12-29-2016, 03:09 AM
....and their future effect on Oil prices.
I have written a few comments on articles on the website Oilprice.com, but people are fairly civil there and don't reply to comments, so even though my comments have been published, it's far too civil as i say so no one really discusses anything.
Anyway, my purpose for posting this is that there is a lot of misunderstanding even in the so called "oil" press as to the immediacy and relative reaction speed of the shale industry. They are essentially full of crap in their understanding. Everyone in the press literally gives the impression that oil shales are something that can have an immediate impact on oil prices, by the price nudging UP just a little bit leading to a recovery in drilling rig number. This one premise alone shows a complete lack of understanding of the basics of the oil shale business.
Here is what I wrote in one comment that was published:
It all comes down to cash flow. Without prices over 80$ the companies themselves won't have the cash flow to do a major ramp up at any time in the near future. Additionally, these companies are no risk taking cowards. They've been bit hard by low oil prices and aren't going to take risks until they have some financial breathing room. Additionally, as I said, most of these companies have either already gone bankrupt or are in hock nearly to the max, so the banks aren't going to give them another dime. Finally, what no one considers is that the rig numbers dropped from 1300 to less than 300 today in south Texas. One cannot just snap their fingers and produce/train/implement 1000 crews again over night. Most of these are blue collar workers, but it is skilled labor. They have moved on to other industries after nearly two years out of work, so even if oil was 200$ a barrel it would take significant time to train the manpower if nothing else.
No. The quick recovery of the Oil Shale industry at 60-70$ oil is a complete fallacy, and in this aspect OPEC's attempt to cripple the Oil Shale industry actually worked IMO. OPEC didn't kill US Oil Shales, but it did create a deep long term wound requiring a significant recovery time.
I have written a few comments on articles on the website Oilprice.com, but people are fairly civil there and don't reply to comments, so even though my comments have been published, it's far too civil as i say so no one really discusses anything.
Anyway, my purpose for posting this is that there is a lot of misunderstanding even in the so called "oil" press as to the immediacy and relative reaction speed of the shale industry. They are essentially full of crap in their understanding. Everyone in the press literally gives the impression that oil shales are something that can have an immediate impact on oil prices, by the price nudging UP just a little bit leading to a recovery in drilling rig number. This one premise alone shows a complete lack of understanding of the basics of the oil shale business.
Here is what I wrote in one comment that was published:
Quote:It is truly baffling to me how little research people who write article for major web sites actually do. Over and over I see flippant remarks as to the supposed ease with which the Oil Shale companies can “turn the tap back on” (paraphrasing). It shows a complete lack of understanding of unconventionals and Oil Shale specifically. Having worked for a big Eagleford player in South Texas, let me enlighten people. Oil Shale oil production requires MASSIVE CAPEX. Not just to drill, but to complete (fracs), and more importantly to re-complete wells that go down. Oil Shale wells have an up time on average from 9-18 months before the internal production tubing fails and companies have to go back in and fix them. This happens over and over. More drilling does not help this problem because it just means more wells to go back and fix. Variable up time coupled with lifetime low production rates are why Oil Shale Oil is so expensive to produce compared to conventionally produced oil. A 10$ or 20$ bump in oil prices will not fix this because these corporations are not run by explorationist risk takers but by engineering number crunchers. Which means unless the profits are stupid large, people aren’t going to jump back in with both feet. Finally, this leads to the real problem. Oil Shale companies have been losing big money, they haven’t been drilling but only re-completing the best wells, so their positive cash flow has been and continues to dwindle. Most of them are heavy HEAVY into debt, which means they can’t borrow another dime and their production has been hit so hard by natural decline that small 10-20$ jumps in oil prices aren’t going to make these engineering companies or the banks open their wallets back up. Summary: Spending 4 billion to make 5 billion sounds good at 100$ oil. However, spending 4 billion to make 3.5 billion at 50$ oil is never a good bet. No. Until oil is above 80$ for a sustained period of time, you’re not going to see a major recovery in the oil shale sector.
It all comes down to cash flow. Without prices over 80$ the companies themselves won't have the cash flow to do a major ramp up at any time in the near future. Additionally, these companies are no risk taking cowards. They've been bit hard by low oil prices and aren't going to take risks until they have some financial breathing room. Additionally, as I said, most of these companies have either already gone bankrupt or are in hock nearly to the max, so the banks aren't going to give them another dime. Finally, what no one considers is that the rig numbers dropped from 1300 to less than 300 today in south Texas. One cannot just snap their fingers and produce/train/implement 1000 crews again over night. Most of these are blue collar workers, but it is skilled labor. They have moved on to other industries after nearly two years out of work, so even if oil was 200$ a barrel it would take significant time to train the manpower if nothing else.
No. The quick recovery of the Oil Shale industry at 60-70$ oil is a complete fallacy, and in this aspect OPEC's attempt to cripple the Oil Shale industry actually worked IMO. OPEC didn't kill US Oil Shales, but it did create a deep long term wound requiring a significant recovery time.
![[Image: 4CV0TeR.png]](https://i.imgur.com/4CV0TeR.png)
