US January Production Drops Again

377 thoughts to “US January Production Drops Again”

1. Thanks for the great post Ovi!
   Here’s an interesting article I came across:
   Saudi-Russia oil war is a game theory masterstroke
   https://energypolicy.columbia.edu/research/op-ed/saudi-russia-oil-war-game-theory-masterstroke

   I hope others here find it so too

   1. Survivalist

      Thanks. I found this interesting:

      “Game theory shows how the ‘competing fringe’ passively benefits from Opec supply cuts for as long as they last. Since becoming the world’s top producer, however, the US is discovering that being a free-rider may no longer be an option.”

      Its market interests, game theory suggests, have effectively converged with those of Russia and Saudi Arabia. By threatening to open the floodgates, the latter can compel it to join their club.

      It will be interesting to see if and how the US joins. I have read that XOM and CVX are opposed since they want to pick up cheap acreage from the drillers that go bankrupt.

      1. I don’t see why the US would care about the price of oil, as a national interest, at least in the short term. It’s no longer a significant net importer, but it’s not a net exporter, either. High prices help Texas, but low prices help California, Michigan, Ohio, Florida and Maine.

         You could argue that stability is good for a large US industry, but the oil industry does not have a good image. It’s hard to imagine that voters would have a lot of enthusiasm for significant financial support for the industry.

         You can argue that low prices now set the stage for higher prices later, but that requires a lot of trust in crystal balls which have been pretty cloudy in the past.

         1. The USA has cared about the price of oil in the past. The reasons it did so and why can be read about and perhaps understood by others. Perhaps, for similar and evolving reasons, the USA will continue to care about the price of oil in the present, and into the future.
            In 1986 Vice President George Bush traveled to Saudi Arabia with a warning- record low oil prices of $10 a barrel threatened the U.S. oil industry and U.S. national security. If prices don’t rise, he warned, a U.S. tariff on imported oil would do the job.
            I wonder what all that was about eh? What a mystery!
            One of the things about game theory (aka strategic decision making in the context of mixed motive actors) is, imho, that it helps if you can try to understand the motives of others (see theory of mind), even if you don’t share their motives, agree with them, or see why they would care. I will admit it gets a bit dicey when actors have inconsistent preferences and beliefs (see democracy), and that often, in real life, actions result inconsistently from those inconsistent preferences and beliefs. But hey, that’s the world we live in. It might help with your crystal ball.

            1. Things have changed since 1986. Not enough, of course: we still have a president who’s political party is a captive of the oil industry. But the president himself cares only about himself, and his re-election.

               The oil industry isn’t monolothic. Bush, an oil guy, could confidently speak for the whole industry in 1986. Now, look at how angry “Shallowsand” is at the LTO industry. And if the oil majors are waiting to buy the LTO independents after they collapse, they’re not going to want intervention.

               This kind of chaos is extraordinarily painful for people in the industry. This is no way to run things. But…this country just isn’t all that good at planning ahead. The country is a bit more distracted than usual right now, and again, this industry isn’t popular – it’s hard to see a big bailout. And, of course, when the collapse in consumption is 10x as large as any likely production cuts, how well would it work?

               My comment above was about national interests, and security. In the long run the oil industry is no longer essential to national security – it’s needed in the short run while we transition away from it, but that’s different. It would be great to help people who are losing jobs, but that’s different.

               Arguably oil has been an enormous liability to national security since WWII. For instance, the US intervened in Iran in 1954 to protect British Petroleum, and as a *direct* result Iran now wants nuclear weapons. 9/11 was a direct result of our dependence on oil. We’re spending trillions already to protect this industry…

               1. I’m as far from an expert in oil production as any regular here, most likely, but I do understand the workings of the industry to a certain extent.

                  What I’m getting at is that “the collapse in consumption is 10x as large as any likely production cuts” may apply in the very short term, but within a matter of a few weeks or months, production WILL BE CUT to the extent necessary, because the oil going INTO pipelines and refineries will back up until such storage facilities as are available are full the brim full, and the refineries will be unable to accept any further deliveries until they can ship out their own inventory……. and there simply isn’t any place for huge quantities of gasoline and diesel fuel TO go, other than into the fuel tanks of machinery from lawn mowers to tractors to cars and trucks and airplanes.
                  PERIOD.

                  Production WILL fall to match consumption, after a few weeks or months.

                  But it does occur to me that an oil importing nation with an authoritarian government or one with a great deal of central planning and money available might take advantage of this opportunity to stock up at fire sale prices.

                  I wonder for instance how long it would take the Chinese to build some storage facilities, even more or less makeshift facilities, to store dirt cheap crude by the millions of barrels.

                  In their shoes, as a person in charge of national security issues, etc, I would think about using explosives to create a reservoir in a dry canyon and pumping it full of crude. Whatever leaked thru the improvised dam of such a reservoir could be pumped right back into it.

                  Sure it would be an environmental disaster in some respects such as evaporation …… but it would be a grand slam home run, as an investment, if the price of crude goes up by a factor of four within the next two or three years.

         2. Of course ‘the USA’ would care about the price of oil.
            Many millions of people and their families earn their living in this industry.
            Extreme chaos in any big industry is a human tragedy.
            Not complicated.

            1. Yeah, I absolutely agree.

               I was talking about national interests, vs normal humanitarian interest in helping people in a terrible situation. Russia and KSA have compelling national interests in oil: they’re deeply dependent on oil exports. The US is not.

               Secondarily, I just don’t see any rational planning process happening right now, at the national level. We’ve got Texas politicians willing to say that we should sacrifice 100’s of thousands of deaths to COVID-19, to help the economy. The car industry bailout was opposed by Republicans. Things are crazy.

               In a sensible world we would be less dependent on oil, and could find a way to help the industry when it happens to have a temporary problem.

               We just don’t have any kind of sensible planning process…

               1. True.
                  We have the corn ethanol industry subsidized and pitted against the oil industry.
                  We have not had a coherent national energy policy, ever.
                  I guess a ‘partisan above all else’ culture guarantees that.

               2. Yeah.

                  One quibble: the US doesn’t have a problem with partisanship, it has a problem with the Republican party, which has been taken over by crazy people, with the Kochs in the lead (how crazy are the Koch family? The father of the two brothers founded the John Birch society…).

               3. I agree. Intelligent progress is dependent upon both the liberal and conservative impulses in human nature. The liberal impulse looks at the flaws in what is and through novel thought seeks to improve things, to expand the reach of justice the quality of life etc. The conservative impulse is the steady hand that values tradition and continuity. Scrutiny. Security. Holds up its hand and says wait a second partner, slow down a second, don’t throw the baby out with the bathwater.

                  Both impulses are equally important for wise progress. And it is perfectly fine to have two political parties that embody those two impulses.

                  But movement conservatism is something different. It is like a disease that has taken over one of the great American political parties. I fear it is beyond saving. I think we need a new conservative party in this country.

               4. We have not had a coherent national energy policy, ever.

                  The Texas RRC did a pretty good job of keeping things sane from approximately 1930-1970.

               5. Well, it protected the oil industry from low prices. But it missed many things needed in a coherent, comprehensive energy policy.

                  For instance, the US has no consistent policy on oil imports. It just allowed imports to expand from WWII to 1980, while suppressing domestic production with price caps on domestic oil. When imports were interrupted it resorted to military intervention in the M.E., which has cost many lives and trillions of dollars, and destabilized the world.

                  It has allowed excessive oil consumption by not charging consumers for all of the hidden costs of oil. Fuel taxes are way, way too low. Proper taxation would fund road work, reduce imports, reduce pollution, promote efficiency in vehicles, etc.

                  That’s just two examples…

               6. Agreed.

               7. Schinzy- I was indicating the failure at a national level. And sure, if you want to start the clock ticking at 1970, fine with me.

               8. OK

            2. Plenty of US Oil companies will now go bankrupt. Lots of debt will be unpaid. Are banks going bankrupt as well?

               1. Tom,

                  Not all the debt is held by banks, a lot of it is corporate bonds held by wealthy investors. They should have done their homework, they didn’t and they will get 50 cents on the dollar if they are fortunate (it may be half of my guess). Also the publicly traded companies will see their stock value get cut by 90%, so again wealthy investors that were not paying attention will take a loss.

                  I am not worried about the wealthy, they have taken more than their fair share for decades (since 1981), about time they got a haircut. 🙂

               2. Fed is going to buy that debt Dennis. They have already stated that they would. The debt is a non-issue now.

                  They didn’t really have a choice as a lot of that HY credit is held by pension funds.

                  I’ll repeat this. The FED is going to kill the dollar here. They are bailing out everything and everybody. Just watch where the FED’s balance sheet goes. And it’s going to carry the price of oil with it. Much higher! I bought WTI at $19.87 Trade never went against me either. I’ll add to the position on pull backs. Target is somewhere between $160-$170. WTI

                  And of coarse i have a stop loss at break even just in case i’m not right. So until price reaches $19.87 again i just let the trade run it’s coarse. I believe the bottom is in though.

               3. HHH,

                  Doubtful Fed will buy all bad debt. Many of these companies will simply go bankrupt, the largest of them might be bailed out by Fed.

               4. The oil industry has been the fundamental economic stimulus program for the state’s for over the last five years. It’s created millions of jobs, reduced the trade deficit, reduced inflation, headed America towards energy independence and put extra money in the consumers pocket. At the same time the American oil industry has been selling it’s product below cost.

                  The industry is a national security issue and needs to be saved for defense and economic reasons. The states are still an import nation and under attack from adversaries for it’s effort. An import tariff needs to be put in place of 90 percent of anything under 60 dollars and can be off set by exports credits.

                  Trump will fail to do the right thing.

               5. Huntington beach,

                  The tariffs won’t allow the excess tight oil to be exported, we do not have the refinery capacity to utilize 8 Mb/d of tight oil.

                  We can utilize perhaps 5 Mb/d, with 3 Mb/d needing to be exported.

                  Now I suppose we can subsidize oil companies to refit their refineries, but it is not a good investment because we only will need that capacity for a few years as tight oil cannot remain at 8 Mb/d before it will decline (perhaps 5 to 10 years). So it will be a poor use of capital and a classic case of why government interference in the market leads to a poor allocation of capital.

                  A better approach would be a carbon tax on all fossil fuel to speed the transition too alternatives, that would be a much better policy than a tax on oil imports to support an industry that has allocated capital very poorly. Better to reward efficient use of capital rather than the reverse, in my humble opinion.

               6. That’s why I said there should be an export credit(which could be applied towards imports).

                  The word “can’t” is for losers

                  Agree, this is a short term fix. Transition is the real fix, but this is a life line to the producers and economy. EV’s should be a near term mandate, 2030.

               7. Huntington beach,

                  It is still not clear how the “export credits” would work. Do you mean we would subsidize exports of C+C? That is if, the World price of oil is $25/b and we want a price of $60/b0, we would put a $35/bo tariff on imports and pay exporters $35/bo for any oil exported? As long as imports are greater than exports, it would be a transfer of money from importers to exporters and the tariffs on net exports would be collected by the government.

                  Possibly that could work, but many American would not be happy about the government raising their gasoline prices.

                  I missed the export credit part of your plan, let me know if I understood it correctly the second time. Your brief statement may not have made it clear.

               8. Small question:
                  What instrument did you use to buy oil? Just long future, or others?

               9. Yes Dennis, with respect to the haircut the ‘wealthy’ were long overdue. And then some. None of these guys could fit through the ‘the eye of the needle’…

                  None of what they did was capitalism. It was all financialism, which is not capitalism.

               10. “It was all financialism, which is not capitalism.”
                   Interesting point.
                   We should be taxing the hell out of ‘financialism’.

               11. Dennis, Thanks! So, in some months time it’s time to buy very cheap stocks which will boom when the supply and storage gets lower, and demand becomes normalised?

               12. Tom,

                   Not a bet I would make, but if you like to play low odds bets, you might win big, but more likely it is a losing bet. Kind of like buying a lottery ticket.

                   A more sensible bet is to buy the market (Vanguard Total Stock Market ETF) when you think it is close to its bottom, then hold for the long run, a much safer bet (probably about 7% annual real rate of return over 20 years).

               13. Timber on the stump has matched the stock market, so they tell me, historically, up until recently.

                   If you’re not afraid to manage your own money, and willing to learn the business, and run it, real estate can and often does pay better than the stock market, long term, but it DOES require a hell of a lot of work just to learn the business. You won’t learn it taking a few classes, or attending a few seminars.

                   But consider the best investment, although people in the business of managing money deny it’s an investment, most people can possibly ever hope to make…… home ownership.

                   I know a ton of people who have made over a hundred times their initial investment in tax free equity within ten years who have CONSISTENTLY made this kind of return…. while living better for substantially less while doing so, in their own home.

                   Of course you may lose if you just jump in and buy. It’s sort of like shooting at a duck. You don’t shoot at the duck where it IS. You shoot where it’s GOING TO BE when the bullet has time to get THERE…. where the duck will be.

                   Of course this is not the forum, or at least not the right part of it, to debate investment strategies, and unless you are willing to WORK at learning the biz, you might as well just buy such funds as Dennis suggests.

               14. The best bet: home ownership with an income unit that’s on the property. Real estate needs a lot of hands on management (you’ll lose your shirt if you pay trades to do all of the maintenance), so close is better.

2. Putin says Russia ready to cooperate on cutting oil production

   Moscow (AFP) – Russia is ready to cooperate with Saudi Arabia and the United States to cut oil production, President Vladimir Putin said Friday.

   Putin said Russia was willing to make agreements within the framework of the OPEC+ group and that “we are ready for cooperation with the United States of America on this issue,” according to a statement published by the Kremlin.

   “I believe that it is necessary to combine efforts in order to balance the market and reduce production.”

   1. The problem facing major oil producers in the short term is that demand has fallen much farther than they are likely to be willing to reduce supply to shore up the market.

      When Putin and the Saudis started the price war, they did so by bumping up supply by a few percent. But since then, demand has fallen by ten times that. Cutting output will not get the industry out of the red before the pandemic ends.

3. Has Russia Reached Its Limit In The Oil Price War?

   Russia is now preparing to ramp up spending to support millions of citizens and thousands of companies affected by quarantines and shutdowns. The Kremlin has thus far announced an increase of spending by $17.5 billion to counter the outbreak.

   But according to Kudrin, the country may need to spend 5 percent of gross domestic product — or about $70 billion — to combat the impact of the coronavirus, which Russia has officially said has infected more than 3,500 people, but which skeptics suggest is a low-ball figure.

   Those costs will be difficult to cover if oil prices are low — but on April 2, the price of Russia’s Urals crude blend fell below $11 a barrel, the lowest since Putin came to power two decades ago. The international benchmark Brent crude, meanwhile, was going for just over $26 a barrel on April 2, whereas Russia depends on a price of about $40 a barrel to balance its budget.

   Russia as of March 20 had $551 billion in foreign-currency reserves at its disposal, although economists suggested that Putin would prefer not to tap into them. In just one week,

4. Russia oil production through March 2020. Russian did not increase production in March. It was pretty well flat, down 7,000 barrels per day at 11,248,000 barrels per day. This is the level Russia said they hope to be able to hold through 2023. However they may now decide to cut that a bit.

   

5. https://www.axios.com/coronavirus-fuels-historic-drop-in-gasoline-demand-cde75e40-f70d-4cca-9a16-f27e00f2168b.html

   The amount of gasoline American drivers are consuming dropped to levels not seen in more than 25 years, government data shows.

   1. We are finally at true energy independence at these consumption levels.

6. Russia has proposed spending additional domestically about 15 billion dollars over a period of two years, not one. Their Reserve Fund and National Wealth Fund combined have about $160B.

   So they’ve got 20 years of this stimulus spending in those funds. Note that is not the entire Russian government expenditure. And note that Russia has income from other sources. They sell about $6 billion in weapons per year.

   1. Watcher —

      According to ZH today, since about 2013 your government debt-to-GDP ratio has stabilized somewhat, but now with the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), some estimates place the deficit for 2020 alone will be $4 trillion. This will lead to at least an 18 percent increase in the government debt-to-GDP ratio in one year alone. Last time I looked, the US Federal Debt to GDP Ratio was 109.40%. My question is this: do you see this as a problem, or do you think the US can simply keep printing money indefinitely? My dad programmed me to believe debt is a bad thing and 80-ish years later I still live with a debt dread phobia, perhaps misplaced?

      BTW, I managed to get through uni (geophysics and geology) debt free because there were tons of well-paying summer jobs in the oil and mining industries back then. I pity those modern students who must shoulder an enormous debt load.

      1. Douglas,

         Non dynamic math would say you’re correct. But the spending is supposed to be stimulus, the the item stimulated might be tax revenue as much as sheer economic activity.

         Yesterday’s jobs report was -700K, which was worse than “expected”. But this is out of an employed workforce of 130 million. Most still are working, and paying taxes. A big part of the stimulus is given to small business and they are told those “loans” are forgiven if the business proves the loan was spent nearly all on payroll.

         So, tax revenues appear to me better this year than expected. The money will be loaned to business and the forgiveness of that loan may not finalize until next year or the year after.

         No question the $4T will be borrowed money and drive debt to $24T. But GDP is an equation and government spending is in that equation. If it doesn’t fall a huge amount, Debt / GDP will not depart from current curves too very much.

         As for how long can you print — I would suspect the limit is determined more by oligarch fear of eliminating their source of power than by inflation. If money becomes too overtly meaningless, their power becomes unjustified. So . . . too visible a procedure of printing money will be discouraged.

         1. Watcher,

            The March employment report is based on surveys through March 12, in the subsequent 2 weeks 10 million people applied for unemployment benefits, non-farm payrolls are about 152 million. So 10/152= 6% over a two week period. In March 2008 US non-farm employment was 138 million. If we lose another 10 million over the next 2 weeks we would be at 132 million, less than 12 years ago and an unemployment rate of about 16.7% (labor force is about 162 million in March 2020, includes employed plus unemployed of 27 million).

            Hopefully the stimulus will bring people back to work when covid19 crisis ends.

      2. Doug ,you are on the right side of the equation . Even the US cannot flout the laws of Physics and Mathematics ( I don’t consider economics a science , it is only their to provide respectability to astrology ) . This mad money printing will blowup , the question is not ^if ^ but ^ when ^ . My best guess is any time between June and Sept this year . Why ? The stimulus money for the big corporations will reach them , but it will only fill in the black hole they are already in ,on the other end the SME’s will not get anything or at least not a lot , it will be used by the banks to fill their own black hole . This is my WAG .

         1. Watcher and hole in head —

            Thanks for responding. Economics has always been, and remains, a mystery to me. I do miss the good old days of running surveys and exploration programs but that was eons ago, a different life.

            Cheers and good luck dodging the bug.

            1. Doug

               In your original post above you said:

               “I pity those modern students who must shoulder an enormous debt load.”

               You could also have added “and don’t want to work for the dying oil industry.”

      3. Doug,

         Too much debt for individuals is a problem. For governments in the face of a severe economic down turn, too little debt is a problem. Hoover chose to forgo government debt from 1929 to 1933, Roosevelt reversed this policy, but was too timid and still worried about debt, this delayed recovery from the Great Depression. Only high levels of government debt to fund WW2 ended the Great Depression.

         In short, worrying about government debt is a mistake during an economic recession, in fact Europe’s concern (especially Germany’s) about too much government debt is the reason their recovery from the GFC was so much slower than in the US and China where more aggressive fiscal and monetary stimulus was used.

         Read the following for an introduction,

         https://www.amazon.com/General-Theory-Employment-Interest-Money/dp/198781780X

         The kindle edition (free app available) is 99 cents, or at your local library for free.

         1. Dennis, a quibble.

            As you note in your second paragraph, fiscal stimulus is important. To be clear, that means government spending. Spending on WWII (in combination with borrowing) is what ended the Depression. You can just cut taxes alone, but that’s a big gift to the wealthy. They get to pay for a treasury note, which is an entitlement to interest income, rather pay a tax bill.

            The key is to create demand in an environment where consumers are afraid to spend their money. The simple way to do that is for the government to spend money. Debt is secondary: you don’t want to raise taxes and reduce the effectiveness of your new spending. But that’s very different from just cutting taxes.

            Much of the debt we’ve created recently has been ineffective, simply a gift to the wealthy.

            1. Nick,

               It can be either cutting taxes or government spending. If the tax cuts are targeted to the non-wealthy, it is nearly as effective as government spending as most extra money in the pockets of less wealthy individuals will be spent. I agree that a tax cut that mainly goes to the wealthy is poor policy and far less effective than government spending.

               You are correct that in the case of World War 2 the fiscal stimulus was mostly a matter of increased government spending, that is indisputable.

               1. I agree. Tax cuts targeted to low income folks would work just fine – sadly, that’s not what we’re getting lately.

                  Why is this important? Because one criticism of debt is that it seems to be less effective lately in stimulating the economy. I’d say that the fact that the tax cuts are going to the wealthy is the explanation.

                  Fortunately, that’s easy to fix (at least with the right people in office…).

               2. Also, the US had a glorious opportunity this decade to raise taxes and cut government debt, but didn’t take it. Instead, they ran up the debt even further with the Trump gift to the 1%.

                  Now America desperately needs the government to go into debt. but deficit spending is already sky high.

                  This idea of giving the rich tax cuts to “prime the pump” as Keynes put it, is not very good, because the rich tend to have high savings rates anyway. Put another way, they don’t spend it. The money from Trump’s tax cut mostly went into pumping up the stock market or being squirreled away in tax shelters.

                  Another bit idea is blowing $2 trillion on infrastructure, which both Clinton and Trump promised in the election. The problem with that is that America makes such terrible choices on infrastructure spending that it probably isn’t a good way to spend money. The best idea here would be attempts to ameliorate the damage done by the poor decisions made in recent decades, like sound barriers for urban highways to increase land values.

                  The correct solution is to spend more on labor intensive and chronically underfunded areas of the American economy — public schools, not only for children but also vocational schools, driving schools, schools for police (Germany requires a two year course before you can join the police force), basic health care (including dentristry, where America has fallen far behind the rich world, and some efforts to reduce obesity) public transportation, social services etc.

                  I’m not holding my breath.

               3. Alimbiquated , your solution is not going to be implemented . The corporates will get all the stimulus money . This money will then be piped out
                  to both the political parties for the next election cycle . After that rinse and repeat . That is how US politics has operated over the ages and nothing will change this except a revolt, as for the common man ,he can take a long walk on a short pier .

7. Concerning an agreement that would include the United States.

   One would anticipate an absolutely outrageous manifestation of the United States reneging on any agreed quota. The cause would be the obvious thing to hide behind — that the producers are private and cannot be commanded by the US government. OPEC individual country production quotas have always been exceeded. Why would we presume that the US would comply with quota any more than individual OPEC countries have complied in the past?

   What this means is a bit inevitable. KSA and Russia are going to have to stand back and produce at maximum and wait to see the United States comply with any agreement. There is no way imaginable that this will be found acceptable by the US oil industry, and therefore the quote by Vladimir Putin that the US must participate is a deal-breaker.

   Besides which, Russia and KSA can proceed as planned currently and a reduction in US production should take place by itself, unless there is a bailout, which is likely.

   1. Seems to me that the TRRC can set quota. That’s half of US production right there. Maybe Mike can speak to how long it would take to stop the flow: I assume there is some kind of legal instrument that allows one to drill and sell, and he might know what’s in the fine print.

