks have zones that have little production history and are not included. Also plays that are just opening up, like the Unita, which has 1.2 trillion barrels of OOIP, is just now seeing horizontal wells with good results being drilled in zones that has never see this type of drilling.

Schinzy , 03/19/2016 at 10:31 am
The beautiful part of this model is that it does not take extraction cost into account. Whatever the cost of extraction, based on what is extracted, this model gives you the price.

With respect to LTO extraction, in my opinion the big revolution is that because of high initial flow rates and short investment cycles, LTO extraction has introduced boom bust economics to oil extraction. In terms of the price model LTO extraction could bring on a faster decline in oil extraction by scaring investors away from longer cycle extraction projects such as deep water. Can LTO extraction replace all other types of extraction? If extraction levels decrease, the model says the base price will decrease as well. This will accelerate the contraction phase.

R DesRoches , 03/19/2016 at 12:14 pm
I believe that what has happened in this cycle in the oil market is that an increase in U.S. production from LTO of one million barrels a day for four years caused the S/D balance to shift to over supply.

The difference in this cycle, making it longer and deeper than expected is the Saudi change in response.

From 1999 to 2013, each time there was a dip in price the Saudis cut their production by an average of 1.5 million barrels a day. This happened five times.

In 2013 as prices started down they started to cut production, but then something changed. As prices went lower instead of cutting production they increased it by over one million a day.

Was it to punish Iran or Russia. I don't think so. I believe it was to slow down the runaway freight train of US LTO production. I believe that they understand the potential of this new resource to change the oil market.

John Keller , 03/19/2016 at 3:54 pm
The Saudis recognized that LTO production growth was a product of cheap and plentiful financing. They set out to pop the bubble and they have. The bankruptcies are piling up. LTO economics are overstated. The wells will not produce anything close to what the companies claim. LTO could come back if the banks and debt investors are dumb enough to lend to the companies. My guess is that any debt financing will have much higher costs and tighter covenants. Borrowing for 10 years unsecured at 4-5% probably won't be coming back.

[Mar 18, 2016] Oil price rise might be wrong but it is not irrational

Notable quotes:
"... It is sometimes said the futures curve is not "forward-looking". If that means the curve is not a simple forecast and is not good at predicting what will happen to spot prices in future, the statement is correct. ..."
"... Given many market participants believe oil supplies will fall sharply, demand will increase, and stocks will peak and begin to fall later this year, the recent rise in prices and narrowing of the contango are entirely rational. Any other price response would be irrational because it would violate the requirement for inter-temporal consistency. The market could be wrong in its expectations for supply, demand, stocks and prices later in the year and in 2017, but it is being absolutely rational. ..."
"... If futures prices are above the spot price, the spread is negative and the market is said to be in contango. If futures prices are below the spot, the spread is positive and the market is trading in backwardation. ..."
"... In most cases, rising spot prices will be accompanied by a narrowing of the contango (or a move from contango into backwardation). Conversely, falling spot prices will normally be accompanied by a widening of the contango (or a move from backwardation into contango). This is exactly what is happening at the moment: the market's newfound bullishness is resulting both in a rise in the spot price of Brent and a narrowing in the contango. ..."
"... In most cases, higher prices have been associated with a narrower contango, or even backwardation, while lower prices have been associated with a wider contango ( tmsnrt.rs/22p6Fmy ). ..."
"... In the current environment, the oil market is looking past short-term oversupply towards the end of 2016 and 2017 when oversupply is expected to be much less, or there might even be excess demand. ..."
"... Via the storage and inventory financing relationships embedded in the futures curve, the expectation of a future tightening in the supply-demand balance later in 2016 and 2017 is pulling up the spot price of oil now. ..."
uk.reuters.com

(John Kemp is a Reuters market analyst. The views expressed are his own)

* Chart 1: tmsnrt.rs/22p4vn8

* Chart 2: tmsnrt.rs/22p42kQ

* Chart 3: tmsnrt.rs/22p6Fmy

* Chart 4: tmsnrt.rs/22p49wG

By John Kemp

LONDON, March 17 The oil futures curve is flattening as a wave of bullishness washing across the market raises the price of near-dated contracts faster than that of contracts for deferred delivery.

Brent for delivery in May 2016 has risen more than $10 per barrel since early February, while prices for delivery in 2017 are up less than $7 over the same period.

The discount for Brent crude delivered in May 2016 compared with the average of 2017, a price structure known as contango, has narrowed from $9 to well under $6 per barrel since Feb. 11 ( tmsnrt.rs/22p4vn8 ).

The shape of the futures curve is intimately connected with expectations about supply, demand, stocks and the availability of storage ("Brent contango is hard to square with missing barrels", Reuters, March 10). So the narrowing contango implies the market now expects less oversupply and a smaller build-up in stocks in the months ahead. But market bullishness is at odds with warnings from influential analysts forecasting supply will continue to outstrip demand and stocks rise ("Oil shrugs off Goldman warning about premature rally", Reuters, March 14).

MAYBE WRONG, BUT RATIONAL

It is sometimes said the futures curve is not "forward-looking". If that means the curve is not a simple forecast and is not good at predicting what will happen to spot prices in future, the statement is correct.

But the futures market is actually very forward-looking and focused on how the balance between supply, demand, stocks and prices will evolve in the coming months and years. Via the futures curve and the mechanism of financing and storage, those expectations about medium-term supply, demand, stocks and prices are ruthlessly discounted back to the present.

Given many market participants believe oil supplies will fall sharply, demand will increase, and stocks will peak and begin to fall later this year, the recent rise in prices and narrowing of the contango are entirely rational. Any other price response would be irrational because it would violate the requirement for inter-temporal consistency. The market could be wrong in its expectations for supply, demand, stocks and prices later in the year and in 2017, but it is being absolutely rational.

SPOT PRICES AND SPREADS

The price of oil for delivery on a future date (e.g. calendar average 2017) can be thought of as the sum of a spot price (May 2016) and a spread (the price difference between May 2016 and the calendar average of 2017).

As a matter of convention, the spread is normally expressed as the spot price minus the futures price (it can just as easily be expressed the other way round).

If futures prices are above the spot price, the spread is negative and the market is said to be in contango. If futures prices are below the spot, the spread is positive and the market is trading in backwardation.

For example, if the future price is $50 and the spot price is $40, the future price can be analyzed as a spot price of $40 plus a spread of $10 contango.

Many real trades are arranged this way, with the customer buying (selling) near-dated futures contracts and then adjusting their position by selling (buying) the spread between the near date and the forward one. The advantage of executing trades as two transactions (spot and spread) rather than just one is that it enables dealers and customers to make best use of the greater liquidity in spot contracts. In principle, spot prices and spreads are determined independently and can move separately. In practice, there is normally a high degree of correlation between them.

In most cases, rising spot prices will be accompanied by a narrowing of the contango (or a move from contango into backwardation). Conversely, falling spot prices will normally be accompanied by a widening of the contango (or a move from backwardation into contango). This is exactly what is happening at the moment: the market's newfound bullishness is resulting both in a rise in the spot price of Brent and a narrowing in the contango.

PRICES MOVE TOGETHER

As the market becomes more bullish, the price of contracts for short-term delivery rises faster than the price of contracts for later delivery. The result seems paradoxical since an improved outlook for supply-demand balance over the next few months and years has its biggest impact on the price of oil delivered now. In fact, this behaviour is typical for oil and other commodity markets.

Over the period from 1992 to 2016, taken as a whole, there is no correlation between the level of oil prices and the degree of contango or backwardation in the futures curve ( tmsnrt.rs/22p42kQ ).

High spot prices have coincided with backwardation (January 2008) and contango (May 2008). Low spot prices have coincided with contango (January 1999) and backwardation (April 1999).

But the large shifts in the absolute level of prices since 1992 obscure the short-term relationship between spot prices and the shape of the futures curve. A more granular analysis reveals there has been a fairly close correspondence between spot prices and the shape of the futures curve for most sub-periods since 1992.

In most cases, higher prices have been associated with a narrower contango, or even backwardation, while lower prices have been associated with a wider contango ( tmsnrt.rs/22p6Fmy ). This relationship has held in almost all sub-periods since 1992 with the exception of 2005/06 and the first half of 2008 ( tmsnrt.rs/22p49wG ).

The relationship grows even stronger if we compare the change in prices with the change in the shape of the curve.

That makes sense since an increase in spot prices is associated with a narrowing of the contango, and a fall in spot prices is associated with a widening of the contango; both respond to the expected supply-demand balance.

LOOKING BEYOND THE GLUT

Since 1992, changes in the outlook for oil production, consumption and stocks have had the biggest impact on futures contracts near to delivery rather than those with longer maturities.

As a result, spot prices have been much more volatile than the price of futures contracts with many months or years to delivery. In the current environment, the oil market is looking past short-term oversupply towards the end of 2016 and 2017 when oversupply is expected to be much less, or there might even be excess demand.

Via the storage and inventory financing relationships embedded in the futures curve, the expectation of a future tightening in the supply-demand balance later in 2016 and 2017 is pulling up the spot price of oil now.

The market might be wrong to expect the supply-demand balance to tighten by the end of 2016 or early 2017. The short-term increase in oil prices could also be self-defeating if it stimulates more production and thereby perpetuates the oversupply ("New oil order: the good, the bad and the ugly", Goldman Sachs, March 11). But if the market is right to expect the supply-demand balance will tighten later in the year or in 2017, then spot prices have to rise now and the contango must narrow. Any other outcome would be time-inconsistent. (Editing by Dale Hudson)

[Mar 18, 2016] Low oil prices end 21st century gold rush

www.usatoday.com

The 21st century version of the American gold rush is coming to a swift end.
A shakeout is sweeping through the U.S. oil and gas business, putting small-time petroleum prospectors who got rich off of shale energy out of business as rock-bottom oil prices reshape the sector despite the commodity's slight uptick in recent weeks.
The pain low oil prices have sparked has spread into other corners of the energy industry. This week, coal miner Peabody Energy warned that it may have to file for bankruptcy protection and SunEdison, a developer, installer and operator of alternative energy plants said it discovered problems in its accounting processes, the latest in a string of troubles for the company.

[Mar 16, 2016] Ponzi always end when you run out of greater fools. And shale is at that point

Notable quotes:
"... I have read your comment on the last thread and I completely disagree with your point 2 that you make: "shale companies have always been growth-oriented, and the market (investors and lenders) has been rewarding them for growth rather than capital discipline." This a definition of ponzi scheme that you describe and ponzi always end when you run out of greater fools. And shale is at that point. Their relentless drilling of the remaining sweet spots AT ANY price will not change their financials at all. ..."
"... Oil price will steadily rise as shale start running out of the sweet spots and their production start decreasing so shale will never meet that imaginary price of $80-$100. Shale will run out of sweet spots long before the price is at $80-100 range. ..."
"... If we both agree that shale is continuously drilling regardless of price and profit how can you claim (on the last thread) that shale will make new peak in production at some imaginary future higher price point? What is the basis of that assumption? ..."
"... There was a very simple, albeit pervert, economic logic in 2015 - top brass bonuses (along with several other factors like pipeline contracts, etc). Redistribution of wealth up should never stop :-) ..."
"... Are you sure? Which of major banks anticipates bright conditions for junk bond market, and especially shale junk bonds, in 2017 ? I think most banks increased their loss provisions from junk for 2016. In view that survival of companies is in question, inquiring minds want to know, who are those happy investors who by trying to earn some extra points (chasing yield) already lost quite a bit of money and want to lose more. Or this is just new fools from never ending global supply. But like with oil there might be that "peak fools" moment is behind us :-) . ..."
"... If WTI is on average $40-45 by the end of the 2016 how much US shale and US total production will be on December 2017? ..."
"... The decline might be as high as 1.5 Mb/d for total US output if oil prices remain under $43/b, with shale maybe about half of this (800 kb/d), the EIA is predicting WTI at $35/b in Dec 2016 and $45/b in Dec 2017 (the EIA's oil price forecast is too low in my view). ..."
"... Very difficult to predict, it may be that capitulation in the US oil sector is close at hand. In that case output falls by more than I have guessed, but there is no way the EIA price forecast turns out to be correct in that case. ..."
"... If US falls by 1 Mb/d, that may be enough to balance the oil market,… ..."
"... And what do you think might happen in the rest of the world? In 2016 oil production will fall in most oil producing countries. Oil production will rise in a very few countries. The oil market may balance a lot sooner than a lot of people realize. ..."
"... You may be correct on that point. If we take the US and Canada out of the equation I think increases in Iran's output might balance the declines in World minus US+Canada+Iran. The question then becomes (if my previous assumption is roughly correct), how much does US+ Canada decline in 2016? My guess is 1.25 Mb/d. I would be interested in your estimate, because you track the numbers more closely than me. Or just your estimate for World C+C decline in 2016 would be fine. ..."
"... Thanks Dennis. I don't think the increase in Iranian production will come close to offsetting the decline in the rest of the world minus the US and Canada. I believe the decline in ROW less US and Canada will be about twice the increase expected from Iran. ..."
"... Breaking it down, Iran may increase production, from February, another half a million barrels per day. That would be almost 700,000 bpd from their January production. The rest of OPEC will be flat to down, most likely down slightly. Non-OPEC, less US and Canada will be down from one million to 1.2 million bpd from their December production numbers. ..."
"... Did you mean 1-2 oil sands project that are very close to completion in 2018? I think there is very minor one. But here is some hush – hush info from oil sands patch that there will not be any new oil sands project even if the price goes much higher in the near future without export pipeline in place. But who knows. ..."
peakoilbarrel.com
Ves , 03/15/2016 at 1:00 pm
Alex,

I have read your comment on the last thread and I completely disagree with your point 2 that you make: "shale companies have always been growth-oriented, and the market (investors and lenders) has been rewarding them for growth rather than capital discipline." This a definition of ponzi scheme that you describe and ponzi always end when you run out of greater fools. And shale is at that point. Their relentless drilling of the remaining sweet spots AT ANY price will not change their financials at all.

Oil price will steadily rise as shale start running out of the sweet spots and their production start decreasing so shale will never meet that imaginary price of $80-$100. Shale will run out of sweet spots long before the price is at $80-100 range.

AlexS , 03/15/2016 at 1:44 pm
Ves,

What is wrong in my statement?

You asked why companies are still drilling when oil price is $37 and they are making losses? I said that I do not see economic logic, but they were doing that in the past, continue to do so now, and will continue to drill and complete wells at loss in the future.

I do not mind if you call it "ponzi scheme", but this is reality. In the first 2 months of 2016 shale companies sold about $10 in equity, diluting existing shareholders, but they found new buyers. Bondholders are happy that oil companies' bonds are up 20% in the past month and are ready to invest more. Private equity is ready to invest tens of billions in distressed companies. I do not mind if you call all them fools, but this is reality.

Did I say that this is normal? I didn't. Did I say that this will continue forever? I didn't.

Ves , 03/15/2016 at 2:16 pm
Alex,

If we both agree that shale is continuously drilling regardless of price and profit how can you claim (on the last thread) that shale will make new peak in production at some imaginary future higher price point? What is the basis of that assumption?

likbez , 03/15/2016 at 10:54 pm
Alex,
You asked why companies are still drilling when oil price is $37 and they are making losses? I said that I do not see economic logic

There was a very simple, albeit pervert, economic logic in 2015 - top brass bonuses (along with several other factors like pipeline contracts, etc). Redistribution of wealth up should never stop :-)

But 2016 is a completely different game. "After me deluge" type of thinking on the top run its course: they run out of money and can't get new loans. For most shale companies it was something like waking up the next morning after several days of binge drinking…

Bondholders are happy that oil companies' bonds are up 20% in the past month and are ready to invest more.

Are you sure? Which of major banks anticipates bright conditions for junk bond market, and especially shale junk bonds, in 2017 ? I think most banks increased their loss provisions from junk for 2016. In view that survival of companies is in question, inquiring minds want to know, who are those happy investors who by trying to earn some extra points (chasing yield) already lost quite a bit of money and want to lose more. Or this is just new fools from never ending global supply. But like with oil there might be that "peak fools" moment is behind us :-) .
http://knowledge.wharton.upenn.edu/article/do-junk-bond-defaults-signal-trouble-for-2016/

The iShares iBoxx $ High Yield Corporate Bond ETF, a $14.4-billion exchange traded fund that tracks the performance of the junk-bond market, posted an annual loss of 5.5%, and ended 2015 off a startling 12.4% from its February high. Likewise, the S&P U.S. Issued High Yield Corporate Bond Index lost 3.99% for the year, while BofA Merrill Lynch U.S. High Yield Index fell 5% for the year, its first annual loss since 2008.

