12/1-1/6 & Change
XLE -6.22%
USO -29.44%

Long Return (You didn't add MTDR that I put in a different thread)

With MTDR -5.19%
Without MTDR -8.54%

Short Return

PQ 7.5%
HK 28.64%

If you assume an equally weighted portfolio and an equal 50/50 LS SPLIT, a 6.45% return is pretty good. Even without the shorts, its still outperforming both the index and USO.

I have blue starred the first post on this thread. I am the first one to do so. Despite the blue stars being meaningless, if more people starred the first post of this thread it might actually draw some other people's attention to it who don't know it exists....just a thought.

someone point me in the direction of supply / consumption data exhibiting a huge glut of oil.

So you guys that follow this more than me....are y'all still strongly stating that demand is still strong and this is strictly/primarily a supply issue? Or are both in play here?

Honestly just curious

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So you guys that follow this more than me....are y'all still strongly stating that demand is still strong and this is strictly/primarily a supply issue? Or are both in play here?

Honestly just curious

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Mostly due to supply. Shale oil has led to an unbelievable surge in supply. In 2013 demand outstripped supply by over 300,000 BPD. In 2014 that completely flipped and supply overran demand by over 500,000 BPD. That is going to continue through 2015. But the lower prices will bring supply and demand back into balance by 2016 and then prices will begin to rise.

For now traders are going to push price lower until the rubber band pops. My guess is we see prices in the $30s this quarter then prices start rising closer to $50 where it will range trade for the remainder of 2015.

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500 mbopd is not a large surplus and it is not currently that high according to the monthly data I have access to. Going on yearly EIA data, there was a larger surplus in 2012...

There is no huge glut of oil and the supply surplus was much larger during the 08 price collapse. Price recovered within 24 months.

Yes US oil production has surged. Most of that is tight oil. Non-opec production made up almost all of the production growth over the last 5 years since the last price collapse. OPEC does not have the excess capacity to keep up with demand without the non-opec production growth.

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I have blue starred the first post on this thread. I am the first one to do so. Despite the blue stars being meaningless, if more people starred the first post of this thread it might actually draw some other people's attention to it who don't know it exists....just a thought.

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I does not matter

Clay,

If China is really stockpiling oil right now, that would be one way the statistics might be a bit skewed. I don't know how to figure out how much oil each country is buying. Do you know how?

The supply numbers are due out today ( Wed) . The prelims show a continued increase in supply AND the demand side is very weak. ( see China). If the supply numbers are larger than expected we will see a WTI big HIT today.

http://www.cmegroup.com/education/featured-reports/a-look-at-what-is-happening-below-the-surface-in-energy.html

Here's a good article from the CME Group discussing the influencing factors with crude prices.

I think it is important to look at the supply side from both a production and a reserves/resources standpoint. It is the latter of which that has grown tremendously in North America since 2006. It has been a long time since anyone has mentioned peak oil. I think the overall market opinion is now that O&G resources are plentiful and will continue to be readily available for decades to come (there are some issues with this) but for now I think it is an accurate sentiment, and as the market has shown lately no one is paying a premium for a resource previously thought to be scarce.

Heard from a friend who works for a small operator in Houston, that they will be halting all production for the time being. And staffing decisions will be made in the coming weeks.

Halting production or new drilling activity? Halting production seems like a really odd choice unless their lifting costs are really really high...

Yes, halting production. They're not going to make any money with the prices this low... Especially the smaller operators.

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Yes, halting production. They're not going to make any money with the prices this low... Especially the smaller operators.

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I don't follow the logic. Smaller companies should have less overhead to cover than huge companies, so their wells should be profitable at lower levels...I thought that was the whole benefit of being a smaller operator. Maybe they have a lot of debt to service, etc, but stopping production won't make that go away.

I feel like I misunderstand something here.

They aren't shutting in all of their currently producing wells. Making no money doesn't make any sense. Production is still economic at these low prices.

http://www.newsmax.com/TheWire/us-steel-layoff-ohio-texas/2015/01/07/id/616964/

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The Pittsburgh Post-Gazette reported that another 142 workers at the Houston plant face layoffs as well starting in March, according to a letter posted on the website of United Steelworkers Local 1104.

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Still need cash flow to pay debt.