      Every one of the oil-producing states has a similar board…I saw an article yesterday where the producers in one state were asking the authorities to cut production.

      So a US delegation would have to have 10 reps for the major oil producing states, and some cell phones to talk to their bosses.

      So I say take away their legal right to produce and cut like the rest of the world.

      Survive together, or all go bankrupt together.

   2. “Why would we presume that the US would comply with quota any more than individual OPEC countries have complied in the past?”

      Historic move to cooperate with Moscow in energy market management already happened last week. Objectively speaking, the oil crisis needs a joined-up international response, and, arguably, the solution lies in looking beyond OPEC (and OPEC+) at a wider coalition — OPEC++ that includes the US. In principle, Saudi Arabia and Russia would favour the idea that the high-cost producers outside the OPEC+ group must finally share the burden of balancing the oil market.

      It will be up to US oil industry to figure out its own energy market management and it will happen very fast, maybe even this weekend.

   3. In general everyone is trying to wrap their minds around various circumstances from the perspective of current legal mechanisms. Forget that stuff. It isn’t going to fly.

      For example, if US oil producers were in fact inclined to agree to some production reduction arrangement among themselves — well, that is the somewhat explicit definition of anti trust behavior and collusion.

      Someone, somewhere, will sue. If all companies get together and agree to a procedure intending to raise price and harm the consumer, the fines will be enormous for the obvious collusion anti competitive violation.

      Forget the norm. Forget capitalism. It died once already and is dying once more. Just accept it. Government will have to put guns to the heads of various parties and force them to do things — and those things will be suddenly legal because government will have to overtly change laws to make it possible.

      Just think, it’s going to have to become legal for oil companies to collude on raising prices. And it has to get through both houses and get signed.

   4. There’s no way in hell any country selling oil into international markets will continue to produce at max rates for more than a few more weeks or months.

      Oil is sort of like MILK. You can’t stockpile the damned stuff. It goes out from the farm and ends up in consumer refrigerators. When people quit buying, farmers have to sell dairy cows for stew beef.

      The one big difference is that crude is not perishable, at least not short term. ( I suppose it does lose some volatile components in long term storage, thereby lowering the value of it somewhat. ) But the point is that once existing storage facilities, pipelines, and refineries are fully stocked up, where do you put gasoline and diesel fuel?

      I will be buying some extra so as to play with my one big yellow machine but for every farmer like me, there will be a hundred people who won’t be going to the lake with a boat that burns three or four times as much in a day as my machine.

      Maybe somebody here can provide us with a reasonable estimate of the cost and time frame involved in constructing a tank farm, or laying a pipe line to an old salt mine or something of that nature, so as to be able to store let us say an extra ten million barrels a day.

      Now that would be one HELL of a tank farm, would it not?

      Maybe some of the orangutan’s ” best people” can figure out a way to drain a major lake someplace, and dump all that dirt cheap crude in it, thereby allowing it to promise cheap gas for years to come, lol.

      1. OFM

         Here is a story about temporary oil storage you will enjoy>

         https://www.roadsideamerica.com/story/23157

8. Finished motor gasoline supplied fell off the shelf in the last few weeks from 9459 to 6659 thousand barrel per day in the US (March 6 to March 27). Probably still falling.

   1. Gonefishing,

      For all petroleum products and crude, stock levels went up by about 8% in the week ending 3/27/20. Agree this will get worse.

9. Matt Taibbi on money creation: https://www.rollingstone.com/politics/political-commentary/coronavirus-fed-bank-bailout-disaster-976086/.

   Debt and money creation always ends in hyper inflation. The inflation starts where the money is injected. We will see what happens to oil prices and the cost of extraction.

   1. Schinzy,

      Can you define hyperinflation?

      Not a lot of hyperinflation (as I define it) evident in the US from 2008 to 2020.

      https://fred.stlouisfed.org/series/DPCCRV1Q225SBEA

      or

      https://fred.stlouisfed.org/graph/?g=8dGq&utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

      first link used for chart below

      

      1. I define inflation as a decrease in living standards at constant salary. With this definition the official inflation rate understates inflation because it does not include financial assets.

         But I said it ends in hyperinflation. It hasn’t ended yet. We will check the inflation rate in 2025 to see if we are nearing the end. First there will be shortages, the shortages are followed by hyperinflation. Currently there are shortages in ventilators and surgical masks so you can find inflation there. You find inflation where the money is injected, it becomes hyperinflation when there are shortages that the injection of money does not solve. You can find hyperinflation today in Venezuela for example. I am predicting the shortages will spread to other areas of the economy in the US and Europe.

         1. MMT doesn’t care about debt. And they will print their way out of any financial crisis. The repercussions of such activity is yet to be seen. (Other than asset price inflation and bailouts)

      2. We have several competing components, increased mechanization and scale has made products cheaper. Increased efficiency has reduced material demand and energy use. This is countered by increasing population/demand and increasing debt. Too much debt gets balanced by lower demand but upsets the system sending it in a new direction.

   2. Taibbi doesn’t make any claim on the inevitability of hyperinflation. The article is great – focusing on the preservation of unprofitable companies (hmmm, sound familiar?) with trillions of dollars of public debt. There was a conversation earlier in the thread about oil companies going bankrupt – and this would suggest that “the reported death of the [oil industry] has been greatly exaggerated”.

      There is inflation in the sense that the stock market and most housing markets are not worth their asking price. They are inflated at many PE levels beyond any reasonable rates of profit. Since 2008 pensions, 401K accounts, etc have had a “choice” between holding dollars or buying into ever- and over-inflated markets to chase returns, and most institutions are going to take that gamble. And any that did have been proven correct – when things got bad the Fed has stepped in to be buyer-of-last-resort.

      but little of that wealth filters to the average person – which is why you will never see hyperinflation of basic food items, etc from this mechanism.

      1. That’s correct except that basic food items are no longer included in inflation statistics. Neither is energy. So they took out the most important items and had the nerve to call it “core inflation”.

         1. Is it any wonder I can’t make heads nor tails of Economics? Change definitions at will and they still call Economics a science!

         2. Schinzy,

            Following chart has US CPI including food and energy. Data from

            https://fred.stlouisfed.org/series/CPIAUCSL

            Generally inflation does not include assets, that’s a strange definition from my perspective. Venezuela is very poorly run, in poorly run nations, hyperinflation is not uncommon.

            

            1. Very nice graph.

               In fact I think inflation is too low. Deflation is much more dangerous. In 2015 I thought malinvestment was increasing the probability of a deflationary debt spiral https://www.tse-fr.eu/article/dysfunction-oil-markets-increases-probability-deflationary-debt-spiral. In hindsight, I underestimated the importance of money creation by central banks, though the price of oil dropped about 13% in 2019 even though production was flat to down. I think we were heading into a recession when COVID 19 hit. I think the virus will be an excuse to push through a lot of arbitrary monetary policy in the name of saving the economy. We will see how long this pandemic shuts down the economy and to what level the economy comes back once the mortality rate stabilizes.

               Venezuela is indeed a poorly run economy. I do not think the US economy is particularly well run. I do not think the US economy particularly robust in the face of the challenges it will be facing in the next few years.

               1. I agree US is imperfect, but I bet a lot of Venezelans would choose the US over Venezuela.

                  I agree deflation is more of a problem than inflation. You mentioned hyperinflation, that’s a tough call, probably a toss up in my view.

                  A recession is always around the corner. It is policy used to deal with it that’s important.

               2. A recession is always around the corner. It is policy used to deal with it that’s important.

                  Yea the policy being privatising profits, socialising losses. Great policy.

               3. Iron Mike,

                  We get the policies of those we elect, elect poor leaders and you get poor policy. It is that simple.

               4. “We get the policies of those we elect, elect poor leaders and you get poor policy. It is that simple.”

                  China has known 82,000 cases
                  USA has known 324,000 cases (despite a huge heads up on the outbreak)

                  Why the absolutely miserable showing for the USA?
                  Its Grade F leadership at the very top.

                  Sorry if you find the truth bitter, but you did vote for it.

               5. Hickory,

                  Nope not my vote, but that of my fellow citizens.

               6. I know Dennis, no doubt.
                  I was referring to those who would find the acknowledgement of the miserable performance of their choice to be a bitter pill.

               7. +2

               8. Schinzy,

                  You cannot look at output alone, oil plus petroleum product stocks have to be considered as well. Output was too high in 2018 leading to high stock levels, output was not cut back enough to bring stock levels down quickly so oil prices fell from 2018 levels. Output alone gives an incomplete picture of the dynamics of the oil market.

               9. Hickory,

                  It is impossible to compare China with the U.S.

                  Authoritarian countries such as China can impose stricter controls on movement and more intrusive means of surveillance, such as house-to-house fever checks, tracing and enforcement of quarantines, and are less vulnerable to pressure from businesses and popular opinion. That gives them powerful tools to keep the virus in check, so long as they are vigilant against imported cases. That’s a more difficult proposition for other nations. The poorest countries can less easily afford the economic losses caused by prolonged restrictions, and often don’t have the health infrastructure for extensive surveillance.

                  https://www.bloomberg.com/news/articles/2020-04-03/when-and-how-does-the-coronavirus-pandemic-end-quicktake

               10. Fine Hans,
                   then compare the death rate to date of USA at 29/million (and just now entering a steep phase),
                   with Taiwan with rate of 0.2 death/million.
                   Taiwans top leadership got a grip, didn’t deny, and rallied the country to get on board with measures to hit this challenge early and hard.
                   No excuse for the leadership in this country. Short term political expediency and ignorance are no excuse for failure on this scale.

               11. A good point.

                   Another indicator is that central banks became worried in September 2019 and began injecting money into the system. The stimulus managed to bring oil prices up about $5/barrel by the end of the year, but prices started to fall again in January. Difficult to say when COVID 19 started killing demand. The Chinese lockdown began January 23rd.

               12. Schinzy,

                   Unclear what moves oil prices some of it may have been chatter between Russia and Saudi Arabia and whether a new agreement would be reached also China epidemic was becoming apparent by January. In addition the visibility of stock levels beyond OECD is not good so there is a significant lag between changes in stock levels and changes in price probably 3 to 6 months.

            2. “Venezuela is very poorly run, in poorly run nations, hyperinflation is not uncommon.”

               Dennis, I’m VERY interested, NO sarcasm intended, in your estimate of how well the USA is being run these days, and how long you think it continue to be run as at present.

               You don’t have to answer the first part, you’ve made it clear already.

               If you were a betting man, what kind of odds would you want to bet on the D’s winning all three branches in November? THAT’s what I would really like to know.

               1. OFM.

                  All three branches will be tough, I doubt the Senate will go Democratic, so for both houses of congress and executive, I would say maybe 20% probability+/-10%. A highly speculative and subjective probability, mind you.

                  In layman’s language, a 5 gallon bucket of salt needed with that guess.

               2. OFM and Dennis , don’t sweat too much on this . The Reps and the Dems are as George Galloway says ^ Cheeks of the same bottom ^ . 😉

               3. Bullshit! Such nonsense rolls easily off the tongue HH, but that don’t make it so. Donald Trump, a Republican, is the worst man ever to occupy the White House. He is a wannabe dictator. And most Republicans just line up to kiss his ass.

                  To say that Democrats are just as bad as Trump is an insult to the intelligence of every thinking American.

                  There is reason that over 9 out of every 10 college professors are Democrats.

                  Democratic professors outnumber Republicans 10 to 1, study shows

                  The higher the intelligence of a person, the greater the chance that person is a Democrat. But the really dumb-ass good-old-boys, those who want to Make America White Again, are almost to the man, Republicans.

                  I apologize for the rant but to insinuate that there is no difference between a Democrat, like myself, and the average Trumpite, just makes my blood boil.

               4. Some people who argue that there’s no difference are embarrassed by their support of Trump, and want to claim a false equivalence.

                  Some don’t understand the nature of a two-party system, which drives candidates to the center. Such systems pull the two sides together to get votes, but the two parties are under tension, pulled to the edge by their more enthusiastic members, pulled to the center by the need to claim voters who are near the center. In such a system, the center needs to be moved by education. But activists tend to want to preach not to the uncommitted center, but to the choir…

               5. > The Reps and the Dems

                  What you are saying is that you want Trump to be dictator, because democracy is a bad idea.

                  This is the line the Republicans have been pushing since Nixon. The American press plays along with it with an unending stream of abuse poured on “congress”, instead of assigning blame to the party that made the decision.

         3. Oh heavens. Core inflation is a number that’s used by the Fed to determine whether or not inflation targets have been hit, which is one of the dual mandates they have as their raison d’etre — inflation and unemployment. Note that unemployment was added as an item the Fed should manage only in the 1970s

            Core inflation excludes food and energy because food and energy tend to be volatile. You could use the word noisy for volatile in terms of signal processing.

            In recent years, PCE has become the Fed’s inflation measure of choice. It is measured differently than core inflation.

            The overall message to take from this is that it is all whimsical. There is no oversight. The Fed, and other central banks, lean on their independence from the rest of government and do whatever the hell they want. The Fed chairman goes before Congress and testifies now and then and tells them what he is doing and then sits back and lets them perform for the cameras and has no legal obligation to do anything they say.

            1. “Core inflation excludes food and energy because food and energy tend to be volatile. You could use the word noisy for volatile in terms of signal processing.”

               Hold on a sec my friend. Are you suggesting the cost of food and energy are (just) noise in the cost of living equation simply because they are volatile? Noise, by definition, is a generic name for a relatively persistent component, due to a multitude of causes, that is a non-interpretable or unwanted component of a signal. The cost of energy (or food) is NOT noise in the cost of living. No, the cost of food and energy are not “unwanted” or “non-interpretable”. You can’t legitimately argue in terms of signal processing that way. Errors in the data would qualify.

               BTW, if I had walked away from every complex seismic signal I encountered simply because the information looked “noisy” it would have resulted in a very short career indeed. ?

               1. +1

               2. Noise does have frequency. You can apply a digital low pass filter to it and reduce its amplitude . . . the high frequency portion of its amplitude by 3 or 6 or 9 or whatever db. The nature of food and energy price motion does have a frequency component, which could be determined by FFT, or you can wave a hand at it (as Bureau of Labor Stats does) and instead announce seasonal adjustments and pretend you actually know something of that signal (or noise).

                  Douglas, nearly all of this stuff is whimsy, enshrouded in complex gobbledygook that can make sense once every few years and justify a thesis or dissertation, subjects for which can get scarce.

                  For this convo the reality is food and energy are volatile. So they are extracted because they obscure what is hoped to be a detectable trend. The BLS website describes how they measure inflation and what categories dominate the proportions. For the US . . . housing at 42%. I think food and energy add to 25-30% which is big enough that volatility screws up the overall number.

                  Here is the proportion of various categories for total consumer spending. It all comes from surveys:

                  https://www.bls.gov/cpi/tables/relative-importance/2019.txt

               3. The Fed uses inflation statistics to decide on policy. They have decided that a sharp rise (or fall) in oil prices tend to not bleed into price changes elsewhere in the economy. OTOH, oil prices can affect the overall inflation number, so using the overall inflation number to decide on rate or QE policy would be a mistake.

                  IOW, oil prices can go up or down, but the Fed thinks it’s a mistake to change monetary policy based on those changes: they’re ignoring oil shocks, which actually makes sense. If Paulsen had done so in 1979, that would have reduced the damage done by the Fed to the economy.

         4. Core inflation is not the primary measure of inflation. The primary measure, used for things like Social Security cost-of-living adjustments, absolutely includes food and energy.

   3. It’s completely insane to worry about inflation right now. The NYSE alone just lost $10-$15 trillion dollars in value. Stock isn’t cash, of course, but it is pretty liquid. That liquidity just vanished into thin air.

      Meanwhile corporate debt in large areas of the economy has just become basically worthless. Just look at the situation of holders of oil industry debt. I doubt they are about to go on an inflationary spending spree.

      Demand is collapsing across the economy. Just about every company on the planet is facing a cash crunch, as are probably 1-2 billion households.

      Worrying about inflation in the current situation is like falling off a ladder and worrying as you fall that you might bump your head against the ceiling. That may have been an issue when you were standing on the ladder, but it isn’t right now.

10. Japan still has everyone beat on printing money.

    Sashay over there and find me some hyperinflation.

    1. Watcher,

       On that point we agree.

       https://fred.stlouisfed.org/series/FPCPITOTLZGJPN

       https://fred.stlouisfed.org/series/JPNCPALTT01CTGYM

    2. Your observation doesn’t fit the narrative so it should be ignored. / s
       WeekendPeak

11. As noted above, anti-collusion laws or antitrust laws are very much likely to prevent the United States from participating in an oil production reduction agreement, and because the United States chooses (yes, chooses) not to participate, Russia and KSA will likely not have any agreement to reduce production.

    They very properly would insist that the United States change its laws to enable it to participate in such an agreement. This will never get through Congress and probably would not be signed by the president if it did. And so there probably will be no production reduction agreement. It would presumably require an outright payment of money to KSA and Russia to get them to reduce production regardless of US behavior.

    So shale will continue to produce and as financial pressures mount, begin to reduce production, or more importantly, employment. The president will intervene. Executive orders can impose tariffs without Congressional approval and that is what he would do.

    The president can probably also arrange for interpretation of the stimulus money pointed at financial institutions to substantially focus on those institutions involved with financing shale. If a lender is going to be backstopped by the government, and can still collect origination fees and commissions, hell yes he will lend more money to shale.

    This won’t be the only industry requiring it. Remember all the sneering that was done about China having built empty cities? Real estate and construction employ a lot of people. Expect there to be a great many zombie subdivisions around and don’t expect your house to hold its price. Property tax rates are going up as house prices fall. Government employees who are funded by prop taxes won’t be taking a salary cut.

    1. If the Government chooses to deny producers quota, it does not fall under collusion or anti-trust. It is not the business players themselves agreeing to reduce production: it is those same players being forced to do so.

    2. Watcher,

       The RRC still has the authority to limit production just as they did from 1935 to 1970, you may be correct that they choose not to act.

    3. Watcher,
       There are other ways….

       “The Trump administration has considered a mandated shutdown of oil production in the Gulf of Mexico due to the coronavirus spreading among workers, WSJ reports.
       Shuttering Gulf platforms over health concerns also would have the effect of curtailing U.S. oil production amid a worldwide glut of oil that has sent prices plunging, and possibly assisting a potential truce in the Saudi-Russian oil price war. If the U.S. shuts all Gulf of Mexico production, it would cut ~2M bbl/day from overall U.S. production of 13M bbl/day.”

       The main insight of the current situation is to finally see that this ‘Energy Dominance’ policy with now crippled, U.S. fracking industry, has failed miserably.
       What needs to happen is to cut the production immediately, make a deal with OPEC+Russia and avoid making energy policy based on financial fraud that fracking is in the future.

       1. 2 mbpd isn’t enough. Russia and KSA cut a great deal prior to all of this. The US has to catch down.

          This is going to be phrased like that. If 10 mbpd is to cut, then that is to evenly distribute, but the starting level for the 3.3 mbpd from the US is not today’s level. it would need to be the level when the first OPEC+ deal was tried.

          It’s going to be hard to shut down oil for health reasons if the health based stimulus is denied them.

          1. Watcher,

             Russia cut almost nothing to date, maybe 500 kb/d at most below what they are capable of producing. KSA has cut some, but when they have been at maximum output it has never been sustained for long, KSA capacity is probably only 10.5 Mb/d and they may have cut 1 to 1.5 Mb/d.

       2. Ves, in my opinion, fracking is not a fraud… fracking is an engineering marvel. It did what George Mitchell and previous/subsequent developers over many years designed it to do… allow commercial production from source rock that was bypassed for decades as a dead zone. Fracking allowed production from this bypassed tight rock, creating production that flourished. The economic abuse by some lower level operators over the years certainly caused financial failures, but fracking worked.

          Perhaps a fraud was committed when these weaker hands entered the industry and attempted to capitalize on this same technology by using other people’s money and targeting inferior rock. But, it’s no different than McDonalds dominating every corner with burger shops and other speculative burger shops coming in with the same model only to fail because they could only set up shop on a bad corner. For Shale and fracking, billions in profits have been made from tier 1 and perhaps some tier 2 rock…. a well that was drilled and completed for $12-$15,000,000 is generally profitable in the basins where most wells produce 300,000-400,000 BO in the first 3-4 years and still have decent production left over. At reasonable price assumptions, fracking is profitable in Tier 1 and many tier 2 regions. Low quality speculator companies bleeding out into tier 2 and tier 3 areas and attempting to capitalize caused most of the negativity.

          So, in my opinion, a sweeping statement that fracking has failed is not true. Like all industry sectors, there are those that succeed and those that do not, even when they apply the same technology and methodology. Location choice and bad financial judgment failed, not the technology.

          1. I know I said I wasn’t going to post for awhile, but I couldn’t let this post pass.

             Where are these basins where most shale wells produce 300,000-400,000 BO in the first 3-4 years with decent production left over?

             Make sure and let Enno Peters know of these basins, unknown to the rest of us, so he can include them on his shaleprofile.com.

             For the hundredth time at least, ALL of the US shale basins only work at very high prices. Once again, the companies have amassed HUGE net operating losses since the 2014 crash. Once again, the almighty ExxonMobil cannot help but lose massive amounts of money in the Permian Basin at $56 WTI in 2019. Kind of like Tim the enchanter said, “Look at the bones!” in the classic Monty Python’s The Holy Grail, I say, “Look at the 10K!”

             The 10K scream that shale doesn’t work at low ($50s and below WTI) the same way the pumping unit screams at me squeaking away if the pumper doesn’t give it regular gear oil and grease.

             Since 2014 the almighty PXD has amassed a $5 BILLION net operating loss in its (almost) pure Permian Basin shale play. This is the norm, not the exception. PXD was smart, they funded the cash burn with much more equity than debt. But they still have burned cash.

             Shale can only make money when we can make money hand over fist in our 114 year old high LOE stripper well field.

             And right now, they are all begging for help because they know a few months of $20 or less WTI means they are screwed. They cannot cut corners and shut in a few wells for awhile like us grimy old shale people who have little to no leasehold DE͏B͏T.

             I will not argue against the tech being amazing.

             But to say billions in profits have been made and that there are basins as prolific as you claim in the post is just false.

             Two groups have made money on shale since 2014. First, royalty owners. Too bad they have only made about 2/3 of what they should have, but they have made money.

             Second, upper management. Management that has burned billions in the shale furnace since 2014. See the most recent fraud, Whiting. Right before BK, management pays itself a $14.6 million bonus. In the plan, management gets 8% of the company’s newco stock.

             Why do the US BK laws reward public company management that completely fails?

             If I were OPEC , I would insist of the US, among other things, that all failing management of shalecos be prohibited from “retention” bonuses and stock in Chapter 11 BK.

             I would also insist on a 120 day drilling and completion moratorium for all US lower 48 onshore. It should just be applied to shale, but I would include conventional just to be fair. Trump can come up with a plan to pay the service workers during the shut down.

             Third, I would insist on no waivers of spacing rules, as Mike has written on his oilystuff blog.

             Last, I would insist on no more flaring, at least after a reasonable initial period of time following completion of a well.

             Let’s look at shaleprofile in the future before we post well productivity. I am sure you can cherry pick and “prove me wrong” like NONY on SA. But that’s also false.

             1. Thanks shallow sand.

                Agree in full.