BTW Vanguard increased the quality of bonds in their junk bond fund. And that means that they think that the storm is ahead not behind us.

Dennis Coyne , 03/15/2016 at 1:48 pm

Hi Ves,

When do you think oil will reach $90/b, if ever?

In the Bakken, the number of well completions has fallen from 185/month for the 12 months ending in March 2015 to 70 well completions in January.

If US falls by 1 Mb/d, that may be enough to balance the oil market, output in Canada may also fall, the low oil prices will eventually reduce output and oil prices will rise maybe by late 2016, eventually (probably 6 months later) oil output will gradually flatten and then rise, possibly reaching the previous peak, this will depend in part on demand for oil and the price of oil.

Ves , 03/15/2016 at 2:26 pm
Dennis,

" When do you think oil will reach $90/b, if ever?" No idea.

If WTI is on average $40-45 by the end of the 2016 how much US shale and US total production will be on December 2017?

Dennis Coyne , 03/15/2016 at 6:30 pm
Hi Ves,

The decline might be as high as 1.5 Mb/d for total US output if oil prices remain under $43/b, with shale maybe about half of this (800 kb/d), the EIA is predicting WTI at $35/b in Dec 2016 and $45/b in Dec 2017 (the EIA's oil price forecast is too low in my view).

Very difficult to predict, it may be that capitulation in the US oil sector is close at hand. In that case output falls by more than I have guessed, but there is no way the EIA price forecast turns out to be correct in that case.

Ves , 03/15/2016 at 8:05 pm
Hi Dennis,
I agree on EIA price prediction in sense that I always stay away from predicting price for anything. Even for my weekly grocery shopping bag. :-)
Ron Patterson , 03/15/2016 at 2:30 pm
If US falls by 1 Mb/d, that may be enough to balance the oil market,…

And what do you think might happen in the rest of the world? In 2016 oil production will fall in most oil producing countries. Oil production will rise in a very few countries. The oil market may balance a lot sooner than a lot of people realize.

Dennis Coyne , 03/15/2016 at 5:44 pm
Hi Ron,

You may be correct on that point. If we take the US and Canada out of the equation I think increases in Iran's output might balance the declines in World minus US+Canada+Iran. The question then becomes (if my previous assumption is roughly correct), how much does US+ Canada decline in 2016? My guess is 1.25 Mb/d. I would be interested in your estimate, because you track the numbers more closely than me. Or just your estimate for World C+C decline in 2016 would be fine.

Ron Patterson , 03/15/2016 at 6:48 pm
Thanks Dennis. I don't think the increase in Iranian production will come close to offsetting the decline in the rest of the world minus the US and Canada. I believe the decline in ROW less US and Canada will be about twice the increase expected from Iran.

Breaking it down, Iran may increase production, from February, another half a million barrels per day. That would be almost 700,000 bpd from their January production. The rest of OPEC will be flat to down, most likely down slightly. Non-OPEC, less US and Canada will be down from one million to 1.2 million bpd from their December production numbers.

That is my estimate, for what it's worth.

Dennis Coyne , 03/15/2016 at 7:10 pm
Hi Ron,

Thanks. I was under the impression that there were projects coming on line in that would offset some of the 1.2 Mb/d decline in non-OPEC less US and Canada. I may be wrong of course (happens all the time). :-)

Ron Patterson , 03/15/2016 at 7:32 pm
Dennis, you just have not been following the news. Yes there were projects coming on line. But those projects were cancelled.

Hey, start paying attention.

Ves , 03/15/2016 at 8:11 pm
Hi Dennis,

Did you mean 1-2 oil sands project that are very close to completion in 2018? I think there is very minor one. But here is some hush – hush info from oil sands patch that there will not be any new oil sands project even if the price goes much higher in the near future without export pipeline in place. But who knows.

[Mar 12, 2016] Looks like shale industry has finally cut production providing a good basis for a significant price rise in the fall of 2016

While the oil price will rise in 2016, it will stay below the level at which shale production is profitable. But drilling activity will start increasing again at price levels below breakeven. I have recently read a prediction that we need to see $60-70 WTI to see many rigs added. Completion rate will fall to around 50 new wells per month by May and might stays at that level until Dec 2016. It is unclear how many more wells can be drilled in the remaining "sweet spots" and drilling might be forced to move into more marginal areas Hovering around 100 per month during 2015, spuds plunged in February 2016 to a multi year low of 29. https://www.dmr.nd.gov/oilgas/stats/2016monthlystats.pdf.
Notable quotes:
"... In my opinion, the industry has finally cut production in earnest. This is very likely the main reason for the recent price recovery. The latest action provides a good basis for a significant price rise in the fall of 2016. ..."
peakoilbarrel.com
Heinrich Leopold, 03/12/2016 at 7:38 am
ALexS, shallow sand, Dennis

In my view actual spuds are very important for production numbers (see below chart).

Hovering around 100 per month during 2015, spuds plunged in February 2016 to a multi year low of 29. https://www.dmr.nd.gov/oilgas/stats/2016monthlystats.pdf.

In my opinion, the industry has finally cut production in earnest. This is very likely the main reason for the recent price recovery. The latest action provides a good basis for a significant price rise in the fall of 2016.

[Mar 11, 2016] IEA sees signs oil price might have bottomed out

businesstimes.com.sg
The oil price may have finally bottomed out, the International Energy Agency (IEA) said Friday, noting its "remarkable recovery" over recent weeks.

In its monthly report, the IEA said talk among oil producers to freeze production amounts to "a first stab at co-ordinated action" with the presumed aim of pushing oil up to US$50 a barrel, compared with about US$40 now.

Among other factors restraining oil supply the IEA said that Iran's return to the market had been "less dramatic than the Iranians said it would be".

[Mar 11, 2016] Goldman Sachs cuts crude oil price forecasts for this year and next

businesstimes.com.sg

THE BUSINESS TIMES

The bank said it expects Brent prices to average US$39 a barrel in 2016 and US$60 a barrel in 2017, down from its previous forecasts of US$45 and US$62 a barrel respectively.

Goldman also trimmed its 2016 West Texas Intermediate (WTI) price forecast by US$7 to US$38 a barrel, and its 2017 price forecast by US$2 to US$58 a barrel.

Predicting a slower recovery into next year and sharper oil production declines in 2016, the bank said it does not foresee production hitting previous peaks until mid-2018.

[Mar 11, 2016] Oil boom fuelled by junk debt faces wave of defaults

Notable quotes:
"... Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd predicts US$70 billion of energy, metal and mining defaults this year, and notes that US$77 billion of energy bonds are bid below 50 cents, according to a note Thursday. ..."
THE BUSINESS TIMES
Investors are facing US$19 billion in energy defaults as the worst oil crash in a generation leaves drillers struggling to stay afloat.

The wave could begin within days if Energy XXI Ltd, SandRidge Energy Inc. and Goodrich Petroleum Corp. fail to reach agreements with creditors and shareholders. Those are three of at least eight oil and gas producers that have announced missed debt payments, triggering a countdown to default.

"Shale was a hot growth area and companies made the mistake of borrowing too much," said George Schultze, founder and chief investment officer of Schultze Asset Management in New York, which has been betting against several distressed energy companies.

"It's amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse."

Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd predicts US$70 billion of energy, metal and mining defaults this year, and notes that US$77 billion of energy bonds are bid below 50 cents, according to a note Thursday.

A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich didn't respond to requests seeking comment.

"Absent a material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection," Energy XXI said in a March 7 public filing.

Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that would convert its unsecured debt and preferred shares into common stock. For the plan to work, shareholders must approve it at a March 14 meeting and enough bondholders need to participate by the March 16 exchange deadline.

"Absent a successful completion of the recapitalisation plan, the company will have no alternatives other than to seek protection through the bankruptcy courts," Walter Goodrich, chairman and chief executive officer, said on a March 9 conference call.

[Mar 11, 2016] International Rig Count Oil price spike might come as early as August or September 2016

Notable quotes:
"... Not an expert on Canada drilling but the production numbers won't be that impressive in 6 months as I understand this is the time they suppose to be drilling. ..."
"... AND since US + Canada are the ones that been keeping world production up we all need to hope for some serious Iran drilling in the coming months (won't happen though). Price spike here we come my and my guess this is in August/September. ..."
peakoilbarrel.com
AlexS, 03/11/2016 at 1:33 pm
Oil rigs 386 -6
Gas rigs 94 -3

Horizontal 375 -14
Vertical 55 -3
Directional 50 +8

Oil rigs in key LTO basins:

Permian: 150 -6
Bakken 32 -1
Eagle Ford 37 -3
Niobrara 15 unchanged

Although the overall decline in oil rigs is slowing, key tight oil basins have lost 10 oil rigs.

Also note a significant decline in horizontal rigs.

Horizontal rigs drilling for oil:
– down from 311 to 301 for the week.
– down 120 units (-28.5%) from the end of 2015
– down 814 units (-73%) from the peak on November 26, 2014

Amatoori, 03/11/2016 at 2:44 pm
Oh Canada

Canadian Rig Count is down 31 rigs from last week to 98, with oil rigs down 22 to 28, and gas rigs down 9 to 70.

Canadian Rig Count is down 122 rigs from last year at 220, with oil rigs down 57, and gas rigs down 65.

Not an expert on Canada drilling but the production numbers won't be that impressive in 6 months as I understand this is the time they suppose to be drilling.

AND since US + Canada are the ones that been keeping world production up we all need to hope for some serious Iran drilling in the coming months (won't happen though). Price spike here we come my and my guess this is in August/September.

Everyone will be like: I thought we had a surplus? WTF happened?

[Mar 10, 2016] Anadarko Petroleum cutting 17 percent of workforce

Fuel Fix

Executives of the Woodlands-based oil explorer had said last month it would reduce its capital spending by half this year amid low oil prices and evaluate its staffing needs as it reduces activity.

... ... ...

After an 18-month oil bust, energy layoffs are nothing new. Oil producers, their suppliers, service providers and equipment makers, along with refineries and pipeline operators, have so far cut more than 320,000 jobs worldwide, according to Houston consultancy Graves & Co., which has tracked industry layoffs since the downturn began.

Within the United States, Anadarko produces oil and gas in Colorado's DJ Basin, in the Permian Basin in West Texas, in the Gulf of Mexico and elsewhere. After ConocoPhillips, it's the second-largest independent U.S. oil company, which means it doesn't have its own refining assets like Chevron Corp. and Exxon Mobil Corp.

... ... ...

It's about the same size reduction that Apache Corp. made last year. Houston-based Apache cut more than 1,000 employees, or 20 percent of its workforce, through direct reductions and asset sales in 2015, which included its liquefied natural gas assets in Canada and Australia and its upstream unit in Australia.

David Walters · Houston Community College

All that bold talk a year ago how Houston's economy is so much more diverse is facing its first real test.

Glenn Gustafson · University of Houston

Trouble in the oil bidness always means tough times for Houstonians. Best wishes to those who have/will lose jobs because of this.

Douglas James Fusilier · Spring, Texas

Thank God I'm still holding on. I feel for all my colleagues who have lost jobs in this downturn.

Terry Smith · Publisher/General Manager at Amazing Publishers

Fourth largest oil company and they only have about 6,000 employees?

[Mar 10, 2016] Oil market rally could 'rip people's faces off'

finance.yahoo.com

While some investors are predicting that market expectations for oil at $50 a barrel might be too fast, and too soon , Bill Smith, chief investment officer and senior portfolio manager at Battery Park Capital, told CNBC the energy sector will find equilibrium by the second quarter of 2016. And it will not be pretty for those holding bearish trades.


Speaking to CNBC's " Squawk Box ", Smith said if indeed oil prices stabilize, much-battered energy stocks will follow crude prices higher.


"It's going to be a short covering rally that rips people's faces off," said Smith. "It's going to be ugly."


Battery Park Capital has assets under management worth $340 million. Short-selling refers to selling an asset in the hope of buying it back at a lower price later. The recovery in oil prices has been supported by reports suggesting that oil producers are planning to work together to reduce excess supply in the market.


Earlier this week Reuters, citing New York-based oil industry consultancy PIRA , reported major OPEC producers were discussing a new price equilibrium of around $50 a barrel.


Broadly, Smith was less upbeat about the U.S. economy. He said while the economy wasn't heading into recession, it wasn't growing either.

.. View gallery
Oil market rally could &#39;rip people&#39;s faces&nbsp;&hellip;
Nick Oxford | Reuters. Investors betting on falling shares of energy companies could have their &quo …

"We don't have the building blocks to bust out and go on a growth trajectory," he said, adding there's no reason for runaway inflation at this point in time.


Government data showed core inflation rose 1.7 percent in the 12 months ended in January. The U.S. Federal Reserve 's inflation target is at 2 percent.


But Smith said he doesn't see any reason why the Fed would raise interest rates just yet, even due to currency risks.

Last December, the Fed raised interest rates from near zero percent for the first time since 2006. Following the rate hike, the dollar initially found strength against major currencies around the world before losing some momentum earlier this year. But the move also created a major sell-off in global stock markets in January.


The Federal Open Market Committee is due to meet next on Mar. 15 - 16.


Smith said, "Every time they even talk about raising rates, the dollar rips higher and it's just creating chaos globally. So, I would much rather see them sit on the sidelines now."

[Mar 09, 2016] EIA oil price predictions are just spam

Notable quotes:
"... EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production. ..."
"... Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing there could be a real supply squeeze coming and are seeing real evidence of that anticipation based upon some long term offers to hedge well above the current strip, sharply increased local basis and refinery planning chatter. ..."
"... And that talk of 500k from Iran waiting to flood the market is bogus story from the beginning and it was just used to perpetuate "glut" narrative. ..."
"... Iran will not piss 500k at these prices unless there is a deal between Russians and Saudis regarding the quotas. ..."
"... As for prices, Alex should always superimpose EIA STEO prediction from a year ago on the current. Otherwise posting such a graph does not make much sense and looks like a free promotion for crappy job that EIA performs with this metric :-) ..."
"... BTW they are unrealistic by design as they are based on futures. Futures are a bad predictor of oil prices dynamics as they are often used by producers and by hedge funds for hedging and offsetting other bets. Probably worse then a typical "oil expert" predictions :-) ..."
peakoilbarrel.com
shallow sand, 03/09/2016 at 10:02 am
ND rigs at 33. Burlington has one to stack. My estimate is rigs will bottom at 26-27.

EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production.

Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing there could be a real supply squeeze coming and are seeing real evidence of that anticipation based upon some long term offers to hedge well above the current strip, sharply increased local basis and refinery planning chatter. All are anecdotal, but are not signifying worries of tanks topping.

Ves, 03/09/2016 at 1:03 pm
re Iraq and Iran,

Also add 600k disruption from Iraq Kurdish area due to complete change in geopolitics in that area, that 600k is NOT coming back to the market until there is deal and safe infrastructure on moving that oil towards the south terminals through areas controlled by Iraq government. And that talk of 500k from Iran waiting to flood the market is bogus story from the beginning and it was just used to perpetuate "glut" narrative.

Iran will not piss 500k at these prices unless there is a deal between Russians and Saudis regarding the quotas.

I would just watch March 20th meeting and try to decode the statements from the meeting.

likbez, 03/09/2016 at 3:31 pm
ShallowS,

EIA oil price projections are unrealistically low IMO

As for prices, Alex should always superimpose EIA STEO prediction from a year ago on the current. Otherwise posting such a graph does not make much sense and looks like a free promotion for crappy job that EIA performs with this metric :-)

BTW they are unrealistic by design as they are based on futures. Futures are a bad predictor of oil prices dynamics as they are often used by producers and by hedge funds for hedging and offsetting other bets. Probably worse then a typical "oil expert" predictions :-)

[Mar 08, 2016] I suspect farmers were buying diesel fuel in the past several weeks for field work coming up in the next two months.

peakoilbarrel.com
R Walter, 03/07/2016 at 7:03 am
I suspect farmers were buying diesel fuel in the past several weeks for field work coming up in the next two months.

Two million farmers buying 2100 gallons of diesel fuel is 42,000,000,000 gallons, 1,000,000,000 barrels of diesel fuel; there it was, gone.

