Will the price stay high long enough to produce enough barrels to pay for the well?
Houston..we have a problem....
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Last: 1 day ago by Bibendum 86
Ogre09 said:
Will the price stay high long enough to produce enough barrels to pay for the well?
I saw a statement the other day about lifting sanctions when Russia stopped the aggression. I'm not sure what that means. Could be a durable cease fire or could be Russia withdrawal from Ukraine. I don't think a withdrawal would happen soon, but how quickly does the cost of oil drop if Russia decides it has had enough and then the west lifts the sanctions.
BiochemAg97 said:Ogre09 said:
Will the price stay high long enough to produce enough barrels to pay for the well?
I saw a statement the other day about lifting sanctions when Russia stopped the aggression. I'm not sure what that means. Could be a durable cease fire or could be Russia withdrawal from Ukraine. I don't think a withdrawal would happen soon, but how quickly does the cost of oil drop if Russia decides it has had enough and then the west lifts the sanctions.
Instantly.
There's been no supply interruption, only money moving from the market placing a bet on oil.
The only problem is this time around there are significant headwinds. You've got to:techno-ag said:Comeby! said:
Nice Ode to the Aggie Band
https://www.texasmonthly.com/news-politics/100-dollar-oil-permian-not-drilling/Yeah but at some point if prices remain in the stratosphere someone is going to budge and start drilling more. There comes a point when it just becomes too lucrative to ignore.Quote:
Asked about plans to ramp up output last month, he was adamant: "At one-hundred-dollar oil, one-hundred-and-fifty-dollar oil, we're not going to change our growth rate."
-Do it on your own capital as banks aren't lending.
-Pay for huge increases in steel, cement, frac sand, labor passed onto you as well as OFS companies seeing enough demand to command higher profit margins
-Delays or no availability on everything. People are complaining about not being able to get sand. In west texas.
Was just hearing about small time operators okaying lower quality steel from sketchy vendors to get it now and the casing collapsed. There goes your well economics.
So if you're a L48 operator, why fight such an uphill battle to increase production? Especially when the rug could get pulled out from under you and prices drop to $80 if a peace treaty gets declared right as your unit economics start to balloon to capture all of these rising costs?
Remember, shale operators have to keep drilling to stay out infront of decline curves anyway, so why leverage even more than you have to?
Looks like this 30% downswing from the highs is exactly the volatility people don't want to see when investing - public or private.
Great points.
Except some how $80 oil being the rug pulled out. Large Deepwater projects used to be based off of less. Conventional 48 shouldn't need anywhere close to that to justify exploration and increased production unless we're somehow less efficient than 5 years ago.
Except some how $80 oil being the rug pulled out. Large Deepwater projects used to be based off of less. Conventional 48 shouldn't need anywhere close to that to justify exploration and increased production unless we're somehow less efficient than 5 years ago.
I see your points. But WTI spot price was $125 last week and it looked like there was no end in sight on it going up. Its now back 'down' to $102. $90 was the pre-ukranian invasion price. At the same time there has been a huge outcry to drill baby drill. Operators are completely justified to sit back and see if this is going to be a sustained rally or just fizzle back out into $90.AgLA06 said:
Great points.
Except some how $80 oil being the rug pulled out. Large Deepwater projects used to be based off of less. Conventional 48 shouldn't need anywhere close to that to justify exploration and increased production unless we're somehow less efficient than 5 years ago.
The biggest winners of this are offshore production platforms that are already out there, with tie backs completely filled out. Teams that spent the past 4-5 years just keep attaching onto production platforms that already exist.
The operator's well construction costs were relatively stable up until COVID and post COVID supply chain hysteria. Somewhere, there's a team of MBAs each at the supermajors trying to figure out how to get the genie back in the bottle and get back to squeezing OFS, steel mills, and engineering and construction firms for cheap contracts. Now every industry needs more money to run just to absorb inflation.
I'd be shocked if anyone okay's floating out a new multi-billion dollar platform right now. The supermajors are going to clean up their balance sheets first.
I think quite a few operators will still be perfectly fine with 'fizzling out' at $90.
It'd also be great to have a high enough price to make growth possible while not being as harmful to the rest of the economy.
$90 sustained oil would be a dream scenario for all operators.Joseph Parrish said:
I think quite a few operators will still be perfectly fine with 'fizzling out' at $90.
What do you boys want for breakfast BBQ ?.....OK Chili.
anyone needing $100+ oil to justify economics shouldnt be drilling or deploying capex. Looking your was Miss Lime.
AgLA06 said:
Great points.
Except some how $80 oil being the rug pulled out. Large Deepwater projects used to be based off of less. Conventional 48 shouldn't need anywhere close to that to justify exploration and increased production unless we're somehow less efficient than 5 years ago.
$80 ain't what it used to be.
Ulrich said:AgLA06 said:
Great points.