             2. Hello Shallow Sand,

                Yes, much of what you write does have merit on classic bad wall street management (The Whiting execs do need to be publicly shamed a bit!), however…. my distinction here is to defend fracking as a profitable venture, not to defend the poor financial structure used by many of the operating oil companies that were exposed when the winds changed against them. I believe shale fracking very much has been and can be profitable, but location and sound management are key. Like all oil and gas exploration activities, it’s a statistical play with winners, losers and a full spectrum in between. This could also apply to other industries… restaurants, real estate, retail, hospitals, etc….

                To your point, many of the companies with poor financial structure, poor management and those who chased lower quality acreage could be labeled as a “fraud” (whether malicious or not) due to their inability to service debt in a lower price environment. But, leverage, development velocity and unfortunate commodity prices are what brought it down, not bad rock or technology.

                So, from a bookend perspective…. Would shale fracking be a fraud if all the operating companies developed their acreage without debt? My opinion is, no, it would be profitable and legitimate in most cases on average…. just much slower to develop. So, in classic oil and gas, and many other human endeavors… the industry got way ahead of itself too fast and accelerated growth at a pace that was unsustainable…. this is just another classic boom/bust cycle we all know and love in our industry. I think this is my 3rd or 4th bust!

                On to your other question of what basins are profitable? I am a small budget mineral buyer guy for the past 20+ years, so I have seen lots of activity in the major US basins. My opinion is that the following oily shale basins and counties are the premium (I also like lots of the gassy basins/plays, but we’ll save that for another time):

                Williston Basin (ND): Mountrail, McKenzie, Dunn, Williams
                Delaware Basin (TX & NM): Loving, Winkler, Ward, Reeves, Pecos and Lea (NM)
                Midland Basin (TX): Upton, Reagan, Midland, Martin, Howard, Glasscock

                I would also add certain areas of the Anadarko Basin in OK, DJ Basin in CO, Powder River Basin (WY) among others too numerous to list here.

                I am not making the sweeping statement that all acreage works well in the above areas, but simply that statistically, a well run company with low debt can make good money fracking rock in the above areas, even at sub $40/Bbl in certain sweet spot fairways.

                An example of this (only slightly cherry picked at random!) is the following three well pad:

                Operator: Felix Energy
                Lease name: Snowmass 2920-27 (1H, 3H & 4H)
                Location: Winkler County, TX
                Zone: Wolfcamp
                # Wells: 3
                First production: March 2018
                Cumulative oil through Jan 2020 (23 months): 1,159,934 BO
                Current daily production (Jan 2020): 1,217 BOPD

                The example above is probably close to paying out and is still making 1,217 BOPD after almost 2 years. This assumes a 25% royalty and standard severance tax but no LOE. However, no value is assigned to the cumulative 1.5 BCF of nat gas which could be a partial offset to some LOE. details, details….

                I can try to post a PDF of the decline curve chart on the monthly production from my data source, but not sure if third party data is allowed here for copyright issues? Let me know if someone knows…

                I will agree with you that the Royalty owner is the best performer in this industry. They are profitable quickly after barrel #1, unless the mineral asset was purchased recently for too much/net acre with high leverage.

                My point here is to defend fracking shale rock as a profitable venture, if approached with good management, sound economics and good acreage. Good timing helps too. Fraud is too negative of a description against a sound and financially viable process in my opinion. Maybe against some of the people, but not the process.

                Apologies, I kinda rambled on here….

                1. Thanks for your response.

                   I did indicate mineral owners have made money. They and shale management.

                   Dennis noted roughly 5% of wells produce what you initially stated were, “most wells.”

                   As I posted on here years ago, we operate some wells that are profitable at very low prices. Any operator that has more than a few wells does. Those are running right now. They make more oil than average for the field. They fail less than average for the field.

                   We have leases that have LOE under $10. But, they are not the norm by any stretch. They are our top 5% in the way the well productivity you initially mentioned are shale’s top 5%.

                   Shale needs high oil prices. No reason to add 2 million BOPD at $65 WTI in 2018 and 1 million more at $56 WTI 2019 and it wouldn’t have happened if shale management had more at risk.

                   In the early 1980s there were many “oil promoters” who showed up in our field, with no intention of doing anything but making money off investors, who tended to be wealthy people from urban areas. When the 1986 bust hit, these promoters walked away from everything, they filed BK and stuck the state with a lot of orphan wells and a lot of environmental messes. The investors’ non-operated WI was worthless and they ended up with $0.00.

                   See any similarities between shale management and the oil promoters?

                   I agree with you, shale would be ok if it were developed responsibly. But it wasn’t. The regulators let things slide in the name of more jobs and more tax revenues.

                   Think a few here have been posting this for 5 years or more.

                2. gunga- “My point here is to defend fracking shale rock as a profitable venture, if approached with good management, sound economics…”

                   Sound economics is indeed a key ingredient, and that includes operating when the price paid for your product is enough to cover all costs. That price number has been insufficient since 2014.

          2. Gungagalonga

             One needs to look at the output of the average well.

             Only 5% of all tight oil wells drilled have produced 300 kb to 400 kb over their first 36 to 48 months of production.

             When all is said and done it will be billions of dollars lost as these tight oil companies go belly up and billions in debt is written off.

             Agree it is an engineering marvel, but it only works at $75/bo or more for WTI.

             1. On Permian average well productivity in 2018. At 36 months cumulative output for C+C is 238.4 kb and at 48 months cumulative C+C output is about 263.8 kb (using hyperbolic fit to shaleprofile data).

                At $55/b for WTI the average 2018 Permian well (including natural gas and NGL) has cumulative discounted net revenue of 9.8 million dollar (in 2018$). The well cost in 2018 for the average Permian well was at least $10 million so each well drilled loses money at $55/bo. For a well to be profitable, its net revenue (not discounted) over the first 36 months should be equal to the well cost (in 2018$). A price for WTI of $66/bo meets this requirement for the average 2018 Permian well, assuming NGL sells for 25% of WTI price and natural gas sells for $1/MCF at wellhead (or end of gathering lines). At 36 months cumulative C+C is 240.5 kb, cumulative NGL is 60.5 kb, and cumulative natural gas is 798.3 MMCF, cumulative operating costs plus royalties and taxes are about $6.4 million (in 2018$), of this $1.67 are LOE, and other overhead expenses and about $4.73 million goes to royalties and taxes (income tax not included). Over the early life (first 36 months) of the well, operating expenses are lower on a per barrel basis than over the life of the well (about 50% lower $6.50/b vs $13/b over the life of the well.

                If we assume a 2020 well completed in April has a similar well profile to the average 2018 well and that the oil price is $25/bo at the wellhead over the life of the well, then such a well has a discounted net revenue of $3.9 million over its life and loses about $6.1 million at an assumed well cost of $10 million. Also note that even a well from the top 5% of Permian wells (in terms of cumulative output) barely returns a cumulative discounted net revenue over its life that is equal to the well cost at $28.50 for WTI. Such a well reaches payout at 72 months and would not be profitable. Such a well would have cumulative C+C output of 867 kbo over its life and 611 kbo at 60 months.

             2. Dennis, I agree that certain areas of tight oil only work at certain oil price thresholds. But you can’t lump the baby and the bathwater together for sweeping generalities in my opinion. Certain areas really work well and others do not. It’s like comparing a low quality shallow oil field in north texas vs. the great East TX Oilfield and lumping them together for overall statistics. Certain areas of tight rock work well and others don’t, depending on the financial/commodity environment. But, most can work eventually when they their individual commodity price thresholds are met. A failure/fraud today might not be in the future when prices recover.

                Tier 1 tight rock is a separate play than tier 2 and tier 3, etc… Much of Tier 1 acreage could be profitable at sub $40… But I agree, most of Tier 3 is a disaster below $75. But they are separate plays from a financial (and geological) perspective.

                So, I tend to disagree with the headlines that say “all shale is a failure”. Most of it can succeed at different commodity price points.

                However, I do agree that billions are being lost in today’s environment, but that’s the nature of oil and gas when it goes against you. Much like the chip sector when an oversupply hits, but chips aren’t a failure overall…. certain chips remain premium value and others are commoditized at the mercy of the market forces.

                Also…. Tier 1 acreage is very large and grew in size as the completion learning curve has improved. Completions in the past 3 years are wildly better than completions from the first 3 years, so kind of hard to do a long term comparison when including the old performance vs. the new. If you focused a study on 3-4 year old Tier 1 wells, the stats would be much better in my opinion.

                The classic philosophy in oil & gas since I have been involved since the late 90’s is that 90% of all oil wells are dry holes…. but the 10% that work pay for all the failures! Nothing has changed in this industry and that’s what it is.

                Again, I’m babbling….

                1. Gungagalonga,

                   Note that my models include the increased productivity of the average tight oil well that has been seen over the past several years, but note that when we adjust for increased average lateral length in the Permian basin the productivity per foot of lateral has not increased from 2016 to 2018 and by the end of 2019 a slight decrease was apparent. Eventually most of the tier 1 acres will be fully drilled and as companies drill less productive rock (as that will be all they have left to drill) average new well productivity will start to decrease. This is true of every field that has ever been drilled and is highly unlikely to change for tight oil plays. Geophysical laws are unlikely to change.

                   The failure of the tight oil industry as a whole is simply a lack of discipline on how quickly to ramp up production and unrealistic expectations about the future price of oil. As businesses probably 75% of tight oil focused companies will file for bankruptcy over the coming 18 to 24 months.

                   This is what people mean when they say the industry is a failure.

                   I agree with that assessment.

          3. Like Shallow Sand I decided a few months back to do no more postings on POB.

             ”For Shale and fracking, billions in profits have been made from tier 1 and perhaps some tier 2 rock…. a well that was drilled and completed for $12-$15,000,000 is generally profitable in the basins where most wells produce 300,000-400,000 BO in the first 3-4 years and still have decent production left over. At reasonable price assumptions, fracking is profitable in Tier 1 and many tier 2 regions. Low quality speculator companies bleeding out into tier 2 and tier 3 areas and attempting to capitalize caused most of the negativity.”

             The above is a well-known tactic for any apologist, keep it on very general terms (and use phrases like “in my opinion” etc) and avoid being specific, and for heaven’s sake, do not invite a discussion anchored in actual data.

             1) Give references to what companies have made Billions of USD in profits from shale-oil?
             (Hint, it is easier to come up with a list of companies that have taken Billions of USD in write-downs or taken the company through a prepackaged Chapter 11 bankruptcy process.)

             2) Actual data show that about 5% of the wells in the Permian have made more than 300 kbo during the three first years. Keep also in mind that the oil price fluctuates.
             So the moral is that these 5% of wells will cover for all the wells that will lose money?

             (Yes, I am aware some companies are doing better than others and as shown a small portion of wells are on trajectories to become profitable.)

             ”So, in my opinion, a sweeping statement that fracking has failed is not true. Like all industry sectors, there are those that succeed and those that do not, even when they apply the same technology and methodology. Location choice and bad financial judgment failed, not the technology.
             1) What caused the bad commercial decision?
             Could it be inflated EURs?
             2) Greed preceded “due diligence”?

             There is one way to do an overall assessment of how well shalecos are doing in whatever play one wants to consider, and that is to look at each play as one big project.

             But I agree, most of Tier 3 is a disaster below $75.
             Understatement of the year.

             Try a sustained future oil price of $90 – $100/Bo at the WH to make all (and as per now) US shale-oil profitable.

             So far, US shale has been a wealth transfer from investors and some unlucky creditors to the consumers and foreign buyers of US shale oil.

             World wide all net importers of oil are grateful for US shale as it helped keep the oil price lower.

             Now some more data to ponder.

             Three months ago, I published an assessment for the Bakken that found that each barrel of remaining developed reserves in the ground carried a burden of $30/bo just to recover employed capital (that is equity and debt not recovered).
             So when LOE, G&A, financial costs, transport, processing, and gathering (in short lifting) are added to get these reserves out of the ground, it requires a WH price of something like $55/Bo just to reach payout (break-even).

             And it is now it gets interesting because if some return on Investments is wished for, the price needed at the WH now approaches $90/bo to make a 7% return (on Investment).
             The longer the oil price remains low (and operating cash flow remains negative or very low), the higher the price at the WH is needed to make some specified return.

             A similar assessment was done for the Permian (last fall, and will be published in the near future). This assessment needs updating and a bit more Quality Assurance and came out with that each barrel of estimated remaining developed reserves (in the Permian) was burdened with about $50/Bo just to recover employed capital (equity and debt).

             Now add lifting costs and some wished for return (either on Investment or Equity).

             1. You are incorrect, Rune. Not all shale is profitable at sustained $90-$100/Bbl. Some is and some isn’t…. all shale is not equal, even within a “big project”. Some is profitable at $30/Bbl and most is not…. the spectrum in between is a case by case analysis.

                Assessing a shale play as one big project is not something I would invest or plan on as it does not tell the true story. Maybe it’s helpful for more academic and theoretical studies where micro detail studies are not economically feasible. What is missed by sweeping general studies are the variables within a shale region, such as updip/downdip challenges and related thermal maturity issues, lateral inconsistencies, facies changes and infrastructure limitations (water, electricity, etc) all factor in to compartmentalize sub regions of shales plays where some areas within a play work at certain price points and others don’t. Time, commodity price changes and learning curves also work to migrate these economic boundaries from year to year. One year they don’t work economically…. another year they might. Shale play analysis is not linear where one data set applies to all… in my opinion (sorry, bad apologist plug here). For example, in 2009-2010, EOG grabbed their opinion of the high quality acreage in the Eagle Ford…. meanwhile, Pioneer grabbed what they called high quality acreage in the Eagle Ford around some existing acreage they already had. We all saw what happened here… EOG thrived in a liquids rich environment, while Pioneer struggled in the near dry gas window and eventually punted all their acreage. Same Eagle Ford play… totally different results from two high quality operators. You can’t judge a shale play as a whole, it must be compartmentalized into sub regions.

                I like being an apologist. It has served me well, very well for many years.

                1. Gung.

                   I guess I am not following the point you are trying to make.

                   Look at the chart for any public company involved in shale. The equity has underperformed every other sector.

                   I own stock in XOM. Since 2014 it has been pathetic. XOM breaks down financials. Look at North American upstream since 2014. Either tiny earnings or losses in tremendous amounts of CAPEX.

                   XOM sold the bulk of its stripper well production in the late 1980s and 1990s. So what is it doing now with shale? Drilling thousands of what are effectively stripper wells. In ten years XOM will be operating thousands of deep wells with 1-2 mile laterals that produce 15-50 BOPD. Those are stripper wells IMO.

                   Maybe you haven’t read my posts here in the past, so I will give you a little background on my view. My family operates stripper wells in a century plus old field. When we were drilling wells, prior to the 2014 bust, we could drill, complete and equip an infill well for about $70K, or approximately 1/100 the cost of a shale well (maybe less). We didn’t drill many wells during the good times, usually 2 per year, a couple of times four. All out of cash flow.

                   Other operators here drilled many more wells, including many new leases.

                   I have compared these wells to shale, utilizing IHS Energy initially, and now, thankfully using shaleprofile.com.

                   What I found is the wells in our very high cost, very old field outperform the shale averages on a 1/100 basis.

                   We drilled a new well in 2006 on a new lease. It passed 10,000 BO in 2019, and produced 340 BO in 2019. Multiplied by 100 that would be 1 million BO cumulative and 2019 production of 34,000 BO. A 1 million BO shale well still producing 34,000 BO per year with a decline of less than 5% annually would be considered a monster. This well of ours is very average in our view.

                   After 2014, drilling activity here fell off a cliff. Even with better prices in 2018 and 2019, only a handful of wells were drilled.

                   The reason only a handful of wells were drilled here in 2018 and 2019 is because operators use their own money to drill here. Operators drill from cash flow.

                   Let me give you a 1/1000 example. We operate about 200 BOPD. PXD operates about 200,000 BOPD, or 1,000 times us.

                   PXD has spent $5 billion more than it has taken in 2015-2019. Since 2015 it has racked up a net operating loss of $5 billion.

                   If we spent $5 million more in 2015-19 than we took in we would be in serious trouble. Yet PXD is touted as a very strong shale company.

                   I am sure you can find monster wells that prove shale in your mind.

                   Just think about this. We operate a 970’ well that has cumulative oil of over 44,000 BO since 1976 and we sell a little over 400 BO per year from it, every year.

                   Do you see any shale well that is going to have 43 year cumulative production of 4.4 million BO?

                   Our little field is far from one of the better conventional fields in the US. Yet our wells are more economic than all but the very best shale wells.

                   I completely understand you liking shale if you are a mineral owner and got in before the boom. You have probably made a lot of money and that’s great. No problem with that. We have had others who posted here before who were mineral owners benefiting from shale.

                   I do agree, had shale been developed out of cash flow, there would not be a problem.

                   How many BOPD would US be at if shale were developed out of cash flow?

                   Now, with oil at the well head ranging from $5-20, almost all shale is highly uneconomic. Just like most of our leases are.

                   What do you think about Scott Sheffield of PXD begging that his company be told to cut production by the state of TX? Why can’t his company just do that on its own?

                   It is because shale is so financial. It is a Wall Street “growth” story. Or was at least.

                   Wall Street sold the public on the idea that shale was a growth story similar to tech. Don’t worry about cash flow, compare it to tech. Thus the emphasis on tech by the shale cheerleaders.

                   The problem is, it appears the Permian is the only basin that has any significant growth left, less than 15 years after they started drilling shale wells in ND.

                   So, where does that put the US in its hopes for energy independence in 2030, even 2025?

                   The US has plowed through a lot of shale acreage, and drilled on such tight spacing, likely stranding millions of BO. Not to mention the trillions is MCF flared, thus wasted.

                   These are my views. You can disagree. No big deal. Others have.

                   Ultimately, we are all in the oil business with the hopes of it being a good investment. When the way management makes money is off inflated salaries, retention bonuses upon BK and free stock in the newco, I would say we have a problem.

                   I am with Mike and Rune here, not going to change my mind at this point.

                2. Thank you as, one of the best posts I have read here.

                3. Sean,

                   shallow sand’s comments are always amongst the best at POB, we are lucky that he wades through the BS and takes the time to comment on the really egregious stuff.

                4. Hello Shallow, nice post and I am aligned with you in many ways on it, so well said.

                   However, I think my position has been morphed a bit here recently. I am simply supporting that shale has and can be profitable under the right conditions, much the same as your shallow field. My thesis is not that public E&P equity is a great place to be, nor am I defending the companies and how they are managed, or whether they are profitable (as a corporation) or not. I personally never invest in public E&P as it’s not really a good way to make money from my perspective, plus I am already directly exposed to commodities. I agree with many of the posts here that much of the public equity is rotten, but some of it is very well run and has made money. I am also supporting that there have been billions made from shale wells that were profitable… Right now, that’s not happening, but in the past it has happened quite a bit in the right areas at the right time with the right operators. Wild debt burden, write downs of Tier 2, 3 acreage and bad commodity timing caused much of the carnage on “financial profitability”, not well performance (talking Tier 1 here). The rock has stayed the same, the extraction process has evolved significantly for the better…. but debt and a commodity price wind change killed the equity players. I think public E&P a terrible long-term investment to own.

                   Tier 1 shale wells can be profitable at the right price point and conditions. Tier 1 acreage also covers a larger area than most think, so hundreds of wells, maybe thousands have been or will be profitable eventually, even at the lower end of the relative oil price scale. Really, any shale fairway can be profitable at their respective minimum price point, just like comparing different shallow fields.

                   Congrats on your shallow conventional oil field success and I hope prices bounce back over your break even threshold soon. I love shallow oil that works like a champ when it’s run by someone who knows what they are doing and by using cash flow, not debt. However, for our discussion, your comparison of whether a shale well could produce the same 4,400,000 BO that your field has produced in 43 years is a bit of an apples to avocados comparison. Measuring a multi well shallow conventional field vs. a single long shale well is not a balanced comparison. But, I generally get what you are saying and I like both apples and avocados, so both work for me. As a comparison, though…. the COG operated Tycoon D Unit is a 1,139 acre Unit in Reeves County, TX that has seven active Hz Wolfcamp wells in it. The Unit has produced 2,670,310 BO since Sept 2014 and is still producing a stable 33,000 BO/month currently. Gas total is also at 6.75 BCF and still making about 120,000 MCF/month. It will likely get to 4.4 MMBOE in a few more years. In this case, COG probably threw around $100,000,000 into this project and has pulled 2.67MMBO and 6.75 BCF out of it in ~5.5 years. Assuming a $50/BO and $2.50 average over that period…. it’s probably approaching break even now and into its APO phase. Not sure how many acres your field covers as a comparison, but this is another example where shale can work and be successful, just in a different way than your conventional shallow operation. I see this all over the Tier 1 Delaware Basin, Tier 1 parts of the Midland Basin are also showing similar results. I use Drillinginfo, but have used IHS in my past, both probably show consistent data. Not sure about Shaleprofile.com… never heard of it, is it a broad brush algorithm extrapolated trend analysis? Or, well by well data accessible like Drillinginfo and IHS?

                   On your “100 shallow well vs. a single shale well” comparison, I have the same problem comparing the two scenarios as they are wildly different setups, but I get your point and agree with much of it. Plugging liability aside, I would probably rather develop and operate your field than six shale wells, but my position is that both can make money when working at or above their respective minimum commodity thresholds and with good operators.

                   On the stripper well analogy, don’t forget that refracs and redevelopment strategies have been shown to be effective in many shale regions, often increasing EURs by over 50%. Similar to how you rework your shallow wells at times and likely achieve a net gain. All wells eventually become stripper wells, but that doesn’t mean they’re immediately put out to pasture… squeeze the turnip as much as you can!

                   I rambled again, surprise, surprise…but just wanted to clarify that I am not a defender of public oil & gas equity… I avoid it for many of the reasons posted here. However, shale can and does work economically when structured well and with good timing, like any oil and gas project.

                5. Gung.

                   No problem.

                   To clarify, it is one well that has produced 44,000+ BO since 1976. It is a top 5-10% well for wells drilled in the late 1970s-early 1980s oil boom. Keep in mind at that time, the field was already 71 years old.

                   It is difficult to say what the average well here has produced Given almost all leases are multi well, it is tough.

                   My estimate is that the average well drilled in 1985 (the peak of the drilling boom, which was followed by the 1986 bust) has produced around 14,000 BO.

                   Using a 1/100 ratio for well costs, that would mean to be comparable a $7 million shale well should have cumulative oil of 1.4 million BO in 35 years.

                   I do agree LOE is higher for the 1 BOPD stripper well than the 100 BOPD shale well in most circumstances, due to higher labor costs per well.

                   I know my comparison isn’t completely apples to apples. But I think it puts into perspective that the shale wells aren’t that great at low oil prices given how costly they are.

                   Shale management was just too greedy and there was too much easy money. The oil prices 2015-19 did not support growing shale 4 million BOPD.

                   Don’t get me wrong, shale works at higher prices. We can debate how high, and it does matter where you are drilling.

                   I’d say overall, $75 WTI sustained is needed, and given how much “Tier 1” is gone, I’d say things are going to get really tough.

                   WTI closed below $24. Absent hedges, The word is May and June will be much worse, WTI might be $20s, but well head will be negative to maybe $10.

                   This may be an exaggeration, but I doubt it.

                   If someone with no lease debt sees the possibility of BK in that scenario, how do these indebted shale cos survive that?

                   Wonder how many hedges blow up?

                6. gungagalonga,

                   Bottom line, most tight oil focused companies are not doing well, it is very easy to cherry pick the best wells after the fact and say, gee we should only drill wells like these that are the top 1% of all tight oil wells drilled to date.

