It doesn't really matter why.

If it costs you more to move the product than its worth, it doesn't make sense.

It's not hard but maybe you've only sat at one side of table.

Lets say a field has a $1.20-30 mcf fee. In a sub $2 gas market the producer only realizes 70 cents an mmbtu before LOE, SG&A and debt costs.

It's likely poor capital allocation or too many people taking a bite out of apple. I look at some of the wild stuff from the Alta Mesa / Midstream deal and realize as an industry it's unsustainable.

How about you not look at the most out of market midstream deals when considering whether or not the industry as a whole is doing it the right way? The vast vast majority of midstream deals (as in >99%) are not putting E&P companies in bankruptcy. Pioneer killed their eagle ford upstream asset when they burdened it with huge midstream commitments but they also pocketed $2 billion in the sale of their midstream assets. I have no idea if that deal worked out good or bad for Pioneer as a whole, but it isn't the midstream companies fault that that is how Pioneer structured it.

Pioneer made out fine likely.

Goose06 said:

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How about you not look at the most out of market midstream deals when considering whether or not the industry as a whole is doing it the right way? The vast vast majority of midstream deals (as in >99%) are not putting E&P companies in bankruptcy. Pioneer killed their eagle ford upstream asset when they burdened it with huge midstream commitments but they also pocketed $2 billion in the sale of their midstream assets. I have no idea if that deal worked out good or bad for Pioneer as a whole, but it isn't the midstream companies fault that that is how Pioneer structured it.

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There are plenty of midstream deals that put tremendous pressure on producers. Sure, there are other factors simultaneously pressuring the same producers. However, every single producer owes it to their shareholders to be pressuring midstream companies to bear part of the industry downturn. The cuts need to come directly to existing G&P fees, not just the midstream guys accepting that drilling won't be happening soon.

I mean if a producer signed a long term acreage dedication or MVC, as the midstreamer I'm not inclined to lower the rate unless you want to enhance the deal in some other way. Do you have more acreage you can dedicate? Maybe lengthen the term? Maybe convert the rate from fixed to be tied to commodity prices so I get upside when you get upside? This idea that producers should just go stick it to the midstream guy wont go over real well if the midstream guy has a strong contract and you aren't offering something in return for rate relief. As long as its fair, I am happy to work with my customers.

Goose06 said:

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I mean if a producer signed a long term acreage dedication or MVC, as the midstreamer I'm not inclined to lower the rate unless you want to enhance the deal in some other way. Do you have more acreage you can dedicate? Maybe lengthen the term? Maybe convert the rate from fixed to be tied to commodity prices so I get upside when you get upside? This idea that producers should just go stick it to the midstream guy wont go over real well if the midstream guy has a strong contract and you aren't offering something in return for rate relief. As long as its fair, I am happy to work with my customers.

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Think that I mentioned earlier that I'm good with giving upside when commodity prices dictate, that setup at least somewhat aligns midstream's incentive with the gatherer. Also agree that the midstream guys can bleed the producers stuck with minimum volume dedications, at least until bankruptcy in most cases. Acreage dedications don't matter much when there is not going to be additional drilling.

You're simply suggesting midstream capital work in a way it's not designed. You can ask, but that's not how midstream funds structure risk and returns.

If midstream capital was willing to accept that risk, they'd put it in a producer.

CaptnCarl said:

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You're simply suggesting midstream capital work in a way it's not designed. You can ask, but that's not how midstream funds structure risk and returns.

If midstream capital was willing to accept that risk, they'd put it in a producer.

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You're talking about the commodity pricing risk? In my anecdotal experience, midstream guys will accept some of that in a modified contract. I don't think we should just try to crush midstream for the hell of it, but do think the motivation needs to get aligned better and midstream won't be entitled to act as a premium bond.

I see what you are saying, but midstream capital investors will take their losses elsewhere.

Capital is drying up, and you're saying they should double down at a higher risk. It simply won't happen. The capital simple won't be there. They've already taken huge losses with rig counts dropping and production not increasing.

CaptnCarl said:

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I see what you are saying, but midstream capital investors will take their losses elsewhere.

Capital is drying up, and you're saying they should double down at a higher risk. It simply won't happen. The capital simple won't be there. They've already taken huge losses with rig counts dropping and production not increasing.

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Yeah I'm mainly talking pipe in the ground. Certainly new investment may have different considerations.

I agree that new infrastructure vs existing infrastructure are 2 completely different discussions.

Need more Salt Creek Midstreams

Weren't those guys literally paying producers for dedicated acreage? Hard to compete with that.

CaptnCarl said:

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Weren't those guys literally paying producers for dedicated acreage? Hard to compete with that.

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Yes, and I assume in some cases the rate was out of market and some on here would complain that the producer is paying an out of market rate even though they received cash from SCM for the acreage dedication and SCM took a ridiculous amount of risk.

Well...they took way too much risk.

So what's the latest with SCM at the current rig count?

I think out of court deal. Ares took back.
btw. slow clap for Ares capital allocation.

topher06 said:

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Goose06 said:

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How about you not look at the most out of market midstream deals when considering whether or not the industry as a whole is doing it the right way? The vast vast majority of midstream deals (as in >99%) are not putting E&P companies in bankruptcy. Pioneer killed their eagle ford upstream asset when they burdened it with huge midstream commitments but they also pocketed $2 billion in the sale of their midstream assets. I have no idea if that deal worked out good or bad for Pioneer as a whole, but it isn't the midstream companies fault that that is how Pioneer structured it.

