Posted on 12/15/2014 5:04:46 AM PST by thackney
During most times, the oil industry may operate in a dog-eat-dog world. Now it’s also in an ant-and-grasshopper world.
You know the story of those two insects–they’re paired together in Aesop’s Fable of the same name.
The ant toils hard to save and scrimp for a rainy day, while the grasshopper flits around, enjoying the moment with no thought for tomorrow. Then winter comes and the ant has stores of food to last him for months; the grasshopper dies.
It’s hard to think, especially given the lavish times of several months back when Niagaras of oil revenues were pouring into corporate coffers, that any operator would ever be out shivering in the cold, harsh winter of sub-$60/barrel oil prices, but that reality is now here. And those who prepared for it in better times, are holding their heads up.
Those companies that belt-tightened and practiced what CEOs love to call “capital discipline” even at $100/b oil, are now take comfort that their sacrifices had a purpose. It’s sort of like the satisfaction that comes after starving for a few weeks so you can wear a size 8 dress to the Christmas party (where you then gorge on chocolate and martinis, but that’s the moral for a different story). In any case, a number of oil-company “ants” that have publicly spoken at analyst conferences in the past week sounded rather complacent, even at oil price levels one might expect would keep them walking the floors at night.
They have told studious tales of living within their cash flows, hedging their oil at $90/b to protect their future revenue streams and ruthlessly driving down well costs and drilling times that allow them to release that cost maybe $25,000/day or $9 million a year each. They expand their best plays, don’t go out on a limb by buying into risky ones, conserve and re-invest their cash in their best areas. And when it makes sense, they own service lines such as sand mines or water-related businesses that lower overall hydraulic fracturing costs.
“We’ll get through [this period] just fine,” Gary Packer, chief operating officer of Newfield Exploration, said of the current industry downcycle at the Capital One Securities conference on Thursday. But “I suspect we’ll have less competition in the marketplace” afterward.
Dave Hager, chief operating officer for Devon Energy, said the company is “in outstanding shape.” Devon is spending $5-$5.4 billion on its 2014 capital program, although next year’s capex won’t be released until February. “We could, with similar levels of capital [to 2014], grow production 20-25%,” he said.
In addition, big Permian Basin operator Pioneer Natural Resources can keep drilling in the play, where it owns a Texas sand mine, has water projects and other overall cost-lowering infrastructure, company Chief Operating Officer Tim Dove said at the Capital One Securities conference last week.
“We still have a large number of economic wells” in the play,” Dove said. “Returns are still good in the $62/b range.”
Then who are the industry grasshoppers? Perhaps those that bit off more than they could chew when prices were flying high and no end to the party was in sight. If any grasshoppers attended recent industry conferences, they probably weren’t presenters. But it may not take long for the “for sale” signs to show up.
Old Olies have seen this cycle many times.
There are many “smart” Olies that know how to survive. $50-60 per barrel is not a collapse. The oil industry has seen “collapses”.
The Oil Industry has been very good to Texas. (note, I have never worked in it)
BTTT
Rigs are being stacked as we speak...
No doubt there will be slow down at these prices.
I think some of that will be driven by fear of how low it will go before price recovery and how long.
While headlines like this look scary:
U.S. Oil Rigs Drop Most in Two Years, Baker Hughes Says
http://www.bloomberg.com/news/2014-12-12/u-s-oil-rigs-drop-most-in-two-years-baker-hughes-says.html
Reality is, December 2012 was not a bad time for the oil industry.
Well said.
My suspicion is a slow crawl upward after Jan 1.
$100+/BBL will be a long-time coming but we may see $80/BBL by mid-2015 (note, I said “may see”).
Much of this current correction appears to be the result of the House of Saud attempting to collapse the Iranian regime (who can deliver the Saudis a nuke by tractor trailer any day).
Currently, the prospect of crude-based frac’ing in the PB may be getting some extra “on-the-shelf-space” with NatGas production. Just not economically viable. Will NatGas prices move in the opposite direction? Maybe but not until the end of the storage-draw season when hedge-groups start their pricing wars.
The greenies will be happy with reduced frac’ing; they won’t have to torture science to believe major earthquakes are of human origin.
Although less important to Saudi, Venezuela will collapse before Iran.
For the old timers it’s just another rodeo and a chance for us to build in size, we’ll start another drilling program in January.
Agreed.
Maduro (FINE cigar wrapper, BTW) will not change. His obstinence could ripple into Mexico but, we’ll just let more “Americans” in...
Thing is, the Sauds aren’t afraid of Iran outside of Iran’s desire to be the ME kingpin; it is like Al Capone slapping down the rival boot-legger in Benton Harbor MI.
If Iran can successfully deliver a nuke to SA, they send a REAL message to Israel. Israel is Iran’s (actually (Iran/Syria)’s intended target. The Sauds are trying to “suck all the money” out of Iran and agitate the “street” to cause regime change (with the meager help of the CIA).
Me, I’m not a fan of this backhanded BS. I’d rather walk in to Iran, create damage and chaos and let God sort it out.
But that is JUST me...and, maybe Dick Cheney :-)
Oil Bust Veterans Brace While Shale-Boom Newbies Swagger
http://www.bloomberg.com/news/2014-12-15/oil-bust-veterans-brace-while-shale-boom-newbies-swagger.html
And like many bust-hardened veterans in this region — which has made and broken the fortunes of thousands — he’s talking about it like a gathering storm. The ups and downs of oil are a way of life in Midland and Odessa, Texas, dating all the way back to the Great Depression. It’s as much a part of the culture as Gulf Coast hurricanes, and residents often prepare accordingly.
“We’re going to hunker down and go into survival mode,” Stephens, founder of Endeavor Energy Resources LP, said in an interview from his Midland office, where visitors are first greeted by a statuette of a Texas Longhorn steer. “Stay alive is our mantra, until the price recovers.”
Wait. Haven’t we been told for years by the Smart People that fossil fuels are obsolete and anyhow the supply will run out in just a few years unless we all use crappy lightbulbs, the flimsiest bungwad imaginable, and ride our bicycles to work while carefully limiting the emission of deadly poison carbon dioxide gas? That plus the colder temperatures brought about by global warming have caused an alarming spike in the murder rate.
Good to hear.
With some companies going out of business and more equipment going on sale at a discount because they have to liquidate, but also for the healthy companys It will mean less competition for the same equipment and more of it on the used market, is that correct ?
How much will it help the industry and healthier companies as a whole industry wide with cheaper equipment ?
The producers will pay less for material, equipment and labor as the demand drops. They won’t pay as much or any overtime for folks like me, hired to build new facilities or upgrade the ones they have. It will lower cost. It will lower the breakeven cost for plays.
It will also make the more expensive and marginal plays out of reach and we will see less growth in the production rate, and fewer jobs with less investment for production.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.