Sunday, November 22, 2015

Oil Glut Crimps Activity in Shale Plays

Wall Street Journal:

More than 250,000 people world-wide have lost their jobs in the industry over the past year, according to Graves & Co., a Houston consulting firm. Many companies that were hoping to weather low energy prices without new rounds of layoffs and salary cuts may be forced to slash those costs yet again, said Eric Lee, an energy analyst with Citigroup.
“Who’s going to take the brunt of this? Shale has already cut back a lot,” Mr. Lee said, adding that new oil projects are being deferred around the world.
In a way, he added, oil companies are responsible for the current situation. During brief price rallies, they raced back into fields to drill new wells—adding to the global glut of crude and cutting off the price rebounds. Even as the number of rigs operating in the U.S. fell 60% so far this year, American oil production through August dipped just 3% from its April peak, federal data show.
What happened was a combination of declining costs for oil-field services and equipment and impressive feats of engineering. Companies doubled the amount of sand they pumped into wells, figuring out how to better prop open rock layers to draw out more oil and natural gas. Operators moved rigs into areas where crude flowed the most freely, cut the number of days it took to drill by nearly half and extended the length of horizontal oil wells to reach nearly 2 miles.
Costs for such big wells fell by as much as a third as oil explorers put extreme pressure on the suppliers that help them coax more fuel from the ground, including Halliburton Co. And producers became far more efficient. In the seven most prolific U.S. shale fields, they boosted oil production per rig by as much as 60% this year, according to federal estimates....
Earlier this month, EOG Resources Inc., a Houston-based shale driller, said some of its most prolific wells would yield a rate of return above 40%, even with U.S. oil prices at $50 a barrel.
But break-even prices don’t always give the whole picture of how much money a shale company must spend to pump oil and move it to market. They can exclude land costs, which for some companies amount to billions of dollars, and they don’t include the cost of using pipelines to transport crude, according to company financial statements and analyst reports.
In nearly all of its investor presentations this year, EOG has said it can turn a profit at prices at or below the prevailing oil price at the time of the presentation. Yet more than $6 billion in capital spending this year has produced nearly $4 billion in net losses over the past year for the company, which is an industry bellwether.
The company, which has said $40 oil is unsustainable, didn’t respond to requests for comment.
My understanding was that oil was cheaper to produce in the Permian, but that chart indicates that the Eagle Ford has a lower breakeven price.  So why is production increasing in the Permian and falling off precipitously in the Eagle Ford?  I love the line that in nearly all of its investor presentations EOG claims they can turn a profit at whatever the price of oil is at that time, all while losing their ass.  Nice.  I guess it is good Obama held back the shale oil boom, or oil companies would really be in trouble.  Thanks, Obama.  

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