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There are plenty of midstream deals that put tremendous pressure on producers. Sure, there are other factors simultaneously pressuring the same producers. However, every single producer owes it to their shareholders to be pressuring midstream companies to bear part of the industry downturn. The cuts need to come directly to existing G&P fees, not just the midstream guys accepting that drilling won't be happening soon.

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And midstream companies owe it to their shareholders to minimize the amount f the industry downturn they bear.

SCM paid Endurance a huge number for their acreage dedication. Most of that acreage expired. What is left of it just got sold out of bankruptcy (Atlantic/Victerra sold the assets to EOG). SCM also paid for dedications from Lillis, Throne, Whitehorse, Admiral and probably a half dozen other edge of the basin players. Insane use of capital.

Cyp0111 said:

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Need more Salt Creek Midstreams

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We briefly talked about doing a deal with them at one point, but we heard some negative things on their execution so we decided to not.

I was being sarcastic

Cyp0111 said:

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I was being sarcastic

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I figured. I just didn't know how much of a reputation they had.

BiochemAg97 said:

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topher06 said:

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Goose06 said:

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How about you not look at the most out of market midstream deals when considering whether or not the industry as a whole is doing it the right way? The vast vast majority of midstream deals (as in >99%) are not putting E&P companies in bankruptcy. Pioneer killed their eagle ford upstream asset when they burdened it with huge midstream commitments but they also pocketed $2 billion in the sale of their midstream assets. I have no idea if that deal worked out good or bad for Pioneer as a whole, but it isn't the midstream companies fault that that is how Pioneer structured it.

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There are plenty of midstream deals that put tremendous pressure on producers. Sure, there are other factors simultaneously pressuring the same producers. However, every single producer owes it to their shareholders to be pressuring midstream companies to bear part of the industry downturn. The cuts need to come directly to existing G&P fees, not just the midstream guys accepting that drilling won't be happening soon.

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And midstream companies owe it to their shareholders to minimize the amount f the industry downturn they bear.

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They do. It's business. One side can shut in wells though.

If you are offering two options to the major midstream infrastructure funds in New York: A) accept lower returns to float oil and gas or B) shut the wells in, they will take B.

They have no interest in supporting producers just to have the opportunity to keep deploying capital. They don't care about supporting energy, they care about returns.

Again, I'm talking existing wells. No one is drilling new wells right now. Those New York banks still want cash flow.

Ya ya, I understand. Rates aren't viewed from that micro of a scale either new or existing - it's all future production.

They want returns, not to protect cash flow.

This isn't my opinion, or am I saying I agree. I'm saying the guidance I've heard from several of the major infrastructure funds. If others hear otherwise, I'd love to hear.

Conceding rates now only returns revenues to producers to continue drilling and producing. Future production requires midstream service and capital deployment, either by current provider or opens the door for a competitor. That is what they are saying they will not do....currently.

Conceding current rates is also conceding future rates.

Things may change later on, but that's where we're at, and it's drastically affecting M&A valuations.

PM me if you want to chat further, otherwise I'm going to shut up.

txaggie02 said:

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This is a big one!
https://finance.yahoo.com/news/schlumberger-contribute-north-american-pressure-105000195.html

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Very exciting stuff!

Cyp0111 said:

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Need more Salt Creek Midstreams

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HAHAHAHA.

Can't believe that business model secured capital. What a train wreck that entire Western Delaware is.

JTA1029 said:

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txaggie02 said:

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This is a big one!
https://finance.yahoo.com/news/schlumberger-contribute-north-american-pressure-105000195.html

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Very exciting stuff!

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Is this the final bow out of North America? If I'm not mistaken, their frac division had the highest margins of their product lines. Or at least that was the case before the shale game when I worked there.

Comeby! said:

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JTA1029 said:

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txaggie02 said:

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This is a big one!
https://finance.yahoo.com/news/schlumberger-contribute-north-american-pressure-105000195.html

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Very exciting stuff!

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Is this the final bow out of North America? If I'm not mistaken, their frac division had the highest margins of their product lines. Or at least that was the case before the shale game when I worked there.

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It would appear so. Why own a product line where you have no customers for the foreseeable future. They couldnt even get cash for it. Its just stock in Liberty. However i realize no one has the cash to offer now. Should business ever pick back up, it wouldnt be hard for SLB to get the extra 14% of stock required to have controlling interest in Liberty and then the product line is back in their blue pockets.

Comeby! said:

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JTA1029 said:

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txaggie02 said:

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This is a big one!
https://finance.yahoo.com/news/schlumberger-contribute-north-american-pressure-105000195.html

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Very exciting stuff!

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Is this the final bow out of North America? If I'm not mistaken, their frac division had the highest margins of their product lines. Or at least that was the case before the shale game when I worked there.

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I would expect they would keep the ESP business and other production product lines...? They had/have some good products.

Yeah this is only for the frac equipment and some pumpdown/wireline stuff, and a few facilities so LBRT gets in to other basins. The rest is still SLB.