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Fallout from Crude Price Crash Pt. 2

General discussions of the systemic, societal and civilisational effects of depletion.

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Fallout from Crude Price Crash Pt. 2

Unread postby GoghGoner » Mon 16 May 2016, 09:29:23

What happens when your assets are junk bought with free money? Another multi-billion dollar bankruptcy. They keep coming.

Breitburn Energy Partners Files for Chapter 11 Bankruptcy

Citing the “prolonged decline in commodity prices,” Mr. Washburn said Breitburn’s existing debt is unsustainable. In papers filed in the U.S. Bankruptcy Court in New York, Breitburn reported assets of $4.7 billion and debts of $3.4 billion as of March 31.

About $3 billion of Breitburn’s debts are bank and bond debt, topped by $1.25 billion in loans from lenders led by Wells Fargo Bank, NA. Breitburn is carrying $650 million of senior secured second-lien bonds and $1.1 billion in unsecured bonds.
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Re: Fallout from Crude price crash

Unread postby onlooker » Mon 16 May 2016, 09:48:05

Rock, or anyone else, I wonder if you can confirm this I got it from another site. "What is important is the EROEI FOR oil extraction has dropped from 50:1 to 10:1 for conventional wells and to 5:1 or less for fracked wells (without including environmental costs to polluting groundwater and soil). This translates into oil that is only profitable at $50/bbl and higher while consumers are experiencing demand destruction because they cannot afford oil even at $40/bbl.
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Re: Fallout from Crude price crash

Unread postby Tanada » Mon 16 May 2016, 12:16:39

onlooker wrote:Rock, or anyone else, I wonder if you can confirm this I got it from another site. "What is important is the EROEI FOR oil extraction has dropped from 50:1 to 10:1 for conventional wells and to 5:1 or less for fracked wells (without including environmental costs to polluting groundwater and soil). This translates into oil that is only profitable at $50/bbl and higher while consumers are experiencing demand destruction because they cannot afford oil even at $40/bbl.


These reports keep throwing out the claim that there is a bunch of demand destruction at current oil prices. As ROCKMAN has pointed out a dozen or so times, every barrel of crude being produced today is being sold today, and as I type this prices are over $47.50/bbl.

If that were not clear enough proof you can also look at world gasoline/diesel/kerosene consumption and see that today is higher than the same date in 2015, 2014 and so on and so forth.

We are consuming more oil today than we were before, where is this demand destruction all these theorists keep claiming is going on everywhere?

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Re: Fallout from Crude price crash

Unread postby ROCKMAN » Mon 16 May 2016, 13:41:26

T - I think the best slack you can give those folks is to expand that "demand destruction" phrase. We indeed have witnessed significant demand destruction...for $90/bbl oil. OTOH we've seen a significant increase in demand GROWTH thanks to oil under $40/bbl. And as sure as the sun will rise tomorrow if oil prices continue to increase will see demand destruction from the folks that could afford $40/bbl oil but can't afford $65/bbl oil.

IOW: YOU SAY TOMATO AND I SAY...SHUT THE F*CK UP. LOL.
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Re: Fallout from Crude price crash

Unread postby pstarr » Mon 16 May 2016, 13:59:33

Tanada wrote:
onlooker wrote:Rock, or anyone else, I wonder if you can confirm this I got it from another site. "What is important is the EROEI FOR oil extraction has dropped from 50:1 to 10:1 for conventional wells and to 5:1 or less for fracked wells (without including environmental costs to polluting groundwater and soil). This translates into oil that is only profitable at $50/bbl and higher while consumers are experiencing demand destruction because they cannot afford oil even at $40/bbl.


These reports keep throwing out the claim that there is a bunch of demand destruction at current oil prices. As ROCKMAN has pointed out a dozen or so times, every barrel of crude being produced today is being sold today, and as I type this prices are over $47.50/bbl.

The assertion for demand destruction is made occasionally , and only to counter claims for supply gluts that are used by ennui and adam to refute the peak oil phenomena and the current production plateau.

