16 percent rig utilization Jan 4

[79ford]

Originally Posted by martinnordegg

Oil is now at $32.50. Dollar $1.414. This is certainly one of the worst weeks so far for our economy.

You should see the chinese economy.... their stock market has crashed 7% twice so far this week, last night the market was shutdown after crashing 7% in 29 minutes. China is in some major trouble it seems.

I fear if our dollar keeps dropping our central banker might get waaay more than he bargained for and if central banks play the low interest rate too long and hard it is one goober of a mess to clean up if you hammer the countries currency too hard then try to prop it up some how.

[martinnordegg]

Originally Posted by 79ford

You should see the chinese economy.... their stock market has crashed 7% twice so far this week, last night the market was shutdown after crashing 7% in 29 minutes. China is in some major trouble it seems.

I fear if our dollar keeps dropping our central banker might get waaay more than he bargained for and if central banks play the low interest rate too long and hard it is one goober of a mess to clean up if you hammer the countries currency too hard then try to prop it up some how.

Absolutely! See Post 52. The Chinese numbers will be central to our outcome.

[Mangosteen]

The only thing that is going to save our GOAT is a full scale war between Saudi and Iran.

Can you just imagine all the clandestine planning going on by the powerful secret forces to provoke that war. There is lots of gain to be had by many.

Price of oil will shoot up hard
Arms sale will increase
Big Wealth Transfer again

We know why, and where.
I don't think we care about how or who now.

The question is WHEN will an event be created to kick it off.

[dogpound]

It's going to be very ugly here for some time. We have over built and had it so well for over a decade there is too much sloth and excess in the industry.

We did very well with oil prices between $25 to $45 per barrel, we will again some day. What people are missing is the reset over the next 18 months is going to be ugly, get your company situated to make money at $30/bbl and you will survive. We employed about 50% too many people in this sector for quite some time - the 50% remaining in the industry are going to be making 25 to 30% less when all is figured in.

Many companies will go broke creating a healthier environment for the service companies left standing and good opportunity for producers to secure assets at more reasonable capital costs. We are early in the cycle and drilling/completion costs are already off over 30% from 2 years ago.

[Deer Hunter]

Originally Posted by Mangosteen

The only thing that is going to save our GOAT is a full scale war between Saudi and Iran.

Can you just imagine all the clandestine planning going on by the powerful secret forces to provoke that war. There is lots of gain to be had by many.

Price of oil will shoot up hard
Arms sale will increase
Big Wealth Transfer again

We know why, and where.
I don't think we care about how or who now.

The question is WHEN will an event be created to kick it off.

With every drop in the price of oil, the middle east gets more and more volatile. It is wound up pretty tight prior to 35$ oil. I cannot see the Sunni's sitting back and watching Iran bring on a bunch of post sanction oil without some fireworks

[79ford]

Originally Posted by Mangosteen

The only thing that is going to save our GOAT is a full scale war between Saudi and Iran.

Can you just imagine all the clandestine planning going on by the powerful secret forces to provoke that war. There is lots of gain to be had by many.

Price of oil will shoot up hard
Arms sale will increase
Big Wealth Transfer again

We know why, and where.
I don't think we care about how or who now.

The question is WHEN will an event be created to kick it off.

The whole area is already at war and every party is producing more oil. War is expensive and countries over there have one way to get more money, pump more oil.

The united states likes cheap oil, they probably chuckle in the back room about how great it is that pretty much everyone they dont like is having a big oil pumping battle while obliterating their own economies. I am pretty sure they will bomb anyone who interupts their cheap oil party back to the stone age.

[tbiddy]

Originally Posted by dogpound

It's going to be very ugly here for some time. We have over built and had it so well for over a decade there is too much sloth and excess in the industry.

We did very well with oil prices between $25 to $45 per barrel, we will again some day. What people are missing is the reset over the next 18 months is going to be ugly, get your company situated to make money at $30/bbl and you will survive. We employed about 50% too many people in this sector for quite some time - the 50% remaining in the industry are going to be making 25 to 30% less when all is figured in.

Many companies will go broke creating a healthier environment for the service companies left standing and good opportunity for producers to secure assets at more reasonable capital costs. We are early in the cycle and drilling/completion costs are already off over 30% from 2 years ago.

Well said. Companies can still make money with cheaper oil. They just need all costs to go down. And like you said, the excess workforce will be unemployed and the rest of the people will have to adjust and live with making less.

And this will not only be an Alberta problem. There are lots of people that came from other parts of the country that will no longer have jobs. Those people will be going back home unemployed and looking for work.