Don't forget, many producers have contracts to fulfill so they will produce just enough to fulfill those contracts.

I work for the pipeline division of an energy services company, and we are seeing some of the larger integrity projects get pushed back or scaled down a bit. Lucky for us, the pipelines have to keep up their DOT regulatory stuff, and there are new DOT regs hitting gathering systems next year that have to be addressed. Hopefully we'll weather the storm.

That being said, our new parent company has another round of cuts to be made before the end of the month. These were scheduled before the price crash. I think I'm OK, but I've been through this before and know to not get comfortable.

"You got that number for truck driving school..." --Goose

I'm expecting to see completions operations slow with the large independents and majors before they lay down too many rigs. With the steep decline curves on these long horizontal shale wells, production will dip FAST within 12 months if drilling slows. That said, you can continue to drill without completing the wells (completions can account for upwards of 50% of the cost of a well). That gets your product that much closer to market while still slowing supply in the short term.

I do expect to see the rig counts continue to fall but I don't think it will be due to massive slashes to the drilling programs for the bigger companies. I think the bulk of these rigs will be a) verticals b) small E&P companies and c) circumstantial (old/inefficient rigs, etc.) with the large independents and majors.

At my supermajor, we're definitely not hiring like we used to. Typically hired atleast 100 new hires annually (closer to 200) and we're only doing about 20 this year.

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At my supermajor, we're definitely not hiring like we used to. Typically hired atleast 100 new hires annually (closer to 200) and we're only doing about 20 this year.

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Who are you with? if you don't mind my asking.

Bad news from the weekly report:
Crude inventories were expected to be up 880k barrels, but were down 3.1 million barrels - which would be good news except.
Gasoline inventories were expected to be up 3.4 million barrels, were actually up 8.1 million barrels and Distillates which were expected to be up 1.9 million barrels were up 11.2 million barrels.
Imported oil was down over 200k barrels last week, which translates to nearly 1 million barrels of oil in a month that the US doesn't want so it returns to the world market at a time when economies are grinding to a halt in a large part of the rest of the world.
Price for oil has dropped from $49.31 to $47.78 in less than an hour.

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I'm expecting to see completions operations slow with the large independents and majors before they lay down too many rigs. With the steep decline curves on these long horizontal shale wells, production will dip FAST within 12 months if drilling slows. That said, you can continue to drill without completing the wells (completions can account for upwards of 50% of the cost of a well). That gets your product that much closer to market while still slowing supply in the short term.

I do expect to see the rig counts continue to fall but I don't think it will be due to massive slashes to the drilling programs for the bigger companies. I think the bulk of these rigs will be a) verticals b) small E&P companies and c) circumstantial (old/inefficient rigs, etc.) with the large independents and majors.

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I would say the opposite is true.

If you're drilling them, you want to complete them and have the option of turning them on. Drilling can also be much more efficient - one rig can drill faster than one frac fleet can complete a lot of the time, especially pad wells. Not always the case, but definitely the case in fast drilling areas like the Eagle Ford.

Drilling will be slowing down much harder than completions and much sooner.

Number of rigs as of Nov 21
US - 1929 +Can 2363 total
Number of rigs as of 1/5/15
US - 1811 +Can 2019 total
US down 118 rigs + Can down total of 344 rigs in 7 weeks

My prediction is US rig count bottoms in late 2015 around 1100 rigs. I predict somewhat flat rig growth in 2016 and then rising thereafter by about 15%.

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one rig can drill faster than one frac fleet can complete a lot of the time, especially pad wells. Not always the case, but definitely the case in fast drilling areas like the Eagle Ford.

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In my experience (completions) we can complete a well (toe prep, frac, drill out, set packers, tube up, & bring it online) in a slightly shorter time interval than it takes to drill/case/cement that well. Hipshot numbers @ 20-30 days for drilling & 15-25 days to complete them.

Depends on the operations. Personally speaking, our rigs can drill a multi-well pad a lot faster than we can complete them, depending on the completions design. Based on those #s, in the EF, we are drilling in the same or slightly less time frame than you're completing. Add in 3, 4, 5 well pads and drilling far outpaces all of the completions operations.

The EF is also stupid fast drilling. That is not the case in every play.

From WoodMac

Who shuts in first?