The fact of peak oil rests on a multitude of other observations and pretty rock-solid conclusions. Among those are basic geology, thermodynamic, eroei, POD, ELM, Hubbert's Curve and Deffeyes' Linearization, Colin Campbell and Jean Laherrère work on discovery/production trends, and Skrebowski's Megaprojects analysis. To name a few lol
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Re: Fallout from Crude price crash

Unread postby vtsnowedin » Mon 16 May 2016, 14:42:45

ROCKMAN wrote:T - I think the best slack you can give those folks is to expand that "demand destruction" phrase. We indeed have witnessed significant demand destruction...for $90/bbl oil. OTOH we've seen a significant increase in demand GROWTH thanks to oil under $40/bbl. And as sure as the sun will rise tomorrow if oil prices continue to increase will see demand destruction from the folks that could afford $40/bbl oil but can't afford $65/bbl oil.

IOW: YOU SAY TOMATO AND I SAY...SHUT THE F*CK UP. LOL.

My econ 101 class was back in 1974 so I am a bit rusty. As I recall the supply vs. demand curves/ diagram it was not that individuals stopped demanding a product (in college the example was beer,) at any given price point, say $65/bl. It was that they would still buy oil at $65 only less of it then they would buy at $40. Each individual has their own personnel demand curve as does each supplier. It is the aggregate of the curves both supply and demand that ultimately determines today's price.
And then there is elasticity. If the price of gas triples tomorrow your still going to have to drive that huge SUV you bought when gas was $2.00 to work tomorrow and for quite a while before you can trade it in for a smart car or move to within walking distance of your job. So a temporary price spike seems to have little or no effect but consistently higher prices for a couple of years or more will radically change peoples behavior and purchasing decisions which will show up as demand destruction but not on day one.
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Re: Fallout from Crude price crash

Unread postby GoghGoner » Mon 16 May 2016, 14:49:40

Another multi-billion dollar bankruptcy today.

SandRidge Energy files for bankruptcy with $4.1B in debt

SandRidge Energy filed for bankruptcy protection Monday, saying it hopes to convert $3.7 billion of long-term debt into equity while allowing the company to keep its operations going.
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Re: Fallout from Crude price crash

Unread postby ROCKMAN » Mon 16 May 2016, 14:57:12

vt - Good points. But: "It is the aggregate of the curves both supply and demand that ultimately determines today's price." And if one limits the supply...as Apple does from time to time. And the price increases. But not always the total sales volume: Selling phone $X at $800 ($400 profit margin) each creates total net income of $Y. But sell that phone for $600 (PM $200) and total net income increases to 1.5 $Y.

That's the value of a cartel when one can control price. Which is not what OPEC is today an has never been IMHO.

In the case of oil: for the most part supply always equals demand because, as you point out, price modulates both demand and supply.
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Re: Fallout from Crude price crash

Unread postby GoghGoner » Tue 17 May 2016, 09:30:02

Why oil and gas companies are barely scraping by

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"[Oil’s recent rise] is not enough," said Dicker. "You can’t find the financing to keep the lights on at $50 oil. Most of these guys won’t be able to keep the lights on at $65 or $70 oil."
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Re: Fallout from Crude price crash

Unread postby GoghGoner » Thu 19 May 2016, 05:49:11

Adam posted a sine wave curve in another thread to represent future shale production. Very simple way to visualize one possible scenario with shale supplies. However, I am much more pessimistic:

1) Fed is on the path for tightening
2) Investor sentiment in shale has to be in the crapper
3) The best holes are being drilled at these prices
4) Some decade-old basins like Fayetteville and Barnett were already in decline before the price went down


Shale Legend Floyd Wilson Strikes Out as Halcon Nears Bankruptcy

Halcon plans to file a Chapter 11 bankruptcy plan if enough lenders agree to the terms, the company said Wednesday in a press release.

Wilson, 69, became a legend in the U.S. shale industry after selling Petrohawk Energy Corp. for $15.1 billion in 2011. Halcon, which is Spanish for Hawk, was named in its honor. In the four years since, Halcon’s debt ballooned to $2.9 billion as Wilson bought up acreage in North Dakota, Texas, Mississippi and Pennsylvania, only to see several of the company’s prospects fail to pan out and oil prices collapse.