                   First, most of the best rock has been drilled to the point that high performing wells will become less and less common, and second, if it were easy to find the best acreage and drill wells in only those areas, don’t you think that is what the tight oil companies would do? Why is it that 99% of the wells are less productive than the wells that you have cherry picked.

                   The data does not lie, the average well productivity is pretty much what most companies see for their average well productivity with relatively small variation from producer to producer. Also keep in mind that the productivity distribution is roughly log-normal with about 60% of wells drilled having productivity that is less than average.

                   If we look at the Permian basin and only 2016 to 2018 wells the top 5 operators have average well productivity that is about 20% above the basin-wide average over the first 24 months of production. On average they will lose money at an oil price of $40/bo for their entire fleet of wells.

                   Perhaps 5 to 10% of their wells might pay out, but this does not offset the other 90 to 95% of producing wells that will be losing more money than the high performing wells.

                   Like shallow sand and Mr Likvern, I am not convinced by your assertions.

                7. Hello Dennis. May I ask what your data set is for the Permian? Does it filter out the non Delaware Basin and Midland Basin acreage? Or, is it lumping all data together for the counties generally considered to be overlying the greater Permian complex? There would be considerable well performance dilution if counties on the Central Basin Platform and shelf areas are included. if a similar study is focused on the Tier 1 fairways of the Delaware Basin and Midland Basin, which is what I think has been highly profitable at times, I think the results would be more robust. Thanks

                8. Gungalonga,

                   I include all horizontal oil wells drilled in the Permian basin, note that most of the wells are drilled in the most prospective areas.

                   See https://shaleprofile.com/blog/permian-monthly-update/permian-update-through-december-2019/

                   Not in the habit of cherry picking.

                   If we look at all wells vs only bonespring, wolfcamp and spraberry, there is about a 5% difference. Not possible to separate tier 1 from lower tiers, but can select by county.

                9. Ok, thanks Dennis. My need is more of the acute data set style. Very highly localized offsetting well data is most useful for my little operation. Probably why we were going different directions on our previous posts. I was going a little too starboard due to my unique sub industry in oil & gas.

                   There are some very poor, low quality horizontal plays that no doubt pull down the higher quality Wolfcamp areas. The San Andres Hz play is a black hole for most in the Permian at $50/60+….except portions of Yoakum County. Ring Energy got bushwhacked on this one. Covers a large area of activity in Andrews, Gaines and Yoakum Counties, so likely it is offsetting much of the higher quality. But it is what it is as a whole.

                10. Gungagalonga,

                    I tend to look at the industry as a whole. One needs to look at the good and the bad wells. Nobody only drills top 5% wells, and nobody knows in advace where those wells will be drilled. By 2017 the most prospective areas were known and average permian well productivity for that year was about 380 kbo. If we look at top 5 producers the average well productivity may have been 460 kbo in 2017 for Permian basin. This might break even at $50 to $60/bo if we ignore the high debt burden. It does not work at $40/bo or less, that is investor presentation hype.

                11. ”You are incorrect, Rune. Not all shale is profitable at sustained $90-$100/Bbl.”

                    The assessments I refer to are for developed acreage, and yes you are right as the best acreage has been drilled the price required to reach some return is likely to move higher.
                    I am not sure what point you are trying to make as you provide little concrete.

                    So what tells the true story? Supplemental analysis of both fields and companies has been done and yes there are variations within plays.

                    ”Assessing a shale play as one big project is not something I would invest or plan on as it does not tell the true story. Maybe it’s helpful for more academic and theoretical studies where micro detail studies are not economically feasible.

                    So how would you make an assessment on how well the shale industry has been doing?
                    Starting at the micro level and aggregating all your thousand assessments?

                12. You can start at the macro level and sum up how many dividends have been paid to stock holders – capital increases, and how many dept is open – open cash, + how many dept is shredded by insolvency.

                    Then compare this to all barrels produced (you can use yearly averages for price and production) and come to an result how many money was made per barrel, or lost.

                    It should be enough to do this for the top 20 companies producing a big part of the oil. They should earn better, since economy of scale + financial firepower to get the best of the best acres should be on their side.

                13. Rune,

                    Your sophisticated analysis is built on data from individual wells combined with data from 10K reports for individual companies, so from what I understand (though this is likely to be incomplete) your analysis has a very good microeconomics foundation.

                14. Dennis,

                    That is a precise description of the way my analysis is done. You may call it a bottom up analysis.
                    This method goes for fields, companies or whatever entity you wish to look at.

                    It is also worth noting that for SEC reporting the companies report their portfolio of wells.

                15. Rune,

                    Thanks.

                    On that last point on SEC reporting, do they report individual well output or simply roll up all output into a company wide total (sometimes broken out into regions or basins)?

                16. Reports to SEC normally presents total equity production for the company.
                    Some reports oil, NGL and natural gas, some leave out NGL.

                    Sometimes this production (PDP, PDNP and PUD reserves, no of operated gross and net wells) is split on plays.

                17. Rune,

                    Got it, thank you. Agrees with what I have seen when scanning 10K and 10Q reports.

       3. Watcher, Two perspectives here:
          1. Assuming that the oil-transport system is still running (i.e. you can find a pipe, road tanker or train to put the oil into that each well produces), then if the global oil demand has dropped 30 mbd, cutting 29 mbd is not going to make a solitary cent difference to the price. Cut by 31 mbd (i.e. reduce real production to less than unconstrained demand), then you will see a reaction.

          So mucking about cutting 2mbd, or even halve Russia, halve KSA and halve USA, the resulting ‘production’ (even with some constipation) will not be low enough to improve prices. You have to shut down Russia shutdown KSA and shutdown USA pretty well completely to cut enough. And every oil producer will need to do their share, or none will.

          2. From my layman’s perspective here, as the ships, tanks and pipelines fill up, wells will have to be shut down. I imagine that this will happen a well at a time as each well’s oil-transport system reaches gridlock. Maybe a patch at a time if there is a common discharge point from the patch to the wider world. So talk of ‘voluntarily reducing production’ is kinda silly (if I may be polite) as each producer, each field, patch and well is trending towards the situation where the wells must be shut down or the oil is just spilled on the ground around the wellhead. And the producer cannot really do anything about the gridlock situation unless they somehow figure out how to get their product directly to a tank or refinery by offering the taker a ‘negative price’ or some other incentive.

          So are producers pretty well ‘helpless pawns’ in this situation – worrying when their pipe line will be closed, and wondering when it will be opened again? Or do they have some power in this game to influence the outcome (other than ‘agreeing to cuts’ when their wells are already shutting in)?

          1. Quite a bit of this is optics. The appearance of the deal situation is intended to influence the traders on the various exchanges around the world. There will be many people trot out in front of microphones over the next few days hyping a deal. But of course there need be no effect.

             There have been past discussions of this supposed global storage and how somehow over a period of decades a precise measurement of storage has managed to not exist. It’s all estimates and it’s an estimate that should have been confirmed with actual measurements a long time ago. Nope.

             But moving right along to the scenario in question where the receive point of oil cannot physically take any more quantity, we see again how this does not determine price. If no further physical delivery is possible, then lowering the price will not increase the amount purchased/delivered. No point in lowering the price.

             The overall problem for the US is lawsuits can and will be filed to stop collusion between oil companies. It is hard to see how a judge/jury would rule against the plaintiff when the defendants’ collusion is in a published document signed by all.

             1. Watcher.

                This has yet to play out, but I sense that maybe (maybe) this “storage full” stuff is being overblown by money center banks trying to profit, refiners trying to profit, etc.

                For example, all refiners sent 30 day contract termination letters to first purchasers. Effective May 1. The claim is that by then storage will be full. The reality could be they want to renegotiate to lower the spread to WTI with the first purchasers.

                The money center banks motives could be many. Maybe they are backing XOM and CVX in their attempt to gain majority acreage in the Midland and Delaware Basins. Maybe they are just shorting crude.

                All I know is our experience in our little corner of the crude oil market. First, we were told they may not be able to haul our oil. Now, it’s please don’t shut in, start your wells back up, we will always be able to haul your oil. Mind you, this has all been verbal. Still waiting on a “letter.” It could come any day.

                We don’t know what to think. But don’t for one second believe that anyone here has no motives. They all have motives.

                Maybe storage will become full. I think I am with Dennis, maybe demand destruction isn’t as high as stated.

                We are just trying to stay alive. But since we have no bank to answer to, we can just shut in. There are a few expenses, but not many. If we get the CARES money, we can even keep the workers on with little expense.

                Nothing like a bunch of corporations trying to profiteer off a pandemic. Wonder if anyone was tipped off before the tweets started flying last week?

                1. Shallow sand,

                   What is CARES, is that the small business loan stuff? Has that been the nightmare alluded to in news reports or has it gone smoothly? Hope things go well for you and Mike Shellman, this is a nightmare for the oil industry, better for you and Mike with zero debt, but I know you guys would like to take care of your workers.

                   I wish you both well and will continue to hope for higher oil prices and better energy policy in the US.

                2. CARES is the acronym for the entire $2 trillion of which the small business payroll protection program (already known as PPP loans) is a part.

                   The idea is to make loans to small business equal to 2.5 times monthly payroll, based upon last year’s payroll figures. If the employees are retained, the loan is supposed to be forgiven. The loans are SBA loans. The loan money has to be used for payroll to be forgiven. It’s basically a way to try to avoid all the disruption of employees being laid off and going into the unemployment rolls.

                   The problem we see is that the stronger small businesses will get the loans, as the banks aren’t 100% trusting that they won’t end up on the hook for these. So, the banks are pushing strong customer applications first, followed by weaker customers, followed by people who aren’t prior bank customers. It’s a first come first serve thing. The banks aren’t required to submit every applicants application it appears.

                   The application doesn’t seem to be that bad. The problem is the sheer volume of applications. And, as mentioned, if you are a small business that doesn’t have a strong banking relationship with an SBA bank, you go to the end of the line.

                3. Shallow sand,

                   Thanks for the clarity. So for someone like you who has little to no debt, you might not have a strong relationship with your local bank.

                   Sorry that you (and your employees) get punished for being a good businessman.

                4. Dennis. No, even if you don’t have a lot of debt you have a good relationship with a bank. You have paid off debt to them in the past, you have deposits with them. They would like to loan you money because you have collateral.

                   It helps being in a rural area too. More personal relationships. Guys you went to school with, been in civic organizations with, who have advanced in their careers with the bank as you have advanced in yours.

                   However, no one has any idea who will get these loans and who won’t. We figure if they end up not being forgiven we will (hopefully) just pay them back. Interest rate is just 1/2%.

                   I could see where a bank could decide to push through the biggest customers, or ones who need it more. They get a big origination fee on these.

                5. shallow sand,

                   Good to hear, I would think a good banker would recognize the smart businessmen like yourself, I hope things work out well.

                   Have you seen the awesome projection tool at shaleprofile?

                   If tight oil completions fall to zero (which seems likely at the current oil price level), we might see tight oil output fall by about 4000 kb/d by May 2021. Mr Peters projection agrees fairly closely with my own, perhaps coincidence, but I am using his data as the basis for my well profiles so maybe no surprise.

                   https://shaleprofile.com/us-tight-oil-gas-projection/

                   Chart below has completion rate fall to zero by April 2020 and assumes it remains zero through Dec 2025 (probably not realistic). click on chart to make bigger.

                   

             2. Watcher writes:” The overall problem for the US is lawsuits can and will be filed to stop collusion between oil companies. “

                Once again, if the state regulatory boards assign quota, there is no collusion and there are no lawsuits.

                There is a valid national security interest in having an oil industry that operates at a profit and is not on the verge of bankruptcy.

12. Long comments don’t get posted. Trying to post with edit is marked as spam

    1. Han,

       Sorry, sometimes things don’t get posted for reasons that are not clear.

    2. Han-
       Brevity is the soul of wit.

       1. But cut the post in half and you are a half wit.
          There is a problem here somewhere.

13. Dennis,

    It seems that, in my case, short posts get posted, and longer ones not. Editing, to bypass the problem, is marked as spam.
    When it stays the same I will change my username a little and see if I get the message ‘reviewed by moderator’

    Edit: I see that my previous post got posted

    1. I found your post in the spam file. Posted it.

       1. Strangely I also did that.

          1. Is there an option to ‘mark as not spam’. If the posts are simply moved out of the spam folder then the AI may not recognise that it is not spam and adjust its definition.

             NAOM

             1. Yes I do that, sometimes they go to the trash, which does not have that option, it is not usually clear why this occurs.

14. https://wordpress.stackexchange.com/questions/238600/comments-not-appearing-at-all

    Lots of suggested answers.

    1. Watcher some comments go in trash or spam for no apparent reason.

       1. https://wordpress.org/support/topic/replies-and-comments-go-directly-to-trash/

          https://stackoverflow.com/questions/51545556/wordpress-comments-on-posts-goes-straight-to-trash

          https://www.freewebheaders.com/wordpress-comment-blacklist-words_comment-moderation_spam-comments/

          There are many links for the problem, so it can’t be rare. No idea what applies.

          Blacklisting whatever seems to be a common suggestion.

          I have had the problem often over time. Length is not all that relevant. Links are not a factor either, though SPAM filter will often kill anything with more than one link. This comment has 3.

    2. No answers from that link apply.

15. Moscow and Riyadh are ‘very, very close’ to an oil deal, says Russia’s sovereign wealth fund chief

    When asked if Riyadh and Moscow will get together by the end of this week for some kind of deal, Dmitriev said: “Well actually look, a very positive message, I think they’re very, very close.”

    1. If supply is in excess by 20mbpd then by a month’s time we are going to have 600 million barrels in excess . The virus issue is a long term problem because of expected second wave and third wave . There are not enough tankers to store this large a quantity .Someone(something) has to give .

16. ESTIMATES OF THE PREDICTED CORONAVIRUS DEATH TOLL HAVE LITTLE MEANING

    “With all the unknowns about covid-19, any numbers you hear about death tolls or how long restrictions will last should be taken not just with a pinch of salt but with a sack of it.

    These calculations, approximations and guesstimates from expert modelling studies and back-of-the-envelope blogging build a confusing picture, not least because they suggest that it is possible to assign a numerical value to covid-19’s future death toll at this point.

    We are living through a situation with few certainties. If someone calculates that 1 per cent of the global population is set to die in this pandemic, say, this could be wrong for at least six reasons.

    First, we can’t yet be sure of the covid-19 fatality rate, or to what extent this will be affected by local shortages of ventilators. Second, we don’t know what proportion of the world population is likely to catch the infection, with some estimates varying between about 60 and 80 per cent. Third, we don’t know to what extent national restrictions, which vary wildly across the globe, will prevent or delay infections and deaths.

    Added to this, we can’t know yet whether we can slow the pandemic long enough to develop drugs and vaccines that can dramatically cut the number of covid-19 deaths. And finally, we don’t even know what kind of immunity – if any – is conferred by this virus, and whether it is possible to develop severe symptoms from a repeat infection.”

    https://www.newscientist.com/article/mg24532763-600-estimates-of-the-predicted-coronavirus-death-toll-have-little-meaning/#ixzz6IqPEzHsD

    1. Meanwhile,

       BUCKLE UP, CLIMATE CHANGE DENIERS: CORONAVIRUS MAKES THE LOW-CARBON TRANSITION MORE URGENT

       Deniers argue that further disruption to economies and societies will be avoided at all costs. Sorry to be the harbinger of denier disappointment, but there is every reason to expect that the virus crisis will strengthen and accelerate the imperative to transition to a low-carbon world by mid-century.

       “We are in the critical decade. It is no exaggeration to say that what we do regarding emissions reductions between now and 2030 will determine the quality of human life on this planet for hundreds of years to come, if not more.”

       This will require about a 50% reduction in emissions by 2030 – way more than is contemplated in the Paris agreement—to achieve even net zero emissions by 2050.

       https://phys.org/news/2020-04-buckle-climate-deniers-coronavirus-low-carbon.html

       1. Definitely on the bias drug. I am still wondering why people think powering machines is the most important task. I don’t think they come anywhere near realizing the actual problem or its scope. Band aids for the decapitated won’t help.

       2. From the comments section at that article:
          “The mental illness of the AGW Cult knows no limit.”

          1. It must be so, he saw it in the comment section. Everything there is totally reliable and factual. Better than the newspaper.

       3. That article is just more gobbledygook by a select few using junk science to push a preposterous scarcity mindset.

          Also, you shouldn’t even be attaching this kind of stuff to the oil posts.

17. Not good!

    GREAT BARRIER REEF SUFFERS WORST-EVER CORAL BLEACHING

    James Cook University professor Terry Hughes said a comprehensive survey last month found record sea temperatures had caused the third mass bleaching of the 2,300-kilometre reef system in just five years. The damage came as February brought the highest monthly sea temperatures on the Great Barrier Reef since Australia began keeping records in 1900.

    https://phys.org/news/2020-04-great-barrier-reef-worst-ever-coral.html

    1. Don’t worry Doug, coldest April morning in Europe for a decade. A lot of crop losses:
       https://electroverse.net/se-europe-coldest-april-morning-in-a-decade/

    2. I don’t come here for endless climate opinions. If I wanted that, I could turn on just about any MSM newscast. Time to move on…

       1. What happens to coral reefs is even less interesting.

          1. Yeah – fuck those things. What are they anyway, all the way at the bottom of the food chain??

             1. brine shrimp – now there’s something I could do without. BOOOORING!

18. Sure, ‘…. the virus crisis will strengthen and accelerate the imperative to transition to a low-carbon world…’

    Put pray do tell how that enlightened change of behavior will come about, given that every political leader in power in the planet (bar an exceptional few) is bought and paid for by oligarchs with deep pockets and solid vested interests in keeping businesses as usual’ going at all costs?

    Who will have the intestinal fortitude to turn the ship around before it falls off the edge of the Earth?

19. Anonymous investors from Saudi Arabia has bought loads of shares in Equinor the last 1-2 weeks. Have any of you seen similiar patterns of purchases in other western oil companies?

    1. Such stories are always amusing.

       Who were the anonymous investors who sold those shares?

       1. Watcher,
          I don’t have any reason to question this. Stocks for roughly $300 Millions in total were bought through JP Morgan Chase in several rounds. The news were provided in 3 different Norwegian financial netbased newspapers, all serious.
          I have no idea who the sellers were – it could be anyone.

          https://www.offshorecompanycorp.com/faq/what-is-a-nominee-shareholder

          1. But that’s not the point.

             The point is stories like that are supposed to say there is big interest in buying.

             There can be no buying without someone selling. Big interest in that, too.

             1. I just wonder, could KSA try to start a price war and then buy cheap stocks in other oil companies, then reduce the oil production, wait for oil prices to increase and then sell stocks and make a fortune?

                1. They are actually buying shares in several oil companies:
                   https://oilprice.com/Energy/Energy-General/Saudi-Arabia-Is-Buying-Up-European-Oil-Majors.html

             2. There are a lot of reasons to sell; need money, balance a portfolio, see a better near term opportunity somewhere else. Not necessarily bearish to sell a stock.

20. Hi all,

    Could we keep the climate and other “non-oil” type comments (like covid19 stuff) under the oil shock and compartmental models post? Thanks.

    1. I think the title of the current “non-oil” post is a little confusing to some, as it starts with “oil shock”.

       1. Lol that’s funny and true.

       2. In the future, if there are two new posts and neither is entitled Open Thread …, assume the second of the two should be used for non-Petroleum comments, or read the comments where I say, use this thread for non-petrol comments.

21. Maybe this will help to get the discussion back on track. The STEO was updated today and as I noted in the original post, we should expect significant changes in the April report and I was not disappointed. The chart says it all.

    Production in April 2020 will drop to 1189 kb/d from 1221 kb/d in March. By October 2020 the EIA expects output to be down to 1,048 kb/d, a drop of 1,730 kb/d.

    Maybe the RRC will not have to impose production limits. By the end of October, they expect the price of WTI to be 23.99. Accurate to the penny.

    

    1. Typo in chart

       March 2020 production should be 1,221 kb.

       1. Ovi, thanks for sharing.
          Could it be that the misprint devil is playing tricks on you today?

          Like Mar-20 is 12,21 Mbo/d and Oct-20 should be 10,48 Mbo/d?

          I wonder how EIA arrived at their numbers. Does EIA’s estimate include production shut-in due to “no takers”?

          1. Rune, sorry for the confusion.

             In the middle of trying to post the correction, I was interrupted by a long distance phone call and hit send before rereading.

             I live in Canada and we use ” , ” to break up numbers in thousands.
             So I really meant 1,221 kb/d and 1,048 kb/d. I now realize that the scale on the chart is in M bbls, which only adds to the confusion. I have been working too much on Corona spread in our province and I now think it is time to take a break.

             Need to learn to slow down a bit.

             1. Should it be 12,210 kb/d (12,21Mb/d) and 10,480 kb/d?
                In Europe I normally use a space like 12 210 kb/d
                (Those misprints devils are cunning.)

                Yes, “hurry up and wait” often does the trick.

          2. Rune

             I know nothing about the EIA process. I just post their data and let the more knowledgeable US participants comment. In general I would say many of the comments are skeptical of the process. However for this month I would say the trend is right, down. Whether the bottom will be October is another question. If I remember, I will make a note of it in the November post.

             1. Ovi,

                If tight oil well completion rate falls to zero and remains at zero from April 2020 to May 2021, a projection model by Enno Peters suggests tight oil output falls by about 4 Mb/d, Shallow sand expects a lot of conventional oil output may be shut in, if we assume conventional and offshore also fall to half of current output we might see 6.1 Mb/d for lower 48 US output by May 2021. The STEO might be right through October 2020, but unless we see a dramatic rise in the price of oil from Oct 2020 to May 2021 (say fro $24/bo to $50/bo), I am not sure output will follow the STEO after Oct 2020. Of course we do not know where the economy or oi prices will be in Oct 2020 so prediction depends on assumptions.

                Enno’s projection page at link below, only available for 2 weeks or so for free, after that part of paid analytics service.

                https://shaleprofile.com/us-tight-oil-gas-projection/

                click on instruction at left change lead time to 0 months and rig count to -1000 for zero completion rate starting in April 2020.

             2. Ovi, thanks.

                First of all, the situation now is unprecedented, with all the measures deployed to contain the COVID-19.
                To me, it appears everyone is throwing their best-informed guesses at it concerning how near term oil demand and production will be affected.

                Now it appears there is a consensus for a decline in world oil demand of 20% – 30% for the next few months, and those in the best positions expect that at the end of this year, there will be something close to normalization with regard to these COVID-19 measures.
                It should be expected that world oil consumption will exit 2020 at a lower level than at the start of 2020.

                To what extent are secondary (and tertiary) effects reflected in EIA’s forecasts; like how lower consumer demand (less financial ability [due to lower employment, affordability] and/or willingness to spend [hoarding/saving]) will affect the Chinese economy, and others say from now and the next two to three years. There will be behavior changes.

                There could also be a step down in production as consumption dives, and if there are no takers (primarily refineries and stocks filled to the brim), what then?

                As I understand it, there is a limit to the portion of LTO the US refineries in aggregate can take now. So simplistic explained if the refineries soon are to come down 30% from “normal” levels, will their feed of LTO also be down 30%?
                If so, the likely response will be to shut down some production.

