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Gas is on a different market than oil. I'm still bullish on gas right now due to domestic demand drivers (winter, power generation, abandonment of coal). I would be careful though. Many of the same companies dealing in gas are also dealing in oil. If their portfolios are tanking in one area, I don't see them spending a whole lot of capital in an other. I think most companies are batting down the hatches, bringing in the sails, and waiting this storm out. In any business, cash is king so when your debt is high and your hedges are about to expire, it can become a cancer to an organization.

Areas where I am more optimistic: midstream, distribution lines (lots of pipelines being replaced here), and demand driven industries like manufacturing, chemicals, and power generation/distribution.

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If companies are cutting back on drilling because of the price of oil, that would have an impact on the amount of new NatGas coming online. Lower oil for a significant amount of time could lead to higher gas prices.

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It could. You're absolutely correct. The hold up, especially in Marcellus and Utica is the lack of infrastructure moving gas out of the region. We have a glut right now. Until the recently approved pipelines become operational things will be tough.

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Agreed x 10.

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I will third this sentiment. We have completed, hooked up, gas wells in the Marcellus that are shut in because they are so expensive to produce we almost lose money turning them on.

Blackgold, you in Pittsburgh? I'm meeting some guys for beers tonight at the Bottleshop if you are.

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Gas is on a different market than oil. I'm still bullish on gas right now due to domestic demand drivers (winter, power generation, abandonment of coal). I would be careful though. Many of the same companies dealing in gas are also dealing in oil. If their portfolios are tanking in one area, I don't see them spending a whole lot of capital in an other. I think most companies are batting down the hatches, bringing in the sails, and waiting this storm out. In any business, cash is king so when your debt is high and your hedges are about to expire, it can become a cancer to an organization.

Areas where I am more optimistic: midstream, distribution lines (lots of pipelines being replaced here), and demand driven industries like manufacturing, chemicals, and power generation/distribution.

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If companies are cutting back on drilling because of the price of oil, that would have an impact on the amount of new NatGas coming online. Lower oil for a significant amount of time could lead to higher gas prices.

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It could. You're absolutely correct. The hold up, especially in Marcellus and Utica is the lack of infrastructure moving gas out of the region. We have a glut right now. Until the recently approved pipelines become operational things will be tough.

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Is the problem in Utica and Marcellus the price being paid at the well head? Or are the end users getting lower pricing in those areas as well? I'm not sure how connected the delivery network is the US which could either fragment the end user prices or unify. But that doesn't help the wells that don't have the infrastructure to move it out.

No, I'm in Houston, otherwise I'd take you up on that. Thanks though.

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Heard Archer completely closed their frac yard in Odessa....

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We used them for frac and wireline for a couple of years in the Permian. At first when they were Great White and after they sold to Archer. Great White didn't have the best equipment but they had good hands. Archer bought all new equipment, but wouldn't pay to keep good hands. Odessa was a really poorly run yard and I assume their Union City yard was about the same as they constantly moved equipment and personnel back and forth. They were losing money in Odessa when oil was at its peak.

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I remember Great White. They were terrible.

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They have pretty good coil units.

http://www.bloomberg.com/news/2015-01-14/gravy-train-derails-for-oil-patch-workers-laid-off-in-downturn.html

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The Dallas Federal Reserve bank estimates 140,000 jobs directly and indirectly tied to energy will be lost in Texas in 2015 because of low oil prices.

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Oil up 6% on the day now

I don't see this as the bottom yet. Everyone is too bearish on oil. I feel like there will be more speculation-driven downward movement.

But here's to hoping I'm wrong and we shoot back up.

We should see a fairly strong short covering rally for at least a few days. The key will be to see what happens after that.

My money is on a short squeeze.

http://www.zerohedge.com/news/2015-01-14/opec-who-us-crude-oil-production-hits-record-high



Maybe someone on the production side can chime in here... As long as you are above your break even cost of production, you will pump. Obviously, as the oil prices decline, profit margin declines.

Do operators try to pump more, operating on a lower margin but increased volume, attempting to maintain revenues? Would this be an accurate scenario? Seems like a pretty standard deflationary spiral.

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The key will be to see what happens after that.

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Not sure about that professor. I think the key will be to stop watching the markets and play a friendly game of Risk.

