• Broader markets breaking down
• Refined products demand was already muted now down even more due to end of summer driving
• COVID spiking again in Europe as well as India.

what a year.

$36.40

12 month strip $38.97

good lord.

put the rigs down. Simple.

Maybe we will have another round of this discussion

https://phenomenalworld.org/analysis/hot-oil

Texas produced forty-five percent of US oil in 1953, and made up forty-two percent of US production in February 2020. It can easily return to its role as leader of a prorationing system. The environmental and economic benefits of proration are indispensable. As the world's leading oil producer, the United States should return to the framework set up by the Connolly Hot Oil Act and coordinate a pro-ration framework with state regulatory agencies (with the Texas Railroad Commission taking the lead). It should join OPEC+ and coordinate with other large producers like Saudi Arabia and Russia. As an active member, the United States could encourage oil production cuts across the board, multiplying the beneficial climate effects. The United States should be a hawkish member of OPEC+ to encourage lowered production, higher prices, and increased adoption of green technologies. This is the final act of oil's story, and we can make sure the American oil industry rides into the sunset the right way.

Damn, I guessed we'd be closer to 30 than 50 on a short time scale, but I didn't think it'd be today.

Cyp0111 said:

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put the rigs down. Simple.

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All these zombie companies left have to drill to just to produce enough CF to pay the interest on the debt.

This is an interesting time for this to happen, right before fall redeterminations come around, which I'm hearing are going to be ROUGH....

AustinAg008 said:

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Cyp0111 said:

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put the rigs down. Simple.

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All these zombie companies left have to drill to just to produce enough CF to pay the interest on the debt.

This is an interesting time for this to happen, right before fall redeterminations come around, which I'm hearing are going to be ROUGH....

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They won't be zombies for long at this rate. I'd expect another round of chapter 11 filings soon if we stay down here.

Boat Shoes said:

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AustinAg008 said:

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Cyp0111 said:

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put the rigs down. Simple.

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All these zombie companies left have to drill to just to produce enough CF to pay the interest on the debt.

This is an interesting time for this to happen, right before fall redeterminations come around, which I'm hearing are going to be ROUGH....

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They won't be zombies for long at this rate. I'd expect another round of chapter 11 filings soon if we stay down here.

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Oh no doubt. If I was a zombie co CEO I'd be negotiating my Chp. 11 bonus right about now. Only way to get paid anymore.

SLAM said:

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Dreigh said:

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I was reading a forum post on another site where discussion about the state of the oil and gas industry is typically lively and insightful.

I came upon a recent post in which the author essentially claimed that not only would a Democratically-held Congress be able to ban fracking on federal lands, but that they could create water quality, air quality, and noise reduction legislation that could render fracking prohibitively expensive.

My understanding is that Congress can really only regulate fracking on federally-owned lands, would they really be so far reaching as to regulate such things on privately owned lands?

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They can't bypass the Clean Air Act, so they are limited in what they can do. Since most of the major "studies" they based changed on for NSPS OOOOa were literal fabrications and garbage data and because the industry has worked with the agencies to develop actual data it's going to be a lot harder for them to actually do anything at this point.

The industry itself wants to do things the right way, which has actually helped to make it harder for major changes to occur moving forward.

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Another point to make is that the EPA can easily add 'drilling fluids and produced water' to the list of things that are regulated. I know some things are currently not regulated and can be disposed of with some ease. The EPA or Congress can make small changes and produced water now cannot be easily disposed of. If you want to stop fracking, that's an easier way to do it. Or force companies to recycle water/increase water treatment.

~egon

Gloomy day for sure. That said, is Parsley Energy a tempting buy at $9.85 per share? I heard there are some good things on the horizon for them.

What good things?

I've just heard that they are positioned to do really well when / if there is a turnaround in the Permian. Hearing this info second hand, of course.

A lot of politics at play right now. They keep mentioning "demand fears from Covid" etc. Hate to break it to them, but those fears have been on going since April/May. OPEC will probably due another reduction or stand pat. I don't get Rystad's predictions at all. They've been all over the board since June. Today Rystad said , "today's prices reflect a very serious worry about future demand of oil." Huh? Like the market, people are selling to take profits.

Quote:

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Another point to make is that the EPA can easily add 'drilling fluids and produced water' to the list of things that are regulated. I know some things are currently not regulated and can be disposed of with some ease. The EPA or Congress can make small changes and produced water now cannot be easily disposed of. If you want to stop fracking, that's an easier way to do it. Or force companies to recycle water/increase water treatment.

~egon

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I'm wondering why this never happened under Obama. I didn't know it was this easy to kill fracking in TX. Hell, I'd be much more concerned about the election than short term demand issues related to COVID.

EDIT: Seems like it would be a huge political mistake for a Democratic president to attempt to ban fracking on private land in TX. Talk about absolutely squashing your chances of even coming close to winning the state in 2024, no matter how many Californians move in.

one MEEN Ag said:

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Cyp0111 said:

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put the rigs down. Simple.

