Posted on 12/12/2014 1:42:46 PM PST by thackney
The downturn in crude oil prices in recent months will not last forever, and what the market is experiencing now is not the old boom and bust period, an energy industry analyst told Rigzone.
“I’m still incredibly bullish on the industry, and I do think it’s far more stable and resilient than it was in decades past,” KPMG’s Regina Mayor, an advisor for the consulting practice, said. “That’s not to say that it won’t experience a contraction or two, but it’s not the boom and bust cycle we’ve seen.”
Already, there are signs that the future remains bright for the industry. The collapse in oil prices following OPEC’s decision not to cut production levels led to a selloff that many people think is overdone, leading to an expansion of long wagers, John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, told Bloomberg last week.
Although there is no crystal ball to tell the industry where crude oil prices are going, prices will probably not drop too much lower, and could possibly begin gaining altitude in the not-too-distant future, Mayor said. And even if prices were to remain where they are, or even fall somewhat lower, oil and gas companies that are not too heavily leveraged can still make money in specific shale formations.
“I think there are specific plays that make economic sense at $40 a barrel, and the Eagle Ford is one of them. I’ve seen various estimates of what the planning and extraction costs would be, and Eagle Ford remains economically viable at those price points. I have seen a range of $40/bbl at the low end and as optimistic as $90/bbl on the high end from people trying to stake a claim on where this is going to land,” she said.
“At the price point where we are today, I don’t anticipate shale and onshore activities to be as affected as ultra-deepwater and Arctic plays that are a lot more expensive to do business in. The current price point makes some of those options less attractive. But the bulk of their portfolios remain attractive at this [current] price point scenario.”
Still, some companies have a lot riding on oil that is priced well above where prices currently are. That has caused some jitters as energy companies speculate about if and when prices might rebound, or at least bottom out. However, Mayor is optimistic about the general health of the industry, and she does not anticipate a massive reduction in jobs or momentum over the next six months.
“The industry in general is not particularly good at predicting where things are going to land. However, the industry is also quite resilient, and there are still lots of plays that [make economic sense]. I don’t anticipate that we’ll see a massive reduction in jobs or momentum, at least not within the next six months.”
That does not mean that a prolonged period of low prices would not eventually have an effect on the industry, Mayor added.
“If we see a more sustained environment with this kind of pricing pressure, after six or maybe nine months, we could see a stronger fall-out,” Mayor added.
Mayor does not see prices remaining down at current levels for that long, however. The two reasons for her optimism about the industry’s health are:
- energy companies can still make money at the current price point
- Organization of the Petroleum Exporting Companies (OPEC) will likely “try to do something to bolster prices, despite what they said at their meeting recently”
In OPEC countries, Mayor explained, it’s not about how much it costs to get the oil out of the ground, or how much they can sell it for, or even what their subsequent profit margin is, Mayor said. For OPEC countries, it is all about something entirely different.
“Their real break-even costs are the commitments that some of the less economically robust (OPEC) players have made to their populations for social services that their government funds largely through oil exports and hydrocarbon sales. Those estimates are in the $100-130/bbl range for many of those countries. So, it would be far more painful for some of the overseas players to be successful at current price points. I anticipate that we’ll see at least some constriction of supply that would at least keep the price where it is, if not raise it up a little more, to the $80/bbl or $90/bbl level.”
Still, Mayor noted that for some companies, the pain from the crude oil price plunge is all too real.
“I think that some of the smaller players that are over-leveraged will feel the pinch now,” Mayor said. “I believe there are companies that will wash out in this price environment – some of the smaller independent producers and some of the struggling oilfield services companies.”
Mayor said that the drop in crude oil prices was not all negative.
“One of the positives I see in this current price environment is that the more mature, more stable, more established companies will move faster around cost-reduction initiatives, become even more efficient and effective, and reduce their total costs of finding and extracting” fossil fuels.
Ping
Even at $50 a barrel, if you have a well that is producing 1,000 barrels a day... X365. Hello?
“Their real break-even costs are the commitments that some of the less economically robust (OPEC) players have made to their populations for social services that their government funds largely through oil exports and hydrocarbon sales. Those estimates are in the $100-130/bbl range for many of those countries.
So, it really isn't about cost, or profit for that matter. It's all about manipulating the price to keep the domestic population comfy. So, in reality, the price of oil is manipulated and it is not really a function of supply and demand as many contend.
That can be a big if to produce 1,000 barrels a day for the year.
Holding back production until you get a price you are willing to sell at is exactly what a supply curve is.
And how does that make oil different than most other commodities?
The price of oil is not about costs, it is about price.....
I expect new pipelines were based upon meeting production growth. That is going to be delayed.
Thackney ? What we will be seeing of the oil and gas industry is that it will get lean and mean.
More stable companies financially will gobble up the smaller and bankrupt one with oil free fall fire sales and build from there something good when the price of oil goes back up, rodger that ?
Thackney ? Can pulverized recycled glass ground into small grains be used instead of mined sand ?
I know they use tons and tons of sand and it isn’t cheap, however can pulverized CHEAP recycled glass be used tossupplement and be used with sand to cut cost ?
The glass could be pulverized at working stations in conjunction with using energy from the natural gas flares.
The companies would save money from instead of flaring the natural gas to pulverize the glass and save money from the regulations imposed on then from flaring.
Also cost could ? Be cut from not having to mine the sand that is used for fracking, instead use pulverized Free Cheap recycled glass.
Many towns, counties, state have glass recycling programs.
Furthermore, costs could be cut using pulverised recycled glass bbecause of less shipping cost because the recycled glass would be almost in the frackers back yard, so to speak.
The environmentalist would be happy ( are they really ever happy ? ) because the recycled glass is just as inate as the sand is, and the recycled glass would not be going into landfills.
The glass could be ? Ground up into smaller particles than the sand ? And would smaller grains of crushed up glass work better for fracking than sand particles ?
I don’t know if glass would be a cheaper alternative than mined sand and then shipping the sand, or crushed up glass could be used to supplement the sand to reduce costs.
It’s worth a thought............ EUREKA man.
What do you think?
The requirements for the proppant is more than just a little piece of something in the cracks. And something reasonably splits and breaks under pressure isn’t well suited for holding open the cracks under the pressure of the rock.
Frac Sand and Proppant Size and Shape
http://www.horiba.com/scientific/products/particle-characterization/applications/frac-sand/
Importance of Size & Shape for Proppants Quality
http://www.astm.org/COMMIT/images/6F_ASTM-D18-26-Proppants-Technologies-GB-IT7.pdf
I think speculation can drive prices up/down on the short term, but that is the definition of a futures market, speculating what the future supply and demand will be.
If it is the Saudis fighting Iran, Russia and U.S. shale producers and punishing OPEC members who exceed production quotas, then it will be six months.
If I could predict the price of oil and the durations of the peaks and valleys, I wouldn't have to work for a living. Predicting political fallout is well beyond my ability. I do believe Saudi Arabia is well prepared with their cash reserves to hold out far longer than Iran, Venezuela and probably Russia.
The futures market 'predicts' annual price increases from today's front month, January, at $57.49, of 7%, 6%, 3%, 2% and 1%. In other words, it is in slight contango, but not appreciably more than carrying cost. Two years from now, it is at $65 and 10,800 full-size contracts are being bet on that. For perspective, one of those contracts represents more risk than most of us would be able to assume.
So the market is telling the industry that we're in this for the long haul.
One contract is 1,000 barrels, so 10,800 contracts is 10,800,000 barrels, with a current market value of $621 million.
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