OPEC’s Weapon of Mass Inaction

“I must be missing something. Why is falling prices for the oil result in more money to the oil projects? “

On a comparative basis, their will be a larger percent of monies diverted towards those projects of Opec’s. Overall, less money on projects worldwide will be spent as returns will be lower, letting marginal projects suffer.

money will still be spent on oil projects worldwide. Much more will go toward non-US projects.

http://online.wsj.com/articles/despite-glut-u-s-firms-arent-likely-to-slash-oil-output-1417397138

Despite Glut, U.S. Firms Aren’t Likely to Slash Oil Output
New Pressure From OPEC Will Cause Pain for American Energy Firms

By Erin Ailworth
Nov. 30, 2014 8:25 p.m. ET

New pressure from OPEC will cause a lot of pain for U.S. energy companies, but they probably won’t slash American oil output anytime soon, experts said this weekend.

The decision by the Organization of the Petroleum Exporting Companies to maintain crude output despite a global glut sent the benchmark price for American oil tumbling Friday to $66.15, its lowest level since September 2009. Companies loaded with too much debt or operating in fringe locations face big trouble if U.S. crude prices remain at $65 to $70 a barrel for long.

But many shale drillers are likely to cut spending while still pumping from cheap-to-produce areas like the Eagle Ford and Permian in Texas. And some companies have oil-price hedges that will buoy profits even if crude is trading at four-year lows.

Take Goodrich Petroleum Corp. , a small Houston company that drills most of its wells in the Tuscaloosa Marine Shale in Mississippi and Louisiana, a less developed and still high-cost area. The company’s shares plunged 34% on Friday, to $6.05, and they are down almost 80% since oil prices started declining in June.

The company will probably cut spending, but it also expects to increase the amount of oil it pumps, its president, Robert Turnham, said in an email. A significant portion of the company’s anticipated 2015 oil production is hedged at $96 a barrel, he said, adding that the company plans to “live within our means until oil prices recover to a more reasonable level.”

snip

they probably won’t slash American oil output anytime soon,

Most of the US production growth has come from tight plays like shale. The real expense of those wells is the up front cost, putting the well into service. They are not going to be shutting down those new wells. But the growth of new wells is going to slow down. And the production cut will come as those tight plays fall down a rather steep production/time curve.

When this last happened at the height of the cold war in 1985, it followed a visit by then Vice President George H. W. Bush to Saudi Arabia. Bush convinced the Saudi royal family it was in their best interest to reduce the price of crude oil to regain market share. As a beneficial side effect, Russia would lose a major source of foreign exchange. This followed a major investment by Russia in radar capability, which was largely negated by the publicity of the US then recently developed stealth technology. With reduced foreign exchange, Russia was unable to replicate the stealth technology and the Soviet Union failed. Unfortunately, the economies of the oil producing states, Texas among the most extreme example, were crippled.

This time around, Obama has visited Saudi Arabia twice this year, Bidden has called the Saudi royal family once and the UAE twice. This time it appears the primary objective is to cripple the oil producing states economies, principally Texas, which has been a thorn in Obama’s side. The beneficial side effects of reducing Russia's foreign exchange, increasing Saudi market share, and reducing the foreign exchange of Iran, along with the positive effect on the economies of states more aligned with Obama, are perhaps just that, side effects.

“ANd the production cut will come as those tight plays fall down a rather steep production/time curve. “

Actually, the nature of tight or low perm wells means a very low decline rate following the initial falloff.

Well rates will be stable.

I think you mean that few new wells will come online, steeping overall field decline.

very low decline rate following the initial falloff

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According to the North Dakota Department of Mineral Resources, Oil & Gas Division:
65% the first year
35% the second year
15% the third year
10% a year thereafter.

https://www.dmr.nd.gov/oilgas/presentations/ActivityUpdate2014-06-11NCSLBismarck.pdf
Page 41

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