Oilprice.com: At what WTI price level (deemed price normalization) do you believe US will begin resume production growth?
Mike Rothman: I don’t think this is clear, actually. What we see happening in the US upstream business is the peak in production occurring this year as opposed to what we had been forecasting – which was a peak in 2017. An expected rebound in oil prices does not look to us like it will produce a commensurate rebound in US production growth.
"Those companies are already seeing more incentive to start eating into their backlog as crude prices have risen by a third since mid-March. After-tax returns would be 5 percent to 10 percent higher than they were just two months ago when oil was at $45, Cosgrove said.
ConocoPhillips Chief Executive Officer Ryan Lance said at the IHS CERAWeek Energy conference in Houston on Monday that increased well completions may exacerbate the supply glut, depending on whether oil demand rises."
AJ - great post / map and graphs very telling as to the future flood of O&G that is waiting to be brought on line.
One of the big issues with completing these wells down the road IMO will be getting access to frac equipment / pumping units to do the job properly and efficiently. These ":teams" have also been disbanded and laid down and aren't resurrected overnight.
"Those companies are already seeing more incentive to start eating into their backlog as crude prices have risen by a third since mid-March. After-tax returns would be 5 percent to 10 percent higher than they were just two months ago when oil was at $45, Cosgrove said.
ConocoPhillips Chief Executive Officer Ryan Lance said at the IHS CERAWeek Energy conference in Houston on Monday that increased well completions may exacerbate the supply glut, depending on whether oil demand rises."
Rockman, I wonder at what oil price point do these wells make sense to complete? How many require $90+ oil to break even?
Rock Man said:
AJ - great post / map and graphs very telling as to the future flood of O&G that is waiting to be brought on line.
One of the big issues with completing these wells down the road IMO will be getting access to frac equipment / pumping units to do the job properly and efficiently. These ":teams" have also been disbanded and laid down and aren't resurrected overnight.
"Those companies are already seeing more incentive to start eating into their backlog as crude prices have risen by a third since mid-March. After-tax returns would be 5 percent to 10 percent higher than they were just two months ago when oil was at $45, Cosgrove said.
ConocoPhillips Chief Executive Officer Ryan Lance said at the IHS CERAWeek Energy conference in Houston on Monday that increased well completions may exacerbate the supply glut, depending on whether oil demand rises."
Even if breakeven is lowered to $60/bbl, will prices need to be significantly higher than $60/bbl before there is a pronounced resumption of drilling? Other than holding acreage, would an oil company tie up massive capital only to breakeven?
TER: As oil and gas prices fall, are any E&P companies in your coverage approaching breakeven levels on their wells?
JW: Breakeven is certainly a topic getting a lot of attention in the press. The breakeven numbers for various shale plays that are thrown around or published are in the $70-75/bbl range. Those breakeven prices were calculated, by and large, using drilling and completion costs experienced in 2014. Now, as we see the rig count decrease, we're going to reset these breakeven prices. It's a little early to say just where the breakeven prices will settle, but I think they're going to be quite lower than the often-quoted $70-75/bbl.
I'd also like to point out you can't broad-brush breakeven prices across the various shale plays. The Bakken is different from the Eagle Ford, and the Eagle Ford is different from the Permian. Within each basin, there's a large variation in the quality of the shale formations. You can have excellent results in the western part of one county, and then go over to the eastern part, say 10-20 miles away, and not experience the same results. The quality of the shale formations is very localized.
This article underscores my comments about some of the difficulties that will be met as operators look to complete wells that are presently sitting there "waiting on completion".
A point on this back log of uncompleted wells - assuming one week per well to get set up, tested and conduct the frac'ing operations, the 1400 wells waiting on completion, you are looking at almost 27 years of time to get these wells completed.
Fewer quality frac crews (and quality is the big word here) will make this back log more difficult to get turned to production.
I read an article in the mrt.com oil section which offered that stacked rigs might start being scrapped. That sounded crazy to me. I don't know if the author meant cannibalized. There is a lot of metal
in an oil rig, though it seems like there would be much more value in the engineering and
construction of the rigs. Does stacked oilfield equipment require a load of expensive maintenance or somehow "die" from disuse? I am speculating that a 2015
breakeven price of $60 will require
a "resume drilling price" of $78-80/bbl to see a return to any semblance of previous unconventional oil drilling activity. Remaining conventional oil properties might increase in value on account of the tumult?
Ralph T said:
More information about the current business cycle.