This is the key question for oil price watchers seeking to identify a floor for the oil price.
At a Brent oil price of $40, 1.5 million b/d is cash negative, but not all of this production will be halted:

• Canada Oil Sands Turning on and off bitumen production is a complex and lengthy process. Stopping the injection of steam into oil sand reservoirs would result in a long and expensive re-start, hence an oil sands producer will only halt production if it is believed that the oil price will be low for a sustained period. Furthermore, a significant part of the operating costs of oil sands is fuel for the extraction processes, so at low oil prices, operating costs may be lower than current levels.

• United Kingdom Many North Sea fields are old and are reaching the end of their lives. The decision to cease production is often irreversible. Some platforms share their cost burden with other linked fields, and satellite fields are dependent on a mother platform. Consequently, the economics of a group of fields have to be considered. Furthermore, there are certain health and safety requirements that mean maintenance and some costs can not be avoided. Most importantly, once the decision to cease production is made, the decommissioning process begins. A company seeking to reduce its expenditure for the next two to three years, may prefer to operate with a small loss, rather than start the decommissioning process which may cost hundreds of millions of dollars.

• Heavy Oil There are a number of heavy oil projects in Latin America, which become marginal at low oil prices, like those in Venezuela and Colombia. Some of these fields are subject to royalty payments. Should a field become cash negative to the participants, it is possible that the governments may offer some form of relief on royalty to ensure that production continues.

• US Onshore production There is approximately one million b/d of oil production that comes from what are called "stripper wells". Many of these produce only a few barrels/day and operating costs vary between $20 and $50. We believe that once the cost of collecting the oil from these wells becomes marginal, producers may opt not to sell or temporarily shut in the wells first, rather than realise a low price. However, shut ins are not sustainable and low prices eventually lead to well abandonments.

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I'm expecting to see completions operations slow with the large independents and majors before they lay down too many rigs. With the steep decline curves on these long horizontal shale wells, production will dip FAST within 12 months if drilling slows. That said, you can continue to drill without completing the wells (completions can account for upwards of 50% of the cost of a well). That gets your product that much closer to market while still slowing supply in the short term.

I do expect to see the rig counts continue to fall but I don't think it will be due to massive slashes to the drilling programs for the bigger companies. I think the bulk of these rigs will be a) verticals b) small E&P companies and c) circumstantial (old/inefficient rigs, etc.) with the large independents and majors.

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I would say the opposite is true.

If you're drilling them, you want to complete them and have the option of turning them on. Drilling can also be much more efficient - one rig can drill faster than one frac fleet can complete a lot of the time, especially pad wells. Not always the case, but definitely the case in fast drilling areas like the Eagle Ford.

Drilling will be slowing down much harder than completions and much sooner.

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I agree with everything you said, but I still believe we will see completions slow as the first cost saving measure. This has as much to do with the nature of drilling contracts as it does the cost/time it takes to drill vs. complete a well - not to mention the months of work invested ahead of drilling (surface land, mineral land, permitting, etc.) as compared to a frac job which is typically carried out based on a proven and "canned" design (using your EF example). It's common to see a pre-set "menu" of frac designs once a field is into the development stage. I guess what I'm saying is you can get a frac job off the ground MUCH quicker than you can drill a well.

Though, I guess if we know one thing... it's that none of us really know what to expect. This is just my dart at the board.

If you put any stock at all into world reserve numbers, the vast majority of recent growth has come from Venezuela, Iran, and Iraq.

US reserves have grown by 8-15% per year over the last 4 years. That makes up 3-9% of the supposed world reserves growth. And I think we all know how much stock you can put in self reported US reserve

I am not calling for a bottom or anything close, but I am saying the supply / demand angle is vastly overstated.

One could argue that the price of oil was too high and that the supply / demand ratios have not changed in the past 10 years or so when oil used to be in the 40s. However, extraction costs for tight oil, which has made up much of the supply increase, are higher. And, without higher prices, tight oil growth will slow and be outpaced by demand, which would eventually result in shortages. That won't happen because oil will rebound.

Natasha,

Are you using crawler rigs on multi-pads ?

I've always wanted to see one of those work

Barnett combo player.

Nope. I've wanted to see one too, but we don't have them in the play I'm working.