"He had this big home run with Petrohawk, and everybody looked at him and said, ‘Well, what are you going to do next?’ They threw money at him thinking he’d be able to do it again," said Ed Hirs, a managing director at Houston-based Hillhouse Resources, an independent energy company. "He just couldn’t beat these market conditions."
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Re: Fallout from Crude price crash

Unread postby ROCKMAN » Thu 19 May 2016, 06:49:30

"He had this big home run with Petrohawk..." Not how the Rockman would characterize it. More like getting a walk with the bases loaded and scoring the winning run. Petrohawk didn't make money drilling the Eagle Ford: they made all those $'s selling their undeveloped acreage to near sighted folks. The public company that paid them all those $billions: from the day they closed the deal their stock has been declining even during the high oil price period. Forget the $15 billion they paid Petrohawk: since the acquisition their stock has lost $100 BILLION in value.

IMHO Petrohawk has been the most successful EFS player: by selling the acreage and never drilling another EFS well. As the computer said in "War Games": the only way to win is to not play the game. LOL
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby Zarquon » Wed 25 May 2016, 15:51:02

A couple of years ago I read somewhere that during the crazy days of the shale boom a lease would sell for up to $25,000 an acre and that the only ones making any money at these prices were the ones flipping leases. But I have no way of putting that into perspective - how many acres would you lease before drilling a well that sets you back eight or ten million? What would have been considered a "normal", or sane, price before the gold rush, if there is such a thing as "normal"?

And IIRC it also said that a typical pre-boom lease contract would include a five-year expiry date - begin production or lose the lease for good - but during the boom this time often shrank to three years. If that is true, did it add much to the trouble the oil patch is in? Take the risk of drilling and perhaps sell the oil at a loss or risk losing the lease and the reserves you had already booked?
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby GoghGoner » Wed 13 Jul 2016, 09:34:46

A decade ago, $50 would have been considered a high price for oil.

http://finance.yahoo.com/m/a1ef176d-3b27-3ae2-8a0c-c7b3246d2c31/woodmac%3A-most-major.html

Most major conventional oil projects are at risk of cancellation or deferral if global prices remain at $50 a barrel, consultancy Wood Mackenzie said in a report on Wednesday.

Global upstream and exploration spending has already dropped by more than $1 trillion since the start of the oil price slump in mid-2014, the consultancy previously found, as cash-strapped oil companies tightened their purses.
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby pstarr » Wed 13 Jul 2016, 10:38:01

"A decade ago, $50 would have been considered a high price for oil. "

Gogh, I was just thinking the same thing. When I arrived here at peakoil.com crude had recently sold for less than $30/barrel. Many thought the rapid climb to $40 oil and above would be a catastrophe. It was, but much worse than any expected.

shortonoil wrote:The Shale is an industry with $362 billion per year in gross sales that required over $1 trillion in investment to construct. If it pays zero percent interest on that $1 trillion investment, and returned a 10% profit margin on gross sales it would require 27 years to just pay back its initial investment.

Even if crude price oil were to go over $70 (which would crush demand again), I don't see how the marginal players in shale etc. will new suckers to fleece.

"Fool me twice . . . I must be in Texas. Or is that Tennessee?"
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby ROCKMAN » Wed 13 Jul 2016, 11:05:42

"Even if crude price oil were to go over $70 (which would crush demand again), I don't see how the marginal players in shale etc. will new suckers to fleece."

Find new suckers??? They won't have to find them...the "suckers" will chase after them. LOL. You obviusly don't understand the greed factor. The same dynamic that just this morning lead the US stock market to a new all time high. Heck, the public doesn't see it but since the first of the year the Rockman has been focused on production acquisitions. Looked at a company 3 months ago: estimated a good acquisition price (for my company) was $16 million. Granted we don't tend to "leave money on the table" (pay too much). But that deal sold for $92 million. I can promise you that new "sucker" will loose their ass. Not a new phenominon...seen it in every big and little bust: sell the suckers on the idea that a company is very undervalued by an overreacting market place. Then add some very optimistic projections of increasing oil/NG prices along with a "new tech" and the suckers will coming banging on the door begging to get in. LOL

BTW it won't be the "marginal players" that will skin those future suckers. It will be the new players who will skillfully explain how they've learned from the mistakes of those incompetent players and have developed fool proof approaches to avoid the same mistakes.