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The problem is that it isn't that simple. And in the aggregate long run, the well produces regardless of who owns it.

Your average ShaleCo has for years been behind on well production compared to dollars invested. The decline curves could never match the marketing materials and excel financial predictions. So every round of capital raised is drilling to cover the shortcomings of the previous rounds of drilling.

Investors are throwing good money after bad on the hopes oil prices will improve. Multiply that across all of the shale fields. The expenses and debt obligations are already set. By not drilling you don't have any profit. If you're drilling, even if your not making profit, you're at least making revenue to continue to fight for another day. To stop drilling is to declare immediate bankruptcy.

So someday in 2020-2022, all those debts from 2014-2016 are going to mature and come due. There is no market for refinancing credit. The bubble has burst. So now the company has gone belly up, investors get nothing, and the assets get sold off to creditors/banks who will try to produce the assets.

But wait, here's more. Banks are now hiring people to just run the fields themselves.

The only saving grace to this cycle of money burning is the decline curves in the first place. Eventually, the well will only produce a pittance of its initial output, bring capacity off the market, increasing commodity prices. If shale had decline curves like offshore oil (20-30 years, millions of barrels a day), this glut would last us a whole generation.

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Sure that's definitely happened to some degree - especially any company that got in post ~2015 or so. But I still think the biggest problem has been the collapse in commodity price stability - which is our own fault to a large degree (OPEC isn't able to prop up prices at $90+ anymore). But this whole COVID deal has taken a relatively healthy market with some real potential and just crushed any short to medium term opportunity. I really don't think you can emphasize that enough. There were some real ****cos out there - many are brankrupt and some are teetering... But that doesn't change the fact that this pandemic has completely changed supply-demand dynamics for the forseeable future and that is why even good shale companies are in some amount of trouble. There are a number of companies that can and will survive this if they don't get acquired, but I don't think we'll see a pathway towards production growth. Truth is, I dont see this significantly improving for at least 3 years - probably 5. There's too much excess supply shut in around the world and too much supply in storage. Even if oil supply from the US tanks, we are a long way from matching global demand with global developed supply if OPEC wasn't preventing the market from collapsing entirely. We're a long way off from that being solved. And I do think we see a double dip in global oil demand as the northern hemisphere heads into winter and the virus spreads faster again.

It looks like our company's first layoff in history soon - we didn't do layoffs in 2016. Rumor is it'll be pretty deep as they structure from double digit growth to hopefully flat production for the forseeable future. Not fun times, but it'll be a while before that happens again I think.

Speaking of debt, news just keeps getting worse for Exxon.

https://www.foxbusiness.com/markets/exxon-mobil-layoffs-stock-oil

techno-ag said:

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Speaking of debt, news just keeps getting worse for Exxon.

https://www.foxbusiness.com/markets/exxon-mobil-layoffs-stock-oil

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Jesus Exxon is a train wreck. My guess is Chevron will overtake them as the largest super major by end of the year.

It shouldn't shock anyone. Exxon is the 800lb. gorilla in the room, or was until recently. It will take time but they'll right the ship.

I'd say that there have been many companies that have seen some value in the Shen field. LLOG and now Beacon see something there...

dragmagpuff said:

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Internal engineer at Anadarko claims she was forced out of the company after sticking to her guns about a new discovery they found being nowhere near as good as claimed.

A year after she left, Anadarko wrote off the asset after having previously claimed it was worth billions.

More examples of execs lying to investors and ignoring their own engineers just to defraud shareholders.

Bloomberg Article

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Doubt she'll have the legal firepower to win, but damn sure a black eye to Al Walker and his newly appointed board seat at COP.

Dreigh said:

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Quote:

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Another point to make is that the EPA can easily add 'drilling fluids and produced water' to the list of things that are regulated. I know some things are currently not regulated and can be disposed of with some ease. The EPA or Congress can make small changes and produced water now cannot be easily disposed of. If you want to stop fracking, that's an easier way to do it. Or force companies to recycle water/increase water treatment.

~egon

---

I'm wondering why this never happened under Obama. I didn't know it was this easy to kill fracking in TX. Hell, I'd be much more concerned about the election than short term demand issues related to COVID.

EDIT: Seems like it would be a huge political mistake for a Democratic president to attempt to ban fracking on private land in TX. Talk about absolutely squashing your chances of even coming close to winning the state in 2024, no matter how many Californians move in.

---

There is a carve-out for fracking fluids in the Clean Water Act. I think some pie-in-the-sky types looked at it, but most of the EPA people said you aren't going to be able to get that to pass (adding fracked fluids to the Clean Water Act) without congressional approval. By the time fracking 'took off', Congress was not fully in control of one party; you might have had a advantage in one party, but not a super majority. I seriously doubt PA or WV Democratic people would have the ability to pass the addition. Especially if they can claim to 'bring jobs' to their areas with minimal disruption to the environment.

I think super majors would be fine with the rule and those with actual safe practices. I see fly-by-night people complaining that they would not be competitive and complain the loudest. My concern is produced water and fluids that are contaminated being dumped, either intentionally or through negligence, into waterways that serve people. Think coal ash and Duke Energy (such as THIS). There have been issues in PA with fracking fluids being dumped into streams that then go into municipal water systems.

