[Mick22]

When your options are to produce at a loss or go bankrupt, guess which option producers will take? Anyone thinking they'll willingly cut production is assuming they'll willingly go bankrupt. This is a global game of chicken and everyone is going to hang in as long as they can.

Anyone doubting this needs only to read the EIA reports. Rigs down 10 weeks yet production up continuously. Their only source of income is producing oil, so they will produce oil. You can bank on it.

[GHung]

Not much different from the real estate boom, pre-2008. I watched developers turning a couple of million dollars of debt into tens of millions hoping for the next closing or flip. They'll keep doing it until the Sheriff shows up with papers or somebody in better shape cuts their losses. Too much inventory; not enough buyers; prices suck. At least the oil patch can fall back on hedges,, until they can't.

[shallow sand]

Mick22. I note you are new posting here and so I do not know your background.

In any event, if you are not aware, please familiarize yourself with the tremendous cost difference between operating oil and gas wells versus the cost of drilling and completing them. In particular, please review this as pertains to the horizontal "shale" oil and gas wells, which have driven US oil and gas production growth in recent years.

Also, please familiarize yourself with the various "lag times" which occur not only with the time between drilling and completion, but also state reporting of oil and gas production. Note also that the EIA weekly estimates are just that, and that they are routinely revised. The states have the true production info first, although Texas info is not complete for many months.

As you may know, the main stream media many times does not differentiate and, at least to me, it is infuriating. Also, some who post here fail to differentiate.

You are absolutely correct that almost no PRODUCING oil or gas wells will be shut in at current prices. The ones that will be are marginal producers, and will not affect overall US production that much. Producers will operate many of these wells at a loss, at least for awhile, as there are various reasons why shutting them in is problematic.

On the other hand, drilling and completing of new wells appears to have been affected quite a bit by the significant drop in oil and gas prices, with rigs being taken out of service in large numbers. It is too early to tell what the result will be on oil production, on my opinion, although my guess is in a few months overall US oil production will level and then begin to slowly fall if oil rig counts fall to 800 or less.

You may already know everything I posted, and if you do, I apologize. There are some people who post here and on PeakOilBarrel.com regularly who are very knowledgeable about US oil and gas production, more so than me, and it is worthwhile to read both their factual information, as well as their opinions.

[ROCKMAN]

Just to add to Shallow's excellent post: I won't go into the details again but we won't see publicly available data until next summer indicating the BEGINNINGS of the effect on production from the drilling slow down we’re experiencing today. The readily available production data I can pull up today ends last November. And much of that new production is from wells the completed drilling last summer. IOW the current trend in production increases reflects drilling activity 6+ months ago…not today.

[FarQ3]

The bankers will be knocking on the door soon if they aren't already. If a company doesn't look like turning a profit in the foreseeable future the banks will want to bring down the curtain to limit their exposures. And then the great investor exodus as the margin calls come in they'll flee like rats from a sinking ship.

When the profit reports come in I'm sure we'll see some red.

[rockdoc123]

as an addendum to ROCKMANS post the shale plays experience very rapid declines over the first 24 to 36 months before the level off at what is a prolonged but comparatively low rate. So besides having to wait to see the results of what drilling provided over the past 6 months you really need to wait about a year to see the effect of the steep early declines in production.

Also it is important to realize oil companies are only interested in full scale economics before they drill a well. Once that well is drilled the costs are capitalized and economic decisions going forward look at those costs as being sunk. So even if a company drills a well and gets a result which isn't as good as they hoped it may still make sense to complete the well and produce it as the point forward economics make sense. It gets to the point that the company can stay in business as long as its operating costs (some call this lifting costs) are lower than what they get in revenues from sales (Shallow Sand alluded to this). The sunk costs only come into play if the company took on debt to cover capital outlay which means their revenues also have to cover debt carrying costs. Often the rates can be renegotiated with banks (exchange of convertible warrants as an example) especially if they believe commodity price will rise in the future.

[shortonoil]

"They'll keep doing it until the Sheriff shows up with papers or somebody in better shape cuts their losses."

The average Bakken well produces 2,553 barrels during its 24th month. According to Plains All American today, Williston Basin Sweet is $35.94/b. On an $8.5 million drilling loan for 10 years @ 5%, the payments are $90,155 per month. 2,553 barrels at $35.94 is $91,748 per month gross. After OPEX most of these wells are not going to be able to make their payments after a year. The older wells that weren't hedged must already be getting ready for the Sheriff to arrive. Next year he is going to have to hire a few more Deputies.

http://www.thehillsgroup.org/

[Poordogabone]

At least the oil patch can fall back on hedges,, until they can't.

Does that mean that they sell their oil at a predetermine price higher than the real price? And if so wouldn't that give an incentive to produce as much and as fast as possible while the going is good?
The december's US production numbers are available on the EIA website and just about every state's production is up.

http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm

[Subjectivist]

How much further can ths process play out? A couple mnths ago bankruptcies were making headlines, but lately it seems to all be under the radar.

[KaiserJeep]

Perhaps it is time to inject a little basic economics into this discussion. The world is replete with businesses which are operated at a loss, and there are many that have never showed a profit in their entire life. If folding a business and declaring bankruptcy will result in the loss of more money than continuing to operate at a loss, one will continue to operate at a loss. This is frequently the case when there is no market for your production machinery or your business real estate, the payment for these assets which typically are financed over extended periods so that the business shows a profit earlier, amount to fixed costs that must continue to be paid, regardless whether you are producing product.

For example, the smart money in America got out of the steel business early on, when it became obvious that American steel mills, which had to meet EPA pollution standards, could not compete with Chinese and Indian and Korean steel mills which had no pollution standards. The last few steel mills in America operated at a loss in cities such as Pittsburgh, and their rusting hulks are still visible in that now sweet-smelling city (at least, compared to what it smelled like when tens of thousands were employed making steel there). These steel mills ran themselves into the ground, gaining concessions from both government and organized labor, and then folded without even enough funds remaining to scrap and sell the facility itself. There they sit, still:

[ROCKMAN]

Sub - "A couple mnths ago bankruptcies were making headlines...". You know what the MSM says: If it bleeds it leads. But they also say: Old news is not Bold news. I suspect part of the MSM initial excite frtfrtom ignorance thinking those bankruptcies would produce a significant decrease in US oil production. Someone have covered it with a big story but I haven't seen it: Extra, extra: The potentially largest transfer of fossil fuel wealth in history may have just begun!

Basicly the public hasn't heard of the vast majority of the companies that have filed. More important except for oil patch publications where have you've seen reports of the many companies not filing bankruptcy but are selling reserves? And much more important: we've seen many MSM stories about the high cost per bbl to develop oil from the shale plays. But have you seen one MSM story about the $BILLIONS of proved producing reserves that are acquired by companies for $10 to $20 per bbl? IOW even if oil never goes above $45/bbl the profit from those acquisitions are locked in.