Quote:
Originally Posted by balugajames
I hope your right. Remember, 80$ is an average, many fields are upwards of 100$, 120$, with the lowest around 75$.. That is just 'break even'. Also, most of these drilling companies depend on outside capital for exploration and drilling which is going to be scarce given this outlook. Most, if not all of the small players are currently in debt (6:1, even some as high as 12:1). Sure, the big boys: Shell, BP, ConocoPhillips, Exxon will survive; although, Conoco already announced a reduction in spending by 20% for 2015.
We are not even factoring who is sourcing all this debt which is primarily the central banks... Additionally, derivatives have a possibly huge but unknown play in this unwinding.
To be clear, I am not saying the economy will necessarily 'collapse'. The fracking boom will and with it a retraction to the US economy; similar, but with a larger magnitude than 2008 will likely ensue. However, unlike the 08 crash, we are left with cleanup, not assets. Again, the world will go on, and many will be left, more or less, unaffected as with 2008 (I hope). Yet many will suffer. Its important to point out though that we aren't even talking about other debacles which are poised or already hitting us.
Education, water, Ebola, Geo-politics, US political stalemate, changing weather patterns, US dollar status, ecological collapse, racial/religious tensions, etc..
Don't believe the propoganda machine.
I am just saying. Its going to be rough sailing and this fracking crash is just the second of many waves to come. So buckle up.
But, no zombies..  |
Some of the companies have various percentages of their oil hedged and some have 3 way collars that put them in the $60-65 range right now. We have to keep in mind that North Dakota and Colorado have the biggest discounts on oil of the five major shale plays. It's usually $10-12 less than the spot price. Sand Ridge has 9.5 billion in bonds that are due by 2020 and some start this week. They are one of the companies on a collar hedge and it's not a good one. Additionally they are contractually obligated to drill gas wells that are uneconomical or pay what will be 40-70 million annually in fees. Continental dropped their hedge in October... bad bet. There are dozens of stories like these for multi-billion dollar companies.
I just had a conversation with a friend that is working in the Woodford and they have 9 rigs coming back into the their yard this week. No matter what you hear on the news, trust me, it's really bad right now. The oil companies and finance companies are usually the ones giving the information and there is no benefit for them in telling stockholders how bad they think it's going to get. Everyone will be cutting CapEx and it will be more than 25% by years end. The "free money" is already being shut down. The Ponzi scheme is over and we will soon make a transition to conventional production and shale production that's economical on a PV-10. Between contractual obligations, hedging, lease obligations and a few companies trying to drill themselves out of this, I'm afraid the price drop will be prolonged. The legacy wells in the Bakken decline around 70,000 bopd each month. The Eagle Ford is almost double that. It will be interesting to see the decline curves on the wells in the fringe areas. Regardless I can see the Eagle Ford in decline in the next 6 months and the Bakken in the fall. The Permian is kind of hard to get a handle on, but it as well has many wells that shouldn't have been drilled. Hopefully, we can see prices start to recover once these fields go into decline. The reversal may swing out of control and I wouldn't be surprised to see Saudi make cuts at that time and recover their cash. This time we won't drill ourselves out of it. Bad money often has short memory, but I don't see this repeating itself anytime soon.
I hope we don't have an issue of energy money pouring into building and development, and then Denver misses out because the energy decline brings down the local economy. I think we will be ok, but times will be worse for a bit. I'm guessing a lot of money is going to go into retail. Maybe that will help the mayor on his retail push. I know it's different money, but maybe some can get diverted for light rail extensions and street cars in Denver. Hopefully not the NW extension. Might as well keep drilling wells with low recovery rates. Anyway, we certainly need the jobs and some retail and smart infrastructure projects would help. Yesterday's report was lipstick on a pig and it's about to get a lot worse.
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