                The reason I asked (the EIA question) is that if a comprehensive system analysis approach is taken to this, there is an array of (very) unpleasant outcomes. This approach also looks at how curtailed and lower-priced oil affects the companies’ abilities to service debts and what solutions that present.

                Deferring debt service will impact the companies future abilities to drill and complete.

                At the other end, there are the institutional “starved for yield” investors into LTO and who planned for the income stream from their investments (money lent) to meet their obligations to say pensioners and/or insurance companies.

                1. 2.3 trillion dollars is a lot of money. Consumers will be able to buy gasoline.

                   It has occurred to me that the word stimulus is inappropriately applied to the trillions about the flow. The law’s phrasing says loans to business can convert into grants if the business spends 75% of the money on payroll. Excluding the companies with rents and raw material costs in excess of 25% of the grant, companies still will be faced with the reality that this money coming in must be spent on employment. This will do nothing to restore sales. It will do nothing to develop new products requiring hardware.

                   It’s going to keep food bought, and it’s going to keep rents paid. It’s not going to grow earnings and it’s not even going to grow food purchases above what they were in December.

                   It is precisely the sort of government injection that can pay for activity, even when the activity is pointless. It’s not stimulus. It’s charity. And charity can pay for gasoline.

22. Dennis

    What does your model say if there are no more completions after April.

    Interesting clip from Reuters. I was thinking that today’s STEO might form part of the US response.

    “However, the U.S. Department of Energy noted in a Tuesday statement that U.S. output is already falling without government action, in line with the White House’s insistence that it would not intervene in the private markets. That decline, however, would take place slowly, over the course of the next two years.”

    https://uk.reuters.com/article/us-global-oil-opec-cuts/u-s-pushes-back-on-call-by-opec-to-join-big-oil-output-cuts-idUKKBN21P1YM

    1. Absolutely consistent with what you would expect from an American attempt to not participate in reduction while claiming to.

       Russia will rightly laugh. Probably KSA, too.

       It’s a good maneuver from the Administration. It will make the eventual refusal by KSA and Russia to sign on look like it is somehow they who are evil and creating a threat to national security, which would be the eventual card to play to get subsidy without having to debate green stuff equivalence. A green claim of national security won’t win votes, even in the House. Something like “It’s beyond national security! It’s global security!” Not going to win votes. The rest of the globe can fund that. National security is just US funding.

    2. Ovi,

       The deal is already happened last week. What this response in your Reuters paragraph means is pragmatic compromise between US & Russia. US cutting production over the 2-year period or the most distressed Shale operators going bankrupt (Trump: Free Markets Will Determine U.S. Oil Production) over the 2-year period is basically the same thing.

       And that is what U.S. Department of Energy is telling everyone between the lines in that article with this sentence: “That decline, however, would take place slowly, over the course of the next two years.”

       It is either slowly, over the 2-year period, or the United States cuts production in the most uncontrolled manner down the road due to obvious economic depression unfolding in a front of our very own eyes.
       So, the Shale part of the deal is right there. On Thursday & Friday, or maybe very soon after, we will find out what is the deal for the rest of world oil producers.

    3. Ovi,

       Here is a tight oil model that assumes no tight oil completions from May 2020 to Dec 2021. Note that I do not model potential shut down of low output tight oil wells in this model, though preliminary analysis suggests that this effect would be relatively small (affecting mostly tight oil wells with less than 25 b/d of output which is a small proportion, about 5%, of total tight oil output). If this affect was added output would be lower, but it is difficult to model as I use average production profiles rather than the entire productivity distribution, so the model is likely inaccurate. This might be balanced by the expectation that tight oil completions are unlikely to drop to zero.

       

       1. Ovi,

          Enno’s model gives similar results to my model for similar assumptions, see chart below and note the vertical scale is different from my chart (which does not have a zero vertical scale). Enno’s model has output at 3388 kb/d in Dec 2022, my model has 3736 kb/d. The difference is that my model assumes a gradual increase in tight oil completions starting in Feb 2021. In Feb 2021 (where two models have similar assumptions) Enno has 4632 kb/d and my model has 4590 kb/d, so quite close.

          Projection from shaleprofile assuming no completions from April 2020 to Dec 2021 using https://shaleprofile.com/us-tight-oil-gas-projection/

          Chart is US tight oil output scenario

          

       2. Dennis

          Great work. Down 50% December 2021. Interesting that you are showing a drop of roughly 600 kb/d in April. Close to what I have posted below for today’s EIA weekly info.

          1. Ovi,

             Thanks.

          2. Ovi,

             The STEO has US output falling by 1710 kb/d from Dec 2019 to Dec 2021 for US L48 C+C excluding GOM, my tight oil scenario has US tight oil output falling by 4200 kb/d over the same period, in addition if we assume all stripper wells get shut in for this period (wells producing 15 bo/d or less), that adds another 700 kb/d of decreased output, so the total decrease for L48 C+C excluding GOM would be about 4900 kb/d, about 2.87 times the decrease in output in the April 7, 2020 STEO report.

             My scenario has US output falling by 38% from Dec 2019 to Dec 2021 from 12800 kb/d in Dec 2019 to 7900 kb/d in Dec 2021. I used the stripper well output in the US in 2018 to estimate 2019 stripper well output and assumed it dropped a bit (it was 725 kb/d on average in 2018, I assumed it dropped to about 700 kb/d in 2019, there is no data for 2019 at present). If we assume a 6% terminal decline rate for the average stripper well in 2019, and also assume no new wells became stripper wells (not likely in fact), then 725 times 0.94 is equal to 680 kb/d, the extra 20 kb/d could easily come from wells in 2018 that were just above 15 bo/d average output falling into the stripper well category in 2019, also 6% may be too high an average decline rate assumption for stripper wells. Shallow sand or Mr. Shellman could correct me with a better estimate.
             A 3.5% average decline rate for stripper wells would give us a 700 kb/d output for 2019 stripper wells in the US (from 725 kbo/d in 2018).

    4. Ovi,

       Also here is a projection using Enno Peters excellent tool, completions gradually drop to about 50 by Dec 2021 and then gradually recover (a decrease in rig count by 10% per month and then a gradual increase at 4.5% per month), I also assume average well productivity falls by 1% per month from Jan 2022 to Dec 2029 (end of scenario). Note that if one lets the completion rate fall to zero in Enno’s supply projection tool, then a recovery cannot be modelled, so one cannot do a scenario with zero rigs and then show a recovery.

       Enno’s work is simply amazing!

       https://shaleprofile.com/us-tight-oil-gas-projection/

       Chart below is for US tight oil and is produced using the shaleprofile.com link above.

       

       1. This is kind of interesting. Back in the day, 2030 is around the time when most of us thought we would finally get around to start using this garbage like shale and sand.

       2. If that chart is close to true, then we have just passed global peak.

          1. Hickory,

             It depends in part on the speed of recovery in oil demand, peak may end up being 2018 as Ron has predicted. If supply is short and oil prices rise to $100/bo or more in 2020$ we could see a peak in 2025 to 2030. Much depends on the price of oil which in turn depends on economic activity which determines (in part) the demand for oil (technological innovation might also reduce demand for oil as oil prices rise).

             Like most things the answer is not straightforward, if we have a prolonged depression you may well be correct. That assumption (long term depression for 5 to 10 years) may not be a good one, difficult to predict in my opinion.

       3. Comparison Enno projection with no tight oil completions from May 2020 to Jan 2021, with a similar model by me (difference is my model has gradual decrease in completions from Dec 2019 to March 2020 and then a drop to zero from April 2020 to Jan 2021).

          Enno Peter’s chart first below

          

       4. My model below to compare with Enno Peter’s projection with somewhat similar assumptions.

          

          1. Model above has 12876 tight oil wells completed in 2019 and 2467 tight oil wells completed in the first 4 months of 2020 and no tight oil wells completed from May 2020 to Jan 2021. So 2467 total tight oil wells completed in 2020.

             Another point is that my model has tight oil output decreasing from 8 Mb/d in Dec 2019 to about 5.3 Mb/d in Oct 2020, a drop of about 2.7 Mb/d. The March STEO has US L48 output falling from 12.3 Mb/d in Dec 2019 to 10.5 Mb/d in Oct 2020, or about 1.8 Mb/d, they may be expecting tight oil completions to start recovering by June or July 2020. If we look at the current STEO oil price predictions, they have WTI at $20/bo in June 2020 and oil price rises to $31/bo by Dec 2021.

             If those oil price estimates prove to be accurate, my guess is that oil output will fall by at least 2.7 Mb/d for lower 48 output and perhaps more as stripper wells may be shut down as well, which could lead to another 1 Mb/d in output decrease, so perhaps about 3.7 Mb/d for the decrease in L48 C C output, so about 8.6 Mb/d in October 2019, and continuing to drop beyond that, especially with the WTI prediction of only $43.50/bo from August 2021 to December 2021.

    5. Ovi,

       I updated my tight oil model to reflect the STEO April oil price estimates and combined those with AEO 2020 reference oil price scenario estimate in Dec 2025 drawing straight line between Dec 2021 STEO and AEO 2020 Dec 2025 estimate (Dec 2025 found by interpolating between 2025 and 2026 AEO reference oil price). The change in the oil price estimate changes the tight oil model estimate (where the future price of oil is an input to the model to determine profitability of new wells).

       The new tight oil model through Dec 2021 is below, quite different from the shape of the STEO model. Tight oil output drops by about 4350 kb/d from Dec 2019 to Dec 2021 for the model using STEO oil prices and a linear increase in oil prices to the Dec 2025 AEO reference oil price (about $64/bo in 2019$ for Brent).

       

23. A very interesting article:

    Oil – The Shale Treadmill Is Going To Be A Thing Of Beauty

    Summary

    Everyone will now see just how vulnerable US shale is going to be.

    US shale growth is akin to a manual treadmill. While it is easier to increase speed initially, it is harder to maintain the speed in place.

    The moment the growth stops, the decline curve is dramatic and we are already seeing it in April production data.

    And this time is different than 2016 when a flood of private equity capital was ready to be injected into the Permian. There is no “steroid” capital today.

    For reference, we have said before that 2021 balances at the start of the year used ~13.4 mb/d for US oil production. Any number below this by the end of this year will be the equivalent market deficit going into 2021+. The larger the number, the higher oil prices have to be to incentivize production and destroy oil demand.

    

    1. I see they exspect drilling productivity to decline, as I remember the CEO of Chevron sees an almost unlimited possibility to cut cost and increase productivity in their fields. I looking forward with great interests to see Q2 filings . Think both Chevron and Exxon will need to sell assets , loan money for dividend. Guyana can never balance the losses Exxon now faces in Permian. The higher you fly the deeper you falls…

24. Keystone XL moves on…
    https://www.theguardian.com/commentisfree/2020/apr/05/climate-crisis-villains-oil-industry-big-banks-pipelines?CMP=share_btn_link

    Kinda strange to be building a pipeline between a well that is shut in and a tank that is full. (Shakes head).

    1. They have been trying for ten years to make this connection. No luck and it will be a while before that connection is made, if construction can continue.

       On April 16, some groups will be asking a court in Montana to stop construction on the line. It is not clear why they have started to mobilize before the judge makes a decision. Could this early start irritate the judge. Sounds risky.

25. Here is today’s EIA weekly production numbers. The drop is 600 kb/d from last week and down 700 kb/d from two weeks ago. Not sure how big a guess this is but it will sure help convince OPEC + and Russia + that US is on board and ahead of the crowd.

    Another week like this and US can claim they have met their 10% cut target.

    

    1. Ovi,

       Note that weekly data never gets revised the way the monthly data does. The big drop is just a correction to bring the weekly data in line with STEO estimate, the steo is a model projection based on past output and their future oil price scenario, they may also base it in part on DPR.

       Bottom line, output may not have dropped by 600 or 700 kb/d that is a statistical artifact, US output was about 12.4 to 12.6 Mb/d last week and may have dropped 300 kb/d in the most recent week.

       Basically the weekly data is BS, the stock data may be a bit useful, but it is often far from the mark.

       1. Dennis

          I understand that the info is not revised.

          Looking at the chart above, the August to December numbers are not BS. They are very close. Clearly January is off the mark. So my question is: “How come August to December were so close and then January was off? Can it be lucky guessing on the part of the EIA or will EIA’s January number be revised up. We will have to wait till the end of the month to see what happens to the January number.

          Regardless, I think our participants should be made aware of the data published by the EIA. Not fully understanding their process, I am not sure what caveats to attach to the chart, except for revisions. Let’s see if the output drops again next week since that LTO high decline rate never stops during the first year.

          1. Ovi,

             The weekly output numbers are based on steo, if that report is accurate in it’s forecast the weekly numbers will match the monthly estimates. The steo has been revised significantly over the Dec 2019 to April 2019 period. I agree that Jan will likey be revised lower by about 100 kb/d eventually. I also agree output will continue to fall perhaps by 2700 kb/d to 3700 kb/d over the next 10 months (Feb to Oct 2020).

             1. Ovi,

                The basic point is that it is unlikely that the 600 kb/d drop in output shown by the weekly data is correct, from time to time (essentially at random) the EIA readjusts their weekly numbers to line up with the STEO forecast, that gets adjusted based on how far off it has been in the past, compared to the more accurate monthly data and current economic conditions.

                For discussion of petroleum estimates in weekly petroleum status report see page 38 of document linked below

                https://www.eia.gov/petroleum/supply/weekly/pdf/wpsrall.pdf

                If you don’t feel like looking at the link, for US L48 crude output, the relevant section is:

                EIA estimates weekly domestic crude oil production using a
                combination of short-term forecasts and the latest available production
                estimates from Alaska. The four data elements contributing to the
                estimate are:
                • the most recent Short-Term Energy Outlook (STEO)
                model estimate (including interim estimates) for average
                daily production for the lower 48 States and the Federal
                Gulf of Mexico (GOM) (STEO Table 4a:
                https://www.eia.gov/outlooks/steo/data/browser/#/?v=9

                Only the first of the 4 elements (in bullet point above) affects the L48 crude output weekly estimate, the other three data elements are used to estimate Alaskan output (north slope crude, north slope NGL, and south alaska crude estimates are combined to estimate alaskan oil output).

                Looking at STEO and assuming it is accurate (I believe it underestimates the degree that US output will fall, by a factor of 2 to 3), we would expect about a 100 kb/d decrease each week in L48 excluding GOM C C output over the April 1 to June 15 period.

                1. Dennis.

                   I agree the EIA weeklies are very inaccurate.

                   I also think that the actual number could be close, because the previous weeks were too high. From your above post, you may agree with this.

                   At $20 WTI, and with many producers getting curtailment notices from pipelines, US production is dropping sharply.

                   We unfortunately will not have accurate data for months, but my prediction is the drop will be steep.

                   We are now running at 70% of normal volumes and that will continue to drop as we are only repairing failures that must be.

                   This is going on all over the US lower 48.

                   I have a friend who makes his living with a workover rig he owns. He has pulled one well since March 20. He has zero wells lined up this week. Over a four week period he normally pulls 15-20 wells, almost one a day. That dropped to one. He also operates four leases which produce about 10 barrels a day. He shut them all down two weeks ago.

                   The other company we rely on is larger. Run 3 rigs. Two are stacked. Only the owner and his son are still working, and they are pulling 1-2 wells a week.

                   The forecasts we are seeing are WTI $15-25 though the third quarter. If that is correct, I think by the end of Q3 US will be producing maybe 9 million. Maybe 8.

                2. Thanks shallow sand. I agree the output for recent weekly output might be roughly right, it is the weekly change (600 kb/d in a week, which bring the US to zero output in 20 weeks if it continued) which seems inaccurate to me.

                   I also agree output of 8 to 9 Mb/d by the end of September sounds reasonable, if the April 7, 2020 STEO oil price forecast is correct (and that is never the case) we could see tight oil output fall by 4350 kb/d from Dec 2019 to Dec 2021 (assumes zero new tight oil well completions from May 2020 to June 2021 with a slow recovery over the lat half of 2021 (from zero wells per month to about 70 tight oil wells per month completed by Dec 2021) In 2019 the average tight oil completion rate was about 1073 tight oil wells completed per month in the US, for 2020 the average completion rate falls to 200 tight oil wells completed per month on average. From April 2021 to June 2021 the trailing 12 month average tight oil completion rate is zero in my scenario. In 2015, I overestimated the extent that the tight oil completion rate would decrease in response to low oil prices, this scenario may be making a similar overestimate.

                   In short, my tight oil scenario is a worst case scenario and actual output is likely to be higher than my model.

26. I am beginning to sense how the enormity of the stimulus appearing worldwide will be implemented without exposing too very much how money is being created from nothing. The money is going to flow from fiscal sources and it will appear to be debt, and it will be debt, but the lender will be the central banks. The Fed has begun a new QE program. Actually it has done so in two phases. The first phase was prior to March 23rd and it was defined to be $700 billion. On March 23rd they redefined it to be unlimited. I would repeat that word for amusement value, but why bother. You guys are still signed on to the concept of money having meaning. The amusement is that they would bother with the word at all. They never had any limits.

    There was fine print in the announcement. Much as was done in 2009, their QE will not be limited to US treasuries. They announced that they will also purchase mortgage-backed securities, but there’ll be a slight difference from 2009. They will purchase mortgages, but they explicitly say they will purchase both residential and commercial mortgages. Note that they are doing this before the banks have smashed their capitalization ratios. It is entirely anticipatory.

    No reason why not. That’s what unlimited means.

    SS above said something about banks not being sure they’re going to truly be backstopped. There are fiscal impediments in the law that forbid money going to oil. That would be a very real reason for banks to doubt they will get reimbursed. The banks and the oil people need to talk to the Fed. The Fed does not have to care what Congress has to say. They need to be the backstop for oil and probably they’re so busy that nobody has realized that they need be the backstop for oil.

    Having the Texas Congressional delegation make a phone call to the White House might get the subsequent phone call to Jerome Powell. It is the right way to fund oil and be able to negotiate with OPEC Plus. This president has repeatedly shown a willingness to push the envelope on presidential powers in order to protect the well-being of the American economy, and this would be just another example of such. Someone mentioned above that GHW Bush once threatened tariffs on imported oil in order to protect the American oil sector. That would be precedent, for oil, though use of tariffs to protect the United States economy from Chinese pressures is now standard procedure for this Administration.

    1. “This president has repeatedly shown a willingness to push the envelope on presidential powers in order to protect the well-being of [his voting base]”

       1. Well, of course. That’s what all presidents do.

          But we have this morning a new clarity on UNLIMITED for the Fed. Powell just announced the Fed will buy corporate bonds as well as US Ts and mortgages residential and commercial. ANDDDDDD those corporates no longer need be investment grade. They will now buy junk bonds.

          “The issuer was rated at least BBB-/Baa3 as of March 22, 2020, by a major nationally recognized statistical rating organization (“NRSRO”). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of March 22, 2020.

          An issuer that was rated at least BBB-/Baa3 as of March 22, 2020, but was subsequently downgraded, must be rated at least BB-/Ba3 as of the date on which the Facility makes a purchase. If rated by multiple major NRSROs, such an issuer must be rated at least BB-/Ba3 by two or more NRSROs at the time the Facility makes a purchase.”

          SS, this has shale oil written all over it. Or other oil. You guys need to caucus and figure out how to get your hands into the cookie jar.

          haha you guys thought there were free markets. hahaha

          1. Donald printing more money , lots of money buy depth and the oil crize is solved…

27. This is not funny and won’t help a bit … DIRE STRAITS – Money For Nothing (vinyl)
    https://www.youtube.com/watch?v=RzZyyEZ011I

28. U.S. Total Petroleum Products Supplied (APR 3rd) already down 7 mbd.

    However, over the next 2-4 weeks, likely drop to 9+ mbd lower.

    Gasoline, Diesel and Jet Fuel down almost 6 mbd.

    steve

    

    1. What level are you expecting?

       1. Dennis,

          I believe it is highly likely that we will see total product supplied reach 12+ mbd, maybe even lower.

          steve

          1. If you are right, and it lasts over two months, we are talking about a greater depression-level event.

          2. I doubt it will fall much further than 14 Mbpd. That is a 30% drop, 40% seems unlikely, we will soon see.

             1. I am with SRSrocco on this one. This was for the week ending on April 3rd. The day when 2 large economies Florida and Georgia issued statewide stay at home orders.
                1. That will further depress the 5 MBPD gasoline demand which itself is down from 9.6 MBPD from 3 weeks back. There is no reason why it wont fall another 0.5 MBPD.
                2. Airline passenger traffic is down 95% but jet fuel consumption is down less than 50% mainly for flying cargo. They cant continue longer without passengers returning. Expect another 0.3 to 0.4 MBPD destruction there
                3. Diesel consumption has surprisingly held up well without any fall. I guess it has something to do with the whole country prepping. Demand for goods and hence diesel consumption have held on. That will start to fall off as the country hunkers down. I expect atleast 1.5 MBPD demand destruction in that column.
                4. Propane and other oil should fall by another 1.5 MBPD.

                All said and done, I dont see why the supplied products would be more than 11-12 MBPD next week or the week after.

                1. The numbers for the week ending 10th April is in. It’s at 13.7 million BPD. Down 700000 BPD from last week but well above the 11 to 12 million BPD I expected.
                   Gasoline has held steady at 5 million, whereas jet fuel is down around 0.3 million down from last week. Diesel is down 1 million. However residual oil is up 11 times from 55000 to 608000 BPD. Other oils is also up slightly.

                   Maybe 13 million BPD give or take 500000 BPD will be the bottom which may last for a few weeks before consumption starts creeping up.

                2. T Shyam,

                   Thanks for the info. Your current prediction sound reasonable to me, mine might be 13500 kb/d+/-500 kb/d, so very much in line with your thinking. I agree we might see this level for perhaps 6 weeks with a slow recovery starting in early June.

    2. Steve, I hope you are doing well.

       I am not prepared to take the other side of your bet. I am more focused on secondary and tertiary effects from this slow down (this is a non-linear event with no precedent).
       Like what is the rationale to continue to build gasoline stocks (think refinery runs) as demand plummets?

       I now find it probable that demand from refineries and access to storage could cause curtailments involuntarily at the wellheads (a step down in supplies).
       A step down in supplies (production) is what the EIA most recent numbers suggest as a decline in production of 600 kbo/d week over week is more than should be expected from the natural decline, and there is still some drilling and completion going on.

       From here, it gets interesting concerning the dynamics of financial statements: balance sheets, P&L statements, and cash flows ==> future activity.
       The results from lower prices and flows make me now suspect that what soon may look like a liquidity problem for some companies, in reality, is a solvency problem.

       1. Rune.

          It sure is a solvency problem.

          EOG has to pull a bond issuance due to lack of interest.

          At $20 WTI and $1.75 HH, I suspect PV10 for PDP is minimal and PV10 for PUD is less than zero.

          They all have debt to PV10 over 100% at $20 WTI and $1.75 HH.

          Think about what CLR just announced. Shutting in 30% of PDP.

          Think about all of the “fracking holidays” being announced. PDP is falling off a cliff while debt is growing.

          Williston light sweet should go to near zero in May.

          We are being told our basis to WTI is going to be destroyed in May. We have been floating around $4 below WTI for the past few years. Our basin is closer to major pipelines and large refineries than the Bakken. Our Basin hasn’t outgrown takeaway capacity. So if we lose $5+ off our basis, where does that put the Williston Basin?

          I have read certain areas of the Permian have seen $6-8 per barrel well head already.