A thousand gallon on farm diesel tank, pour some into the tractors, trucks, all which will hold another thousand gallons easy, you have your demand in storage waiting to be burned doing field work. The pickups have a one hundred gallon tank in the pickup bed for some more fuel, fill those too. Fill the combine too, add some stabilizer, you're ready to go.

Plus a can of starting fluid for cold starts, just what you need to start a cold diesel engine.

Might as well order it before the price starts to rise in April. No sense in spending another fifty cents per gallon, that is another 21 billion dollars and might as well have it in the bank account for some fertilizer and soybean seed.

Just a hunch.

[Mar 08, 2016] How to Play This Short-Covering Rally in Oil by Daniel Dicker

realmoney.thestreet.com

... ... ...

My point is that in the energy space, shockingly, money continues to pour in whenever it's being requested.

The facility of even the most distressed oil company to raise capital, and the least distressed feeling the need to do so, combined with the short covering move in oil futures, rightly spooked the equity shorts everywhere in the oil sector. You might be waiting to see a stock go, rightly, to zero, but if companies are continually able to extend their timelines on that at will, the possibility that oil will recover in time to save them obviously increases the risk in the short position.

The short-covering panic affected the sector stocks differently, of course -- those with the strongest balance sheets and lowest short commitment rallied the least; those on the other side of the spectrum -- the ones most likely (still) to face Chapter 11 (like SeaDrill) rallied spectacularly.

But now where are we? There's been a long-overdue, short-covering rally that I've been expecting. So what? And now what?

Here are some things I can say:

Oil has bottomed. We won't see any of the $10 or $20 targets that some have picked. Unless the momentum algorithms regroup and again begin to accumulate (which is easily trackable), we won't even see another $26 retest again, in my view. The contango (again trackable) would have to begin to spike outwards as well.

Oil still isn't ready to get long-term bullish, yet, either. While this short covering could easily take prices back to $40, that still only gets oil from a ridiculously, unsustainably low price to merely an unsustainably low price. We still need to see a whittling away of producers and drillers before any rally can be sustained. Drillers like SeaDrill have managed to "add wick to their time bomb fuses" but we still await a few of those bombs to explode before we'll be convinced the bear market is turning for good.

[Mar 07, 2016] Interesting we are seeing a crude oil rally in March, as in 2009 and 1999

Notable quotes:
"... Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold. ..."
"... There are some that are saying this is due to a massive short squeeze ..."
"... Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20) agreement. Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off. ..."
peakoilbarrel.com
Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold.
Marcus , 03/07/2016 at 5:27 pm
There are some that are saying this is due to a massive short squeeze as happened recently with iron ore, but I had not thought about the March correlation.
twocats , 03/07/2016 at 5:46 pm
Last April didn't include the most important presidential election this country has seen in decades. If either of the two insurgent candidates wins it could deliver a mortal blow to the empire. Anyone who thinks they know why the price of oil is rallying is living in crazy-town.

Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20) agreement. Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off.

[Mar 07, 2016] What A Falling Rig Count Can Do For Oil Prices

OilPrice.com

The more recent descent of oil prices below $30 per barrel is inducing another period of contraction in drilling activity, which is clearly visible with the rig count in free fall.

Individual shale basins are feeling the pinch to various degrees. The Eagle Ford shale in South Texas, for example, had over 200 rig counts as of late 2014. That figure has fallen to just 46 as of early March. Oil production from the Eagle Ford has declined by 0.5 million barrels per day since the middle of last year. The Permian Basin in West Texas had over 500 oil and gas rigs at the end of 2014, a level that has plunged to just 158. Oil production from the Permian has finally come to a halt, and could begin to decline through this year.

There tends to be a lag between movements in the oil price and the resulting effects on the rig count. As a result, the rig count may not rebound immediately even if oil prices rise. That means that with production in the U.S. now declining, the declines should continue at a steady pace until oil prices post a sustained rally.

[Mar 07, 2016] Contraction In U.S. Shale Pushes Oil To $40

OilPrice.com

Oil speculators are becoming more bullish on oil prices. Hedge funds are rapidly liquidating their short bets, as fears of sub-$20 oil have all but vanished for now. According to data from the CFTC, net-short positions fell by 15 percent for the week ending on March 1. "We might see the real bottom being behind us," Ed Morse, head of global commodity research at Citigroup Inc., said on Bloomberg TV on March 4.

In addition, although a lot of questions remain, OPEC representatives are planning on meeting with Russia's energy minister between March 20 and April 1 to follow up on their production "freeze" agreement. An outright cut to production remains a long-shot, especially since Saudi Arabia's oil minister Ali al-Naimi all but ruled it out at the IHS CERAWeek conference in Houston in late February. It is hard to imagine OPEC and Russia shifting course from the production freeze, but any agreement to take additional action represents an upside risk to oil prices.

Given the mounting evidence, it seems that the oil price rally is finally here, then? Maybe. But it is also possible that bullish sentiment is starting to outstrip the fundamentals, even if the fundamentals are trending in the right direction.

[Mar 07, 2016] Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45?

Notable quotes:
"... Anyone who thinks they know why the price of oil is rallying is living in crazy-town. Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20 agreement). ..."
peakoilbarrel.com
shallow sand, 03/07/2016 at 5:19 pm
Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold.
Marcus, 03/07/2016 at 5:27 pm
There are some that are saying this is due to a massive short squeeze as happened recently with iron ore, but I had not thought about the March correlation.
twocats, 03/07/2016 at 5:46 pm
Last April didn't include the most important presidential election this country has seen in decades. If either of the two insurgent candidates wins it could deliver a mortal blow to the empire. Anyone who thinks they know why the price of oil is rallying is living in crazy-town. Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20 agreement). Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off.

[Mar 07, 2016] How Traders Benefit from the Crude Oil Contango Market - Market Realist by Gordon Kristopher

Feb 5, 2016 | marketrealist.com

contangoEnlarge Graph

Cost of storing crude oil

Crude oil traders like Vitol Group and BP (BP) take advantage of the broader contango market. These traders buy front-month crude oil futures contracts and take delivery upon their expiration. They store this crude oil in Cushing, Oklahoma, and then sell it at higher prices in six months. Industry surveys estimate that leasing costs at large tanks in Cushing were 25–35 cents per barrel per month compared to the 12-month contango price of $8.27 per barrel, as shown in the chart above. Thus, the storage cost of crude oil for 12 months could be $4.20 per barrel at most, keeping administrative fees and other pumping costs at $1 per barrel for 12 months. This means traders could make a profit of $3 per barrel.

Further, the EIA (U.S. Energy Information Administration) estimates that storing crude oil in large oil tankers for several months is expensive. It estimates that the trade will be unviable until contango conditions reach $10–$12 per barrel. Citigroup suggests that if oil prices fall below $30 per barrel, it would be unviable to store crude oil at sea.

Effect on crude oil tankers

However, long-term oversupply and the broader contango market have benefited oil tankers like Nordic American Tankers (NAT), Teekay Tankers (TNK), Frontline (FRO), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP).

The steep contango conditions in the ultra-low sulfur diesel market provide opportunity for contango traders and supertankers. Ultra-low sulfur diesel inventories in the United States have risen more than total motor gasoline inventories since the middle of June 2014.

ETFs and ETNs like the United States Oil Fund (USO), the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), the VelocityShares 3X Long Crude Oil ETN (UWTI), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) are also influenced by the rises and falls in crude oil prices.

In the next part of this series, we'll shift our focus to the US crude oil rig count.

[Mar 07, 2016] What is it like being an oil trader?

Notable quotes:
"... The trader's life is also made trickier by the volatility in the market, which has seen prices rise and fall by several dollars a barrel in a day. "Over the last two or three years we've seen a huge increase in volatility and that's probably due to moving more from a physical group of companies trading to a financial-based scenario," he says. ..."
"... "It's the momentum of these big hedge funds and financial institutions, which makes the market move by percentage points rather than the 30 or 40 cents you used to get three or four years ago." ..."
"... Those sudden, big movements make it difficult for traders to be off-duty. "You can never leave your position, even if technically you've left it, ie you've gone home," Ms Clubley says. ..."
www.bbc.com

24 February 2008 | BBC News


Oil traders never stop talking to each other. Oil traders have to weigh up a great deal of information


The most popular software among oil traders is not an oil trading package or even a news service such as Reuters - it is Yahoo Instant Messenger.

"Trading oil is about getting information and knowing where the market is," says Eivind Lie who runs the trading desk at the Norwegian oil company StatoilHydro's offices in London.

"So being a trader your life is pretty much either on Yahoo or on the telephone trying to get an overview of the market."

Keeping in touch

While people trading shares or currencies can get a lot of their information from analysts' notes and computerised trading systems, the oil trader still relies on chatting to a wide range of people, ranging from other traders to specialist oil trading journalists, to try to find out what is going on in the world.

Everything from war or natural disasters to more mundane events such as seasonal changes to temperatures or elections can affect oil prices, so for the traders it pays to be informed.

Richard Wickham, one of the crude oil traders at Statoil, makes his first call to the office on the way to the station after he has dropped his children off at the nursery.

Then as soon as he gets to the office he will read price reports and messages from Statoil staff who have been trading in the US and Asia and talk to the London-based analyst.

After that, the less formal process of talking to people really gets going.

"Collating information is more than half the job," Mr Wickham says.

"Executing trades is almost small in comparison - if you don't have the information you're blind," he says, staring at the four computer screens on his desk, which display a bewildering array of graphs, figures, reports and message windows.

There is little else on the desk besides family photographs and a strategically-placed Norwegian dictionary, for when he is trying to understand messages from the company's head office in Stavanger.

Distressed cargoes

Statoil is one of the world's largest exporters of oil and, with oil topping $100 a barrel on supply concerns, its products are in great demand.

Yet it has a relatively small trading desk in London, with just a handful of traders. "If it's a weak market then we have to go out and sell it more actively, if it's a strong market they come and buy it from us," Mr Lie says. Currently, demand is strong, though the traders are nevertheless on the phone, talking to other traders, analysts and brokers.

Everyone in the market for physical oil - as opposed to paper market traders, who do not want to end up owning any oil - is looking for that precious piece of information that will allow them to sell oil for more, or buy it for less.

"From our side, as the seller of oil, we want to get to know the buyer's position," Mr Lie says. "Are they short of oil, do they really need more?" The holy grail for buyers is to find a seller having difficulty selling a shipment. "If you get too close to the delivery date, when it's taken aboard a ship in the North Sea, and it's not sold, then the buyers know that we have what's called a 'distressed cargo', so they will try to get a cheap price for that," he adds.

Volatile market

It may be a good time to be a seller of oil, but the way oil is traded means it can still be nerve-wracking. "There are a lot of market price contracts where I would sell you oil today, but we price it the day the ship loads, which might be in three of four weeks time," says Sally Clubley, an independent oil consultant who trains oil traders.

"So we've done the deal today, but we don't know the price today and there's a lot of oil traded on that basis."

The trader's life is also made trickier by the volatility in the market, which has seen prices rise and fall by several dollars a barrel in a day. "Over the last two or three years we've seen a huge increase in volatility and that's probably due to moving more from a physical group of companies trading to a financial-based scenario," he says.

"It's the momentum of these big hedge funds and financial institutions, which makes the market move by percentage points rather than the 30 or 40 cents you used to get three or four years ago."

Those sudden, big movements make it difficult for traders to be off-duty. "You can never leave your position, even if technically you've left it, ie you've gone home," Ms Clubley says.

"It really is a 24-hour job because they don't trust anybody else with it."

Mr Lie agrees.

"I think some of the traders always carry their phones, even on vacations," he says. "It's a lifestyle more than a job so you have to enjoy it."

[Mar 06, 2016] Exxon CEO Industry mired in debt has destroyed value, encumbered U.S. oil resources by Collin Eaton

Notable quotes:
"... In the years of $100 oil, U.S. oil companies took out half a trillion in risky corporate debt known as junk bonds and leveraged loans, both of which are considered at high risk of default. That money fueled the nation's shale oil bonanza. Since December, some of the same domestic explorers have raised $9.54 billion from equity investors to cover their swelling debt obligations. ..."
"... Tillerson's assessment of the U.S. oil industry likely comes as a disappointment to market observers speculating that Exxon Mobil will make a multibillion-dollar corporate acquisition anytime soon. ..."
"... What's more, companies that would consider selling themselves are still expecting too-high prices, so deal-making has "gotten more difficult, not easier," Tillerson said. ..."
"... "We take a lot of grief when the volumes don't grow," Tillerson said. "It doesn't bother us. We know it's all about the shareholder's money. One of the things that seems to be lost on people is just staying flat when you're running a depleting business, that's quite an accomplishment." ..."
"... He said the company invested about $190 billion over the past decade – that's about half its current stock-market value – but its production growth has lagged behind wildcatting peers. ..."
"... Exxon Mobil has had a reputation of relentless cost-cutting for more than a century, since the days of J.D. Rockefeller's Standard Oil, its 19th century corporate ancestor, which, unlike many other modern oil companies, started as a margins-based refining business, and gradually entered the oil-production side. ..."
"... "This current environment actually plays to our strengths," Tillerson said. ..."
"... The Exxon Mobil chief said oil prices could go lower than current levels, as producers are still oversupplying a global oil market that doesn't need as much oil at the moment. The global economy isn't "particularly inspiring," with U.S. gross domestic product likely to come in under 3 percent this year and China's transition from a diesel-heavy manufacturing economy. ..."
"... Still, even when oil prices recover, it may not matter for some over-levered companies. "We don't feel compelled to be in a big rush (to transact an acquisition) even if the environment changes for some of these companies, it doesn't necessarily change the value proposition because of the shape they put themselves in," Tillerson said. ..."
fuelfix.com

March 2, 2016 | Fuelfix

The CEO of Exxon Mobil says buying a rival U.S. oil driller would be like purchasing a home with a big mortgage and a sliver of equity: it's a lot of debt to pay off, with little to show for it.

For the biggest U.S. oil company, the nation's shale oil and gas resources look promising, but they've been "encumbered" by smaller independent exploration and production companies that are struggling to pay off high levels of debt and that have diluted shareholder value in a recent string of stock sales.

"There's been a fair amount of value destruction in the past year as they have continued to access capital markets and levered up," Exxon Mobil Chairman and CEO Rex Tillerson told investors on Wednesday, during an annual investor update. The big question in weighing today's slate of takeover targets, he said, is this: "Is it going to add value or has the value just kind of been destroyed?"

In the years of $100 oil, U.S. oil companies took out half a trillion in risky corporate debt known as junk bonds and leveraged loans, both of which are considered at high risk of default. That money fueled the nation's shale oil bonanza. Since December, some of the same domestic explorers have raised $9.54 billion from equity investors to cover their swelling debt obligations.

Deal or no deal?

Tillerson's assessment of the U.S. oil industry likely comes as a disappointment to market observers speculating that Exxon Mobil will make a multibillion-dollar corporate acquisition anytime soon.

It is perhaps the only large integrated oil company with the cash to purchase a major rival amid the ongoing oil downturn, but even after a year and a half, it hasn't explicitly telegraphed it will be part of an impending wave of corporate consolidation in the oil industry – an event often predicted by often-frustrated observers.

What's more, companies that would consider selling themselves are still expecting too-high prices, so deal-making has "gotten more difficult, not easier," Tillerson said.

"It's tough for us because we would like to do something," he said. "We see there's a lot of quality resources out there, it's just how they've been encumbered. What we're finding is we're spending more of our time on asset deals."

Borrowing to invest

Exxon Mobil this week announced it would borrow $12 billion in corporate debt, which could supplement the Irving-based company's war chest of cash if it wanted to buy another company.

But Tillerson didn't go into detail about what the sum was meant for, only reemphasizing the company's focus on building value for long-term shareholders, either through investing in projects or sending the cash it generates back to investors.

"These projects have returns that are multiples over our borrowing costs," he said. "So that's the way I view the borrowing. We're going to put the money to work. We're not going to borrow to write a check to somebody."

Exxon Mobil is planning to cut its capital spending 25 percent this year to $23.3 billion, after a rough 2015 in which the company wrung less than half the cash out of the dollars it spent compared to the last five years.

The company's return on capital employed, one of the most important financial metrics for Exxon Mobil, sank from an average 18 percent over the past five years to 7.9 percent in 2015, but it was still 4 percentage points above its closest rival, French oil company Total.