This article mentions that the EPA declined to regulate fluids in 2019 (for PA). But if you look in the article, the ramp up in produced fluids did not occur until 2013 or later. And I doubt that information came out until 2014 or later. So by then, there was no way to make changes legislatively.

Not saying it couldn't happen in 2021, but I doubt that will be on the forefront of Congress and/or the EPA. And even if they regulate it, it would not kill fracking or the industry. Much like the hyperbole with putting limits on sulfur in gasoline or SOX/NOX limits on power plants killing the industry, it pushes those that are operating on the fringes of profitability out of business. Hence why larger players tend to favor these regulations. I also see more recycling of fracking fluids and/or filtration. No one is saying you cannot discharge fluids; they just have to be cleaned up. No different than a chemical plant, power plant or sewer plant.

~egon

Quote:

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Enterprise Products Partners LP on Wednesday abandoned a major 450,000-barrel-per-day Permian crude pipeline project in Texas and agreed to give customers lower near-term commitments on other pipelines as oil prices remain stagnant.

The cancellation of the Midland to ECHO 4 pipeline is in line with other delayed energy projects, including export terminals and pipeline builds, hurt by lower demand after U.S. oil producers chopped output to cope with oil prices below $40 a barrel.
Many analysts have also said that pipeline capacity already in the Permian basin is more than needed at current production levels. The pipeline, also known as M2E4, was planned to transport crude from Midland, Texas - the heart of the Permian basin - to the ECHO 4 terminal in Houston.
In April, Enterprise pushed back the expected completion of the M2E4 line by six months to the second half of 2021 and cut its 2020 budget by $1.1 billion.
Chief Financial Officer Randall Fowler had said the project was backed by long-term contracts and "in our minds, not cancelable".
Enterprise said the cancellation will reduce growth capital expenditures for 2020, 2021 and 2022 by about $800 million. The decision will also tack on a $45 million impairment charge to third-quarter earnings this year.
Enterprise now expects growth capital expenditures to be $2.8 billion this year, $1.6 billion next year and $900 million in 2022.
Enterprise rival MPLX LP in May dropped its pursuit of a Permian to Gulf Coast natural gas liquids pipeline, while Kinder Morgan Inc said in March its proposed Permian Pass pipeline faced an uncertain future as no customers had been lined up for the project because of low prices.

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https://pgjonline.com/news/2020/09-september/enterprise-abandons-texas-pipeline-project-as-oil-prices-remain-weak

Interesting development regarding Chevron/Noble.

https://www.reuters.com/article/us-noble-energy-m-a-chevron-elliott-idUSKBN25Z30Q

Excuse my ignorance, but are you saying that shale plays are not profitable because of the depth and length of horizontal legs that have to be drilled/completed or is this just a case of over promising and under delivering on particular assets? And if the trend is throwing up huge numbers to attract financing, while actually having to take money from peter(the next well) to pay paul(the previous well), at what point will this game plan no longer work because money is going to catch on? If that were to happen, fewer wells might be drilled based on actual projections, and while those fewer wells do produce what they are supposed to to financially make sense, shale in and of itself wont be as attractive no? I know, lots of questions but it is rather eye opening watching yall talk on here.

Shale is tough given consistent re-investment requirement coupled with high entry (acreage) and corporate costs.

Well level IRRs will look fine until you start backing sunk and corporate costs.

In my experience, the issue is production decline faster than expected. Often the wells will hit initial (first few months) rate expectations which means the value loss is seen later. Because the company is evaluated based on continuous drilling of new wells rather than a single well, it was/is easy for investors only looking at growth to miss the underperformance of specific drilling projects.

To see it at a corporate level, you'd need to take someone's 2019 production and drilling guidance given back in 2017 or 2016 and compare vs actual. You'd see it took more wells/capital to deliver less production.

It is primarily only oil shales that are in trouble at the moment, in large part due to vastly overpromising results and paying value for acreage based upon those overpromises.

Outside of a handful I question the value in 100% shale revenue E&Ps. Having some version of conventional helps lessen the corporate level declines.

You have a lot of single basin PE devised entities that are not very durable. Add in a lot of the positions are fringe plays that were a result of overpaying for the position in the first place with little plans to actually deliver any type of value.

Cyp0111 said:

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Shale is tough given consistent re-investment requirement coupled with high entry (acreage) and corporate costs.

Well level IRRs will look fine until you start backing sunk and corporate costs.

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The only shale business model I have seen work consistently is smart Drillcos. If you are a capital provider, just completely bypass corporate G&A, executive bonuses, acreage acquisition costs, etc and get in on the well or pad level.

Single well IRRs do work well in areas, even at low prices. Do a packages of 10-20 wells to spread the risk out with favorable terms. Get your payout and exit. Don't get caught holding the bag when the company runs out of locations and has to overpay for a new asset to maintain cashflow. Get off the shale treadmill of death.