The demand issues are hard to fully account for at this point. The supply constraints are rather easy to pinpoint. L48 shale is dead outside a handful of operators.

Not really. Look at refinery runs etc. There is information pointing to a higher demand today than 45 days ago and not just in the US.

Crack spreads are still pretty well depressed, here in the US and globally. Also, it's gonna take some time to unwind all the water bourne and OECD crude inventories, along with gasoline and distillate inventories. I'm guessing we'll see crude prices drop back into the low $30s over the next couple months.

nu awlins ag said:

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Not really. Look at refinery runs etc. There is information pointing to a higher demand today than 45 days ago and not just in the US.

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Refineries are built to process heavier crude than what shale puts out. So its not one barrel of shale in, one barrel of refined goods out. Shale has to be balanced and blended with heavy stuff like Venezuelan or Canadian Sands.

Looking at refinery outputs are good indicators of demand for refined products, but it doesn't mean they got all their crude from just up the road in west Texas.

Deloitte Shale Report

They say COVID is going to keep the oil patch down and cause a "Compression".

Interesting report, but I could see things changing in some sense.

~egon

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The year 2020 marks the 15-year anniversary of the US shale boom, which heralded an era of US energy independence and more than doubled tight shale oil production over the past five to six years. But beneath this phenomenal growth, the reality is that the shale boom peaked without making money for the industry in aggregate. In fact, the US shale industry registered net negative free cash flows of $300 billion, impaired more than $450 billion of invested capital, and saw more than 190 bankruptcies since 2010.

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can't really argue with their opening statement.

I spent an hour talking to a major marketing/hedging service about their forecast and the global driving forces. The long and short of it is that OPEC has 8 MMBO (I believe, remembering) of capacity. Nigeria, Russia and two other countries were dragged to this opec agreement, kicking and screaming. The higher the price goes, the less compliance you will see with these OPEC countries. OPEC has a magic number just north of $50 where they will open the chokes. They believe that this number is the point at which US Shale says, let's go and continue on with development. There is still quite a bit of capital on the PE sideline. The demand side will not get to pre-COVID levels for at least two years. We've adjusted our oil hedge strategy for the rest of 20 and 21.

Random question... are frac crews the same as completion crews? And if they are running, then those wells will actually be brought online to be produced vs sit as a DUC?

So for example, if a company states they are running 3 rigs but 0 frac crews, all the wells they are drilling will become DUCs. But if they add 1 frac crew (and let's assume a 1:1 ratio of time it takes to drill/frac a well), the idea is that 2 of the wells will become DUCs while 1 is actually being completed/frac'd/brought online?

Drill a well then you complete with a frac crew. There are roughly 3500+ DUC's in the Permian. There are around 60 frac crews total working today. Bringing those wells on line will take 2-4 weeks depending on the number of stages. So it will be sometime before US production starts rocking again. Shut in wells may not come back online like they did.

Sporty Spice said:

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Random question... are frac crews the same as completion crews? And if they are running, then those wells will actually be brought online to be produced vs sit as a DUC?

So for example, if a company states they are running 3 rigs but 0 frac crews, all the wells they are drilling will become DUCs. But if they add 1 frac crew (and let's assume a 1:1 ratio of time it takes to drill/frac a well), the idea is that 2 of the wells will become DUCs while 1 is actually being completed/frac'd/brought online?

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In addition to what nu awlins said, if those three wells are on the same pad they could be zipper frac'd together with the same frac crew. If you figure 50 stages/well, 150 stages between the three wells, you'd be looking at 15-30 days to frac all three wells.

in the context you asked, frac crew = completion crew
the frac is the completion

If oil starts rocking again, which it won't in the near future, frac crews would come back quickly.

Are the Permian/Delaware guys still popping holes in the ground under dedicated rig contracts? Seems they should be doing everything possible to get out of those, but I know they tend to be written with very little wiggle room in part because of this possibility.

Edit: I do hope the big boys start putting a little money back into the clean burning natural gas campaign. I know they're all pretty firmly now in the "we use algae to make energy camp" so that's probably just wishful thinking.

topher06 said:

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If oil starts rocking again, which it won't in the near future, frac crews would come back quickly.

Are the Permian/Delaware guys still popping holes in the ground under dedicated rig contracts? Seems they should be doing everything possible to get out of those, but I know they tend to be written with very little wiggle room in part because of this possibility.

Edit: I do hope the big boys start putting a little money back into the clean burning natural gas campaign. I know they're all pretty firmly now in the "we use algae to make energy camp" so that's probably just wishful thinking.

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Most people are only drilling wells due to lease obligations of they are running rigs. Can't speak for every company, but I'd think most people running dedicated rig contracts need the rigs for obligations anyways. But I'm sure there are companies with poor risk management that are stuck with rigs under contract. I just hope they have plenty of cash on the balance sheet. I do think there are some great non-traditional discretionary drilling opportunities right now if the company can find a way to fund them right now.