[martinnordegg]

I see Crescent point announced a 16-39% or thereabouts decrease in Capital spending....but an INCREASE of 5% production.

As stated above Countries and Companies will pump themselves into oblivion. They have no choice but to keep cash flow rolling. The glut gets larger.

[midgetwaiter]

I guess you can add me to the list of blowhards in the "I told you so" section, However I don't think it's fair to call that gloating. I'm not happy about this. In the end it might not matter that I bought a house several hundred k cheaper than the bank said I could "afford" or that while everyone was running around enjoying themselves I was busting my arse trying to find a way to diversify my skills and position myself for the future.

There are cuts and layoffs and mergers galore in my industry and while I've survived so far it's certainly possible that I won't long term. Ultimately the kind of IT work I do requires a bunch of mid size and larger companies to buy a bunch of gear and need help setting it up, that isn't happening very much any more is it? This is going to hit all of us eventually, the guy with the wrench in his hand is just getting it first, like usual.

Five years ago I worked for a company that had some good ideas and some cool technology that made it work. When we went around town looking for investors you could see that none of these guys had even considered something that wasn't O&G in a decade. When we traveled to someplace like San Francisco people were enthusiastic but couldn't understand why we were trying to do it here, don't they only know how to do oil in Calgary? During the boom is when and where you have to drive efforts to diversify, not now. I don't know what kind of incentive you can use to try and drive that investment but we need to find one.

[angery jonn]

avb3, I did read all your posts, twice you talked about a real trade. So again are you saying patch work isn't a real trade?

[dogpound]

Originally Posted by midgetwaiter

I don't know what kind of incentive you can use to try and drive that investment but we need to find one.

You definitely need a jurisdiction that is capital friendly - one that values jobs versus attacking corporate profits.

Capital is the most mobile asset in the world, it goes where it gets the best return. Even these "green" or "pharmaceutical" companies wouldn't set up here as they also have accountants and shareholders that understand how tax codes work.

Manufacturing is done in the developed world until people wish to pay much more for local goods and workers are willing to live at a lower standard of living.

[The Elkster]

Based on what I see in the economics and more importantly the ultimate recoverable reserves per well we are never going to get to overall profitability with oil in the 30-40 range. Certainly not consistently over an extended area. Right now I'd say the average company may have lands that allow them maybe a 1:20 to 1:50 chance of hitting a well that produces prolifically enough to make money at $30-40 oil. Then that good well will have to not only stand on its own profitability but also has to shoulder the losses of the other wells that never make payout before the company can report a net profit. So in other words drilling is pointless given the overall downside risk.

As things mature and sweets spots are drilled up (happens quick with 1-2mile long Horizontals) we are forced to turn to worse and worse reservoir. That is the main reason that breakeven $/bbl has risen so much over the last 20 years. Costs have certainly gone up but more importantly reserves per well per dollar spent is down even more from what it would have been 15-20 years ago. And there is little prospect of a new breakthrough discovery that is going to change that. Alberta has been drilled up big time. There aren't a lot of mysteries. Pretty much everything that is being developed now has been known about for years and years like the oilsands but the poor reservoirs were just never economic until the last boom.

Most countries are in a similar boat though. The day is soon coming when even Saudi Arabia is going to run short and have to throw gobs of money at drilling and enhance recovery in order to maintain current rates. Ghawar field is their rock has been producing for years and still produces 60% of SA output. And its only estimated to have give or take 20 years of reserves left based on todays output. A decline in that one pool, the crown gem of O&G world for 40 years will have profound impacts on O&G. And most of SA production comes from 5 mature pools. Food for thought.

More food for thought from Wiki...

"Diplomatic cables leaked during the United States diplomatic cables leak in 2011 revealed that Sadad al Husseini, former vice president of Saudi Arabia's oil monopoly Saudi Aramco, warned the US that the oil reserves in Saudi Arabia might in fact be 40% (300 billion barrels) lower than claimed."

[dogpound]

Originally Posted by The Elkster

Based on what I see in the economics and more importantly the ultimate recoverable reserves per well we are never going to get to overall profitability with oil in the 30-40 range. Certainly not consistently over an extended area. Right now I'd say the average company may have lands that allow them maybe a 1:20 to 1:50 chance of hitting a well that produces prolifically enough to make money at $30-40 oil. Then that good well will have to not only stand on its own profitability but also has to shoulder the losses of the other wells that never make payout before the company can report a net profit. So in other words drilling is pointless given the overall downside risk.