Depleting business

As it cuts back, the company believes it will produce between 4 million and 4.2 million barrels of oil equivalent a day through the end of the decade, keeping its production flat, in line as last year's 4.1 million barrels a day. That's less than the daily 4.3 million barrels it had planned in 2017, but it's doesn't deter Exxon Mobil from its true goal – building shareholder value, Tillerson said.

"We take a lot of grief when the volumes don't grow," Tillerson said. "It doesn't bother us. We know it's all about the shareholder's money. One of the things that seems to be lost on people is just staying flat when you're running a depleting business, that's quite an accomplishment."

He said the company invested about $190 billion over the past decade – that's about half its current stock-market value – but its production growth has lagged behind wildcatting peers.

"That just tells you how hard it is to hold your own in a depleting business," he said. "What we're really trying to do is just deliver the best value. Nothing has changed about that."

Exxon Mobil has had a reputation of relentless cost-cutting for more than a century, since the days of J.D. Rockefeller's Standard Oil, its 19th century corporate ancestor, which, unlike many other modern oil companies, started as a margins-based refining business, and gradually entered the oil-production side.

"This current environment actually plays to our strengths," Tillerson said.

Current environment

The Exxon Mobil chief said oil prices could go lower than current levels, as producers are still oversupplying a global oil market that doesn't need as much oil at the moment. The global economy isn't "particularly inspiring," with U.S. gross domestic product likely to come in under 3 percent this year and China's transition from a diesel-heavy manufacturing economy.

"I don't think we can look to the market's demand side to necessarily solve this quickly for us," he said.

Still, even when oil prices recover, it may not matter for some over-levered companies. "We don't feel compelled to be in a big rush (to transact an acquisition) even if the environment changes for some of these companies, it doesn't necessarily change the value proposition because of the shape they put themselves in," Tillerson said.

[Mar 06, 2016] Exxon would not buy the LTO players because of crashing debt

Notable quotes:
"... He points out that his billionaire owner has given him $250 million (quarter of a billion) to buy up worthwhile acquisitions and he can hardly find anything worth buying. Slim pickings indeed. ..."
"... I should add that the company does not deal in LTO–conventional only. LTO isn't the only area hurting. ..."
peakoilbarrel.com
John S, 03/06/2016 at 11:41 am
EXXON: Industry Mired In Debt Has Destroyed Value "Encumbered U.S Oil Resources"

http://fuelfix.com/beaumont/2016/03/02/exxon-mobil-ceo-downturn-cuts-into-returns-production-goals/

Well, there you have it…….Exxon won't bail out the LTO players.

Synapsid, 03/06/2016 at 4:42 pm
John S,

Channeling Rockman over at PO.com here:

He points out that his billionaire owner has given him $250 million (quarter of a billion) to buy up worthwhile acquisitions and he can hardly find anything worth buying. Slim pickings indeed.

That quarter of a billion will be raised to one billion dollars if the new acquisitions justify it. If there isn't enough available, though, the owner will close the company.

Synapsid, 03/06/2016 at 4:45 pm
John S,

I should add that the company does not deal in LTO–conventional only. LTO isn't the only area hurting.

[Mar 05, 2016] Many think lower for much longer. It could very well be that once the hype in the US turns, oil price could go up quickly

Notable quotes:
"... These figures are backed up by EIA. There is some horizontal Mississippian production in KS, and it is down significantly, but so are all the larger production conventional counties. This is a 21% decline in under one year. ..."
"... Again, these numbers fairly correspond to EIA. This is decline of 20%. Anecdotal, I agree. Have to wonder if declines this steep have occurred in other parts of the world? I am an American through and through. But, I will admit that, not only do we have very short attention spans, but we tend to hyper focus on things. I have hyper focused on shale like the rest, but I at least realize there are many places where production has absolutely tanked. ..."
"... Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly. ..."
"... WTI is up almost 40% since 2/11/15, 15 trading days. ..."
"... IMHO for "things go quickly" we need a trigger event that suddenly becomes a focus of news coverage. Some large bankruptcy. Whatever. May be March 20 meeting in Moscow can serve as a trigger for some short squeeze, despite the measure to be taken is an old news. But just the level of determination of oil producing countries on this meeting might be interpreted as an important market signal. ..."
"... The time lag between rig counts and actual production stands around 2 to 4 years for the general oil production index, which includes conventional and unconventional off- and onshore production (see below chart). In my view the time lag for shale is just six months and for conventional production it is at least 18 months. As an example in 2005 a doubling of the rig count did not raise oil production until 2009. ..."
peakoilbarrel.com
shallow sand, 03/04/2016 at 11:43 pm
Looking at the primarily conventional states again.

Per Kansas Geological Survey

These figures are backed up by EIA. There is some horizontal Mississippian production in KS, and it is down significantly, but so are all the larger production conventional counties. This is a 21% decline in under one year.

Per the Utah Department of Natural Resources, Division of Oil, Gas and Mining:

Again, these numbers fairly correspond to EIA. This is decline of 20%. Anecdotal, I agree. Have to wonder if declines this steep have occurred in other parts of the world? I am an American through and through. But, I will admit that, not only do we have very short attention spans, but we tend to hyper focus on things. I have hyper focused on shale like the rest, but I at least realize there are many places where production has absolutely tanked.

Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly.

WTI is up almost 40% since 2/11/15, 15 trading days.

As AlexS pointed out, there will likely be at least a 6 month lag until US activity pick up. He thinks longer, and it makes sense. Balance sheets need major repair. Believe me, speaking from personal experience here.

I do not foresee a straight shot up, but the world has lost a lot of oil due to this crash IMO.

likbez, 03/05/2016 at 1:51 am
ShallowS,

Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly.

I think Obama administration might object, as they need another 10 months to drive into the sunset :-)

Dominant (sustained by propaganda machine) myths like "oil glut", "storage overflow", fight for market share and mass overproduction by oil producing countries (except, of course, the USA, where shale producers suffer under brutal attack from Saudi Arabia :-) have now a life of their own and are difficult to change even when completely detached from reality.

IMHO for "things go quickly" we need a trigger event that suddenly becomes a focus of news coverage. Some large bankruptcy. Whatever. May be March 20 meeting in Moscow can serve as a trigger for some short squeeze, despite the measure to be taken is an old news. But just the level of determination of oil producing countries on this meeting might be interpreted as an important market signal.

Heinrich Leopold, 03/05/2016 at 6:49 am
shallow sand,

The time lag between rig counts and actual production stands around 2 to 4 years for the general oil production index, which includes conventional and unconventional off- and onshore production (see below chart). In my view the time lag for shale is just six months and for conventional production it is at least 18 months. As an example in 2005 a doubling of the rig count did not raise oil production until 2009.

If rig counts stay low until the end of this year, production is set for a huge decline over the next year. Some interpret the still high production at low rig counts as a miracle improvement in rig productivity. If this is the case, the rig productivity must have been extremely low about four years ago when a high rig count gave a then still low production. So where does the huge turnaround come from?

[Mar 04, 2016] Prices below 70 dollar per barrel now represents death valley for shale in which only the dead cat bounce of production is possible

Notable quotes:
"... There will be no more waving of hands and their always new breakeven price OCD type of messages from shale crowd but very quiet departure in the sunset. ..."
"... Quantity at some point turns into quality. Now there two ranges of oil prices that matter for shale: 0-70 and 80- infinity . With "hope" range 70-80 in between. ..."
"... Strengthening of oil prices within the range 0-70 probably no longer matter much for indebted shale companies and their production and by extension rig count. Investment climate changed and will remain generally very cautious in this range, taking into account the possibility of yet another price slump (for example, if the price recovery overshoot; or Libya civil war ends). Mad drilling with negative cash flow is probably the thing of the past. Taking over the companies by lenders will be a more common practice than rescuing them. ..."
"... I think range 0-$70 now represents "death valley" for shale in which only the "dead cat bounce" of production is possible. Investors might not return in-full before the price reach about $80 and stays at this level for a while. Because, those who were burned and balanced on losses around 60% on their loans (40 cents on a dollar) probably understand, that it just does not make any economic sense. Any belief in "shale miracle" if such existed is now busted. ..."
"... What we have now is as Ves said, "a very quiet departure into the sunset". Of cause, we can play with numeric ranges, but you got the idea. ..."
"... IMHO it does not matter how shale E&P companies behave. Cards are stack against them and they are in a trap. It's Minsky moment for them, when euphoria is gone and the harsh reality started to assert itself. So the meaning of the number of rigs now is very similar to sweating of the patient in the famous anecdote when a doctor asks the nurse "Did the patient sweat before dying? Oh, yes. Very good, very good". ..."
"... My point is that for "below $70 range" ( +-$10) shale companies will remain in a "slow dying" mode. Availability of "sweet spots" does not improve with the age of the field. Loans availability is either gone or severely cut and cash flow is either negative or barely enough for the maintenance and for "evergreen" loans interest payments (speculative mode of production according to Minsky). Most of them suffer from the high level of existing debt. ..."
"... At $50.28 WTI companies lost record amounts and generally have PV10 all categories equal to long term debt, with radical reductions in future estimated production costs and development costs. But all are eager to show they can operate lower than their peers. Also, the stock market seems to get ahead of itself. Look at today, for example. ..."
"... Trading $14+ below last year SEC prices, all is not yet well. A DOUBLE in price is needed, but likely will not occur in 2016. ..."
peakoilbarrel.com
AlexS, 03/04/2016 at 1:26 pm
Despite strengthening oil prices, U.S. oil and gas rig count is down 13 units.
Oil rigs: -8
Gas rigs: -5

Horizontal rigs: -8
Directional: -5
Vertical: unchanged

All key LTO basins have lost oil rigs:
Permian: – 6 (to 156)
Bakken: -3 (33)
Eagle Ford: -1 (40)
Niobrara: -1 (15)

Cana Woodford: +5 oil rigs ; -4 gas rigs (apparently same rigs were re-classified)

Ves, 03/04/2016 at 1:40 pm
Thanks for the oil post :-)

I think everything is clear. Rigs are going down regardless of this uptick in the price since bottom of $26 because it is clear that if there is sustainable price for the majority of world production, contribution has to come from Opec and non-Opec. There will be no more waving of hands and their always new breakeven price OCD type of messages from shale crowd but very quiet departure in the sunset.

likbez , 03/04/2016 at 1:50 pm
Alex,

Despite strengthening oil prices, U.S. oil and gas rig count is down 13 units.

Quantity at some point turns into quality. Now there two ranges of oil prices that matter for shale: 0-70 and 80-infinity. With "hope" range 70-80 in between.

Strengthening of oil prices within the range 0-70 probably no longer matter much for indebted shale companies and their production and by extension rig count. Investment climate changed and will remain generally very cautious in this range, taking into account the possibility of yet another price slump (for example, if the price recovery overshoot; or Libya civil war ends). Mad drilling with negative cash flow is probably the thing of the past. Taking over the companies by lenders will be a more common practice than rescuing them.

I think range 0-$70 now represents "death valley" for shale in which only the "dead cat bounce" of production is possible. Investors might not return in-full before the price reach about $80 and stays at this level for a while. Because, those who were burned and balanced on losses around 60% on their loans (40 cents on a dollar) probably understand, that it just does not make any economic sense. Any belief in "shale miracle" if such existed is now busted.

What we have now is as Ves said, "a very quiet departure into the sunset". Of cause, we can play with numeric ranges, but you got the idea.

George Kaplan, 03/04/2016 at 2:02 pm
The E&P companies have set their budgets and placed drilling contracts. What the price of oil does over the next three to six months won't make much difference to the rig count. It may influence completions though as they can be conducted on a faster turn around.

ND has lost three rigs and is likely to lose up to another ten rigs in the coming weeks as Whiting and Continental shut down drilling, QEP and Hess reduce to one or two rigs only, and maybe a couple of the smaller private companies go bust.

likbez , 03/04/2016 at 4:52 pm
George,

The E&P companies have set their budgets and placed drilling contracts. What the price of oil does over the next three to six months won't make much difference to the rig count.

IMHO it does not matter how shale E&P companies behave. Cards are stack against them and they are in a trap. It's Minsky moment for them, when euphoria is gone and the harsh reality started to assert itself. So the meaning of the number of rigs now is very similar to sweating of the patient in the famous anecdote when a doctor asks the nurse "Did the patient sweat before dying? Oh, yes. Very good, very good".

For conventional oil it is a completely different game and there can be some Renaissance.

My point is that for "below $70 range" ( +-$10) shale companies will remain in a "slow dying" mode. Availability of "sweet spots" does not improve with the age of the field. Loans availability is either gone or severely cut and cash flow is either negative or barely enough for the maintenance and for "evergreen" loans interest payments (speculative mode of production according to Minsky). Most of them suffer from the high level of existing debt.

Also their costs rise with the rise of oil price if only because they consume a lot of diesel fuel (if we assume EROEI 5 you need 8 gallons of diesel per barrel of oil, so effectively your barrel contains only 42-8=34 gallons). Only a fraction of the price rise improves their economic conditions (a large part of the "increased efficiency", lower cost of production blah-blah-blah was based on the same effect but acting in the opposite direction). The problems also might start when investors realize that they have a better chance to recoup their investments by taking a hold of assets in a rising oil price environment…

shallow sand, 03/04/2016 at 2:06 pm
AlexS, note that in the 1998-99 price crash, oil rigs did not bottom until a few months after the OPEC cut.

This time may be different, remains to be seen.

At $50.28 WTI companies lost record amounts and generally have PV10 all categories equal to long term debt, with radical reductions in future estimated production costs and development costs. But all are eager to show they can operate lower than their peers. Also, the stock market seems to get ahead of itself. Look at today, for example.

Trading $14+ below last year SEC prices, all is not yet well. A DOUBLE in price is needed, but likely will not occur in 2016.

farmboy, 03/04/2016 at 2:47 pm
Canada oil rig count is slowing down drastically and ahead of the normal seasonal slowdown if I remember correctly.

Oil -33 (50)
Gas –13 (79)

[Mar 03, 2016] Oil Holds Near 8-Week High After Drop in US Crude Production

Bloomberg Business

There will be a "dramatic price movement" when the meeting between OPEC members and Russia takes place, Nigerian Petroleum Minister Emmanuel Kachikwu said at a conference in Abuja on Thursday. Saudi Arabia, Russia, Qatar and Venezuela agreed on Feb. 16 in Doha that they would freeze production, if other producers followed suit, in an effort to tackle the global oversupply.

[Mar 03, 2016] The 2016 wave of bankruptcies might change the financial reclesness of US shale companies a bit

Notable quotes:
"... I wonder if all the bankruptcies might change the culture a bit. It sure will make finding money to burn more difficult and investors may look beyond the investor presentations to the 10k and the bottom line and reward fiscal discipline. ..."
"... Hard to know for sure. The banks may pull back and the bond investors may require very high interest rates and industry behavior might change as a result. ..."
"... If the entire Shale industry goes bankrupt, they will have trouble with financing new wells in my opinion. So increasing output will be difficult without financing. ..."
"... If the assets are bought by companies using there own cash (no bank or bond financing), they will not throw money away on wells that will never break even. ..."
peakoilbarrel.com

Dennis Coyne , 03/01/2016 at 1:29 pm

Hi AlexS,

Maybe so. I wonder if all the bankruptcies might change the culture a bit. It sure will make finding money to burn more difficult and investors may look beyond the investor presentations to the 10k and the bottom line and reward fiscal discipline.

Hard to know for sure. The banks may pull back and the bond investors may require very high interest rates and industry behavior might change as a result.

AlexS , 03/01/2016 at 2:59 pm
Dennis,

a quote from and article:

"once the entire U.S. shale space goes bankrupt, it will emerge debtless only to start drilling and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless deflationary merry-go-round."

http://oilprice.com/Latest-Energy-News/World-News/BP-Claims-That-Oil-Storage-Limit-Is-Far-Nearer-Than-We-Realize.html

Dennis Coyne , 03/02/2016 at 9:44 am
Hi AlexS,

If the entire Shale industry goes bankrupt, they will have trouble with financing new wells in my opinion. So increasing output will be difficult without financing.

If the assets are bought by companies using there own cash (no bank or bond financing), they will not throw money away on wells that will never break even.

[Mar 03, 2016] Falling U.S. Oil Production Reduces Global Supply Overhang by Euan Mearns

Mar 01, 2016 | OilPrice.com

... ... ...