In fact the Rockman himself has recently developed such a winning model even a non-technical investor could appreciate.
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby pstarr » Wed 13 Jul 2016, 11:28:21

I don't know RM. I don't believe people are quite as stupid as that. You only need to read the words of your illustrious Governor and President, GW Bush. They won't get fooled again. It's Tennessee.
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby Tanada » Wed 27 Jul 2016, 23:34:09

I was just looking a the weekly report and had a realization,
Crude Oil (Excluding SPR) +1.6to 521.1
Total Motor Gasoline +0.5 to 241.5
Distillate Fuel Oil -0.8 to 152.0
Other Oils +1.3 to 473.0
Crude Oil in SPR No Change at 695.1
Total US Petroleum Inventory +2.6 to 2082.7


Total inventory has been the number I generally watch to gauge whether the glut is abating or not. So long as the market has ample supply at $40/bbl or whatever the current price is the number should rise a little at a time, when the market price is higher and supply is tighter the number should start falling.

At least that is the assumption I have been making since early 2015. However it occurred to me tonight that other things can have a big impact on that number, like declining consumption due to a bad economy. Despite what people in power tell you everything is no rosy everywhere across the USA.Yes there is some job growth, but it is all on the entry level minimum wage end of the spectrum, and we are still losing highly paid positions in the oil industry with some regularity, not to mention the aging work force means retirees at their highest pay rate are exiting the work force and being not replaced, or replaced with much lower paid younger workers.

We are at about the peak of the demographic bubble, the baby boomers are starting to retire in large numbers. Only half of the population aged 50-60 years old is working full time based on federal government statistics, and that number falls to under 38 percent at age 62 and under 24 percent at age 65. With this huge bubble of retiring Baby Boomers the fuel demand should show an impact, even if its not an outright drop because many of those jobs will be filled by younger commuters.

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Re: Fallout from Crude Price Crash Pt. 2

Unread postby vtsnowedin » Thu 28 Jul 2016, 06:01:42

Tanada wrote:....
.....
We are at about the peak of the demographic bubble, the baby boomers are starting to retire in large numbers. Only half of the population aged 50-60 years old is working full time based on federal government statistics, and that number falls to under 38 percent at age 62 and under 24 percent at age 65. With this huge bubble of retiring Baby Boomers the fuel demand should show an impact, even if its not an outright drop because many of those jobs will be filled by younger commuters.

Image

I like your chart. I'm about to step off the mid green line and onto the light green one right where they cross. And yes I'll go from driving over a hundred miles a work day to less then a hundred a week. :)
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby ennui2 » Thu 28 Jul 2016, 08:42:22

pstarr wrote:Many thought the rapid climb to $40 oil and above would be a catastrophe. It was, but much worse than any expected.


You have no idea what a real catastrophe really is. I was here when people were quaking in their boots over oil passing $60. The world kept spinning.

Matt Simmons' talking about how much of a bargain oil is for what it does even if oil were to be over $100/bbl is instructive. The system holds at $100. It probably also holds even at $200, with some adaptations. At current prices it's a cakewalk.
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Re: Fallout from Crude Price Crash Pt. 2

Unread postby AdamB » Fri 29 Jul 2016, 19:45:54

pstarr wrote:"A decade ago, $50 would have been considered a high price for oil. "

Gogh, I was just thinking the same thing. When I arrived here at peakoil.com crude had recently sold for less than $30/barrel. Many thought the rapid climb to $40 oil and above would be a catastrophe. It was, but much worse than any expected.


Here is what was expected, a decade back when you claim peak oil happened. Looks like things worked out far better than expected. I paid $1.75/gal last weekend for fuel, certainly hard to complain about that, compared to what was expected.

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