          There is going to be a massive shutting in of wells in Q2 one has to think. I don’t know how quickly those come back, as it doesn’t look good for calendar 2020.

          1. Shallow, thanks for your response,

             Yes, I agree it is a solvency problem (and is for many other companies now), and this is the thing about financials, it is virtual. One has to dig deep into financial statements to understand what is going on, and the financial statements give reasonable indications about economic probabilities to future CAPEX.

             When a company shuts down 30% of their PDP, that is a telling sign. Is this the portion that is not hedged?

             One of the things I have been pondering is how long those on the other end of these hedges can take it. (Remember that when these hedges were entered into months ago, ….no one expected the Spanish Inquisition! ?)
             We are experiencing an unprecedented event, and no one saw it coming.

             In my neck of the woods and according to Reuters the cuts agreed upon for OPEC plus are,
             10 Mbo/d for May-20 – Jun 20.
             8 Mbo/d for Jul-20 – Dec-20
             6 Mbo/d for Jan-21 – Apr -22 (I hope I that he media outlet that put out the Apr-22 date got it right because that reflects a (very) slow build-up in the global economy.)
             OPEC plus now expects about 5 Mbo/d in curtailments from (other) G-20 countries.

             Before all of this (like in Jan-20), estimates for global spare capacities were in the range of 4 – 6 Mbo/d (Libya, Iran, Venezuela, and remaining of OPEC plus ), all dependent on what time frame that was applied.
             And why all this focus on Mexico that presently is a marginal net exporter of oil?

          2. I keep looking for ways shale and oil in general can get bailed out, despite no targeted billions in the Big Package.

             Here’s an idea. There is talk of subsidy for state and local governments. There was some of that in the bill already passed and it’s being pushed for the supplemental upcoming. Well, Texas state revenue is very much oil derived and will be smashed.

             You guys have got to wrap your minds around the new reality, which has nothing to do with capitalism. Time to contact the governor and get a piece of that pie.

             1. There is a simple reason that Shale should not be bailed out:
                Moral Hazard.
                The banks should have known better. If we can see it, for free, the fucking suit in the corner office should have seen it, too.

                1. Let’s remember it’s not banks that were lending. Companies floated bonds that were evaluated (eventually) to be less than investment-grade and thus migrated to HYG and JNK high yield bond ETFs.

                   You know, the ones that the Fed just announced it can buy.

                2. absolutely oil is getting bailed – here is a list.

                   https://www.zerohedge.com/markets/here-are-all-etfs-will-be-bought-federal-reserve

             2. First Mr. President wanted cheap oil, it was to exspensive he treatend to sue the Opec cartel. Now he get Cheap oil 25 usd WTI and still he seems not to be happy. Now SUDDENLY he seems worried for the oil and gaz industry and want to buy depth. Do he know how much depth he need to buy, even the Goverment buy all will it be profittable? Guess many payes only interest , ballons have been carried forward. Interest there I guess is very low now…. how much can Mr. President do , will it help? He promised helicopter money , guess it is some help , but is it enough or comes to late. What comes next, I am sure he have some plans how he will save US shale…..

             3. Still not sure why in a ‘free market’ economy you would bail out an industry that has lost money for the past 6 years. Isn’t that just throwing good money after bad? Bail it out so it can return to its previous money losing ways? Will a bailout cure overproduction?

       2. Rune,

          Great to hear from you. I also hope you are doing alright.

          I decided back at the end of 2006, to sell my business in Atlanta and move to a small farm-ranching community as I knew the financial collapse was on its way. However, I did not expect the U.S. Shale Oil Ponzi Scheme (yeah, I know Art Berman hates that term) to grow to the level that it did. So, I got that wrong in spades.

          Regardless, I feel the same way currently as I did back in early 2007. But, this time is indeed different. This time around we won’t have the energy to pull us out of the massive debt-derivatives-Ponzi scheme economics as we did in 2008.

          As I have stated several times, the U.S. shale oil industry has accounted for roughly 75% of global oil production growth since 2008. U.S. oil production growth is 5 times more than Saudi Arabia… so why the focus on Saudi Arabia to cut??

          Without oil production growth, the world can’t have GDP growth. They go hand-in-hand. So, with 30% of oil demand now offline, and likely to not recover more than to 85-90 mbd, most financial assets, such as U.S. Treasuries, Bonds, Money Market Accounts, Pension Plans, 401Ks, and etc come under severe stress, because the growing oil supply was acting like the NEW INVESTORS needed for a PONZI SCHEME to continue.

          Thus, without oil production growth, most of these financial assets DON’T WORK ALL THAT WELL. Which is why the Federal Reserve is now buying JUNK BONDS and JUNK ETFs to go along with their monthly Treasury and MBS purchases.

          Rune… I totally agree with you in regards to the secondary and tertiary events taking place that are seemingly HIDDEN from the market.

          For example, Corn Ethanol production in the United States has also fallen off a cliff to 672,000 bd, the worst weekly amount going back until 2010, the furthest back the EIA’s provides the data. So, this has to be destroying farmers, corn ethanol producers and etc left and right. Again, a secondary response….

          Then how about all the companies that produce petroleum products like PAINT, PLASTICS for the AUTO INDUSTRY and etc, which demand for these products has fallen off a Cliff. So, we just haven’t lost LIQUID FUEL CONSUMPTION in the United States, we have also lost a large percentage of demand for petroleum-based products.

          Rune, I was also thinking about the huge supply chain disruptions tied to the Restaurant Industry. I have heard estimates that 20 % of U.S. Food Intake are in restaurants and Fast Food. Can you imagine the huge supply chain disruptions taking place all the way down the chain to the farmers-ranchers who were providing food-stuffs for the restaurant industry???

          I hear that out west, a lot of Meat Packing Plants are shutting down due to COVID-19 and a collapse in demand. So, the BEFF CATTLE are not being sent to the market to be processed for food in the Restaurant Industry as before.

          Lastly, if we look at the U.S. Oil Market from Upstream to Downstream and Chemical… there is a lot of supply disruptions taking place that are seemingly hidden from the market.

          What about DEMAND FOR CANADIAN OIL SANDS??? We use alot of that crap to blend with Shale Light Tight Oil. Well, if shale oil production falls by at least 2 mbd over the next 2-3 months, then why would we need to import the same amount of Canadian Oil Sands???

          Again… the secondary and tertiary problems just BOGGLE THE MIND when you start to think about them, especially in the U.S. Shale Oil Industry Finance-Debt Boondoggle.

          steve

          1. Steve,

             Most of that 2 Mb/d of tight oil is exported, if those exports fall to zero, then the need for Canadian oil sands imported to the US would be unchanged. Some Canadian extra heavy crude might be displaced by cheap Saudi heavy oil that is looking for a market.

             I would think the drop in restaurant sales would result in an increase in food purchased at grocery stores, as people still need to eat. Agree that supply disruptions are likely as the supply chain tries to adjust, it will be imperfect, but a market system is likely to be more efficient than a state directed system.

29. https://www.zerohedge.com/energy/oil-surges-after-saudis-russia-said-reach-production-cut-deal-oil-cuts-large-20mmbd

    There we go. An utterly useless ‘cut’ of 8.5 mbd compared with current demand destruction of millions of barrels mire than that. Price rebounded 10% on the news but then intelligence kicked in and it went negative for the day.

    Useless posturing in the face of full tanks and pipelines. Well be interesting to look back on this in a few months.

30. Oil Prices Tank Despite 10 Million Barrel Per Day Production Cut

    OPEC++ may have reached today a commitment to cut 10 million bpd of oil production in both May and June, but oil prices reacted poorly to the largest production cut in OPEC’s history, as it had hoped for a larger cut.

    1. The OPEC++ cuts are not only insufficient, they are essentially misguided.
       Without a group managing oil supplies on a continuous basis- on a global level- we are going to see bankruptcies on the one hand, and eventually, shortages on the other. The correct mix of oil grades in the correct volumes will be required: since we don’t know what those levels will be, it will require ongoing co-ordination. The market won’t do it, because it can’t do it- the situation is too fluid. A global quota system with target prices, and the US as a signatory, is the only thing that will allow industrial civilization to survive (if only for just a little longer).

       We may be facing months of 30% to 50% demand destruction, an ongoing health crisis, and a global depression. A healthy, or even not dead oil industry would help limit the damage of the other two.

       1. 30%, perhaps. 50% global demand destruction for petroleum liquids is not very likely for more than 1 month.

    2. Cut hasn’t happened. Might not happen. No agreement so far. Hard to see how there can be one without a US production slash of more than 5 mbpd.

       1. Watcher. The media is blaming Mexico. The remaining OPEC+ is blaming Mexico.

          I don’t see why Mexico should be required to cut much. They are the only state owned producer that hedges its oil in advance. 2020 oil was hedged at $49 per barrel.

          Mexico offered a 100,000 BOPD cut. I assume that volume is not hedged.

          The others want Mexico to cut 400,000 BOPD, which seems like a lot given that they are hedges and given how much production Mexico has these days.

          I agree with Mexico. The hedging worked this year. Some years it doesn’t. Why should they have to cut?

          1. The actual details of the proposed OPEC/RU cut are full of caveats, conditions, stipulations (removing RU sanctions) and limited time frames. It is meaningless and the markets are acknowledging that as this morning’s NYMEX WTI is down another $2.30. Mexico is being used as a scapegoat; they are a minimal exporter now. If somebody needs to be blamed, blame major and large independent shale oil producers in Texas who are adamantly opposed to any proration measures by the TRRC and whose 2020 guidance implies more LTO growth. Both KSA and RU said that America had to cut; they meant it.

             The KSA has been manipulating world oil markets for 50 years; they are very good at it. Yesterday they starved off stupid tariff talks, reducing US military presence in the ME, NOPEC legislation, harm to their PR and a host of other issues, including an outcome in November they want. They also gave a little more time to the shale oil industry to get deeper in debt, file more bankruptcies, deplete more of its reserves, harm public sentiment against it and further reduce the probability that capital will EVER return to it. They just helped the US shale oil industry continue to eat its own legs off. Clever bastards, the Saudis. They’ve had the Americans shale oil phenomena pegged from the get go.

             1. Mike,
                Yes, all these caveats, conditions, stipulations are just big smokescreen.
                US helping Mexico and taking up Mexico’s cuts??? That is sensational LOL
                But I don’t buy that either. This is also BS.
                I think behind the screen are discussions by major oil producers into shaping of new global cartel and including US.

                1. A bit of information what was actually talked at G-20 from Canada:
                   “Referring to curtailment figures, he said: “The exchange of numbers will come at some point, but it did not in this G20.”
                   The G20 call “was about finding the mechanisms to achieve price stability,” O’Regan told reporters in an earlier teleconference. “We’re not where we need to be yet.”

                   So basicly first priority is how to cartelize oil market in order to achieve price stability, how much everyone will produce will come later.
                   https://www.nytimes.com/reuters/2020/04/11/world/europe/11reuters-global-oil-canada.html

                2. Ves.

                   All the EIA has to do is knock a few hundred K off each weekly report like it did on the most recent one and, wa la, the US will have cut 3 million BOPD.

                   Wonder if they will mess the the monthly field reports too.

                   Heck, maybe it is accurate. Tons of wells shut in here.

                3. SS,
                   Everyone is shutting in. There is no doubt about it. I think you are correct at the 3m BOPD .I would say it could be even 4m BOPD.
                   The million $ question is when coronavirus pandemic has ebbed if demand comes back from its current 75 Mbpd to above 90 Mbpd? So, I think main discussion within G20 is to establish mechanisms to achieve price stability with such diverse costs of worldwide oil production.

                   Another thing is that will be discussed is what could be the next economic model . That current model of building highways and malls to nowhere is at dead end. A new economic model could be going in direction of automated manufacturing, high speed 5G data transfer, nanotechnology, AI computing and etc… So how much of oil demand would be there during that transition? That is unknown.

       2. Watcher,

          US C+C output is about 12.5 Mb/d, so 5 Mb/d is 40%. OPEC+ output is about 40 Mb/d, a 40% cut would be about 16 Mb/d, a cut of 40% for the World would be about 32 Mb/d.

          In short, your 5 Mb/d estimate is ridiculous.

          Note that by Dec 2021, we might see close to a 5 Mb/d drop in US output if all stripper wells (producing less than 15 bo/d) are shut in from May 2020 to Dec 2021 and no tight oil wells are completed from May 2020 to June 2021. My scenario is also likely ridiculous as it is not likely the underlying assumptions of the model would be met, it is a worst case scenario for what could happen to US output in a very low oil price environment (April 2020 STEO oil price forecast).

31. Reuters- Exclusive: U.S. banks prepare to seize energy assets as shale boom goes bust

    NEW YORK (Reuters) – Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters…

    https://www.reuters.com/article/us-usa-banks-energy-assets-exclusive/exclusive-u-s-banks-prepare-to-seize-energy-assets-as-shale-boom-goes-bust-idUSKCN21R3JI

    1. This means Chapter 7 and not Chapter 11.

       I wonder if they are planing on forcing any of the public shalecos into Chapter 7?

       The entities will have to obtain permits to operate and post bonds I presume, just like other operators are required to do.

       I would be surprised if the banks drill and complete wells, given how much more labor and management intensive that is as opposed operating PDP.

       I suspect if the banks run engineering at the strip, with the hammer that is coming to basis on May 1, they could call the lines on most all of shale and force it into Chapter 7.

       I don’t see that happening, however. I think the banks are setting this up to operate the assets of the smaller private companies that decide to “walk away” from everything.

       I can’t see shale management walking away since they aren’t personally on the hook for P & A. Shale management will want to keep jobs with bonuses and free stock in the newco.

       1. In the end (after a year or two) it will probably be a financial shuffle mechanism where they make money on a fire sale flip, or use it to a tax or federal credit advantage.

       2. I’ve been wondering about a mechanism for fold and restart, with debt expunged.

          It’s not the debt, and interest on the debt, that has driven this disaster. Erasing the debt doesn’t change the critical parameters for operation.

          We have in the past examined what level of production compels Plug and Abandon. Those calculations always had an incorrect price assumption because people did not want to consider lower prices as being possible. At this price level, already drilled and fracked wells must close down and start the P&A regulatory clock if their remaining production is almost any amount — because costs of hauling Bakken production water and paying the disposal fee did not decline with price.

          Obviously, the P&A regulation will be ignored, probably both in NoDak and Texas, because in a world where the Central Bank buys corporate bonds why should anyone pay attention to any capitalism centric regulation.

          The overall point is bankruptcy and restarting without debt doesn’t fly because already existing wells probably cannot produce at a profit.

          Survival requires bail out. Yes, that is a period. In fact, maybe that should be phrased differently. Maybe the word survival should be function. If you have to have oil you’re going to get it, but that does not require any sort of equity position on the part of anyone.

          Or maybe oil becomes a utility. A national utility with a regulated Public Service Commission that runs it. The owners will hate this and take it to court, where it can be bogged down a few decades. The workers won’t care as long as they get paid. The consumer won’t care as long as there are no lines at the gas station.

    2. If it happens in any way like the housing crises did – the banks will take over the fields and then immediately hire an “oil field service provider” who will then hire local contractors to tend the field at minimal cost to get maximum return on investment. No new drilling, no exploration, just run the field down until there’s nothing more to get. the oil service provider will be paid a flat fee per service, and contractors will get a small portion of that fee, maybe 25% to actually perform the work. Every job / repair / maintenance activity will require hundreds, if not thousands, of photos detailing the current condition, progress through the job, and job completed pictures. This will allow the banks and “service provider” ammunition to dispute any fees and keep the contractors starving and harried. That is – if it parallels the foreclosure crises in any way.

       1. Realistic scenario.

          The only caveat I could see would be the mineral rights owners and their royalty. That is codified in state law. The creditors you imagine foreclosing on company assets will still have to pay royalties and state oil taxes.

          No drilling for sure. But as noted, water disposal costs may make operating even fully completed wells non profitable, even for creditors with no debt.

          Staying enmeshed in thinking about money leads to failure. Society clearly wants the oil a lot more than it wants capitalism.

          1. as you’ve noted elsewhere they will probably float shale industry through continued bond purchases. money means nothing when you need the oil, as you’ve been so clear on from the beginning.

             in this alternate scenario of letting shale collapse and then picking up the pieces:
             During the housing crises aftermath until about 2012 it was not super clear where the money was coming from (TARP?, HUD?) but it definitely wasn’t profitable as a housing market. Hell, for the first couple years the banks not only didn’t know what they had or who owned it (i.e. who owned the mortgage security), they didn’t know on a day to day basis if the house was occupied, abandoned, squatted, trap house or what. The houses were probably distributed sight-unseen in tranches to various big banks, investment etc (CITI, GMAC, MIDLAND, Countrywide – Mnuchin). And then the money flowed – a lot of it.

             it was absurd – as one example we went from doing $50 grass cuts and $25 occupancy checkups to $1 million in contracting revenue in less than 3 years. but the key is that the banks had their Giant Taskmaster – Mortgage Field Servicer Safeguard. If that happens in the oil industry you will have consolidated control of the oil industry in the hands of a dozen major banks (at most), one GIANT service provider under them, and then absolutely no-ones with no authority actually getting the oil out. Mineral rights will probably stand, etc. But the shale companies themselves will be gone – all of them.

32. This is out of place, but it’s IMPORTANT.
    In times past, I have posted comments to the effect that I have friends in various uniforms who know the ropes, when it comes to major problems requiring serious fast action, such as mobilization. This does NOT mean these people are privy to, or disclosing classified information, or that they are even in MILITARY uniforms.
    Keep in mind that Washington reporters are really nice to kids who deliver pizza, and restaurant owners, in Washington, because large pizza orders in the off hours when no previously mentioned meetings are being held means something is up.
    In the old USSR, it was easy to know when the commies were thinking about a major exercise, or mobilization, because their handful of factories, maybe even just the ONE factory, that made truck batteries would go to double or triple time operations. This was easily observed via spy satellite, due to truck traffic, etc.

    Somebody I know have known well almost forever, locally, just confronted a home health nurse, about the fact that she is seeing a DIFFERENT nurse, and all too often a NEW nurse, one new to her , every visit. She was shocked that we were able to tell her, point blank, that the ONLY reason we can see for this, is that the hospital system they work for is having a HELL of a fucking TOUGH time maintaining staffing due to nurses being either sick or furloughed.

    Nurses aren’t NECESSARILY all that intelligent, or that good at playing poker. She broke down and admitted she has been told not to mention this under any circumstances.

    There’s only one reasonable conclusion to be drawn. The virus is loose and running wild in the local area, but a few weeks behind the curve in relation to the cities.We have only single digit local confirmed cases SO FAR, which means people tend to be complacent about it out in the country. The odds are that the same applies almost anywhere now in the USA, if not immediately, then within the next few weeks.

    Buckle up and button down.
    Something tells me that damned near every regular here is an OLD fart, like me.

    1. OFM,

       Use shock model post for non-Petroleum comments please.

    2. Well, you seem like an old fart with your writing. But sometimes old farts can be pretty observant. Nice post.

33. US frac spreads just hit 185.

    1. That’s down 30 in one week. Last week it was 215. This guy says it will hit 150 soon and explains why. He also explains why the OPEC+ cut of 10 mbd doesn’t mean diddly squat. Not a word about who’s cutting and from what point.

       Frac Spread Count brought to you by Primary Vision Network 4/09/2020 #2

       1. Ron

          It looks like a 23% cut.

          “OPEC+ documents showed the group plans to collectively cut by 10 million bpd in May to June. All members would reduce output by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd.”

          https://finance.yahoo.com/news/global-oil-output-cuts-held-085501625.html

          1. Fair enough Ovi, but from what level do they cut? What is the baseline from which Saudi cuts 2.5 mbd, and from what level does Iraq cut 1 mbd? Last months production? Not a chance as Saudi already had deep cuts and Iraq had none.

    2. Lightsout,

       If the STEO oil price forecast is correct frack spread count will keep decreasing at 30 to 50 per week, might be close to zero by May 31.

       1. Exactly Dennis

          From that position shale is never coming back to it’s previous peak. I think oil has pretty much seen peak production and peak demand, predicting what happens going forward is now in the realm of guesswork.

          1. If completion rate falls to zero then output falls by about 4 Mbpd by Dec 2021. There is no reason the completion rate won’t rise as economy recovers and oil prices rise. A reasonable model has tight oil output return to 8 Mbpd by 2027.

             1. There is no reason the completion rate won’t rise as economy recovers and oil prices rise.

                Well Dennis, that really sounds reasonable… however there is reason to believe this will not be the case. Shale oil production has lost billions of investors dollars over the last several years. But drillers saw no problem in losing “Other Peoples Money.” Will there be greater fools, willing to lose their money when, and if, the economy recovers?

                Then there are other problems. The economy will recover… somewhat. But it is unlikely it will ever recover to the level it was before the covid-19 hit. And as the economy recovers, very slowly, the cheap to produce oil will come back as prices rise, very slowly. But the very expensive to produce oil will likely never come back.

                But it could come back… decades in the future when the cheap stuff is in serious decline.

                I don’t have a crystal ball, I am unable to see the future. But I don’t believe you are taking this very serious hit to the economy serious enough.

                1. Dennis and Ron. Who wins the White House and Congress in 2020 will matter with regard to whether shale will come back and when.

                   Also, what shale basins will grow oil production? Maybe Permian?
                   Seems the Eagle Ford and Bakken don’t have the capability to add many barrels. Colorado, Wyoming or Oklahoma?

                   What are the various shale basin contributions to get to 8 million BOPD in 2027?

                2. What are the various shale basin contributions to get to 8 million BOPD in 2027?

                   It is my opinion, for whatever it’s worth, that the US will never again see 8 million bpd of shale oil. And the US will never again see 12 million barrels per day of C+C production.

                3. I agree Ron the period of time when the stars aligned for shale is gone forever.

                4. Lightsout.

                   I agree. I think after a few months of $15-30 WTI plus horrific basis, it is done. See my post about ND dropping 175,000 BOPD in one month. It and EFS likely fall below 1 million this year.

                   A new term is in many press releases, fracking holiday.

                   I also think it will take some time for demand to improve. It looks like the curve flatten is going to be long and drawn out, just like the initial graphics from around a month ago when the economy started being shut down.

                   The numbers of infected and dead are holding steady, looks like they will for weeks.

                   Urban life does not work well in a pandemic. But I am worried we are going to get hit with it here before long. Somehow have avoided community spread so far. The handful of positive tests have been those that traveled to urban areas before showing up here.

                   I recently drove on some two lane highways and a stretch of interstate to pick up something necessary. I had zero human contact. I wore a mask, gloves and used Clorox wipes when I had to get gas.

                   I was surprised at the traffic levels. A lot more everywhere than I expected. Still down, but not by much. Lots of semis.

                   But I know urban demand and passenger jet/cruise ship demand is near zero. It going to be terrible.

                5. shallow sand,

                   I revised my model and a more reasonable model (slower recovery in completion rate) has tight oil output returning to 8 Mb/d by 2032 rather than 2027. Model presented down thread. Note that their is a rumor that Biden will ban fracking, but he misspoke during a debate with Sanders. His plan is simply to ban fracking on Federal land (there is not a lot of that happening so not really a big effect). Biden’s plan is to reduce demand for oil with better CAFE standards and possibly a carbon tax (which will apply to coal, oil, and natural gas).

                   In short, if Biden wins, it won’t have a big effect on fracking in my opinion.