The problem with unconventional plays is that they usually have very steep declines on individual well production. Their production rates are often set less by chokes for economic reasons and more by the technical limit of what a well can feasibly produce. So the decline will come (at least on the broad scale) when more wells are not being added to make up for the individual well decline, not because they are shut in for pricing reasons. those shut ins will be the minority.

What BlackGold said. Those production rates are typically going to be based on the optimum drawdown you can achieve by either choking it back if it's a newer well or using artificial lift if the well is depleted. I can see some companies getting more aggressive on the choke if they're hurting for cash but as far as artificial lift is concerned you're pretty much taking whatever you can get.

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Maybe someone on the production side can chime in here... As long as you are above your break even cost of production, you will pump. Obviously, as the oil prices decline, profit margin declines.

Do operators try to pump more, operating on a lower margin but increased volume, attempting to maintain revenues? Would this be an accurate scenario? Seems like a pretty standard deflationary spiral.

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On the producer:
You an active driller with significant debt drilling to keep leases/frac/rig contracts. Additionally, project economics drive you.

or

You are a producer with minimal development trying to stay above a set ROR. You'll have a lower operating cost which allow you to stay in business.

Neither will likely shut in wells but active drillers will shut down first....ie drilling and completion activities
and services.

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What BlackGold said. Those production rates are typically going to be based on the optimum drawdown you can achieve by either choking it back if it's a newer well or using artificial lift if the well is depleted. I can see some companies getting more aggressive on the choke if they're hurting for cash but as far as artificial lift is concerned you're pretty much taking whatever you can get.

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We were the original folks to employ a limited drawdown flowback methodology in the Haynesville. We shared our technical back up in data trades. The other moron independents shared it with the press and in analyst calls.

Slowback? Haynesville? Sounds familiar.

That was coined well after we put it out there.

Apache laid off 30 engineers in Midland and 40 in Tulsa today. Painful to watch, and likely only the beginning of what we'll see in the industry.

Two KBR guys sitting behind me on the bus were talking about a round of layoffs coming up this month.

Yep, I can confirm the Apache firings.

30 engineers or 30 people? How many engineers did they have?!

Most, if not all, engineers I believe. Varying experience levels. Some young, mostly older.

Interesting. Must have a lot more engineers than I would have guessed. I would think more land people would be getting axed - especially in marginal areas.

They may not be employees

Usually engineers and geos are the last to go. Figured land would go first.

They were employees. Low performers and/or working on low-results projects.

No i meant the land guys weren't employees so weren't announced as layoffs

Ahhh. Gotcha.

Press release said Apache was laying off 5% globally.

Things could be interesting for Apache tomorrow also.

http://fuelfix.com/blog/2015/01/14/apache-workers-face-layoffs-as-oil-prices-fall/?cmpid=hpfc

We had enterprise wide cuts, 33 in our division about half engineers.

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We had enterprise wide cuts, 33 in our division about half engineers.

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Who is we?

Cameron

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My money is on a short squeeze.

http://www.zerohedge.com/news/2015-01-14/opec-who-us-crude-oil-production-hits-record-high



Maybe someone on the production side can chime in here... As long as you are above your break even cost of production, you will pump. Obviously, as the oil prices decline, profit margin declines.

Do operators try to pump more, operating on a lower margin but increased volume, attempting to maintain revenues? Would this be an accurate scenario? Seems like a pretty standard deflationary spiral.

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I could see a few scenarios working out with this 50% drop in oil prices.

1) Producers keep producing their existing wells assuming they are above break-even costs, and turn on 0 new wells.

2) Same as above but they turn on new wells and choke them back.

3) Same as above or they produce the crap out of their new wells.

I think we will see a lot of 1 and 2 here in the US. Companies don't want to drain their high producing areas at $40-$50 oil if they can help it. But, at the same time, if you're going to still drill, you need high production to pay off wells. It's a double-edged sword and I don't know the right answer. I know that producers won't be shutting in existing wells if they can help it. Most of the shale wells that have been producing and make up the base of a company's production are paid for. Those wells will probably be the only "cash flow" many companies realize during this down turn.

Production will fall off. With shale plays, if you want to grow volumes you have to turn on more wells every year. We won't be turning on as many this year and even fewer nearing 2016.

I don't see #2 happening. This first 6 months of production is critical to the ROR. If they've spent the capital, you're pot committed. #1 is for those without large contracts or debt. #3 is where most are sitting right now.