This article first appeared on Energy Matters.

The following totals compare Jan 2016 with December 2015:

... ... ...

Still High Noon for the Oil Price

On the bear side we know that:

On the bull side we know that:

By Euan Mearns

[Mar 03, 2016] Oil rises after dollar weakens

Fuel Fix

Oil rose to an eight-week high in New York after U.S. production declined and a weaker dollar boosted the attractiveness of commodities.

Futures rose as much as 1.9 percent. Output fell for a sixth week to 9.08 million barrels a day, the lowest level since November 2014, according to the Energy Information Administration. Crude inventories rose, keeping supplies at the highest in more than eight decades. OPEC members will meet with Russia and other producers in Moscow on March 20 to resume talks on an output cap, Nigeria's oil minister said.

"The mood has changed in the market and we are a little bit more optimistic about the future," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "The market is shaking off the big inventories builds that we saw in recent weeks."

Oil is still down about 5 percent this year on speculation a global glut will be prolonged amid brimming U.S. stockpiles and the outlook for increased exports from Iran after the removal of sanctions. Exxon Mobil Corp. scaled back production targets and said drilling budgets will continue to drop through the end of next year as the oil market shows no signs of a significant recovery.
West Texas Intermediate for April delivery rose 41 cents to $35.07 a barrel at 11:19 a.m. Eastern time on the New York Mercantile Exchange, after reaching $35.32. The contract rose 26 cents to $34.66 on Wednesday, the highest close since Jan. 5. Total volume traded was about 2 percent above the 100-day average.

Brent for May settlement gained 22 cents to $37.15 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude was at a premium of 46 cents to WTI for May.

The Bloomberg Dollar Spot Index fell 0.5 percent, after earlier gaining 0.1 percent.

U.S. crude stockpiles expanded by 10.4 million barrels to 518 million, according to a report from the EIA Wednesday. Supplies at Cushing, Oklahoma, the delivery point for WTI and the nation's biggest oil-storage hub, rose for a fifth week to a record 66.3 million barrels.

The market's saying "You can't ignore fundamentals," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "With the massive amount of supplies that we have, the market should go lower. I think prices will go back to below $30 in a few weeks."

Others are more optimistic. There will be a "dramatic price movement" when the meeting between OPEC members and Russia takes place, Nigerian Petroleum Minister Emmanuel Kachikwu said at a conference in Abuja on Thursday. Saudi Arabia, Russia, Qatar and Venezuela agreed on Feb. 16 in Doha that they would freeze production, if other producers followed suit, in an effort to tackle the global oversupply.

Exxon's output will be the equivalent of 4 million to 4.2 million barrels a day through 2020, compared with the previous target of 4.3 million as soon as next year, Chairman and Chief Executive Officer Rex Tillerson said at the company's annual strategy session in New York on Wednesday. Capital spending will fall about 25 percent this year to $23.2 billion and will decline again in 2017.

[Mar 02, 2016] Brazilian Oil Giant Petrobras Could Lose Its Most Valuable Assets

oilprice.com

OilPrice.com

Brazilian state-owned oil company Petrobras, the most indebted oil company in the world, could soon lose its status as the top operator in some of the country's most prolific offshore oil assets.

Petrobras is reeling from a wide-reaching corruption scandal and it is drowning in a mountain of debt that exceeds $100 billion. It no longer has the funds to front large-scale drilling in the way that it once did. Petrobras executives are now trying to manage shrinking the company's footprint.

In order to raise cash it has plans to sell off assets far and wide. But there are questions surrounding the company's ability to raise the funds that it needs to – since just about every company is unloading oilfields and infrastructure, asset prices may not be as high as sellers want them to be.

Nevertheless, Brazilian news services reported that Petrobras could take in $5 to $6 billion by selling off its natural gas pipeline unit in Brazil's southeast. Canadian, French, and Chinese companies are submitting bids ahead of a deadline next Tuesday. The sale is part of a plan to raise $14 billion in cash in asset sales this year, funds that will be used to trim the company's debt.

[Mar 02, 2016] Bankers Petroleum which operates the biggest on shore oil field in Europe, Patos-Marinza in Albania, will rest 3 rigs out of 6 in 2015.

Notable quotes:
"... They say it is because of the low price. They have increased oil production 10% per year in the last years, due to the horizontal wells, but for next year they foresee no production increase. I have seen profiles of their horizontal wells and within 12-18 months their production is 50 % less. ..."
"... Their water injection activity has caused a lot of propery damage in the area, but the government has turned a blind eye. ..."
peakoilbarrel.com

Rita , 12/23/2014 at 12:32 pm

Bankers Petroleum which operates the biggest on shore oil field in Europe, Patos-Marinza in Albania, will rest 3 rigs out of 6 in 2015.

They say it is because of the low price. They have increased oil production 10% per year in the last years, due to the horizontal wells, but for next year they foresee no production increase. I have seen profiles of their horizontal wells and within 12-18 months their production is 50 % less.

Their water injection activity has caused a lot of propery damage in the area, but the government has turned a blind eye. A whole village with uninhabitable houses and people having nowhere to go. If they protest the police arrests them. Local people think Bankers is producing oil through undergroung blasts (could it be?). Maybe this slowdown will spare some houses.

Bankers is also good at manipulating balance sheets looking unprofitable for 5 years now, so the state budget won't feel much of the slow down. No word of this slow down in the Albanian media. They only pound thea good news.

[Mar 02, 2016] Exxon cuts capex 25 percent

peakoilbarrel.com

Toolpush ,

03/02/2016 at 8:42 am
Exxon, cut capex 25% in 1916, no mention of XTO .

http://news.exxonmobil.com/press-release/exxonmobil-focuses-business-fundamentals-paced-disciplined-investing

ExxonMobil Focuses on Business Fundamentals; Paced, Disciplined Investing

ExxonMobil anticipates capital spending of $23 billion in 2016, down 25 percent from 2015. The company continues to selectively advance its investment portfolio, building upon attractive longer-term opportunities.

Enno Peters , 03/02/2016 at 9:07 am
That's really old news Toolpush. Through which sources do you get your news in Australia?
Toolpush , 03/02/2016 at 9:19 am
Enno,

Either the speed of electrons has slowed down, or Exxon is recycling old news. I first heard it as breaking news on CNBC, live, not a replay. lol
Looked it up on Noodls, which took me to the Exxon page. Time stamped as Mar 2, 2016 – 08:11 a.m. EST.

03/02/2016 | Press release ExxonMobil Focuses on Business Fundamentals; Paced, Disciplined Investing – See more at: http://www.noodls.com/viewNoodl/32408933/exxon-mobil-corporation/exxonmobil-focuses-on-business-fundamentals-paced-discipli#sthash.MLFZO9sV.dpuf

So if this is old news, it is recycled old news by Exxon? Why? I will leave that to smarter minds than me!

You are doing great work, on your blog. thanks for all your hard work.

[Mar 02, 2016] Hedge funds turn bullish on Brent but not WTI by John Kemp

Reuters
Hedge funds and other money managers held a combined net long position in the three main crude oil futures and options contracts amounting to 383 million barrels on Feb. 23.

The combined net long position has increased in eight of the last 11 weeks from a recent low of 230 million barrels on Dec. 8. (tmsnrt.rs/1XUWJih)

But the increase in hedge fund and other money manager net long positions has been concentrated in Brent rather than WTI. (tmsnrt.rs/1XUWS5i)

The net long position in Brent futures and options traded on ICE Futures has jumped by more than 100 million barrels to 320 million barrels from 183 million barrels.

The net long position in WTI futures and options traded on ICE and the New York Mercantile Exchange has risen less than 20 million barrels to 63 million barrels from 47 million barrels. (tmsnrt.rs/1XUWVy1)

Extreme pessimism about the near-term outlook for prices, which reached its height in December and early January, seems to have dissipated a little.

There is more confidence that the long-awaited rebalancing of supply and demand is now underway in earnest which could help stabilize stockpiles and prices later in 2016.

U.S. shale producers seem to be finally cracking under the strain from low prices, with more than 100 oil drilling rigs idled over the past month, and many producers now openly talking about producing less in 2016.

[Mar 01, 2016] Whether CRC can survive 2016 remain to be seen

Notable quotes:
"... Id say this crash will pretty well end much hope of conventional onshore in US regaining 2014 levels. Added to the inevitable future declines in GOM, US onshore LTO will have to carry the day. ..."
"... Capital investment was $401 million in 2015 Vs. 2016 capital investment plan of $50 million ..."
"... Approximately 30% of 2016 crude oil production hedged in excess of $50 per barrel ..."
"... I am not critical of CRC, just pointing out what they say their base decline is with no new wells. ..."
peakoilbarrel.com

shallow sand , 02/29/2016 at 11:23 pm

dclonghorn, and anyone else interested.

California Resources Corporation released earnings today. They disclosed they plan to neither drill nor complete a well in 2016. They stated that they believe their base decline rate to be 10-15%. They produced 102K barrels in Q4 2015. That is their net. I think gross they produce about 20% of oil produced in California.

Interestingly, Denbury Resources, who has operations in different area, but like CRC, has primarily secondary and tertiary recovery, but of different kinds (CO2 v steamflood being the major one) is forecasting 10-15% reduction in production from 2015. Again, forecasting minimal to zero new wells.

Of course, decline is different than shutting in production.

I'd say this crash will pretty well end much hope of conventional onshore in US regaining 2014 levels. Added to the inevitable future declines in GOM, US onshore LTO will have to carry the day.

Todd , 03/01/2016 at 4:36 am
Highlights:

At current prices, CRC expects that available liquidity plus expected operating cash flows will be sufficient to fund its capital program and 2016 commitments.

The Company recently received 100% approval from its bank group to amend its credit facilities

The amendment requires cash in excess of $150 million be applied to repay outstanding revolving loans, reduces the revolving commitments to $1.6 billion and imposes certain other restrictions.

"Expect to see us(CRC) demonstrate financial discipline to maintain sufficient liquidity through 2016. We plan to continue building economically viable drilling inventory, while managing our activity consistent with our principle of living within cash flow."

Capital investment was $401 million in 2015 Vs. 2016 capital investment plan of $50 million

Approximately 30% of 2016 crude oil production hedged in excess of $50 per barrel

shallow sand , 03/01/2016 at 9:55 am
I hope CRC makes it. I think they unfairly got stuck with too much debt and are a victim of the shale bubble.

I am not critical of CRC, just pointing out what they say their base decline is with no new wells.

[Feb 29, 2016] Pemex lost $32 billion last year or around 3 percent of .Mexican GDP. That is more than the GDP of Latvia, Cameroon, Paraguay and 89 other countries

peakoilbarrel.com

George Kaplan , 02/29/2016 at 2:26 pm

Pemex lost $32 billion last year. That is more than the GDP of Latvia, Cameroon, Paraguay and 89 other countries. It is 2.5% of Mexican GDP.

The CEO has issued a statement slashing costs:

http://www.pemex.com/en/investors/investor-tools/Presentaciones%20Archivos/Message%20CEO_i_160229.pdf

I'd interpret that to mean we should expect 4 to 8% decline rates in their production from here on.

http://www.zerohedge.com/news/2016-02-29/mexicos-oil-giant-posts-record-32-billion-loss-cuts-crude-price-forecast-25

The global economy seems to be tottering on the edge even with cheap oil. If the price had stayed at $110 and these losses had been covered by OECD consumers where would we be (or well will we be if the price does recover eventually) – I guess even more debt until the bubble really does pop.

[Feb 29, 2016] Venezuela might be forced to cut production later this year due to lack of credit to buy the necessary diluents and spare parts

Notable quotes:
"... Whether this will be enough to affect the world market is an open question, but four or five hundred thousand barrels a day taken off the market would be significant imo. ..."
peakoilbarrel.com
oldfarmermac, 02/29/2016 at 9:00 am
Things are going to hell fast in Venezuela.

There is a good chance some they will have to curtail production later this year due to lack of credit to buy the necessary diluents, spare parts, etc. Whether this will be enough to affect the world market is an open question, but four or five hundred thousand barrels a day taken off the market would be significant imo.

http://www.aljazeera.com/programmes/countingthecost/2016/02/venezuela-world-worst-performing-economy-160227103201996.html

[Feb 29, 2016] Oil's stock-market embrace A new meaning to the term 'horizontal driller'

Asia Times

In 2014, by my calculations, 40% of total S&P 500 capital expenditures went to the energy sector. The shale boom was the biggest thing going, and banks as well as high yield bond funds poured money down the wells. With oil around $30 shale loses money, and banks are reporting multi-billion dollar losses. . The high-yield energy sector as a whole now yields 15 percentage points more than US Treasuries, which means dollar prices in the 70s and 80s. Depending on what lenders think they can recover from busted shale borrowers, high-yield market prices imply an expected default rate of 20%-25%. It gives a whole new meaning to the term "horizontal driller."

[Feb 29, 2016] Oil Giant Cuts Budget By 80 Percent And Suspends Fracking

Notable quotes:
"... No mention of labor at all. As if they do not form any part of the equation. So, how many workers were suspended and how will that suspension impact the local economy. ..."
"... The local economy is already circling the drain and this is going to make things worse. ..."
"... I know a good number of people who have gone to Williston to work, since the wages are considerably better than the going rate in other parts of Montana, even if you have to live in a man camp [shudder]. Reductions in production means reduction in labor needed, which means that this slow-down will have economic consequences beyond just ND. Montana will be losing remittances from this as well. ..."
"... So, likely outcomes are higher unemployment and fewer resources for the state to confront that problem. ..."
"... While fracking is the poster-child for high-cost oil being whacked, a lot of other production with big fixed costs (which is basically anything other than the stick a straw in the ground and you get oil coming out sources) is also being hit hard. The North Sea is a good example of where they have to keep pumping because the decommissioning costs are immense so it is either lose a moderate amount of money on each barrel that you bring up or loose a huge amount money in a one-time hit by writing off production assets which were supposedly going to have an economic life of decades. ..."
"... Saudi Arabia (and, to a lesser extent, Russia) can stay irrational longer than the high cost producers can stay solvent though. In the end, theyll win. So maybe not so irrational after all. ..."
"... Yes, the key issue is the difference between average cost and marginal cost for production. North Sea Oil was a big money loser throughout the 1990s – they pretty much stopped exploration, but with sunk costs and a need to keep turnover, the big production rigs kept going despite making losses for well over a decade. My brother is an off-shore driller and at that time he and nearly all his colleagues ended up travelling from the stan to the Gulf of Mexico to try to earn some money. It wasnt just the loss of jobs – everyones wages were cut to the bone with no bonuses, so this has a knock-on effect right through the local economy. ..."
"... can stay irrational longer than the high cost producers can stay solvent though. In the end, theyll win. So maybe not so irrational after all. ..."
"... the bigger the debt you have, the more power you have over your creditors. ..."
"... Whiting has been the top producer in the Bakken, the most productive field outside of Texas…in addition, Continental Resources, the # 2 Bakken producer, took the same action…moreover, Chesapeake Energy, the 2nd largest US natural gas producer and the operator of more than half of Ohios wells, and has quit drilling here; in fact, it has stopped drilling new wells in both the Marcellus and Utica Shale basins altogether, having released its last two Ohio rigs and its last Pennsylvania rig before the end of 2015…the company is trying to downsize in lieu of bankruptcy, and is planning to sell off its wells and land in a last ditch effort to stay solvent… ..."
"... Chesapeake, with their back against the wall with bonds coming due and facing $1 billion in collateral calls, is going to focus on more well completion and less drilling…they also expect to sell assets worth between $500 million to $1 billion, and cut overall spending by 57%…so theyre in the unenviable position of producing the most gas they can with gas prices at 17 year lows, and trying to sell off their natural gas and oil assets when prices for both commodities are at multi-year lows.. ..."
"... David lays the whole scam bare. Basically, the Pirates taxes are paid through your rates, even taxes that might not need to be paid are collected. ..."
naked capitalism
sd , February 29, 2016 at 2:33 am

No mention of labor at all. As if they do not form any part of the equation. So, how many workers were "suspended" and how will that suspension impact the local economy.

diptherio , February 29, 2016 at 11:40 am

See Dayen's note at the beginning of the article. The local economy is already circling the drain and this is going to make things worse.

