'admin' pid='66208' dateline='<a href="tel:1453727 Wrote:Hedge funds and private equity groups armed with $60bn of ready cash are poised to snap up the assets of bankrupt US shale drillers, almost guaranteeing that America’s tight oil production will rebound as soon as prices start to recover. Daniel Yergin, founder of IHS Cambridge Energy Research Associates, said it is impossible for OPEC to knock out the US shale industry though a war of attrition even if large numbers of frackers fall by the wayside over coming months.Saudis ‘will not destroy the US shale industry’ - Telegraph
“It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale,” he said, speaking at the World Economic Forum in Davos.Saudis ‘will not destroy the US shale industry’ - Telegraph
Yet even if scores of US drillers go bust, the industry will live on, and a quantum leap in technology has changed the cost structure irreversibly. Output per rig has soared fourfold since 2009. It is now standard to drill multiples wells from the same site, and data analytics promise yet another leap foward in yields. “$60 is the new $90. If the price of oil returns to a range between $50 and $60, this will bring back a lot of production. The Permian Basin in West Texas may be the second biggest field in the world after Ghawar in Saudi Arabia,” he said.Saudis ‘will not destroy the US shale industry’ - Telegraph
Saudi Arabia's oil minister Ali al-Naimi Yet oil demand is still growing briskly. The world economy will need 7m b/d more by 2020. Natural depletion on existing fields implies a loss of another 13m b/d by then. Adding to the witches’ brew, global spare capacity is at wafer-thin levels - perhaps as low 1.5m b/d - as the Saudis, Russians, and others, produce at full tilt.
No one seems to be getting it yet. It's still early, but a year later since my first posting.
The Telegraph in the link above is correct in their assessment except for one thing. True, finding capital and willing investors to take over and restart failing oil companies and assets is unlikely to be a problem in this country and perhaps elsewhere until the most attractive assets are acquired. The real problem will be getting people who are capable of doing the highly technical work. Also oilfield equipment which has been in use and is then stacked does not store well. And maintenance work to keep it in good condition for future use is the first cost that is cut in hard times. In fact rental companies often do poor in this regard in busy times as there is too much money to be made to have returned equipment being delayed due to scheduled maintenance. This is not the case for safety equipment but is for much other. So if prices were to quickly rebound, an equipment shortage will immediately occur. That and worse - a severe people shortage will collectively act like a huge anchor delaying projects and falling further behind on oil production. This is what always happens with severe, protracted busts.
But the most difficult problem to solve will be finding skilled, experienced oil field professionals. Like me, many have volunteered for enhanced severance "packages"or were forced out. The function of the number of these people they can hire back decreases with each new day at low oil prices. So a bidding war for talent and service providers who can do the work will begin. In the meantime oil demand and supply curves will shift to much higher oil prices as ability to increase supply will lag.
If Iran succeeds in ramping up and all others continue to max out, then this could make the situation more severe and prolong it, making it harder, longer to catch up. The magnitude of staff reductions and equipment stacking already appears too great for any "soft recovery".
Increasing chaos in the weak exporting countries is a "wild card" that will increase volatility and could shift the picture quickly.
Best to all,
Kaliboo