If $85/bbl oil is needed to justify the investment in completion and operators/investors fear long term depressed prices, will the fracklog ever be reduced? A money pit unconventional well hole would not seem to be any better than a container of buggy whips until the economics improves. Yet wells are still being drilled. Given your scenario, will quality completion companies be in a position to maintain or even increase prices?
Rock Man said:
This article underscores my comments about some of the difficulties that will be met as operators look to complete wells that are presently sitting there "waiting on completion".
A point on this back log of uncompleted wells - assuming one week per well to get set up, tested and conduct the frac'ing operations, the 1400 wells waiting on completion, you are looking at almost 27 years of time to get these wells completed.
Fewer quality frac crews (and quality is the big word here) will make this back log more difficult to get turned to production.
Yes, rigs need continuing cleaning, painting and other maintenance to keep from turning to junk. Lots of $$ going out with nothing coming in.
Past downturns had similar "junking" of rigs - or some companies just let them rust and walked away.
Offshore contractor Transocean reported that they were scrapping several deep water units about 2 months ago.
AJ said:
I read an article in the mrt.com oil section which offered that stacked rigs might start being scrapped. That sounded crazy to me. I don't know if the author meant cannibalized. There is a lot of metal
in an oil rig, though it seems like there would be much more value in the engineering and
construction of the rigs. Does stacked oilfield equipment require a load of expensive maintenance or somehow "die" from disuse? I am speculating that a 2015
breakeven price of $60 will require
a "resume drilling price" of $78-80/bbl to see a return to any semblance of previous unconventional oil drilling activity. Remaining conventional oil properties might increase in value on account of the tumult?
Ralph T said:
More information about the current business cycle.
Companies that own their own frac crews (e.g. EOG) have the edge here since they will control their own costs.
Good frac'ing companies that can keep their equipment and crews together can charge a premium, but low bid will win (and there will be a lot competition for work when the frac'ing resumes).
Delicate balance as to what makes sense financially - and it will vary from operator to operator.
AJ said:
If $85/bbl oil is needed to justify the investment in completion and operators/investors fear long term depressed prices, will the fracklog ever be reduced? A money pit unconventional well hole would not seem to be any better than a container of buggy whips until the economics improves. Yet wells are still being drilled. Given your scenario, will quality completion companies be in a position to maintain or even increase prices?
Rock Man said:
This article underscores my comments about some of the difficulties that will be met as operators look to complete wells that are presently sitting there "waiting on completion".
A point on this back log of uncompleted wells - assuming one week per well to get set up, tested and conduct the frac'ing operations, the 1400 wells waiting on completion, you are looking at almost 27 years of time to get these wells completed.
Fewer quality frac crews (and quality is the big word here) will make this back log more difficult to get turned to production.
Thanks for both replies. That is wild about the rigs being scrapped. I think in the earlier mentioned LPI analysts meeting it was reported that less robust frac sand can compress [my words] which results in diminished EUR. And a big company like EOG could probably frac 100 wells without worrying about carry costs. So that seems as though it might suggest that from an EUR perspective, it is better to have an uncompleted bore hole than it is to complete a well only to keep it shut in/on tap?
Rock Man said:
Companies that own their own frac crews (e.g. EOG) have the edge here since they will control their own costs.
Good frac'ing companies that can keep their equipment and crews together can charge a premium, but low bid will win (and there will be a lot competition for work when the frac'ing resumes).
Delicate balance as to what makes sense financially - and it will vary from operator to operator.
Rock Man said:
Yes, rigs need continuing cleaning, painting and other maintenance to keep from turning to junk. Lots of $$ going out with nothing coming in.
Past downturns had similar "junking" of rigs - or some companies just let them rust and walked away.
Offshore contractor Transocean reported that they were scrapping several deep water units about 2 months ago.
AJ said:
I read an article in the mrt.com oil section which offered that stacked rigs might start being scrapped. That sounded crazy to me. I don't know if the author meant cannibalized. There is a lot of metal
in an oil rig, though it seems like there would be much more value in the engineering and
construction of the rigs. Does stacked oilfield equipment require a load of expensive maintenance or somehow "die" from disuse? I am speculating that a 2015
breakeven price of $60 will require
a "resume drilling price" of $78-80/bbl to see a return to any semblance of previous unconventional oil drilling activity. Remaining conventional oil properties might increase in value on account of the tumult?
Ralph T said:
More information about the current business cycle.