                   Most growth in tight oil will come from Permian basin, rest of US tight oil may return to about 3 Mb/d by 2025, Permian will reach about 6 Mb/d by 2032, but in mean time rest of US tight falls back to 2 Mb/d with US tight total at about 8 Mb/d.

                6. Ah yes . . . as the economy recovers. An event measured in a substance created from nothing. Oh, I know it’s hard to get any other measurement, but whenever that measurement is made — from the perspective of physics it would be wise to remember and recite the mantra that it’s all imaginary. Absolutely anything can happen when it’s all whimsy. Absolutely anything is equally probable, too.

                   Production recovery? You don’t have any decent measurements of that, either. Worshiping at the altar of primary and secondary sources has always been suspect. It can’t be ANYTHING other than suspect now. Those countries, and the US, too, will produce whatever the hell they want and claim something different if they think that will raise price. You think a deal is going to get announced? It absolutely will be announced. Its content will never be fully public. The fact no one signs it will also never be fully public. The fact no one is complying will also never be public. Why would anyone tell the truth if that doesn’t provide a desired outcome?

                   I’ll tell you what I have not heard. I haven’t heard of any announced Russian March gov’t subsidy to Rosneft or Lukoil or GAZPROMNeft. I haven’t heard a Chinese March PBOC or govt subsidy to Sinopec or PetroChina. None to Pemex. None to Statoil. We have certainly just this past week heard of ways the Fed could buy high yield bond ETFs concentrated in shale. So is there any doubt at all who has the inferior rock?

                   Russia is going to win. They have superior rock. They are and have been the very last people we should be sanctioning or turning into an enemy, because it will be their oil that feeds us someday, soon.

                7. ” the very last people we should be sanctioning or turning into an enemy, ”

                   So, you don’t mind them taking Ukraine? How about the Baltic states and Poland? How about our elections?
                   No thanks. I’d rather go electric than be cowered by Putin.

                8. Going electric is a twofer: it’s cheaper, safer, cleaner and more sustainable, and…we don’t need to import it from dictators.

                9. Taking Ukraine? Poland? The Baltics? When did that happen? And when did the US go to Iraq, Syria, Afghanistan?

                   The Iraqis have told US troops to leave. But the US troops refuse. In Syria, the US troops have taken Syrian oil.

                10. ‘Taking Ukraine? Poland? The Baltics?’
                    It happened in the 1940’s.
                    And Ukraine invasion/partial annexation happened again in the past ten years if you were paying attention.
                    And if Watcher had his way, no problem for Putin to further the expansion.

                11. Hickory , don’t muddy the waters . The Ukraine screw up is because of stupidity of Obama and the neocons in his administration led by Victoria Nuland . Remember the leaked call where she said ^F*** the EU ^ and went distributing cookies in the Maiden . She clearly boasted that they had invested $ 5 billion to overthrow the regime in Kiev . How would the US react if Sergei Lavrov went down to the Washington Monument to cheer an anti govt rally ? As to Putin ,if he wanted he can take over the Baltics ,Ukraine and Poland in 24 /48 hrs , but he will not do so because all he will inherit is old people with pension liabilities for eternity . Old fox this man Putin .

                12. What happened in Ukraine is not Putin’s annexation plan. Everything happened spontaneously. There are facts:
                    -Krym and Donbas was Russian for 250 years. They used exclusively Russian. They spilled a lot of blood on these lands. Russians are not a nationality, in Russia they are fighting 10 large national minorities, they are all Russians, including Ukrainians living in the Russian Federation The Crimean voluntary decision in 196 was transferred to Ukraine by the Secretary General of the USSR Khrushchev.
                    -After the coup, in Ukraine, with the help and support of US representatives, the Russian Federation got a chance. After the coup in Ukraine, its government, with the support of the Nazis, banned the Russian language. This caused an uprising in the Crimea, Donbas and Kharkov. Putin needed Crimea. He took it without blood. The raids of Nazi bandits were late, the national squads were preparing to meet them in Crimea. The uprisings in Odessa Kharkov were brutally suppressed. Putin limited himself to passive support. He had no plans. Everything happened spontaneously. No one could foresee the development of events. Ting wants to return everything except the Crimea there Ukraino.No shed for many krovi.Vernut and save face he did not dayut.Stradayut ordinary peaceful people.

                13. Hickory,
                    Note that Watcher disparages everything and is extremely defeatist about any policy intended to improve things in the world. The only exception is Russia and Putin.

                    In fact of the “big three” oil producers, Russia has by far the biggest economic problems in the short term. Which of MbS, Trump and Putin survive this mess is hard to guess. But Putin’s president-for-life play seems to have suffered a setback.

                14. Alimbiquated ,of all the three ,Russia is sitting pretty . High gold reserves ,high FX reserves ,lowest debt/GDP ratio . Putin managed to reduce his dependency on FF exports to 45 % . It diversified to arms , other minerals ,agri exports . It is self sufficient in all that is needed for a good living . Sanctions made it more resilient. What does not kill you makes you stronger . KSA is a one trick pony and the USA is nothing but financial engineering ( sorry my mistake ,read as racketeering) and ponzi schemes . 35 % of the stock market
                    fictitious wealth evaporated in 2 days . This is as the Don said ^ The greatest economy ever ^ . Just a last tit bit ,Russia is the only Western nation where the birth rate has ticked up ,that is because the young feel the future will be better . As to Putin ,yes he is a strongman , but then so was Lee Kuan Yew and Chiang Kai Shek and Deng .

                15. Russia exported $341B and imported $221B, resulting in a positive trade balance of $120B

                16. Somebody paid for the Maidan Square sniper when the anti-government protests weren’t going fast enough for them. So it was Victoria Nuland and therefore Obama’s State Department?

                17. Maidan is an expensive project. Someone paid infrastructure, daily payments to fighters for family support (they mainly came from Lviv), food, toilets, equipment and other things. He threatened with sanctions Yanukovych’s regime if force was used to disperse Maidan. Yanukovych listened to the police there were no live ammunition. I can’t blame anyone because there was no investigation. But everyone understands who is behind the organizers of the protests. After the death of more than 150 people of the pro-Russian part of the opposition in Odessa (they were killed with sticks and shot from military weapons, burned with gasoline) there was no investigation, no one was punished. In Ukraine, the fascist regime is in power, no opposition / point of view different from the point of view of the government is not possible.
                    It’s kind of like in Chile at the time of Pinochet,
                    there is the Gestapo,
                    death squads
                    on the periphery gangsters rule ……
                    News reflecting the situation in Ukraine does not appear in the Western media, as well as the deaths of people in Africa during interethnic conflicts, what does the civilized world care about some Scythian and other savages?

                18. Thanks Mr Alexander for your response . Very clear on what ,why and how .

                19. Watcher- “Russia is going to win. They have superior rock. They are and have been the very last people we should be sanctioning or turning into an enemy, because it will be their oil that feeds us”

                    Interesting to see how many of you commenters subscribe to this view. I find it very unimpressive, to be gentle. Both democratic and republican presidents and congresspeople have supported sanctions as a response to Russian Ukraine expansion and election interference/cyberattacks. But these things appear to be just fine with you guys.

                    [note- Russia crude oil 11-12% of world production, and global exports]

                20. I agree. Of course, there are two parts to that: trusting Russia, and needing their oil. I’d emphasize the 2nd part: the US would be far, far better off to reduce it’s consumption to far below it’s production. Efficiency and electrification are cheaper, more reliable, etc., etc.

                21. Yes, of course, Russia supported the uprising in Crimea and helped to hold a fair referendum there. The precedents used to be in the world in Yugoslavia and didn’t resent it. Maybe Russia interfered in the US elections, I have no evidence, but I believe that it could be. But similar cases are constantly in the world. For example, in 1996, the alcoholic and degenerate Boris Yeltsin did not enjoy the support of Russian citizens (supported by 6% of voters) but with the help of oligarchs (people who earned less than 5 years $ billions) and
                    American money and advisers
                    This candidate, who suits the USA, won with a dubious score, the number of violations, stuffing exceeds imagination. Also, the USA constantly interfered in the elections in Ukraine, this is obvious. You are right: what can Caesar do, the bull …..
                    P.S. Uprising in eastern Ukraine was not included in Putin’s plans as ministers. It was the case of the passonaries, retirees of the Military and the KGB. These people dragged Russia into this conflict. Most of them were liquidated later by the special services of Russia and Ukraine. I consider this a disgrace to Russia. there are few of them, the remaining had to hide.

                22. Crimea has been part of Russia about the same time that the USA has existed. 9-10 people are Russian, and it is the spoken language.
                    It could be returned to the original inhabitants– as should the USA also then.
                    Get ready to pack?

                23. Hickory,
                    What is the evidence that Russia interfered in US elections?

                24. Ask the NSA if you want the evidence.
                    Republican senate (McConnell) blocked public hearings. Too embarrassing to the pres I suppose.
                    Members of both parties came away from the briefings with the same conclusions on it.

                25. Hickory,
                    Is that an evidence?

                26. Tom,there is no evidence because there was no crime . Mueller gave a clean chit . Russia gate was nothing but an a plan to exempt stupid Hitlary from taking responsibility for her defeat , but more important to cover up the email deletions , misuse of authority ,misuse of security clearance and most off all the financial shenanigans of the Clinton foundation . That failed so they then tried Ukraine gate to do another cover up of misuse of authority,financial shenanigans by Joe Biden and his son . Hickory’s knowledge about Russia is poor . Mr Alexander knows his stuff .

                27. Tom,

                    See

                    https://en.wikipedia.org/wiki/Mueller_Report

                    for extensive evidence of Russian interference.

                28. Tom,there is no evidence because there was no crime . Mueller gave a clean chit .

                    Bullshit on both accounts. There was a crime. Even a goddamn fool could see that. Russia if you are listening??? Asking Russia to help him dig up dirt on Clinton was a crime. But he is such an idiot, he did not even realize it. And taking a meeting in Trump Tower with the Russians, hoping for dirt on Clinton was a crime. Both Trump and Don Jr. were too stupid to know they were committing a crime.

                    And no, the Muller Report did not a clean chit. It was an indictment listing all the crimes the Trump campaign committed.

                    Trump is not just a narcissistic fool, he is also a criminal. Nothing could be more obvious than that.

                29. Watcher,

                    Price levels are measured over time (I assume you have heard of the consumer price index and GDP deflator), so real GDP can be measured, it is based on units of output times the real price of the output. Houses, cars, etc are not made out of nothing, or mine are not, yours may be different. 🙂

             2. “If completion rate falls to zero then output falls by about 4 Mbpd by Dec 2021.”

                Your model assumes some logic in a relationship between oil prices and production. But you have to factor in all the potential places where money could go. Gas and oil haven’t been a great investment for a long time. There are other investments which will deliver a better return. Even people within the industry may prefer to get their money out and go elsewhere with it.

                1. Boomer,

                   The model assumes zero capital expenditure on new wells from May 2020 to Dec 2021. Zero new tight oil wells completed over that period. If all producing wells get shut in the drop would be 8 Mb/d, but that is not a realistic scenario in my view. The poor performing companies will go out of business and better performing companies will pick up the wells that are worth operating at very cheap “fire sale prices”. Oil industry experts can correct me if it does not work this way in the real world.

34. Some self explanatory Rig count charts.

    

    1. Ovi

       If the rate of decrease continues linearly we would see zero rigs in 3 months. I expect the decrease will accelerate and we may see horizontal oil rigs onshore in the US fall to zero in 4 to 6 weeks.

       1. Plains Marketing LP is asking producers to shut in wells. They are the largest crude first purchaser in the US onshore.

          Correspondence from the company is attached to Pioneer and Parsley’s pleadings before the TRRC regarding proration.

          I don’t know if rigs will fall to zero, but frac spreads should.

          1. Would it make sense to be running an oil rig in this price environment?

             Not sure what I am missing here, maybe contractual obligations? Wouldn’t the same types of covenants apply to frac spreads?

             I agree frac spreads may fall to zero, but I do not understand why that would not occur for oil rigs as well (especially the horizontal oil rigs used by tight oil companies).

35. Texas Total

    

36. Texas Permain

    

37. New Mexico Total

    

    1. For all the bluster about cuts, it looks like the declining field production figures are giving us the real indication of the state of the industry.
       1. Current demand is less than production.
       2. Current production is likely already below the ‘cut target’.
       3. Cut target is irrelevant unless it achieves actual reduction in production to less than Current demand.
       4. Demand continues to decline.

       Interesting.

38. I think Congress is about to put a put under the price of oil. Either cuts are made or tariffs are applied and military support is withdrawn. I expect $40 dollar WTI to happen quick. But we need to reopen economy to get prices higher than $40. You can artificially create higher prices when proper motivation is applied. Hell just look at what US equities did. Only reason they rebounded was intervention. We can stay under lockdown or partial lockdown for a year and demand won’t come back until it’s lifted. Doesn’t mean price is going lower from here though.

    1. Then the US military must first invade Texas and halve Permian output.

       The USA is the center of nearly overflowing tanks – and they are still drilling unprofitable wells. As long as the US production is higher than US consumption, no aircraft carriers and no tarrifs will lower WTI prices.
       Or perhaps the FED can bring WTI to 40 (or 60 ), but not producer will get this paid. Already now there is a huge gap between paper oil price and black oil price – there are many reports of oil paid only single digit prices, even outside the USA with 30$ Brent.

       The other way around it’s with gold now – you can buy any number of paper ounces, but physical are sold out.

39. I imagine that for wells which are flaring gas, when the well is shut in the flare goes out. Before and after satellite images of the shale belt could be telling.

40. ND regulator Ness is quoted in the Dickinson, ND press that oil production in the state has dropped 175,000 BOPD since early March and more cuts are coming soon.

    I suspect February was lower than January to begin with. We might see the Bakken drop below 1 million BOPD.

    1. There has to be a subsidy or employment cannot be maintained. The Fed is the only likely source of it.

       Remember when they created “bad banks” and started parking worthless MBS in them in order to clean up the balance sheets of the TBTF banks? That could be the model for unpayable shale debt. Just move it to a bad bank and the Fed can buy it from that entity at whatever price they want with no mark-to-market mechanism.

       But . . . even if you erased all debt, disposal costs of production water might prevent even already completed wells from operating. Though . . . hmmmm, disposing of production water and hauling it may not be a forbidden oil subsidy. It may smell green enough.

       1. Watcher.

          News reports read that the Vaca Muerta is toast. The country quit decreeing a price plus they have no demand nor places to store the oil. Every rig and frac spread is stacked. Wells left as DUC’s, some not even completely drilled.

          Looks like XOM and CVX aren’t going to make up their Permian losses there this year.

          1. I’ll look into it. The gap may be just too big. Argentina has 2100 cases and approaching 100 deaths. The government’s not going to fight the IMF while distracted with that. In fact a few weeks ago the IMF announced a lot of money being made available to countries with a virus problem, and Argentina will want to put their hand in that cookie jar and cannot risk angering those people.

             So no, CVX and XOM won’t be getting a bailout from the southern hemisphere.

41. Hello,

    In case you’ve missed it, here a very interesting document: http://lnkd.in/gZW-ZHy

    It’s a request made on March 30 to the Railroad Commission of Texas by Pioneer.

    The most interesting point is that it includes one report by IHS Markit and a report by Rapidan – both from the end of March – on the years to come.
    Key points are:
    – the price could fall to 10 dollars a barrel in 2Q 2020…
    – global oil storage capacity is a mere fifth of annual production
    – and US production will decline in the coming years in any case.

    Michel Lepetit spoted that document:
    http://linkedin.com/pulse/le-petrole-la-covid-19-et-retour-des-quotas-de-michel-lepetit

    Thierry

42. By the way people, has anyone given some good thought into precisely why this special deal being pursued is being spoken of in terms of who is going to produce how much oil?

    What I mean is . . . the goal is higher price. The goal is not lower production. In fact, the goal is higher price with higher production.

    So if all of these folks are getting together to collude in plain sight collectively for the purpose of creating a higher price, then why don’t they just declare a higher price collectively? Why struggle with allocating quota when all they have to do is get everyone to agree on a price. Then dictate it to the world and to hell with NYMEX.

    US exports are not large enough to combat a decreed price by OPEC , and if there was tension or fear on the part of those oil producers that they might be risking market share, Texas Public Health can lockdown the Permian counties.

    I guess they’re all still trying to pretend.

    Could be some other maneuvers going on. I have been a little bit surprised that Russia and KSA are making any efforts at all. They have a chance here to completely eliminate American oil output. They both have Sovereign Wealth Funds that are big enough to pay for life long enough for American oil to run out of oxygen. I’m surprised they’re not letting that happen.

    1. Watcher,
       Google Bertrand competition and Cournot competition.

       Short story is that a price setting cartel is less likely to be successful at raising prices above the marginal cost in the medium-long term. However, the OPEC (and even more so OPEC plus ) include so many members that cheating is rather the norm than the exception. IMHO, not many OPEC members have cut their output in recent years.

       Best,

    2. Watcher.

       I think KSA and Russia are doing this because there likely is really nowhere to put the oil.

       Also, because $20 oil is something neither can stand for long.

       Note how big the Brent/WTI spread is in percentage terms. That is likely because OPEC is going to cut at once, and storage won’t run out.

       USA won’t cut at once, so WTI needs to be low enough to make producers shut in.

       At least this is what the traders think. Who knows?

       This whole thing is very interesting, just wish we had bailed in 2013 so it wasn’t so painful.

       Went out in the field yesterday. Recalled working out there when I was in school over 30 years ago. Hard to imagine we will have to maybe shut it all down.

       But things can change fast. Lots of wells were plugged in the early 1970s when USA hit its first peak. Only to have the plugs drilled out after the Arab Oil Embargo.

    3. S A and Russia can’t possibly hope to actually kill the American oil industry, although there’s no doubt they can and have succeeded in beating it to within an inch of its life.It’s going to be in the hospital for a while, no doubt.

       But with the exception of some wells that will be ruined by not pumping them, due to the peculiarities of some oil fields, the industry will still BE there, ready to run again, when prices go up. The infrastructure won’t vanish like smoke or fog. Companies will change hands, consolidate, disappear, but the pipelines, drill rigs, trucks, and everything else will just be a few months older, maybe a year older, and the guys who used to run the industry will be damned glad to get back to work.

       I don’t know doo doo from apple butter about the day to day operation of oil fields, lacking any actual experience in the industry, but my seat of the pants guess is that a lot of wells that have been shut in could be put back into production within a week of the decision being made to do so by the owners and the folks who actually transport the oil from field to refinery. Other wells might take months……. but not years.

43. Two questions for which answers are requested
    1 . If govt can print money then why collect taxes ?
    2 . How do you provide stimuli to a eunuch ? I think the financial sector must look for a better term . 😉

    1. The answer to #1 is the power of US oligarchs, whose power derives from money. If you expose it as meaningless, they lose power. So they will move opinion to prevent loss of their influence.
       Sometime look into who the largest landholders are in the US. The top 100 own 2% of the acreage, and they tend not to be Wall Street hedgies. Land is crops, timber, ranches. Land is value. A great deal of it is inherited.

       Stimulus works if the virus gets off the front page. Do not underestimate the ability of the media to get it off the front page, regardless of death stats. In a few months we’ll announce a vaccine. There will be no stats on its performance. “It works” will be defined as “antibodies are produced”. No data on actual disease prevention. The best vaccines are only 50% effective in preventing disease, but the word “VACCINE” will be splashed and death stats will leave the front page. Stimulus will be victorious. For a while. The death count will eventually be impossible to ignore.

    2. In addition to Watchers answer to question one. Other reasons we pay tax is to lower the rate of inflation. And more importantly to keep the middle class in check by tricking them into thinking they have a legitimate financial system.

    3. HIH –
       The government doesn’t print money, the Federal Reserve does (in the US). In Europe, it’s the ECB.

       The amount of money the central bank prints is not directly related to the amount of money available to the government for spending. The government gets money from revenues (mostly taxes) and borrowing, not from the central bank.

       That is why we talk about fiscal policy and monetary policy as distinct ideas. Loose monetary policy (low interest rates) has a similar effect to loose fiscal policy (deficit spending). The same applies to tight policies.

       Keynes recommended counter-cyclical fiscal and monetary policy, loose when the economy is weak, tight when it is strong. That is why most economists would agree that the Trump tax cut was dumb — the economy was booming, so orthodox economic policy would have been to raise taxes.

       The question is which is a better instrument. Fiscal policy is faster and more targeted, and can fix specific problems, but can get too political. Monetary policy is slower to take effect, limited by in scope ( you can’t go much below 0%) and impossible to target, but easier and less political to to implement. It also has direct effects on inflation and exchange rates.

       Sometimes they run in opposite directions. Germany, for example, is in the euro, so monetary policy has been very loose, but fiscal policy has been tight for years, with the government taking in more taxes than it spends, and using the extra money to pay off debt.

       1. Alimbiquated , the FED and the Treasury are joined at the hip . The FED has never in its history turned down the request of the treasury to print more money . Keeping at ^ arms length^ by asking the primary dealers to purchase debt is an illusion , just as Iron Mike and Watcher have said that the govt has to collect taxes so that the middle class is tricked into thinking they have a legitimate financial system . The treasury asks for USD to finance the deficit ,the FED prints the money out of thin air and via its primary dealers gives the money to the treasury , in return the treasury guarantees the solvency of the FED with the borrowed money . This is the biggest ponzi scheme on the planet. Atleast BOJ,PBOC, ECB have stopped pretending about their ponzi schemes .

          1. Hole,
             You are pretending that different administrations have the same goals and policies. In other words, Obama and Trump have colluded in this Ponzi scheme. That doesn’t seem likely to me.

             The Fed is pretty consistent from administration to administration, but the goals of the administrations vary greatly. In my lifetime, Republicans have consistently increased deficit spending and Democrats have consistently pushed to cut it.

             The other thing that strikes me about your comments is that you ignore the serious debt problem in America, which is private debt. Public debt is a bit too big, but private debt is worse. The country imports more than it exports, and has been doing that consistently since the fifties. Households and companies spend more than they earn.

             It isn’t the government doing that however, except in the sense that the tax system encourages short term thinking. For example consumption taxes are low, which discourages investment in money saving.

             It is notable that you pick out America to attack, giving Japan, China and Europe a pass.

             1. Alimbiquated, I am not pretending anything . Obama and Trump continued what they inherited from Clinton and Bush . Paul Volcker was the last independent FED chairman . Greenspan,Bernanke,Yellen and Powell have been nothing but political hacks . As to private debt ,I am aware of its size ,but that was not my original question . I have already pointed out that ECB,BOJ,PBOC are running the same ponzi scheme only they have stopped pretension.

44. Global pact forged to drastically cut oil production to contain price crash

    The OPEC cartel and other oil producers agreed Sunday to cut crude production by a tenth of global supply, an unprecedented move to stabilize the market, according to several energy officials who participated in the talks.

    Russian President Vladimir Putin, U.S. President Donald Trump and Saudi Arabia’s King Salman all support the deal, which would see global crude output cut by 9.7 million barrels a day, the Kremlin said Sunday.

    Mexico’s energy minister said Sunday on Twitter that the cuts will begin May 1. Energy officials from other countries shared similar information confirming the cut for May and June.

    The so-called OPEC+ countries agreed to have Mexico reduce its daily output by 100,000 barrels only for those two months — which had been a sticking point for the accord, which came after a marathon video conference between officials from 23 nations.

    Three OPEC+ sources told Reuters that effective oil output cuts could be close to 20 million barrels of oil equivalent per day if contributions from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases were taken into account.

