It’s not that simple . . . re “the oil is still there and we can get it when we want it”.
1) When the industry folds, soon at these prices, they will screw over all their lenders. They will HAVE to default.
2) They will leave all their stuff behind on the well pads. NoDak will have to find money to clean it up because the small fry will be outright bankrupt.
3) All the workers are not going to put down roots in NoDak, they are going home.
So presto, a year from now with shale shut off and 3 million bpd extracted from global supply, the price goes back to $120. Can the shale work restart?
Probably not. The lenders who financed it all will have just been burned. They will say “not interested” unless they can get 15% or something interest, and may want collateral other than oil even then.
NoDak will have regulations insisting on bigger escrow for cleanup if it all happens again.
The workers will demand relocation packages and higher pay since THEY just got burned.
It will all translate to MUCH higher breakeven prices to get things started again, maybe almost $200/barrel.
Unless.
Unless the industry takes a government bailout of the Fed prints money to bailout the lenders. Then . . . it all works because there will never be capitalism again.
Gee, reading your post make me think this is the first bust of the oil boom-bust cycle.
“Why would a nation that gets 90% of their revenue from oil allow the price to plunge?”.....
On the surface, one would think the Saudi’s have more than enough money in the banks to “tide them over” for some time to come. Keeping the pumps flowing will only serve to HURT other producers and ultimately/possibly drive them out of business financially. Saudi wells have been producing for some time (years in fact) while many of the U.S. domestic producers still have to pay off their capital investments while getting lower prices for their oil. IMO, it comes down to “survival of the finically fittest”.
Right now, we have policy to suppress the export of oil; if we get another reasonable POTUS, I would expect that policy to suppress the importation of oil would be on the table. A small protective tariff should be enough to stabilize things by promoting domestic energy production enough to make it easier to respond to future increases in foreign oil prices - and by making the Saudis take our response capability into consideration. The Saudis do not want a big protective tariff against them - which we know now that we could live with.
The US Oil Patch and US Oil Patch innovation has been written off many times. This business has Booms and Busts. The smart Oil Patch players know and plan for this.
Let the camel jockies run the price down, its them that is losing both money and their dwindling reserves. The US oil Patch will still have the ability to rein them back down when they try the next cut in production to run the price back up.
Globally, this will hurt Putin, ISIS, Venezuela and Iran much more than the US.
The big fish will eat the highly leveraged smaller ones, and life will go on.
If the boom busts. The biggest players might reduce activity and contractors will be pressed to reduce rates and prices (we call that competition). With the amount of investment involved, unless the price drops below lift costs nothing will be shut in.
Maybe rent will drop to more reasonable levels, too.
The real question is one of just how long even the Saudis can keep taking a hit to try to harm the US.
In the meantime, those few who defaulted will have lost production assets to banks, who will realize a handsome profit when the price goes back up, and those who kept on drilling new wells will be in a position to do the same because they will have more oil to sell.
The surviving producers, which includes some well-backed players with plenty of resources, will increase drilling activity and the game will be on again. Only once in the history of the Williston Basin has drilling completely stopped since oil was discovered, and that year sweet crude was selling for $6.50 a barrel.
Hi algore!