As things mature and sweets spots are drilled up (happens quick with 1-2mile long Horizontals) we are forced to turn to worse and worse reservoir. That is the main reason that breakeven $/bbl has risen so much over the last 20 years. Costs have certainly gone up but more importantly reserves per well per dollar spent is down even more from what it would have been 15-20 years ago. And there is little prospect of a new breakthrough discovery that is going to change that. Alberta has been drilled up big time. There aren't a lot of mysteries. Pretty much everything that is being developed now has been known about for years and years like the oilsands but the poor reservoirs were just never economic until the last boom.

Most countries are in a similar boat though. The day is soon coming when even Saudi Arabia is going to run short and have to throw gobs of money at drilling and enhance recovery in order to maintain current rates. Ghawar field is their rock has been producing for years and still produces 60% of SA output. And its only estimated to have give or take 20 years of reserves left based on todays output. A decline in that one pool, the crown gem of O&G world for 40 years will have profound impacts on O&G. And most of SA production comes from 5 mature pools. Food for thought.

More food for thought from Wiki...

"Diplomatic cables leaked during the United States diplomatic cables leak in 2011 revealed that Sadad al Husseini, former vice president of Saudi Arabia's oil monopoly Saudi Aramco, warned the US that the oil reserves in Saudi Arabia might in fact be 40% (300 billion barrels) lower than claimed."

Agreed Elkster - you are correct for the mindset of $70 to $100 oil...its expectations that have to change and operating and drilling techniques.

Producers will no longer count on 90 to 150 day payouts of capital - that was an abhoration of the last 5 years.

We don't really know if the techniques we are using today will prove to be correct or most efficient or productive (ie. why spend so much on directional and high HP rigs to go 1 to 2 miles?, maybe the sweet spot is 4 wells with 400 to 500 meter laterals - with smaller & cheaper fracs/rigs? Perhaps having a well you can actually stimulate after 2 to 3 years instead of the these few longer wells we can't do anything with may be a better use of capital? My point is who knows, we like to think we have it all figured out but usually that's not the case.

The next time we are at $55 it will feel like $75-$80 - everyone is just going to make less and everything won't be as easy - just like it used to be.

[hal53]

Originally Posted by martinnordegg

I see Crescent point announced a 16-39% or thereabouts decrease in Capital spending....but an INCREASE of 5% production.

As stated above Countries and Companies will pump themselves into oblivion. They have no choice but to keep cash flow rolling. The glut gets larger.

Did you read further in their news release and see that of the money they have budgeted to spend, only 8% will be spent in Alberta?...and their reason why?

[hal53]

Originally Posted by 79ford

The whole area is already at war and every party is producing more oil. War is expensive and countries over there have one way to get more money, pump more oil.

The united states likes cheap oil, they probably chuckle in the back room about how great it is that pretty much everyone they dont like is having a big oil pumping battle while obliterating their own economies. I am pretty sure they will bomb anyone who interupts their cheap oil party back to the stone age.

Now that the U.S. is back to exporting oil after a 40 year hiatus, I have a hard time believing they like the sub $40.00 product, especially for shale oil. If anything, the U.S. would like to see them bombed back to the stone age to reduce or eliminate their over production capabilities

[martinnordegg]

Originally Posted by hal53

Did you read further in their news release and see that of the money they have budgeted to spend, only 8% will be spent in Alberta?...and their reason why?

I sure did! It just has to be said: Uncertainty revolving around the Royalty Review.

[Mangosteen]

http://mobile.reuters.com/article/idUSKBN0UL24820160107

This is a good article reflecting on the Goldman Sachs prediction months ago which is now reality.

[The Elkster]

Originally Posted by hal53

Now that the U.S. is back to exporting oil after a 40 year hiatus, I have a hard time believing they like the sub $40.00 product, especially for shale oil. If anything, the U.S. would like to see them bombed back to the stone age to reduce or eliminate their over production capabilities

US exports don't change anything in the overall supply demand picture nor do they indicate an excess of US oil. Some real misconceptions about what US exports mean. The US is producing 9mmbbl but still net importing 5mmbbl/d over and above that. They are not net oil exporters and were never expected to reach that goal before the shale boom hit its peak. The US as a net importer gain more through lower prices than high prices and one booming sector. Some sectors get hit but the overall result to the economy is positive with lower prices.

The only difference the export relaxation is going to make is in realizing a reduced spread between other global pricing and US pricing (and the difference hasn't been that big). That and the US refining is ramped up for heavy oil these days as for a long time it was looking like places like the oilsands and Venezuela heavy were going to be key suppliers. The US shale output is creating in an excess in light oil only...so they export some light and bring in more heavy. Gain a bit reducing local gluts in certain grades.