I know a good number of people who have gone to Williston to work, since the wages are considerably better than the going rate in other parts of Montana, even if you have to live in a "man camp" [shudder]. Reductions in production means reduction in labor needed, which means that this slow-down will have economic consequences beyond just ND. Montana will be losing "remittances" from this as well.

More specifically, the affected economies will experience a decrease in demand at businesses (since there are fewer wages to spend) and a reduction in tax-revenue by the local/state governments due to lower income, corporate and sales taxes.

So, likely outcomes are higher unemployment and fewer resources for the state to confront that problem. Double whammy.

Cry Shop , February 29, 2016 at 3:05 am

Energy around the world is up the creek. China still has 1/3 of it's new nuclear reactors off-line due to lack of demand on grid. These nuclear units were to help China reduce it's CO2 footprint, but running all of them would result in even more coal related layoffs, as even more thermal plants would have to go off line.

China expects to lay off 1.8 million workers in the coal and steel sectors as part of its efforts to reduce industrial overcapacity, Yin Weimin, minister of human resources and social security, said Monday.

Yin said capacity cuts will lead to some layoffs in 2016 but said he was confident of keeping employment stable this year despite downward pressure on the economy, Reuters reports.

No timeframe was given for the 1.8 million layoffs.

China aims to remove around 500 million tonnes of coal production capacity within the next three to five years and halt approvals of all new projects.

Clive , February 29, 2016 at 4:02 am

While fracking is the poster-child for high-cost oil being whacked, a lot of other production with big fixed costs (which is basically anything other than the "stick a straw in the ground and you get oil coming out" sources) is also being hit hard. The North Sea is a good example of where they have to keep pumping because the decommissioning costs are immense so it is either lose a moderate amount of money on each barrel that you bring up or loose a huge amount money in a one-time hit by writing off production assets which were supposedly going to have an economic life of decades.

But it is decimating http://news.stv.tv/north/1344300-north-east-benefits-claims-soar-in-wake-of-oil-downturn/ regional economies here in the UK with exposure to the North Sea oil production.

Saudi Arabia (and, to a lesser extent, Russia) can stay irrational longer than the high cost producers can stay solvent though. In the end, they'll win. So maybe not so irrational after all.

PlutoniumKun , February 29, 2016 at 4:20 am

Yes, the key issue is the difference between average cost and marginal cost for production. North Sea Oil was a big money loser throughout the 1990's – they pretty much stopped exploration, but with sunk costs and a need to keep turnover, the big production rigs kept going despite making losses for well over a decade. My brother is an off-shore driller and at that time he and nearly all his colleagues ended up travelling from the 'stan to the Gulf of Mexico to try to earn some money. It wasn't just the loss of jobs – everyones wages were cut to the bone with no bonuses, so this has a knock-on effect right through the local economy.

Fracking is most vulnerable to low prices because of the constant need for capital infusions to keep production up. A fracked gas well has about 18 months of full production, a fracked oil well about 2 years. Many of the companies will also have a certain number of drilled but not fracked wells (non-completed) as back-up. So its hard to tell how long frack production companies can keep going, but its certainly not long. Oil sands and bitumen sands are significantly less capital intensive (they are basically just open cast pits with lots of big trucks running around), so they have more flexibility in ramping up and down production. Of course, Saudi oil is the cheapest of all to produce – its pretty much just the cost of keeping the pumps going (although to prolong the well life they also need capital investment in fracking and other techniques, but that type of operation can be postponed. I suspect that nearly all off-shore, especially the pre-salts off Brazil has been wiped out as a going concern – it will take years of sustained high prices to convince investors to take the risks involved.

So yes, SA can stay irrational longer than most – although I suspect the Russians, with a more diverse economy can stay longer than anyone had guessed. The frackers have lasted longer than I think anyone in the industry thought they would – mostly I think because of a terror among the financiers of what happens if they start collapsing – its the old story of the bigger the debt you have, the more power you have over your creditors. But I think from other sources the process has already begun of companies quietly doing debt for equity swaps which will keep the companies going, although its unlikely we will see a major infusion of investment into fracking for a very long time.

ambrit , February 29, 2016 at 10:05 am

I mentioned earlier in the year the man I 'sort of knew' who lost his job on an offshore to Brazil rig last fall. Brazil isn't the only 'marginal' field around. How many of these 'marginal' fields were sold to the locals as the 'cure' for what economically ailed them? The political fallout from these broken promises hasn't begun to arrive yet. Expect extra instability in some regions that can least afford it.

As for knock on effects, an anecdote. This past weekend Phyllis and I cruised around our neck of the woods visiting garage sales. We found some good stuff. One house, a three bedroom, two bath brick home on two acres was having an 'inventory reduction sale.' Points to the couple for humour. They were trying to sell this home because they couldn't afford the mortgage any more. He had lost his offshore job last year and settled for something related that paid roughly half of his previous compensation. "I'm now travelling down to the coast five days a week, (about 75 miles one way,) and we found an affordable place to do a lease purchase deal on near there. We now have to figure out how much of a loss we can afford to take on this place. We've been here twelve years." Comparable houses in their neigbhourhood are going, if they sell at all, for $150,000 to $200,000 USD. It was a nice area. I spotted fresh deer tracks on the edge of their back yard.

So, as the above will attest, the U.S. can stay irrational for quite a while also.

Steve H. , February 29, 2016 at 7:18 am

– …can stay irrational longer than the high cost producers can stay solvent though. In the end, they'll win. So maybe not so irrational after all.

– …the bigger the debt you have, the more power you have over your creditors.

Two nonintuitive inversions which have a lot to say about both economics and politics. Thank ye both.

Eduardo Quince , February 29, 2016 at 7:44 am

Whiting Petroleum is hardly a giant. Microcap would have been a more apt adjective.

rjs , February 29, 2016 at 8:24 am

Whiting has been the top producer in the Bakken, the most productive field outside of Texas…in addition, Continental Resources, the # 2 Bakken producer, took the same action…moreover, Chesapeake Energy, the 2nd largest US natural gas producer and the operator of more than half of Ohio's wells, and has quit drilling here; in fact, it has stopped drilling new wells in both the Marcellus and Utica Shale basins altogether, having released its last two Ohio rigs and its last Pennsylvania rig before the end of 2015…the company is trying to downsize in lieu of bankruptcy, and is planning to sell off its wells and land in a last ditch effort to stay solvent…

in contrast to Whiting and Continental, who are deferring completions while they wait for higher prices, Chesapeake, with their back against the wall with bonds coming due and facing $1 billion in collateral calls, is going to focus on more well completion and less drilling…they also expect to sell assets worth between $500 million to $1 billion, and cut overall spending by 57%…so they're in the unenviable position of producing the most gas they can with gas prices at 17 year lows, and trying to sell off their natural gas and oil assets when prices for both commodities are at multi-year lows..

Optimader , February 29, 2016 at 11:31 am

Top producer = bagholder of large stranded investment in some of the most expensive petro production in the market.
Investment equivalent of revolver in mouth

cnchal , February 29, 2016 at 1:02 pm

Revolver for whom? A murder is made to look like suicide.

Here is an older explanation of MLP's, from David Cay Johnston , but highly relevant now.

While you may not have heard about MLPs, readers of Barron's and other publications for savvy investors have. In approving cover stories, Barron's and other investment journals tout MLPs as a way for investors to earn returns of 8 percent or more each year while paying little or no income tax.

In the shadows, business can use government to drill holes into consumer and producer pockets through inflated prices. Now one industry has applied this to taxes. This column casts a focused light on such activity to encourage disclosure, integrity, and fairness in taxation.
-–
All that is needed to expand this tax shifting is a change in federal law - a change so minor it does not even require a sentence to be added to section 7704 (d)(1)(E), a list of industries that can be owned through publicly traded partnerships without being subject to the corporate income tax . As one lawyer deeply involved in the pipeline case told me: "The electric utilities would be master limited partnerships now except that when the law was changed, the Edison Electric Institute was uncharacteristically asleep at the switch."

David lays the whole scam bare. Basically, the Pirate's taxes are paid through your rates, even taxes that might not need to be paid are collected.

MLP's are managed by Pirate Equity and funded by Muppets, and the other day an interesting link popped up.

. . .Take a midstream gathering asset. It costs $50 million to build and produces $15 million in annual DCF or a 30% return-not bad. At a 10% disposition yield, it is worth $150 million. Sell it to the MLP for $150 million and voila, you have a $100 million gain on sale. The MLP borrows $150 million on the revolver at 5% and then has $7.5 million in incremental DCF with no dilution. Talk about successful financial engineering. At the LP level, it looks like the sponsor has done the LPs a favor by creating extra DCF and the press release can brag that there has been NO DILUTION, only an increase in the distribution-which makes shareholders happy-even if a good chunk of that goes back to the sponsor through the IDR.

Now look beneath the numbers a bit, the sponsor has taken all the real gains and the MLP has taken all the risk. The sponsor got a $100 million gain on sale along with an increase in the IDR. The MLP got an incremental $7.5 million of DCF with leakage through the IDR and now has $150 million of additional debt. That's a very un-equal bargain. Meanwhile, in the 20 years that it takes to pay off the debt through DCF, the energy field has probably been depleted to the point that the midstream asset is stranded and practically worthless. It's Ponzi-finance at its apex. . .

It looks like a lot of pensions were herded into pipelines, with the Pirates getting all the profit with pension funds taking the risk, and now gasping for money.

[Feb 28, 2016] Shale producers will continue pumping untel default on thier bonds

Art Berman thinks that the glut of oil of oil is glut of condensate and light oil. Banks basically has given shale operator a pass in 2015. At one point analogy with subprime will became too evident to hide it and then crash starts. Art Berman recommended to watch Big Short to see what is happening on shale patch.
peakoilbarrel.com
Amatoori, 02/28/2016 at 11:31 am
A good but long podcast with Art Berman, not so much new stuff for the people here but gives a great over all picture on the oil market right now.

http://www.macrovoices.com/podcasts/MacroVoices-2016-02-25-Art-Berman.mp3

[Feb 27, 2016] Shut in of old low producing convntional wells will accelarate the declineof the US production

Notable quotes:
"... My understanding is that California oil production is characterized by a large number of shallow wells producing small amounts of oil each. Also, many of these advanced fields have been under water flood or steam flood for quite a while. ..."
"... If $30 oil lasts very long, I would think that the decline rate could be as high as 3 percent a month due to high shut-ins and abandonment. I think a somewhat higher price would slow the decline a lot, as you would see normal depletion but would not see wholesale abandonment. ..."
"... USA and international have other similar mature fields with large numbers of wells producing small amounts of oil each. If a number of these fields start seeing a high rate of shut-in and abandonment, there will be substantial declines. ..."
"... From what Ive seen, most production projections seem to be focused on the shale and offshore declines. I think we may see a higher than expected decline in these old fields. The Bakken has become the leading indicator of shale, and California may become the best indicator of how these post mature fields respond. ..."
"... We have shut in quite a bit. Some places around here are pretty bad. One little field I go by sometimes had only one well pumping out of over 20. They all were on in 2014 and prior. ..."
"... The first leg there were 16 producing and 14 idle. The second leg there were 21 producing and 41 idle. Some of the idle ones may be on timers, and I dont have a baseline to compare. Nevertheless, it seems like a lot of idle wells. This is in Kansas, lots of low volume wells. Also, significant differentials. Prices were down to $16 but have moved back to $22-23. ..."
"... Quote from CEO: The other operational point I will make surrounds work overs. We routinely repair our wells across our entire portfolio and based on todays price environment, if a well goes down, we may leave it off a little while because spending money on repair isnt economically justifiable. Accordingly we expect to lose some wells in 2016, predicting that number of wells is nearly impossible ..."
peakoilbarrel.com

dclonghorn , 02/27/2016 at 2:43 pm

Shallow, I know you have been looking at info on conventional declines as well as shale. California is the number 3 producing state. According to their weekly notice summaries, they haven;t issued a drilling permit in the last 3 weeks, and only 41 in 2016. Permits to abandon are now at 246 in 2016. Baker Hughes has them down to 6 rigs. It will be interesting to see how their production declines, although they are slow to report.

I'll try to put a link in. ftp://ftp.consrv.ca.gov/pub/oil/weekly_summary/Latestweek.pdf

shallow sand , 02/27/2016 at 3:00 pm
dclonghorn. I am sure CA will decline. California Resources Corporation (the OXY spinoff) is in dire straits. Breitburn is also in dire straits, they are a significant CA producer. They didn't answer questions on their conference call. I really don't blame them, what is there to say?
dclonghorn , 02/27/2016 at 4:32 pm
Agreed, they will decline. How rapidly they decline is a big question to me. My understanding is that California oil production is characterized by a large number of shallow wells producing small amounts of oil each. Also, many of these advanced fields have been under water flood or steam flood for quite a while.

If $30 oil lasts very long, I would think that the decline rate could be as high as 3 percent a month due to high shut-ins and abandonment. I think a somewhat higher price would slow the decline a lot, as you would see normal depletion but would not see wholesale abandonment.

USA and international have other similar mature fields with large numbers of wells producing small amounts of oil each. If a number of these fields start seeing a high rate of shut-in and abandonment, there will be substantial declines.

From what I've seen, most production projections seem to be focused on the shale and offshore declines. I think we may see a higher than expected decline in these old fields. The Bakken has become the leading indicator of shale, and California may become the best indicator of how these post mature fields respond.

shallow sand , 02/27/2016 at 4:46 pm
If I am not mistaken, Denbury, Legacy Reserves and Breitburn all reported in conference calls they that have shut in not an insignificant amount of oil production.

We have shut in quite a bit. Some places around here are pretty bad. One little field I go by sometimes had only one well pumping out of over 20. They all were on in 2014 and prior.

All very low volume wells, but they all add up.

dclonghorn , 02/27/2016 at 4:58 pm
I did some deliveries yesterday. I've recently been counting producing and idle pumps. The first leg there were 16 producing and 14 idle. The second leg there were 21 producing and 41 idle. Some of the idle ones may be on timers, and I don't have a baseline to compare. Nevertheless, it seems like a lot of idle wells. This is in Kansas, lots of low volume wells. Also, significant differentials. Prices were down to $16 but have moved back to $22-23.
shallow sand , 02/27/2016 at 6:05 pm

Quote from CEO: "The other operational point I will make surrounds work overs. We routinely repair our wells across our entire portfolio and based on today's price environment, if a well goes down, we may leave it off a little while because spending money on repair isn't economically justifiable. Accordingly we expect to lose some wells in 2016, predicting that number of wells is nearly impossible"

Man, this stuff isn't good at all. I have nothing against these guys, they are in the same boat as us, just have debt because they grew a lot prior to 2015.

[Feb 27, 2016] Energy junk bond crisis and staggering drop of cash flow in shale industry

Notable quotes:
"... Those bonds must be cumulative mustnt they – i.e. rolled over each year. Otherwise that is about $1.3 trillion total. At (say) 5,000,000 bpd for 7 years at as high as $100 per barrel the companies would only be getting $1.25 trillion total. Or am I missing something. ..."
"... ….Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies. And UBS predicts the default rate on these loans could end up being in the low-teens….. ..."
"... I think $1.2 trillion is total debt owed by the US oil and gas industry, not just loans. 1/3 of $1.2 trillion = $400 billion owed by the E P companies. This includes bonds and bank loans. Bonds include junk bonds and investment grade bonds. So $260 billion in junk bonds is the right number. ..."
peakoilbarrel.com
George Kaplan , 02/25/2016 at 9:55 am
Those bonds must be cumulative mustn't they – i.e. rolled over each year. Otherwise that is about $1.3 trillion total. At (say) 5,000,000 bpd for 7 years at as high as $100 per barrel the companies would only be getting $1.25 trillion total. Or am I missing something.
AlexS , 02/25/2016 at 9:58 am
Yes, I also think this is cumulative. Total amount of junk oil & gas bonds seems to be around $260 bn
George Kaplan , 02/25/2016 at 10:05 am
Even so at current prices that is probably over 70% of all the money those companies are going to be able to take in from oil production.
George Kaplan , 02/25/2016 at 10:16 am
I'm going to predict a lot of bankruptcies in late 2017 as oil prices start to rise because the lender's will suddenly see a lot more money in taking over the resource base than by keeping the bond's rolling over.
Heinrich Leopold , 02/25/2016 at 1:07 pm
George,

The total debt due over the next year is not cumulative, but the above numbers come due each year. The cumulative debt stands at around 1.2 trillion. See:
http://www.wallstreetdaily.com/2015/06/13/u-s-shale-producers-debt/

In this article it states:

….Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies. And UBS predicts the default rate on these loans could end up being in the low-teens…..

