Fractured Finances
Excerpts:
The Economist has examined the books of the 62 largest listed exploration and production (E&P) firms in America whose collective output is mainly from shale.
Assume a firm is in trouble if its net debt is more than eight times its annual cashflow from operations (based on the annualised first-quarter figures and excluding the benefit from derivatives). On the basis of this snapshot, 29 of the 62 firms are distressed, owing a total of $84 billion.
Based on the first quarter (excluding derivative gains), their overall annualised return on capital was 8%, before any taxes or any capital investment. After deducting a rough guess at the capital investment required to keep production flat in the short term, returns on the historic capital invested fall to zero. Some 55 of the 62 firms, accounting for 4% of global oil production, are making inadequate returns, by our reckoning.
Shale oil output heads for record drop after US drilling swoon
HOUSTON (July 14): Shale fields that powered the US energy renaissance will suffer the biggest drop in output since the boom began after companies pulled more than half their drilling rigs.
Production from the prolific tight-rock formations such as the Eagle Ford in southern Texas will decline 91,000 barrels a day in August to 5.36 million, the Energy Information Administration said Monday. It’s the fourth month in a row production is expected to slide, after more than tripling from 2007.
Output is slipping after producers from ConocoPhillips to EOG Resources Inc. reduced the number of drilling rigs in order to cut costs following a 50% drop in the price of oil. About 645 rigs were drilling for oil last week, down from 1,609 in October, according to oil-field service company Baker Hughes Inc.
“The market is largely anticipating oil production to keep declining this year and snap back to a certain extent in 2016,” Andrew Cosgrove, a Princeton-based energy analyst for Bloomberg Intelligence, said by phone Monday. Second-half declines this year will be muted, due to high-grading and efficiency gains, he said.
West Texas Intermediate crude for August delivery fell 54 cents to settle at US$52.20 a barrel Monday on the New York Mercantile Exchange. It’s down 51% from the 2014 peak of US$107.26.
“We need to see oil prices above US$60 and more toward US$65 to spur a recovery in the rig count,” Cosgrove said. “The longer it stays below US$60, the harder it’s going to be for US production to ramp back up.”
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http://www.theedgemarkets.com/sg/article...ling-swoon
(04-02-2015, 01:26 PM)lilvestor Wrote: [ -> ]I think the bottom is most likely already in, but there is little reason for oil prices to move back up to $80 or $70 now. The oversupply situation hasn't changed much, and its very easy to restart shale oil production so a V-shaped recovery in oil prices will worsen the glut very quickly.
I'm of the view that the marginal producers need to go out of business before there can be any sustainable recovery. Its not going to happen so easily or quickly, it will be a long drawn out process.
5 months later and there still aren't many bankruptcies in the shale or deepsea drilling sector, looks like this could take another year...
The trick, seems on the hedges i.e. the price insurance...
Revamped U.S. oil hedges may test OPEC's patience
As a war of nerves between U.S. shale producers and Gulf powerhouses intensifies, OPEC's biggest members are counting down the months until their upstart rivals lose the one thing shielding them from crashing oil prices - hedges.
They may need much more patience than they reckon, however, because those hedges are a moving target. Rather than wait for their price insurance to run out, many companies are racing to revamp their policies, cashing in well-placed hedges to increase the number of future barrels hedged, according to industry consultants, bankers and analysts familiar with the deals.
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http://www.reuters.com/article/2015/01/0...BX20150105
The deal has definitely an impact on global oil supply...
Factbox: Sanctions on Iran's oil sector
July 14): Iran and six world powers reached a nuclear deal on Tuesday, capping more than a decade of negotiations with an agreement that could transform the Middle East, and which Israel called an "historic surrender".
Under the deal, sanctions imposed by the United States, European Union and United Nations would be lifted in return for Iran agreeing long-term curbs on a nuclear programme that the West has suspected was aimed at creating a nuclear bomb.
International sanctions imposed to force Iran to curb its nuclear programme have halved its oil exports to just over 1 million barrels per day since 2012, and hammered its economy.
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http://www.theedgemarkets.com/sg/node/216059
Iran may be thinking like Saudi, hoping to pump and export as much as possible before renewable tech drops the demand for oil.
They can always develop their nuclear weapons tech later on when they have made enough money and there is no more oil underground...
In the mean time the loosening of sanctions means millions of barrels gonna flood the oil market. Oil likely downtrend for next few months.
(14-07-2015, 10:51 PM)BlueKelah Wrote: [ -> ]In the mean time the loosening of sanctions means millions of barrels gonna flood the oil market. Oil likely downtrend for next few months.
I will be grateful if you could advise how many million barrels of oil is expected to flood the oil market within the next 3 to 6 months.
Iran reportedly has 20 million barrels in storage ready to go. The current oil fields should be able to ramp up to half million barrels per day, within weeks and another half million per day from those closed fields which could take a couple months to reopen. So we are looking at about an extra million per day hitting the market soon once that 20 million barrels is sold.
The deal is more or less signed and good to go but for some reason, it seems to need to pass through usa congress. It will likely be approved on the USA side since they are the ones doing all the talking and negotiating, though it might still have a small possibility of failing to get through if USA congress politicians try to block Obama.
Hitnrun
Pls up my rep if u are grateful.. heh..
sent from my Galaxy Tab S
Based on the article, the oil price has already priced-in the Iran deal. Nevertheless the pressure on oil price will sustain...
Oil prices finish higher after Iran deal
15 Jul 2015 07:05
[LONDON] Oil prices rose on Tuesday as markets weighed the effects of Iran's deal with six world powers on curbing the Islamic republic's suspected ambitions for a nuclear bomb.
US benchmark West Texas Intermediate for August delivery gained 84 cents at US$53.04 a barrel on the New York Mercantile Exchange.
European benchmark Brent oil for August delivery added 66 cents at US$58.51 a barrel in London.
"I think people had already sold down the price of oil, expecting an agreement," said Michael Lynch, an analyst with the US-based consultancy Strategic Energy & Economic Research. "So it's a case of selling on the rumour and buying on the news." "Now that it's actually happened, people are buying back in," Lynch said.
Analysts said the landmark agreement that will see sanctions eventually lifted on Iran's oil exports would help to put a lid on any rise in crude futures this year and in the future.
"To be clear, the return of Iranian oil exports over the next year is one factor likely to keep oil prices low," said Thomas Pugh, commodities economist at consultants Capital Economics.
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Source: Business Times Breaking News