Natural gas prices at 25 year low.

boyz05 said:

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Natural gas prices at 25 year low.

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Depressed use, Marcellus guys still drilling irresponsibly (they haven't had the same come-to-Jesus as the oil guys have had recently), and anticipation of the Permian guys opening wells/drilling more as soon as possible to justify their jobs at zombie companies.

We still have a lot more pain to go, on both the oil and gas side. Industry needs some significant consolidation, just drilling within cash flow is not enough.

boyz05 said:

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Natural gas prices at 25 year low.

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The futures curve looks really strong for Nat Gas pricing though. Come winter the depressed pricing may be gone until/unless people start drilling huge gas wells on no matter what the gas prices are again (i.e. Upper Wolfcamp Permian Basin)

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If oil starts rocking again, which it won't in the near future, frac crews would come back quickly.

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What's your definition of "fast"? Mothballed equipment and no personnel doesn't equate to quick ramp ups.

nu awlins ag said:

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If oil starts rocking again, which it won't in the near future, frac crews would come back quickly.

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What's your definition of "fast"? Mothballed equipment and no personnel doesn't equate to quick ramp ups.

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Agreed. Im on the board of a service company. Let's just say of 13-14 crews, only 1 is out daily.

Comeby! said:

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nu awlins ag said:

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Quote:

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If oil starts rocking again, which it won't in the near future, frac crews would come back quickly.

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What's your definition of "fast"? Mothballed equipment and no personnel doesn't equate to quick ramp ups.

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Agreed. Im on the board of a service company. Let's just say of 13-14 crews, only 1 is out daily.

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And that's on a good day. I tell people it's not like turning on the water faucet. At Big Red there is more PE equipment that I can count and those crews are off doing something else and getting them back won't be easy when it does pick up. It will be a pickle getting back up and running in short order.

Interestingly enough, everyone will be in the same predicament. So there might be a month long lag that everyone is fighting through to just see everyone's taps turn on at the exact same time.

I honestly think it'll be easier to get a crew pulled together than before though. Its not like previous downturns were other industries are humming.

It'll never change. The stacked equipment is currently being robbed for spare parts and when it turns around generally will take just as long to replace those parts as it takes to get the hands. It's always how it's been and this is no different.

Read the Dallas Fed Energy Survey.

Where does one go to read that?

https://www.dallasfed.org/research/surveys/des

Thanks guess I could have solved that with a quick google search but that's what I have y'all for. Had seen snippets on twitter before but never the whole thing at once

It finally happened.

https://www.reuters.com/article/us-chesapeake-enrgy-bankruptcy/shale-pioneer-chesapeake-energy-files-for-bankruptcy-idUSKBN23Z0SS

Ag CPA said:

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It finally happened.

https://www.reuters.com/article/us-chesapeake-enrgy-bankruptcy/shale-pioneer-chesapeake-energy-files-for-bankruptcy-idUSKBN23Z0SS

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It'll probably trade up on the news. #RobinHood

nu awlins ag said:

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Quote:

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If oil starts rocking again, which it won't in the near future, frac crews would come back quickly.

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What's your definition of "fast"? Mothballed equipment and no personnel doesn't equate to quick ramp ups.

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Sorry, mostly only check the stock thread these days. I doubt completions will ever come back to where they were, and I honestly think they shouldn't. Hopefully we can get back to something like 50% of the more recent peak, and have that spread out beyond just the Permian/Delaware.

Fast for me is 1-2 years.

I think the notion that every service company is robbing Peter to pay Paul in regards to equipment upkeep is a little off the mark. I know several people in upper maintenance management positions in the industry and at least a few companies have taken this as an opportunity to catch up / fix properly all the stuff that flies under the radar when oil is high.

Ag CPA said:

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It finally happened.

https://www.reuters.com/article/us-chesapeake-enrgy-bankruptcy/shale-pioneer-chesapeake-energy-files-for-bankruptcy-idUSKBN23Z0SS

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Doug Lawler this morning.

Doesn't matter much, but Lillis also went this morning. Expect we will see others, like Oasis and Extraction, go soon.

Anyone have a finger on the pulse of the midstream and pipeline companies? I know ETC went through a couple rounds of layoffs, but Kinder is still going strong. Some of my contractors are saying Williams is doing a lot of work because they are getting lower bids due to the market.

In the industry on the service side for pipelines. The area we're focused on is almost entirely regulatory driven and doesn't fluctuate a whole lot, year over year.

That being said I have seen quite a few companies cut back on anything non-essential or regulatory driven (in our arena). There are some major regulatory changes that go into effect on 7/1 but will not be enforced until the end of the year by PHMSA. For some companies this will be very costly, others not as much.

I know of a couple of guys that post on texags that work for operators and can probably give you better insight.

Crestwood has had the largest layoffs that I've seen in midstream.

That probably coincides with them having the fastest free cash burn rate of any midstream.