45. Oil Price War Claims Another Victim

    Whiting Petroleum Corp. (NYSE: WLL), once the largest oil and gas producer in North Dakota’s Bakken Shale, has filed for Chapter 11 bankruptcy becoming the first major shale producer to do so in the current year. Whiting has cited the “severe downturn” in oil and gas prices courtesy of the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand.

    But this shale producer has no plans to go into a state of suspended animation: Whiting has announced that it will go ahead with full production claiming it has ample liquidity with $585M of cash on its balance sheet and has reached an agreement in principle with certain noteholders for a comprehensive restructuring.

    In short, Whiting’s playbook is to buy more time hoping for a rebound in energy prices to bail it out.

46. What the FED and US treasury did absolutely dwarfs the response we got in 2009. Looks like Mt Everest compared to a small hill in someone’s backyard. Their basically just moving assets to the FED’s balance sheet. This is where i actually laugh at the technicals of price charts. This money really only has one place to go. Unless you believe government bonds are going negative in the US. Which FED would be forced to cut short term rate to negative in response. There is really very little money to be made in government bonds unless they go deeply negative from here. The entire yield curve for the entire developed world is 1% or less on everything out to 10years. So the options when it comes to government bonds aren’t good. So we will have record unemployment with stock markets soaring. Probably won’t take very long to get back to all time highs.

    Might not look like it yet but whats being done is very inflationary. The majority of the money being printed will not stay in the banking system as excess reserves like it did last time during 2009. What their doing creates deposits on many of balance sheets.

    Oil will do very well in this new environment.

    1. HHH. The total volume of this cut is extremely bullish, if it comes to pass.

       I hate to say this, but hopefully WTI will get to about $35 and stay there there balance of 2020 to make sure shale follows through with the massive CAPEX cuts and fracking holidays that have been announced.

       But as Mike said above, these idiots running shale will always do what is against their best interests if given the chance.

       1. For what ever reason, Saturday was the busiest local traffic day I’ve seen in 3 weeks. It almost looked like a normal typical weekend afternoon. Now the freeways on the other hand looked more like a third of normal. I’m guessing within a couple of months gasoline consumption will be back to 95% of pre Covid. I don’t think diesel is going to fall more than 10% from pre Covid. Jet fuel on the other hand, I wouldn’t be surprised to see drop 75% and take a couple of years to recover. No one is getting me on a plane anytime soon and I’m planning road trips this summer and lots of cheap boating.

          My guess is everyone is going to cut Capex to the bone for the remainder of the year and revisit it for review in 2021. President HB would be filling the SPR at a million barrels per day at under $40 wti until it’s full.

          Hi SS, any opinions on CRC ? They have a third of production hedged for the second quarter at over $60. A third of their production equivalent is gas. Could we see a increase in the price of natural gas coming with the lying down of rigs ? I picked myself up another 1000 CRC last week for a little over a dollar per. I don’t think their going under. The hardest buys can turn out to be the best purchase.

          ********
          From the 2/26/20 4th quarter earning conference call

          https://investors.crc.com/files/doc_events/CRC4Q19EarningsTranscript.pdf

          One key accomplishment, our team generated a record annual adjusted EBITDAX since the spend of $1.14 billion, while driving down our total debt by additional $274 million in 2019. This contributed to a total debt reduction of $1.8 billion from our peak level.

          we generated record free cash flow of $269 million during the year and reaffirmed our borrowing base at $2.3 billion. Another key accomplishment in 2019, we finished the year with an adjusted net income of $70 million or $1.40 per diluted share.

          Our organic finding and development costs were $8.75 per BOE in 2019

47. For stimulus to be inflationary, it has to be additive. It’s not. It’s replacing disappearing asset numbers. The price of a lot of things have fallen since 1 Jan. We’re going to see quarterly earnings in a few weeks and they will be pretty bad. Stimulus is supposed to replace that, not add to it.

    And all that is just Q1. For fun google why are vaccines only 50% effective. It has nothing to do with mutation. 50% is just as good as it gets when the inside of the syringe matches very closely with the prevailing virus. Lots of diseases have hoped for vaccine and none arrived. TB, somewhat. Malaria, more than somewhat. Both those have treatments, not effective vaccines.

    Vaccine will be hyped but arrival before autumn is very hard to envision. When it does arrive, it probably won’t work — where work is defined as prevent disease, not create antibodies. Growth of the virus in Africa and Australia suggest hoping for flu season to end has already failed.

    1. The vaccine is unlikely to arrive before the end of 2021. And even if it does, vaccinating 8 billion people will take years. Usually vaccines take 5 years or so to develop, and this one has to be especially safe, given the vast number of people that will be affected.

       It’s important to realize that this pandemic is only getting started. All this talk about exit strategies after a few weeks shows how poorly prepared the world really is. We aren’t in control of the timeline.

       Let’s say 100 m Americans get infected and a few percent of those die from it. Will that be the end? No. 250 m will still be there to be infected. Currently they have no defense at all.

       1. But but Mr Orange is going to lift the lockdown. The art of the deal Russia and KSA cut production in exchange for demand creation think of it as an oilforblood program

          1. I guess my problem is I am living in a place where this hasn’t really hit yet. That we know of. A lot of people think they had it in January and February, but we won’t know till antibody tests get here. There have been recently a lot of tests taken, after we did have a small number of travel related cases. None have come back positive. Maybe the tests aren’t accurate.

             I am totally out of my element as to what is going to happen here. If this ravages the world for years that will be that. After all, this board does have an element of doomer to it. I will admit this is more stress than I have personally experienced for a long period of time (six weeks and looks to be at least months more).

             My point is that under this agreement for two years it has been agreed by this group to remove almost 7 million BOPD from the world market. That doesn’t include what happens to US production, which I am going to argue has seen its second peak. It took 50 years, several years of $100 oil and a ton of borrowed money to get from peak 1 in 1970 to peak 2 in late 2019.

             I am not looking short term here. I am looking long term.

             Of course, maybe the doomers are correct. I will admit I don’t know. I just know that if this agreement is followed we saw Peak Oil in 11/18.

             1. “Of course, maybe the doomers are correct. I will admit I don’t know. I just know that if this agreement is followed we saw Peak Oil in 11/18.”

                Agree, and very possibly even if the agreement is not followed.

             2. SS,
                Agreement will be followed without any doubt and the reason is that all protagonists get something out of it and that includes US as part of agreement with their cuts via “market forces”. US held direct talks in recent days with the heads of Russia, Saudi Arabia and Mexico.

                US Energy Department have emphasized that market forces will bring US declines. US cuts can come from government action via corporate decisions, as companies either shut-in production or file for bankruptcy.

                I anticipate that by the second half of the year, when life & economy start moving again that oil prices would be nearing $40 per barrel.

                1. The similarities to peak oil have been amazing to me since this whole affair began. There is lots of doomster potential.

                   But more than potential there is illumination. Very much like peak oil, for which geology is the final arbiter, we have people celebrating numbers that are very high but slowed their growth and various Governors are caucusing and making decisions about undoing all restrictions and sending people back to work elbow-to-elbow coughing all they want.

                   Oil people think that printed money can overwhelm rock that has no oil in it. The re-start-the-economy folks are inclined to think that washing hands and keeping distance will no longer be important and the virus is defeated.

                   Ves above commented that in the second half when life and the economy is back to normal, we could see $40 a barrel. Didn’t normal generate over $100 a barrel just a couple years ago? Pretty sure we got sharp increases in consumption over those few years since. Normal in the second half may not be all that impressive.

                   SS, the answer to doom is you guys have got to figure out a way to get your hand in the cookie jar. Nothing else is going to work.

                2. ^SS, the answer to doom is you guys have got to figure out a way to get your hand in the cookie jar. Nothing else is going to work.^
                   Watcher ,I like this quote ,bulls-eyes .:-)

                3. I assume PPP qualifies as the cookie jar? Of course, to be forgiven, PPP funds have to go to payroll and you have to keep everyone on board. PPP is really a more orderly form of short term unemployment than anything.

                   Other than PPP, there is no cookie jar for stripper oil well operators.

                   I’m thinking shale is going to drop like a rock. So is onshore conventional. So is offshore GOM to a lesser extent.

                   The stripper operator has to have at least an optimistic side. Mine is that we have hit peak oil both US and worldwide. The only way we haven’t is if everyone is overreacting to COVID on when it comes to permanent demand destruction.

                   I don’t know the answer. I do know we got $47 at the well head for 2/2020 oil. This happened very quickly. The amount of stimulus being thrown at it makes GFC stimulus look like child’s play. The OPEC cut along with what is happening to US and Canadian production is making the March, 2009 cut and the drop in US production look like child’s play also. OPEC takes almost 7 million BOPD off the world market for two years.

                   Nony better hope the doomers are right, or sometime in 2022, even earlier, shallow sand is going to be sitting in a lawn chair at the gas station laughing while Nony pays $5 a gallon gasoline.

                   I know one thing, if COVID is licked, you will see an end of WW2 like celebration. Think that equals low oil demand? I think not. OTOH, if the doomers are right, it won’t matter, we are all screwed and since our oil wells are very shallow and very simple to operate they will likely be most favored in the “thunderdome” doomer scenario. We will just have to figure out how to get all the solar panels off the rooftops in CA and get them to the mid-continent to power our wells. Lol.

                4. ” solar panels off the rooftops in CA and get them to the mid-continent to power our wells”
                   Wouldn’t be a first-

                   ‘Equinor [formally Statoil] made a final decision to invest in floating wind turbines to power offshore oil platforms off Norway..with a total capacity of 88 megawatts to supply electricity to platforms on two oil fields, will be the first of its kind and the biggest floating windpower project in the world’

                5. [V]irtually all key aspects of any civilized society go contrary to the absolutism of individual rights. Every civilized society has some sort of legal system, some basic rules that everyone is expected to follow. Most civilized societies have a public education and (except for the United States) a public health insurance system designed to benefit the whole population. These elements of civilization include constraints on individual freedom.
                   The benefits to each individual of living in a civilized society make these constraints acceptable to just about everybody. The health of the individual depends on the health of the community, which is why everyone in most Western countries accepts a single payer health insurance system. The only exception is the United States, where the egocentricities of Ayn Rand are widely read as serious thought.

48. shallow sand,

    A revised tight oil scenario, based on April 2020 STEO oil price forcast through Dec 2021 and AEO 2020 reference oi price forecast through 2045 (peak price for Brent Oil of $93/bo in 2019$ in June 2045) oil price is assumed to plateau at $93/bo from 2045 to 2047 and then decline linearly at $1.20/bo each year until reaching $40/bo (in 2019$) in 2091. Tight oil production ends in 2062 when oil prices are $75/bo in 2019$.

    A secondary peak at about 8 Mb/d is reached in 2032/2033 in this scenario, if the economy has recovered by 2030 and demand for C+C is more than 83 Mb/d (prices for my scenario would be $71.50/bo for Brent crude in 2019 US$), I expect a peak higher than the highest 12 month centered average C+C output previously reached will occur. That assumes my mean World C+C URR estimate of about 3100 Gb (conventional and non-conventional C+C) is roughly correct.

    Tight oil scenario below, click on chart for larger image.

    

    1. Dennis, from your chart:

       US tight oil scenario URR=88 Gb…

       Regardless of who or how this number was arrived at, this is a totally absurd number. That is, of course, just my very strong opinion. And because it is only my opinion I will comment on it no further.

       1. Ron,

          The basis for the estimate is USGS technically recoverable resources (about 115 Gb for mean estimate for US tight oil), then I use shaleprofile data to estimate well profiles and use an economic analysis to arrive at economically recoverable resources, based on these assumptions I arrive at the economically recoverable resource estimate of 88 Gb for US tight oil from 2000 to 2062. Currently proved tight oil reserves plus cumulative production at the end of 2018 is about 37 Gb. Proved plus probable reserves plus cumulative tight oil output through the end of 2018 might be about 46.5 Gb.

          Generally my estimates in the past have proven conservative, that is I have tended to underestimate future output consistently. If the World economy remains depressed for 30 years or so, then tight oil output will likely be less than 88 Gb, my guess is that is a low probability scenario. 🙂

          Eagle Ford- 9 Gb
          ND Bakken-8.6 Gb
          Permian-56.5 Gb
          Niobrara-2.5 Gb
          Rest of US tight oil-10.7 Gb

          for economically recoverable resources for the scenario presented above.

    2. A potential World C C scenario (picked from an infinite number of possible scenarios), that peaks at close to the 2018 annual output level in 2029 (about 200 kb/d higher than 2018). The tight oil scenario presented above is assumed for tight oil output, extraction rate applies to conventional resources only (URR=2800 Gb). Unconventional C C (tight oil and oil sands) has a URR of about 250 Gb. This would only occur if oil demand is at least as high as this projected supply at prevailing oil prices which depends on the future path of economic output and technological progress, neither of which is easy to predict in advance. In short, very low odds that this scenario would be correct.

       

49. The latest Drilling Productivity Report is out. What a difference a month makes. They now have US total shale production peaking November 2019. The data in the chart below is through May 2020.

    Date……. Total Shale
    Sep-19 8,858,592
    Oct-19 9,062,054
    Nov-19 9,072,755
    Dec-19 9,010,167
    Jan-20 8,929,996
    Feb-20 8,911,544
    Mar-20 8,902,431
    Apr-20 8,708,807
    May-20 8,526,133

    Drilling Productivity Report

    

    1. Ron.

       Article in Williston newspaper quotes Lynn Helms that companies have given notice thus far that they have shut in 4,600 wells accounting for 260,000 BOPD in ND. Rig count has fallen to 33 and estimates are for it to fall to somewhere between 15-28. Frac spread count has fallen to 9, with estimate it will fall to 6.

       February, 2020 ND production had ticked up by 20,000 BOPD from January.

       Article also said peak of 1.52 million BOPD was likely the ND peak for the foreseeable future.

       1. Paycheck Protection Program. 500 or fewer employees. Loans lesser of $10 million or 2.5X payroll. Doesn’t say anything about oil companies being excluded.

          1. They aren’t.

       2. Thanks SS. I have a post in a couple of days, maybe tomorrow, I will post a North Dakota chart then. Of course all February and March charts are “pre-collapse” charts. Though some US producers likely started the collapse in mid March.

       3. Shallow,

          How in the living hell did the companies shut in 4,600 wells in a month? That is nearly 30% of the total 15,780 wells in the ND Bakken, according to Shaleprofile.com.

          If so, the companies shut in the shittiest wells, in which the average is about 56 bopd.

          I gather after they shut in their shittiest wells first; next month they will have to shut in the better quality wells.

          steve

       4. shallow sand,

          Based on Feb 2020 statistics, that would suggest about 210 kb/d of that shut in output was from tight oil wells. For my model combined with this information would suggest North Dakota output falls to under 1000 kb/d by May 2020 (this assumes zero new tight wells are completed in April and May 2020.) Output would be about 950 kb/d in May 2020 if tight oil decline from the model is combined with the 260 kb/d recently shut in.

          This does not account for any future oil wells that may be shut in, that would reduce the estimate further.

50. The Sad Truth About The OPEC+ Production Cut

    Quite aside from the subtler elements of the oil deal announced late last week that are likely to undermine its ability to stave off further oil price lows in the coming weeks, the basic facts of the deal are sufficient to do so: global supply is to be cut by (sort of) 10 million barrels per day (bpd) whilst global demand has fallen by around 30 million bpd. That is really all anyone needs to know and is the key reason why oil prices are likely to continue to test the downside of recent lows and to surpass them over time.

    1. From STEO, April 2020. This forecast assumed no cut by OPEC+. About 12 Mb/d less consumption in 2020Q2 than production. OECD stock estimate shown on right axis. If the 10 Mb/d cut occurs, the market will be closer to balance (only 2 Mb/d stock build), also US output may fall by more than the STEO estimate if the tight oil completion rate falls sharply in April and May.

       

51. Shallow
    Now might be time to start building tyre walls around your better wells an aquiring school busses

52. Reuter’s article quotes Mike Shellman about state of the Texas oil patch:

    https://www.reuters.com/article/us-global-oil-shale-bust-insight/oil-in-the-age-of-coronavirus-a-u-s-shale-bust-like-no-other-idUSKCN21X0HC

    1. Thanks Stephen. Pretty cool that Mr Shellman is famous, being quoted in the lead by Reuters is a big deal.

       An excerpt from the start of the article:

       HOUSTON/DENVER (Reuters) – Texas oilman Mike Shellman has kept his MCA Petroleum Corp going for four decades, drilling wells through booms and busts and always selling his crude to U.S. oil refiners.

       But now the second-generation oilman has abandoned drilling any new wells this year and postponed some maintenance amid a sharp drop in global oil prices and brimming storage tanks. He is considering shutting most of his production down, for the first time ever.

       1. Thank you, Dennis and Stephen. I’ve not even had a chance to read it yet. I don’t feel famous. These days I feel shot at and missed, shit on and hit.

          1. Your concern for your employees really shines through in the article, it’s very inspiring. They may have broke the oil man mold when you got minted.

          2. Mike,

             Yours is the kind of reasonable voice that needs to be listened to by the RRC and the EIA.

             I guess you need a hard hat and bullet proof vest. 😉

             I know it’s a bad business plan, but I hope the economy recovers and oil price gets back to whatever price works for you and shallow sand (maybe $50/bo for WTI?)

53. An article that confirms my previous understanding where global oil industry is heading after fair amount of demand is recovered due to pandemic.

    https://asiatimes.com/2020/04/trumps-opec-moment-concedes-us-oil-dominance/

    “Moreover, if US producers are able to work together, both domestically and internationally, it could usher in a new era of not only OPEC or OPEC , but a new OPEC group of producers that includes the US.”

54. Some here might find this if interest.

    In 2002, the “father of fracking” George Mitchell sold his company to Devon Energy for $3.5 billion.

    Currently, the market capitalization of Devon Energy is $3.14 billion.

    Mr Mitchell passed in 2013.

    CHK did it’s 1/200 reverse stock split and the shares immediately dropped 40%.

    Mark Papa’s new company, Centennial Resources was recently trading at under 30 cents a share.

    Scott Sheffield was begging the TRRC to order him to slash production by 20% yesterday.

    Can US shale every recover from this?

    1. People have always sneered at companies that ask government to regulate them. But there is good reason for it.

       If the government damages your business, you can get compensated. Simply that.

       As for can shale ever recover from this, it depends on how you measure recovery. Dollars are not the yardstick. If you have to have it, and you do have to have it, then you WILL get it. With a gun to your head or with military driving proppant trucks.

       Shale will produce oil again, because it has to.

    2. Shallow sand,

       I imagine there will be lots of bankruptcies, but if WTI rises to $65/bo in 2020$ in the future, a well run tight oil company (that is the way you and Mike run your companies ) may be able to make it work. Note that in the mean time a lot of debt will have been written off.

55. Recent IEA Oil Market report summary at link below (April 2020).

    https://www.iea.org/reports/oil-market-report-april-2020

    An excerpt:

    Global oil demand is expected to fall by a record 9.3 mb/d year-on-year in 2020. The impact of containment measures in 187 countries and territories has been to bring mobility almost to a halt. Demand in April is estimated to be 29 mb/d lower than a year ago, down to a level last seen in 1995. For 2Q20, demand is expected to be 23.1 mb/d below year-ago levels. The recovery in 2H20 will be gradual; in December demand will still be down 2.7 mb/d y-o-y.

    Global oil supply is set to plunge by a record 12 mb/d in May, after OPEC forged a historic output deal to cut production by 9.7 mb/d from an agreed baseline level. As April production was high, the effective cut is 10.7 mb/d. Additional reductions are set to come from other countries with the US and Canada seeing the largest declines. Total non-OPEC output falls could reach 5.2 mb/d in 4Q20, and for the year as a whole output may be 2.3 mb/d lower than last year.

56. https://www.zerohedge.com/markets/us-may-pay-shale-drillers-billions-leave-oil-ground

    Administration floating a plan to pay oil workers at independent shale companies for not producing oil. Maintains employment. Keeps it in the ground. Then at a later date with high price maybe, the oil is extracted and sold at that price and funds employment organically AND ALL PROFITS go to US Treasury. That’s interesting. That’s a nice step towards admitting capitalism failed. Again.

    Odds of getting the $10B required through Congress near zero. The Democratic side is opposed to anything that smells like a big oil bailout and will want $10B authorized for some countering something, free gasoline for illegal aliens or something. Not going to happen.

    But it’s an interesting standalone concept. Keep the workers working and not drawing benefits, keeps the oil in the ground for now, and the businesses still in business, but they have to pay it back later not dollar for dollar but barrel for barrel.

    1. So companies would get money now, to pay workers, but would do nothing. Then in the future they are supposed to produce oil, but all the money it generates would go to the government? But why would they bother? Why not take the money now, and then never deliver on the oil since there is no additional money for the companies? I mean, milk the system now, and then go out of business.

       1. Health Over Profit?
          Seems like a socialist ideology.

          1. I have seen a lot of greed in the shale business. Why would I expect them to take money now to support workers and then later produce oil with no further compensation? If they get paid up front for oil still in the ground, and then get no additional money to actually produce it, what would be their motivation to follow through?

       2. Taking the money now is strictly to pay workers. It only pays salaries. Not allowed to forward it to shareholders. So you produce oil later to get out from under the burden. And then proceed unfettered.

          Banks did this and slowly applied to be allowed to pay dividends.

          It’s completely bogus, of course. Capitalism would be let them all fail and then someone else tries. They had bad luck. Oh well. The banks were kept going 2008/9 because they were TBTF systemically and people would outright die. Similar stuff done for GM because the UAW was Too Big A DNC Donor To Allow To Die. I guess that is TBADNCDTATD. Not as catchy.

          1. This from the linked article.

             “The quicker solution would be to effectively reward drillers for taking a timeout. Under the approach being developed by the Energy Department, the agency would contract with companies to delay production of proven oil reserves for several years, if not indefinitely. When that crude is finally extracted and sold, the proceeds would go to the Treasury.”

             But there would be no money to be made by these companies once the oil is extracted and sold. All that money goes to the Treasury. So why would company owners and execs bother to extract oil?

             1. Boomer,

                The government could loan them money interest free. If the company chose not to extract the oil in the future, the assets would be seized and sold to the highest bidder and then would be extracted. The government would be smart to loan money that is equal to only the bankruptcy value of the company’s assets, estimated 5 years in the future.

                The alternative is to just let the companies fail, the managements of these companies have done a very poor job of allocating capital, they should lose their jobs and the assets should be sold off to those who know how to properly allocate scarce resources, the highest bidder wins.

                That is the way capitalism is supposed to work. Not everyone wins in this game.

                1. But if you expect your company to go bankrupt anyway, you could accept the money now and then walk away.

                   If the future looks like bankruptcy, you can either declare it now, or accept money and then declare it later.

                   A loan or bailout transfers current government money to these companies and their employees, but won’t generate future money for the companies and their employees until the government collects value from the oil it purchases.

                   I just don’t see an incentive for these companies to play along if the best scenario for them is to take whatever money they can get now and then run.

57. A new non-petroleum post is up:

    http://peakoilbarrel.com/eias-electric-power-monthly-march-2020-edition-with-data-for-january-2020/

    Comments related to oil and natural gas production should be posted here until a new petroleum thread is posted. Than you.

58. WTI today will settle close to -$35, down $53 from yesterday. Primarily paper barrels.

Comments are closed.