Except some how $80 oil being the rug pulled out. Large Deepwater projects used to be based off of less. Conventional 48 shouldn't need anywhere close to that to justify exploration and increased production unless we're somehow less efficient than 5 years ago.
$80 ain't what it used to be.
2021 WTI averaged $67.99.
2021 profits.
BP $12.8 billion
Chevron $15.6 billion
Exxon $23 billion
Shell $19.3 billion
Try that with someone who wasn't in the industry. Subsea made decisions on pricing in the $60s before the crash. If surface needs more than $80, it's a sham.
Before I made the jump to O&G, I was in commercial development in Houston. This reminds me of a decade ago when the same old project suddenly didn't work anymore. All "the easy" projects had been developed and code was getting more restricted. The same big names are still building profitable projects, just very different than they did back then. Much more complex and amenity driven.
I think O&G is going to have to go back to exploration and development of complex subsea projects that produce for decades to crawl out of their funding issues. The get rich quick scheme of fracking set them back a ways.
There are two ships passing in the night here.AgLA06 said:Ulrich said:AgLA06 said:
Great points.
Except some how $80 oil being the rug pulled out. Large Deepwater projects used to be based off of less. Conventional 48 shouldn't need anywhere close to that to justify exploration and increased production unless we're somehow less efficient than 5 years ago.
$80 ain't what it used to be.
2021 WTI averaged $67.99.
2021 profits.
BP $12.8 billion
Chevron $15.6 billion
Exxon $23 billion
Shell $19.3 billion
Try that with someone who wasn't in the industry. Subsea made decisions on pricing in the $60s before the crash. If surface needs more than $80, it's a sham.
Yes, we can shout from the rooftops like the democrats on twitter right now about how the supermajors made money last year.
And at the same time hold that inflation, material shortages, material costs, labor costs, OFS crew availability and capabilities, lack of access to capital, and market volatility are going to hinder future developments.
If anyone is shopping slide decks around saying that they can hold well construction costs to 2020 or even 2021 levels they should absolutely be run out of the room.
You say that, but we said the same 2012 ish in the last boom when service companies named their price. It would be interesting to see how different costs were now to then.
I have no doubt supply / capacity from service side is reduced.
I have no doubt supply / capacity from service side is reduced.
The super majors are the majority of subsea production. That's why I focus on them.
D&C for a Delaware well was $9mm a year ago and $12mm today. Costs are way up.
All I'm saying is that inflation is real. Last time oil was $80 a barrel was 2014, eight years ago. I know the official line is that inflation was very low, but I'm not sure I buy it. If it was 2% annually, $80 then would be worth $94 now.
Now we're potentially moving into a hyper inflationary environment. Steel is up what, over 100% in the last year? Labor is skyrocketing. Major equipment is going way up for those reasons. Officially we're at around 8% inflation and rising, and that's the number meant to make things look better than they are.
You want to cut a billion dollar check that will take a year or two to get the money spent and start generating returns in that environment?
Now we're potentially moving into a hyper inflationary environment. Steel is up what, over 100% in the last year? Labor is skyrocketing. Major equipment is going way up for those reasons. Officially we're at around 8% inflation and rising, and that's the number meant to make things look better than they are.
You want to cut a billion dollar check that will take a year or two to get the money spent and start generating returns in that environment?
I'm on the pump/measurement/ASME fabrication side of the business and we had a steady increase in pricing from just about all of our vendors over at least the last 12-18 months. Electric motors last year probably increased around %25 with several incremental increases over that period.
We're also seeing crazy lead times on what used to be considered "common" equipment. Us and our suppliers were trying to keep safety stock that you figured would get us through a demand crunch, but I can already see that whatever buffer we had is going away/gone. Most of our customers are well aware of it because every vendor is saying that same thing.
VFDs/PLCs, air compressors, coriolis meters, certain ANSI pump models/components are some of hardest hit just off the top of my head. Crazy times and it only seems to be getting busier so I'm not sure how anyone will necessarily keep up.
We're also seeing crazy lead times on what used to be considered "common" equipment. Us and our suppliers were trying to keep safety stock that you figured would get us through a demand crunch, but I can already see that whatever buffer we had is going away/gone. Most of our customers are well aware of it because every vendor is saying that same thing.
VFDs/PLCs, air compressors, coriolis meters, certain ANSI pump models/components are some of hardest hit just off the top of my head. Crazy times and it only seems to be getting busier so I'm not sure how anyone will necessarily keep up.
Goose06 said:
D&C for a Delaware well was $9mm a year ago and $12mm today. Costs are way up.
2 mile well in the wolf camp is close $14
You also need to remember that drilling efficiency is also way up. I read in at least one of the Permian operator decks (Callon, Pioneer, Ovintiv… can't remember) that they expect to make up the entirety of inflation with more efficiencies elsewhere.