[hal53]

Originally Posted by The Elkster

US exports don't change anything in the overall supply demand picture nor do they indicate an excess of US oil. Some real misconceptions about what US exports mean. The US is producing 9mmbbl but still net importing 5mmbbl/d over and above that. They are not net oil exporters and were never expected to reach that goal before the shale boom hit its peak. The US as a net importer gain more through lower prices than high prices and one booming sector. Some sectors get hit but the overall result to the economy is positive with lower prices.

The only difference the export relaxation is going to make is in realizing a reduced spread between other global pricing and US pricing (and the difference hasn't been that big). That and the US refining is ramped up for heavy oil these days as for a long time it was looking like places like the oilsands and Venezuela heavy were going to be key suppliers. The US shale output is creating in an excess in light oil only...so they export some light and bring in more heavy. Gain a bit reducing local gluts in certain grades.

True, but as it stands right now, they can export light crude at say $30/bbl. and import heavy at $20/bbl.. the differential , to a degree, is to their advantage...

[The Elkster]

Absolutely that flexibility will help them somewhat. Just wanted to point out it makes no difference to global balance as some people think. I'm willing to bet if you asked a 1000 people at least half would answer that they think the US is energy independent with oil to spare based on all the recent hoopla about the shale revolution LOL.

As I say we are in a time of max negative. The herd are very emotional and only negative issues will be considered at this point. Take the Saudi/Iran conflict. Had that happened in boom times oil would have jumped $20 on that news as it is a very real issue that puts 12-14mmbbl/d at risk. Instead within a day of the dustup this time around I read several articles quickly trumpeting how this conflict certainly will not affect prices, like they really know where it will stop.... So what's changed? "Perceptions" is the answer. Invest accordingly. Experienced investors generally refer to this bottom as time to make incremental BUYs.

[79ford]

Originally Posted by hal53

Now that the U.S. is back to exporting oil after a 40 year hiatus, I have a hard time believing they like the sub $40.00 product, especially for shale oil. If anything, the U.S. would like to see them bombed back to the stone age to reduce or eliminate their over production capabilities

They spend alot of time and money keeping iraq stable enough to pump oil and iraq is the main culprit for middle east over production of oil. They let iran have a nuclear deal which may include millions of new barrels coming back to market after sanction come off.

The usa is also trying to work the libyans into some sort of 'peace' one of the quotes was libya has alot of idle oil capacity not being fully utilized.

Bush and Cheney administration theorized if they could get Iraq producing to negate saudis swing capacity opec would become irrelevant, little did they know the usa itself would also make opec irrelevant. The guys were geniuses in that sense, the usa runs on cheap oil.

[79ford]

Originally Posted by The Elkster

Absolutely that flexibility will help them somewhat. Just wanted to point out it makes no difference to global balance as some people think. I'm willing to bet if you asked a 1000 people at least half would answer that they think the US is energy independent with oil to spare based on all the recent hoopla about the shale revolution LOL.

As I say we are in a time of max negative. The herd are very emotional and only negative issues will be considered at this point. Take the Saudi/Iran conflict. Had that happened in boom times oil would have jumped $20 on that news as it is a very real issue that puts 12-14mmbbl/d at risk. Instead within a day of the dustup this time around I read several articles quickly trumpeting how this conflict certainly will not affect prices, like they really know where it will stop.... So what's changed? "Perceptions" is the answer. Invest accordingly. Experienced investors generally refer to this bottom as time to make incremental BUYs.

People and investors have finally figured out that when war is going on oil production goes up to pay for things. Iraq and saudi arabia plus iran soon are all pumping like there no tommorow.

Lots of people seem to forget countries like russia, iran, iraq,angola,algeria,saudi arabia, uae,qatar, kuwait, kazakstan etc can all produce oil profitably at 30$..... probably 60-70% of the worlds oil is still profitable and that means they can ramp up production to offset lower prices(somewhat)

[The Elkster]

Originally Posted by 79ford

They spend alot of time and money keeping iraq stable enough to pump oil and iraq is the main culprit for middle east over production of oil. They let iran have a nuclear deal which may include millions of new barrels coming back to market after sanction come off.

The usa is also trying to work the libyans into some sort of 'peace' one of the quotes was libya has alot of idle oil capacity not being fully utilized.

Bush and Cheney administration theorized if they could get Iraq producing to negate saudis swing capacity opec would become irrelevant, little did they know the usa itself would also make opec irrelevant. The guys were geniuses in that sense, the usa runs on cheap oil.

So we are expecting peace to break out across the ME now LOL. There might be lots of positive stuff in the works but there is an equal amount (and I dare say far more) potentially destabilizing issues. Regional fighting, ISIS, political stability due to fiscal austerity and/or religious ideology, a breaking of rules needed to lift sanctions (see Iran missile testing), reservoir complications, lack of investment $'s.