The oil industry also includes pipelines and infrastructure, refineries ……

In the above diagram it is also clearly stated:

The amount of bonds US energy companies below investment grade need to pay back each year….

So, it is clear that the total amount of debt maturing over the next 7 years stands at 1.2 trillion.

AlexS , 02/25/2016 at 1:17 pm
"Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies"

I think $1.2 trillion is total debt owed by the US oil and gas industry, not just loans. 1/3 of $1.2 trillion = $400 billion owed by the E&P companies. This includes bonds and bank loans. Bonds include junk bonds and investment grade bonds. So $260 billion in junk bonds is the right number.

Besides, I have seen in various sources a similar number

George Kaplan , 02/25/2016 at 1:32 pm
Heinrich – I think I agree with Alex. The caption is wrong in the "per year" bit, but correct in "below investment grade" – that is junk, which is not the total debt to the oil industry by a long way (let's hope).

[Feb 27, 2016] U.S. Shale Producers Oil and Debt Continue to Flow by Tim Maverick

Notable quotes:
"... Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies. And UBS predicts the default rate on these loans could end up being in the low-teens. ..."
"... Fitch, a credit rating agency, said actual defaults should have begun happening nine to 12 months after oil prices started to fall. ..."
Wall Street Daily

Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies. And UBS predicts the default rate on these loans could end up being in the low-teens.

The latest survey of bank loan officers by the Federal Reserve found there is a higher expectation that shale firms will have trouble meeting the terms of the loans. The survey also found that banks were cutting credit lines to energy companies and asking shale firms for more collateral.

Fitch, a credit rating agency, said actual defaults should have begun happening nine to 12 months after oil prices started to fall.

But, judging by the stock performances of most of the companies involved, everything is great.

Why has nothing happened yet?

The answer is hedges. Many shale oil firms hedged their production this year. Chesapeake Energy (CHK), for example, will have $1.2 billion added to its cash flow this year thanks to hedges on its production. But this protection declines and even disappears entirely in 2016 for some companies, leaving them wide open to finally be hurt by low oil and gas prices.

Plus, companies can't add any more hedges at this late date because, in most cases, it would be too costly.

Maybe that's why companies targeted by David Einhorn as vulnerable, such as EOG and Pioneer, are so anxious to increase their production as soon as possible. They need to generate cash.

[Feb 27, 2016] Frackers Are Predicted to Fall Like Lehman Bros by Tim Maverick

Notable quotes:
"... Einhorn called much of the industry "frack addicts" who were wasting money on wells that'll never pay off. He said some companies are currently getting a negative return on their invested capital. And that, in some cases, that was true even when oil was trading at $100 per barrel! ..."
"... Since 2006, the U.S. oil exploration and production industry has spent $80 billion more in capital than it made selling oil. Einhorn says companies were only kept alive by the constant inflows of capital from bankers (also known as loans) and investors alike. ..."
"... Moody's said its LSI (Liquidity Stress Index) for these companies more than doubled in March to 9.8% from 4.4%. But keep in mind, this Index hit 26% in March 2009 when oil prices plunged due to the financial crisis. ..."
Wall Street Daily
In November 2007, the relatively unknown hedge fund manager David Einhorn raised major concerns about the accounting at Lehman Brothers. It led him to bet against the company, and short the stock. No one paid much attention… until Lehman Brothers collapsed. Einhorn's reputation was made, and his firm, Greenlight Capital, became one of the hedge funds to watch. Now, Einhorn has found another prominent target: the frackers, U.S.-based oil exploration and production (E&P) companies.

Zeroing In

Einhorn called much of the industry "frack addicts" who were wasting money on wells that'll never pay off. He said some companies are currently getting a negative return on their invested capital. And that, in some cases, that was true even when oil was trading at $100 per barrel!

Einhorn added, "When someone doesn't want you to look at traditional (financial) metrics, it is a good time to look at traditional metrics." By "someone," he means exploration and production companies.

Einhorn dislikes how these firms report their earnings through methods like EBITDAX, which means earnings before interest, taxes, depreciation, amortization, and exploration expenses. He said this measure "stands for earnings before a lot of stuff." In particular, Einhorn targeted five companies: Pioneer Natural Resources (PXD), EOG Resources (EOG), Continental Resources (CLR), Whiting Petroleum (WLL), and Concho Resources (CXO). Pioneer seems to be his No. 1 target, since he dubbed it "the motherfracker." "A business that burns cash and doesn't grow isn't worth anything," said Einhorn about Pioneer.

Instead, Einhorn encouraged investors to focus on cash as a guide to the health of the industry. Since 2006, the U.S. oil exploration and production industry has spent $80 billion more in capital than it made selling oil. Einhorn says companies were only kept alive by the constant inflows of capital from bankers (also known as loans) and investors alike.

David Einhorn is a well-known poker player. (He won $4.4 million at the 2012 World Series of Poker tournament.) But is he bluffing here?

On the Money, Sort Of

There is no denying the massive cash burn of these E&P companies. Many of them have debt problems, which I have spoken about before.

Moody's said its LSI (Liquidity Stress Index) for these companies more than doubled in March to 9.8% from 4.4%. But keep in mind, this Index hit 26% in March 2009 when oil prices plunged due to the financial crisis.

[Feb 27, 2016] Chesapeake Soars On $385M Asset Sale

OilPrice.com
This year Chesapeake's stock market valuation has suffered phenomenally. A year ago it was around $20 billion. By mid-February this year, it was around $1 billion, and had been trading at under $2 a share until Wednesday, having shed more than $18 per share over last year.

This has sparked fears that Chesapeake was facing bankruptcy, but those fears seem to have been allayed if the 23 percent share price jump is any indication. But the company still has $500 million in debt that is coming due in March-and this is where the asset sale to FourPoint comes in handy.

Related: Who Will Be Left Standing At The End Of The Oil War

There has been much investor concern about whether Chesapeake would be able to cover its debts with planned asset sales and bond repurchasing. The plan was to purchase $240 million of the 3.25 percent senior notes due in March at discount rates, according to Bloomberg. The news agency also noted that Chesapeake had been buying up bonds that mature next year for 45 percent less than their value. The markets responded positively, but not all analysts agree.

"We still believe it is burdened by too much leverage and by legacy transportation agreements, and that if the strip (prices) were to hold true, that the stock has no equity value," Doug Leggate, a Bank of America Merill Lynch analyst, wrote on Wednesday.

[Feb 27, 2016] Thirty five percent

Notable quotes:
"... By Irina Shav, a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice ..."
"... nearly 35 percent of pure-play E P companies listed worldwide, or about 175 companies, are in the high risk quadrant, Deloitte noted, adding that the situation is precarious for 50 of these companies due to negative equity or leverage ratio above 100. ..."
"... More than 80 percent of U.S. E P companies who filed for bankruptcy since July 2014 are still operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges, according to Deloitte. ..."
"... However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers to meet lenders earlier stipulations and increasing the probability of US E P company bankruptcies surpassing the Great Recession levels in 2016. ..."
"... According to AlixPartners, these debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly half of the total for US and Canada. ..."
"... Then there are the banks, which used to have a soft spot for energy companies when oil was selling for over $100 a barrel. Now that it is hovering around $30, the soft spot is gone and lenders are trimming their energy investment portfolios. ..."
"... Cost for shale oil production $15 a barrel? Thats roughly the cost of pumping light sweet crude in Saudi Arabia, the lowest cost producer out there. Sounds like nonsense to me. ..."
"... Consolidation likely, but only after bankruptcy. Which banks are most at risk? ..."
"... Secondary indirect effects are also of concern. Related exposures of the TBTFs and large shadow banks to the oil and gas sector, including derivatives, are opaque. Couple these developments with volatile price fluctuations in major currencies, declining prices of many other commodities, and the interconnected nature of these systemically important financial institutions, and one hopes their risk management and internal controls are adequate. ..."
"... In the good old days the Texas Railroad Commission set world oil prices. Now its being done by players that are solely focused on their own self interests and players that are very short sighted. ..."
"... President Obama wants an oil tax, then give him one. Impose a windfall tax on imported oil at $60 a barrel. This will cause higher gasoline prices now, but will forestall much higher gasoline prices in the future. ..."
"... Some of this misery, is self inflicted along with the complicit of Fed encouraging animal spirits of wildcatters with cheap credit expansion since 09! Lot of mal-investments are made all over just like in China. Karma is getting back its bite! ..."
"... The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S. crude production soared to its highest in more than three decades… ..."
"... actually the undesirable aspects of fracking have been IGNORED, until now when it may affect the wealthy and the banks…we utilize products and transportation that is heavy on petroleum because that make banks and oligarchs a lot of money, and theyll kill public transportation to get moar. ..."
"... trees dont grow to the sky. There is a maximum volume of humans that the planet will tolerate, and we seem to be fixated on finding out what that number is. ..."
www.nakedcapitalism.com
Posted on February 25, 2016 by Yves Smith

By Irina Shav, a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice

More than one-third of public oil companies globally face bankruptcy, according to a new Deloitte report that paints a fairly gloomy picture of the U.S. shale patch as it struggles to survive under mountains of debt.

The Deloitte report -the first high-profile report on the current financial situation of global oil and gas companies-surveyed 500 companies and found that 175 are facing "a combination of high leverage and low debt service coverage ratios".

"[…] nearly 35 percent of pure-play E&P companies listed worldwide, or about 175 companies, are in the high risk quadrant," Deloitte noted, adding that the situation is "precarious" for 50 of these companies due to negative equity or leverage ratio above 100.

"Stock prices of some of these has already dipped below $5, making them penny stocks. The probability of these companies slipping into bankruptcy is high in 2016, unless oil prices recover sharply, a large part of their debt is converted into equity, or big investors infuse liquidity into these companies."

Reports about the growing numbers of bankruptcies among U.S. shale producers aren't new, but the Deloitte findings reinforce the picture.

"More than 80 percent of U.S. E&P companies who filed for bankruptcy since July 2014 are still operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges," according to Deloitte.

"However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers to meet lenders' earlier stipulations and increasing the probability of US E&P company bankruptcies surpassing the Great Recession levels in 2016."

Shale producers amassed huge debts that they are now struggling to service in the oil price downturn.

According to AlixPartners, these debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly half of the total for US and Canada.

That's a lot of debt that needs servicing or restructuring. Unfortunately, things in the industry are so bad that the usual solutions don't work as effectively as they normally would. For starters, demand for E&P assets is at best moderate. Then there are the banks, which used to have a soft spot for energy companies when oil was selling for over $100 a barrel. Now that it is hovering around $30, the soft spot is gone and lenders are trimming their energy investment portfolios.

Private equity firms are one alternative source of finance for the troubled industry players. Deep capex cuts are another. The efficiency of both options, however, is questionable. Banks, the IEA, and the IMF have warned that oil prices could reach $20. Iran is back on the international market and planning to raise production to pre-sanction levels (around 4 million bpd in 2011.). The world's number one and two producers, Russia and Saudi Arabia, have made a deal to freeze output at current levels, but these levels are record-highs for both countries, so a freeze is unlikely to take care of the glut quickly enough. And it's not going to happen anyway.

All this spells doom for that unfortunate one-third of producers. There is one alternative to bankruptcy-sector consolidation-although the problems with consolidation are similar to the problems with asset sales. Few energy companies are in a position to make acquisitions right now.

What's left? Continuing the optimization of everyday operations. Operating efficiencies are constantly being improved, mainly in the shale patch but also outside it. Costs for 95 percent of U.S. output have fallen below $15 a barrel, says Deloitte. It seems all that is left for the troubled E&Ps is to continue pumping and keep hoping the storm will eventually subside. Not a fascinating prospect, by all means, but the most realistic one.

kimsarah , February 25, 2016 at 4:27 am

http://www.bloomberg.com/news/articles/2016-02-25/biggest-wave-yet-of-u-s-oil-defaults-looms-as-bust-intensifies

Let's hope this puts an end to fracking.

James Levy , February 25, 2016 at 6:23 am

Cost for shale oil production $15 a barrel? That's roughly the cost of pumping light sweet crude in Saudi Arabia, the lowest cost producer out there. Sounds like nonsense to me.

They are waiting for the big bailout after the election, just like the S&L crooks, but this time without 600 of them going to jail and the rest taking the haircut of the century.

tegnost , February 25, 2016 at 9:12 am

I'm wondering what the impact on these new nat gas terminals will be with a decimated fracking industry. I got a laugh out of NBR last night, they said it was good news that less inventory came into storage last month, um when the tank is full you can't put any more in there……

I agree with you that oil won't go to zero, one of the industry analysts referenced the Deloitte report and based on it called the bottom 18. Cheapest gas in sd 2.29, most expensive by airport 3.49! Also, I don't see Iran not putting their oil on the market, they need the dough, too

Joe E , February 25, 2016 at 6:38 am

Maybe the $15/bbl is just for pumping; no drilling, no fracking, no exploration.

smuprhy1 , February 25, 2016 at 1:25 pm

Most likely. And because the drilling, fracking and exploring was debt financed the producers have to keep pumping as long as the price is above their marginal cost because they have to make those monthly payments. So all these debt financed drillers are going to flood the market trying to stay solvent until they all go bust.

Steven D. , February 25, 2016 at 8:14 am

Since the fossil fuel industry are big backers of the Republicans, this should present an opening to the Democrats to do something significant about global warming. If they actually gave a damn and weren't in the tank themselves.

HotFlash , February 25, 2016 at 8:25 am

But, but, Hillary has a plan -- To attract millionaire environmentalist donors.

James McRitchie , February 25, 2016 at 9:23 am

Consolidation likely, but only after bankruptcy. Which banks are most at risk?

Chauncey Gardiner , February 25, 2016 at 10:19 am

Secondary indirect effects are also of concern. Related exposures of the TBTFs and large shadow banks to the oil and gas sector, including derivatives, are opaque. Couple these developments with volatile price fluctuations in major currencies, declining prices of many other commodities, and the interconnected nature of these systemically important financial institutions, and one hopes their risk management and internal controls are adequate.

Damian , February 25, 2016 at 11:03 am

The $15 per barrel operating cost doesn't matter, even if it is true – the core analysis is the decline curve for Shale is very steep – more than 90% decline after 40 months – by the time the price recovers the active reserve assets remaining – no matter what the asset discount for bankruptcy – leaves little for a prize. Once these wells are put on a pump the deeper the well the more operating cost with low volumes to cover the cost.

The losses will be catastrophic to include the banks.

In 86′ oil went from $42 at the top to $9.60 / Bbl. at the bottom – the see thru buildings from Tulsa to Houston lasted for a long time since there were no tenants for the space – even the law firms went off the air --

Oil Dusk , February 25, 2016 at 12:33 pm

The problem in this current situation is that we are a capitalistic country trying to function in a cartel world. In the good old days the Texas Railroad Commission set world oil prices. Now it's being done by players that are solely focused on their own self interests and players that are very short sighted.

OPEC tripled the price of oil between 2000 and 2010. They then held the price level. The marginal price for oil was low and the additional portion of the price was essentially a kicker for their government revenues. The problem was they got too greedy and set the price too high (had they set the world price at $85 instead of $100, we likely would have avoided the latest boom/bust cycle).

The capitalistic market saw these high prices and realized that they could make money at the prices that OPEC was charging the market. In other words, the marginal cost for new oil prospects was less than the artificial press levels that OPEC was setting. The result was predictable, though partly driven by technology and fracking.

Marginal players, like the oil sands and deep and remote large scale oil and gas projects were put into motion. The oil shale players were also put into motion, and they added about 3 million barrels of oil per day out of about 92 million bopd. Other players, like Iraq also increased their production.

When OPEC started feeling squeezed, they threw the kitchen wrench in and tried to hurt all the other players in the market. In economics, this behavior is often either referred to as "dumping" or "predatory pricing".

So, our domestic oil and gas production industry, to include a lot of US manufacturing jobs, is being directly attacked by foreign countries that are trying to hurt our U.S. industry so they can jack world prices up to higher levels.

So, those of you that are reveling in the current tough circumstances of our oil and gas industry at these price levels, please realize a few things.