EIAs productivity report also shows an average of 20%+ more oil per rig each year in the Permian the last 5 years alone. 10 rigs 5 years ago may produce the same as 5 rigs today.
EIAs productivity report also shows an average of 20%+ more oil per rig each year in the Permian the last 5 years alone. 10 rigs 5 years ago may produce the same as 5 rigs today.
BrokeAssAggie said:Goose06 said:
D&C for a Delaware well was $9mm a year ago and $12mm today. Costs are way up.
2 mile well in the wolf camp is close $14
No way it's that high
Fredd said:BrokeAssAggie said:Goose06 said:
D&C for a Delaware well was $9mm a year ago and $12mm today. Costs are way up.
2 mile well in the wolf camp is close $14
No way it's that high
Looking at one right now. Competition cost alone are over $7MM
that seems really really high.
BrokeAssAggie said:Fredd said:BrokeAssAggie said:Goose06 said:
D&C for a Delaware well was $9mm a year ago and $12mm today. Costs are way up.
2 mile well in the wolf camp is close $14
No way it's that high
Looking at one right now. Competition cost alone are over $7MM
Hire me and we can split the savings
D,C AND E (facilities) altogether aren't even that high, much less just D&C. Whatever you're looking at is wrong.
Yeah, I would be shocked if that were the case. I'm thinking 2020 costs were around $8MM D&C, probably run you $10-11MM now. Definitely not $14MM
Westicles said:
D,C AND E (facilities) altogether aren't even that high, much less just D&C. Whatever you're looking at is wrong.
Maybe it's an exploratory well with its own pad, facilities, and buildout costs, plus some science and serious H2S. That's the only way I can imagine $14MM.
Doesn't really matter. Wells aren't averaging that. There's always been bad wells and bad plays.
That is…sub optimal.
— *Walter Bloomberg (@DeItaone) March 15, 2022
The Saudi's own currency is pegged to the dollar. Doing this will destabilize its own currency. Also, as a petrostate, Saudi is wise to choose to peg their currency to a superpower. If they don't then their ability to trade is directly pegged to the price of oil. Look at Russia, whenever the price of oil goes down, Russia losses purchasing power internationally. (Pre Sanctions)
Birdbear said:Westicles said:
D,C AND E (facilities) altogether aren't even that high, much less just D&C. Whatever you're looking at is wrong.
Maybe it's an exploratory well with its own pad, facilities, and buildout costs, plus some science and serious H2S. That's the only way I can imagine $14MM.
Yes, high H2S.
Its a negotiating tactic right out of Trump's Art of the Dealone MEEN Ag said:
The Saudi's own currency is pegged to the dollar. Doing this will destabilize its own currency. Also, as a petrostate, Saudi is wise to choose to peg their currency to a superpower. If they don't then their ability to trade is directly pegged to the price of oil. Look at Russia, whenever the price of oil goes down, Russia losses purchasing power internationally. (Pre Sanctions)
--- be prepared to walk. They're flirting to try to get America to capitulate on some other front in exchange for assurances that Saudi continues to use the USD. I don't think the Saudis would be serious about hitching their financial future to China and starting to see the Chinese invest in their country compared to the US. The Saudis only have two levers to pull: how much oil they produce and how they decide to get paid.SpreadsheetAg said:Its a negotiating tactic right out of Trump's Art of the Dealone MEEN Ag said:
The Saudi's own currency is pegged to the dollar. Doing this will destabilize its own currency. Also, as a petrostate, Saudi is wise to choose to peg their currency to a superpower. If they don't then their ability to trade is directly pegged to the price of oil. Look at Russia, whenever the price of oil goes down, Russia losses purchasing power internationally. (Pre Sanctions)
Peter Zeihan has a great geopolitical analysis about the power of the petrodollar. Getting everyone to trade oil in USD meant that america got its oil, and in exchange trillions of USD were sent abroad. So those countries had a couple choices with those dollars:
-hold it as a reserve (which further ties you to the USD)
-trade it back into your local currency (at the expense of transaction fees while also reducing the amount of your money held abroad)
-keep the money abroad in the banks of the country that bought the oil, and keep reinvesting in projects in that country. This is what most countries did. They viewed america as a safe place to continue investing.
What country was going to hold a Saudi currency? Who would hold the currency of a monarchy that is also a petrostate? You're betting on one family continuing to run the place while also betting on the price of oil. The Saudi's having their own currency pegged to the dollar helped them reduce any friction of money changing hands.
For them to start accepting Yuans as payment means the Saudi's will have a ton of Chinese currency at Chinese banks. They can then use it to invest in Chinese projects (which are either real estate related, governmental bonds, or companies - do any of those sound like good investments?) They also risk China seizing it.
America is not the good business partner and protector of the USD that it used to be, but its still the best currency compared to the rest of the world.
I think we're going to see serious pushes to reinvestment back into physical assets or digital ones. Everyone's starting to get a little leery of all these countries printers.
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