OPEC has never been in control as much as perception dictated. Even when they maintained production targets most members ignored them and pumped at will. Much of OPEC's clout was solely due to SA having excess production of capacity of 10mmbbl/d (back in the 80's). That gave them a lot of leeway in controlling production and it was in their best interest to have quota's at the time given their significant excess production which would have driven prices into the ground in an open market.

With SA now having very limited excess supply at hand they have lost some ability to control the markets specially if a shortage forms due to a number of reasons. No longer can they open the taps and bring on another 2-4mmbbl/d overnight. Wait till we have a supply hiccup and the significance of that fact really hits home. We haven't had this little spare production capacity for a long time. Little wiggle room = instability = extreme price volatility.



Here is a good read for you on swing producers

http://www.artberman.com/investors-b...-of-the-world/

[79ford]

Originally Posted by The Elkster

So we are expecting peace to break out across the ME now LOL. There might be lots of positive stuff in the works but there is an equal amount (and I dare say far more) potentially destabilizing issues. Regional fighting, ISIS, political stability due to fiscal austerity and/or religious ideology, a breaking of rules needed to lift sanctions (see Iran missile testing), reservoir complications, lack of investment $'s.

OPEC has never been in control as much as perception dictated. Even when they maintained production targets most members ignored them and pumped at will. Much of OPEC's clout was solely due to SA having excess production of capacity of 10mmbbl/d (back in the 80's). That gave them a lot of leeway in controlling production and it was in their best interest to have quota's at the time given their significant excess production which would have driven prices into the ground in an open market.

With SA now having very limited excess supply at hand they have lost some ability to control the markets specially if a shortage forms due to a number of reasons. No longer can they open the taps and bring on another 2-4mmbbl/d overnight. Wait till we have a supply hiccup and the significance of that fact really hits home. We haven't had this little spare production capacity for a long time. Little wiggle room = instability = extreme price volatility.



Here is a good read for you on swing producers

http://www.artberman.com/investors-b...-of-the-world/

well according to the International energy agency and other sources we have anywhere from 1.5-3 million extra barrels of production sloshing around and everyone is bent on producing more oil.

You would need to knock a country like Canada or venezuela off the map just to get back to balance and there would still be a record setting piles of inventories sitting around.

A whole countries worth of production has to disappear just to stop the glut from getting bigger.

The commodities thing is a china thing, oil may end up just like coal, copper, iron ore etc.

Maximum pessimism is probably a year away, 2015 was the year everyone was waiting for a rebound, 2016 will be bellying up to reality and trying to keep the pedal to the floor on production, if oil is still in the 30's or lower at the end of the year the real reality and cost cutting will set in.


If Exxon Mobil or imperial oil start cutting jobs that is when max pessimism starts.

[Skytop B]

Can you guys talk about gas for a bit?

[Bergerboy]

Originally Posted by Skytop B

Can you guys talk about gas for a bit?

Henry Hub is at its lowest since 1999. Maybe the coal to natural gas fired power generating plants will turn that around for us.

[Mangosteen]

February contract is at 2.40

At least it has not plummeted from three bucks.

I remember we used to do well in the late 80's and early 90's when gas was a buck an MCF.

Two thirds of Western Canada is still gas related.

[The Elkster]

I think there is definitely some upside potential for gas now that oil and gas drilling is off. Supplies are up but usage is rising also. I don't think it is unrealistic to hit $5 within the next few years. $4-5 gas and better LPG prices would bring back significant drilling I'll say that much. Should be low enough to minimize LNG imports which are running about $7 but high enough to make a big difference to the bottom line. Need some help from the weather. Pray for a very strong second half back east.

Longer term the biggest help will be the green initiative away from coal. Gonna take a lot of nat. gas to replace that power generation. It'll be interesting to see what happens as we start pushing for those goals.

[Sloughsharkjigger]

Look at the brite side.... we now have a 4 lane highway to Ft McMurray!

[ForwardBias]

Originally Posted by The Elkster

I think there is definitely some upside potential for gas now that oil and gas drilling is off. Supplies are up but usage is rising also. I don't think it is unrealistic to hit $5 within the next few years. $4-5 gas and better LPG prices would bring back significant drilling I'll say that much. Should be low enough to minimize LNG imports which are running about $7 but high enough to make a big difference to the bottom line. Need some help from the weather. Pray for a very strong second half back east.

Longer term the biggest help will be the green initiative away from coal. Gonna take a lot of nat. gas to replace that power generation. It'll be interesting to see what happens as we start pushing for those goals.

Agreed.