Here's how we can fight back. President Obama wants an oil tax, then give him one. Impose a windfall tax on imported oil at $60 a barrel. This will cause higher gasoline prices now, but will forestall much higher gasoline prices in the future. Domestic producers will immediately get a $60 oil price for their output. This will stop the Saudi's and Russians from being able to deliberately destroy an industry in our country and allow us to create some employment stability for a home grown industrial sector. The additional production in the U.S. will also make it more difficult for OPEC to screw us later when oil prices soar again.

sunny129 , February 25, 2016 at 5:26 pm

Guess, you work in and or for the OIL industry.

Some of this misery, is self inflicted along with the complicit of Fed encouraging animal spirits of 'wildcatters' with cheap credit expansion since '09! Lot of mal-investments are made all over just like in China. Karma is getting back it's bite!

Debt-Fueled Boom

The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples' money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S. crude production soared to its highest in more than three decades…

http://www.bloomberg.com/news/articles/2016-02-25/biggest-wave-yet-of-u-s-oil-defaults-looms-as-bust-intensifies

polecat , February 25, 2016 at 7:18 pm

to paraphrase B. Dylan; 'who don't we all throw stones'

Everybody doin their 2 minute hate… am I right ??…………we're all stuck in this energy quagmire,…and yes, the undesirable effects of fracking are now being felt, but we all utilize products or transportation that relies on petroleum, like it or not !! Getting away from that energy source basically means living a much reduced lifestyle !! who's willing to give up even, say 50%, of their energy usage to eliminate petroleum use completely, because wind and solar currently do not scale, if they ever will !!

tegnost , February 25, 2016 at 9:57 pm

actually the undesirable aspects of fracking have been IGNORED, until now when it may affect the wealthy and the banks…we utilize products and transportation that is heavy on petroleum because that make banks and oligarchs a lot of money, and they'll kill public transportation to get moar.

I do not plan to have another car and the GFC reduced my consumption significantly, probably more than 50% because my truck was a '56 GMC half ton, and rather than the ACA I just plan to go die when the time comes, and live the best life I can until then.

tegnost , February 25, 2016 at 10:04 pm

trees don't grow to the sky. There is a maximum volume of humans that the planet will tolerate, and we seem to be fixated on finding out what that number is.

tegnost , February 25, 2016 at 10:14 pm

…and not to be too much in your face sorry but it's probably easy to knock off 50% of petroleum usage in the same way that I have for most people, and I agree petroleum serves a mighty purpose in our situation as it is

[Feb 27, 2016] US Shale At $30 Oil How EOG Resources Plans To Make It Work

Actions of the company in cutting drilling and capex contradict rozy projections
Notable quotes:
"... Specifically, EOG has identified a decade of premium unconventional oil drilling inventory that will generate double digit returns at $30 oil. ..."
"... EOG expects to complete approximately 270 net wells in 2016, compared to 470 net wells in 2015, with total company crude oil production expected to decline only 5 percent versus 2015. ..."
"... For 2 yrs in a row, EOG has now cut its capital budget by more than 40%. 2016 spending will be $2.4-$2.6bn, down 45% to 50% year-over-year. ..."
"... EOG wont be fooled again by a temporary oil price uptick like in spring-2015, so the company plans to wait on any activity increase until it is convinced any future increase in oil price is sustainable. ..."
Oilpro
For EOG, $40 is becoming the new $70. This morning, the company discussed a new strategy to make unconventional oil development in US plays like the Eagle Ford and the Permian Basin competitive on a global scale at current oil prices. Specifically, EOG has identified a decade of premium unconventional oil drilling inventory that will generate double digit returns at $30 oil.

Backed into a corner by lower cost producers in a global price war, EOG essentially just yelled a battle cry at OPEC on behalf of US shale, implying they will make unconventional oil just as cost effective as OPEC barrels.

EOG Resources is light years ahead of its peers in shale science and acreage quality, and its ambitions may not be repeatable industry-wide, although others will certainly try. EOG is to shale what Saudi is to OPEC - uniquely advantaged relative to other peers/members.

... ... ...

EOG has identified more than 2 billion barrels of oil equivalent resource, and over a decade of drilling inventory (3,200 wells) that can generate returns of 10% at $30 oil, 30%+ at $40 oil, and 100%+ at $60 oil. The company is shifting into premium drilling mode, concentrating on the core-of-the-core in top plays.

... ... ...

In addition to the new strategy, some key takeaways from EOG's 2016 plan:

[Feb 25, 2016] Dominoes start falling: Oil Is the Cheap Date From Hell

Notable quotes:
"... As much as 15 percent of the face value of high-yield bonds owed by U.S. oil producers and service companies could go into default this year, according to BCA Research. ..."
"... Trouble could radiate outward if banks, their balance sheets weakened by defaults in the oil industry, cut back lending to other enterprises. Says Nicholas Sargen, chief economist at Fort Washington Investment Advisors: "There are some people beginning to worry that this thing could spread like the subprime crisis. People said then that it was too small to matter, and then you find out there are linkages you didn't know about." ..."
"... In any case, oil prices this low aren't likely to last long. The market for crude is driven increasingly by high-frequency, computer-based momentum trading. In July, the CME Group-formerly the Chicago Mercantile Exchange-ended the 167-year history of actual humans trading commodity futures in open pits in Chicago and New York. Computer trading has proved more efficient, but not always better. "There was a governing quality of human input that's been lost in the market, that sort of prevented this kind of lunacy," says Dan Dicker, a former oil trader on the Nymex and president of MercBloc, a wealth-management firm. "People could only move but so fast." ..."
"... At the moment, says Kopits of Princeton Energy Advisors, "there's a weird disconnect between any kind of long-term fundamentals and current market values." Fundamentals tend to win out in the long run. Supply will be curbed as drillers drop projects that are unprofitable at $30 a barrel. And demand will accelerate; people are already driving more miles, albeit in more fuel-efficient vehicles. (A 2015 Ford F-150 pickup gets 30 percent better gas mileage on the highway than the 2005 model.) Oil traders spent most of 2015 increasing their bets that oil prices would fall. Since mid-January they have slightly pared their short positions and bought more contracts that gain value when oil rises. ..."
"... Can't Get Enough of Your Love, Babe ..."
Feb 11, 2016 | Bloomberg Business
The market turmoil is shaking up companies as far afield as St. Louis-based Emerson Electric, headed since 2000 by Chief Executive Officer David Farr. Emerson makes products ranging from oil-production instruments to closet organizers. "The last 30 days have been what I would call the most unusual in my time at Emerson. I've never seen a marketplace go so volatile," Farr told analysts on Feb. 2.

ExxonMobil is facing a potential credit downgrade for the first time since the Great Depression. ConocoPhillips is cutting its dividend for the first time in a quarter-century. Energy stocks account for 6.6 percent of the S&P 500's market value. While that's only half their share of five years ago, it's still big enough for them to drag down the overall index on bad days.

In 2014 the energy industry accounted for nearly one-third of S&P 500 companies' capital expenditures, according to data compiled by Bloomberg. At least $1 trillion in spending is getting canceled, says Steven Kopits, president of Princeton Energy Advisors. When energy companies cut back, pipe makers, truckers, railroads, and businesses in other industries suffer.

Goldman Sachs puts the chance of a recession in the next year at 18 percent

Then there's the financial sector. Oil drillers borrowed heavily to expand production, and many can't make money at today's superlow prices. As much as 15 percent of the face value of high-yield bonds owed by U.S. oil producers and service companies could go into default this year, according to BCA Research. "The major risk banks have isn't to their normal retail-oriented stuff, it's to the oil space," says Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New York. Markets were rattled on Feb. 8 after the Debtwire news service reported that Chesapeake Energy, the No. 2 U.S. natural gas producer, had hired a law firm to restructure a $9.8 billion debt load. The company issued a statement saying it has no plans to pursue bankruptcy.

Trouble could radiate outward if banks, their balance sheets weakened by defaults in the oil industry, cut back lending to other enterprises. Says Nicholas Sargen, chief economist at Fort Washington Investment Advisors: "There are some people beginning to worry that this thing could spread like the subprime crisis. People said then that it was too small to matter, and then you find out there are linkages you didn't know about."

How long will oil and stocks continue their doomed embrace? No one knows for sure, but there are signs that emotion has gotten the better of investors. Once things calm down, the underlying strengths of the U.S. economy could start to become clearer. At that point, stocks could start to rebound even if-or because!-the global glut of crude keeps oil prices low.

... ... ...

Synchronized plunges this extreme in stocks and oil usually indicate that investors are expecting a U.S. recession, which would kill corporate profits and demand for crude. But how likely is a recession over the next year or so? Not impossible, but not probable.

The most important indicator of economic health is employment. The U.S. created 151,000 jobs in January, less than in previous months but more than enough to absorb the normal flow of entrants into the labor force. The unemployment rate dropped to 4.9 percent, which the Federal Reserve considers full employment. Average hourly earnings rose 2.5 percent from the year before. That's a real pay raise for American workers, since it's above the inflation rate, yet it's not so high as to get the Fed worried about an incipient wage-price inflationary spiral. Meanwhile, companies show no sign of retrenching on employment: In December listed job openings were the highest as a share of all jobs, filled and unfilled, since record keeping began in 2000, according to data released by the Bureau of Labor Statistics on Feb. 9.

Cheap oil, supposedly an economic threat, has done one good thing for the U.S. economy and stocks. It's kept the overall increase in consumer prices through December to just 0.7 percent. That could help persuade the Fed to throttle back its plans to raise rates. On Feb. 10, Fed Chair Janet Yellen suggested that further rate hikes would depend on whether the market turmoil persists. "Monetary policy is by no means on a preset course," she told Congress. Low rates are good for both the economy and Wall Street, because stocks become a more enticing alternative when rates are low.

The bears are right that cheap oil is damaging high-cost producers around the world, and some of those are in the U.S.

... ... ...

...The bad parts of the oil plunge are hitting now: the credit downgrades, the defaults, the investment cutbacks, the layoffs of roughnecks. They're making news and rattling people's confidence. "We've taken the big hit upfront," says Chris Varvares, co-founder of St. Louis-based Macroeconomic Advisers. Eventually, the money freed up by cheap oil will leak into other parts of the economy. When oil prices crashed in 1986 and gasoline suddenly got cheap, it didn't show up in the consumption numbers for more than a year, says David Rosenberg, chief economist at Gluskin Sheff.

In any case, oil prices this low aren't likely to last long. The market for crude is driven increasingly by high-frequency, computer-based momentum trading. In July, the CME Group-formerly the Chicago Mercantile Exchange-ended the 167-year history of actual humans trading commodity futures in open pits in Chicago and New York. Computer trading has proved more efficient, but not always better. "There was a governing quality of human input that's been lost in the market, that sort of prevented this kind of lunacy," says Dan Dicker, a former oil trader on the Nymex and president of MercBloc, a wealth-management firm. "People could only move but so fast."

At the moment, says Kopits of Princeton Energy Advisors, "there's a weird disconnect between any kind of long-term fundamentals and current market values." Fundamentals tend to win out in the long run. Supply will be curbed as drillers drop projects that are unprofitable at $30 a barrel. And demand will accelerate; people are already driving more miles, albeit in more fuel-efficient vehicles. (A 2015 Ford F-150 pickup gets 30 percent better gas mileage on the highway than the 2005 model.) Oil traders spent most of 2015 increasing their bets that oil prices would fall. Since mid-January they have slightly pared their short positions and bought more contracts that gain value when oil rises.

Barry White began Can't Get Enough of Your Love, Babe by saying, "I've heard people say that too much of anything is not good for you, baby." Cheap oil is kind of like that for the stock market. But with any luck, their dysfunctional dynamic won't last much longer.

-With Dani Burger and Oliver Renick

[Feb 25, 2016] As many as 74 North American producers face significant difficulties in sustaining debt

Feb 23, 2016 | Bloomberg Business

As many as 74 North American producers face significant difficulties in sustaining debt, according to credit rating firm Moody's Investors Service. Shale explorers from Texas to North Dakota will be "decimated" in coming months amid a wave of restructurings and bankruptcies, said Mark Papa, the former EOG Resources Inc. chief executive officer who helped create the shale industry more than a decade ago. The survivors will be more conservative, Papa, who is now a partner at private-equity firm Riverstone Holdings LLC, said during a panel discussion on Tuesday.

[Feb 25, 2016] There was a governing quality of human input that's been lost in the market, that sort of prevented this kind of lunacy that is currently happening in oil markets

www.bloomberg.com

In any case, oil prices this low aren't likely to last long. The market for crude is driven increasingly by high-frequency, computer-based momentum trading. In July, the CME Group-formerly the Chicago Mercantile Exchange-ended the 167-year history of actual humans trading commodity futures in open pits in Chicago and New York. Computer trading has proved more efficient, but not always better. "There was a governing quality of human input that's been lost in the market, that sort of prevented this kind of lunacy," says Dan Dicker, a former oil trader on the Nymex and president of MercBloc, a wealth-management firm. "People could only move but so fast."

[Feb 25, 2016] Dominos start falling: the weakest shale companies are bravely marching toward bankruptcy

Notable quotes:
"... I think unrevealing of the weakest shale is coming ..."
"... Yeah Niami is still cooing No cuts but he is just bargaining. Last week I thought it would be by summer but it could happen earlier. ..."
"... The balance sheets of shale producers are in disrepair ..."
peakoilbarrel.com
Ves , 02/23/2016 at 10:42 pm
I think unrevealing of the weakest shale is coming. Peace agreement in Syria is signed today and it is huge and there is no need to keep War party (from all sides) shackled with low prices any longer by keeping shale on life support.

I think in the next few weeks or months certain things will be iron out in terms of actual cuts from the major producers. No doubt that US production is already in decline and could be even more than what EIA numbers are showing, and it will be incorporated as official "cut" by US. But Saudis and Russians will cut too. The first sign was that "freeze" negotiation a week ago in Doha and it was building block.

Yeah Niami is still cooing "No cuts" but he is just bargaining. Last week I thought it would be by summer but it could happen earlier.

Watcher , 02/24/2016 at 2:21 am
Why would he cut and leave customer orders unfilled?
Ves , 02/24/2016 at 8:17 am
No orders were unfilled at $100 either. It depends on level of production unless it is coupled with major producers start prancing around refineries and offering discounts like Saudis did and then everybody follows offering discount. And once ball start rolling you end up with price from 1990's.

Loz , 02/23/2016 at 10:07 pm

"The balance sheets of shale producers are in disrepair," said Mr Hess"

and

"Opec launched a price war against US shale and other high-cost producers, including Canadian oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year low of about $26 on February 11.

In a rare admission that the policy hasn't worked out as planned, Mr El-Badri said that Opec didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.

Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia agreed to freeze their output at the January level, provided other oil-rich countries joined. Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether to take other steps.

"This is the first step to see what we can achieve," he said. "If this is successful, we will take other steps in the future." He refused to explain what steps Opec could take."

http://www.thenational.ae/business/energy/opec-head-el-badri-doesnt-know-how-it-can-live-together-with-shale-oil

[Feb 25, 2016] Dominos start falling: SM Energy is in troble

peakoilbarrel.com

shallow sand , 02/24/2016 at 8:15 am

SM Energy per their release.

PV10 at $50.28 WTI $1.8 billion

Long term debt $2.516 billion.

Note they are the first I have seen to report PV10 with hedges, which moves PV10 to $2.3 billion.

I wish they would disclose PV10 at various price points too.

Probably more note worthy, SM Energy's Q4 2015 oil production was down 14% from Q4 2014.

Also, their netback, pre hedges, was just $6 per BOE. That means Q1 netback, pre hedges will be negative in all likelihood. They don't have a lot hedged in 2016 compared to 2015.

[Feb 25, 2016] Dominos start falling: Encana says the 2016 job cuts will have resulted in a 50 per cent reduction in its workforce since 2013

peakoilbarrel.com
Frugal , 02/24/2016 at 8:50 am
Encana planning further workforce reduction

Encana says the 2016 job cuts will have resulted in a 50 per cent reduction in its workforce since 2013.

[Feb 25, 2016] baobab 2050

baobab2050.org

[Feb 25, 2016] Dominos start falling: Chesapeake results are out and they look pretty bad

peakoilbarrel.com

Daniel , 02/24/2016 at 9:15 am

Chesapeake results are out and they look pretty bad to me at least. Would be interesting to hear from more knowledgeable people on this:

Interesting as well, that they plan to complete 155-265 more wells than they drill

shallow sand ,