[Tanada]

I strongly doubt it will take 8 YEARS to drive marginal producers out of the market. I believe in my most self serving opinion it might take 8 MONTHS, possibly even twice that long, but in no wise will it take 8 YEARS.

[Graeme]

Oil Collapse of 1986 Shows Rebound Could Be Years Away

The last time excess supply caused a plunge in oil, it took almost five years for prices to recover.

The CHART OF THE DAY shows how West Texas Intermediate, the U.S. oil benchmark, tumbled 69 percent from $31.82 a barrel in November 1985 to $9.75 in April 1986 when Saudi Arabia, tiring of cutting output to support prices, flooded the market. Prices didn’t claw back the losses until 1990. Oil has dropped 57 percent since June and OPEC members say they’re willing to let prices sink further.

bloomberg

[Pops]

It really is as if no one gets that 60-70-80%% of that 5mmbd will be gone in a year without continued drilling - this ain't grandpa's glut.

Keeping an eye on completions in the bakken will be a big tell. RIght now Ron at peakoilbarrel says there are 775 holes waiting to get their frack on - something about a new tax incentive is the current explanation. If that number goes up and holes made continues down the writing will be on the wall.

Except for Iraq which just broke 4mmbd for the first time.

[shallow sand]

Pops. Iraq is the wildcard. Who is supplying the expertise to get production to this level? And to think they are doing this in an area that has been war torn for years.

[WildRose]

Regarding Iraq, some interesting predictions have been made about potential production:

Beyond that, estimates varied considerably, but all foresaw a further significant increase in Iraq’s oil production capacity. At the low end, the Middle East Economic Survey estimated that Iraq could reach a production capacity of 4.5-6.0 MMBD within seven years.59 Energy expert Daniel Yergin noted that Iraqi production could rise to 5.5 MMBD sometime after 2010.60 And former Iraqi Oil Minister Issam Chalabi estimated that, with the right investments, Iraq could be producing around 6 MMBD by the end of the decade.61 Under any of these scenarios, Iraq would become the fourth-largest producer and third largest exporter of oil in the world.

Others offered even more optimistic views of Iraq’s production potential. Former Iraqi Undersecretary of Oil Fadhil Chalabi estimated that, with sufficient foreign investment, Iraq’s production capacity could be increased to 7 MMBD within five years and 8 MMBD over six to eight years.62 In the longer term, he ventured, “A totally rehabilitated and sanctions-free Iraq could expand its production capacity way beyond 8 [MMBD], easily reaching 10 [MMBD], and theoretically even 12 [MMBD] under certain conditions…”63 Likewise, former Vice-President and Executive Director of the Iraq National Oil Company (INOC) Tariq Shafiq, estimated after the war that Iraq’s present proven reserves could support a production rate of 10 MMBD and 12 MMBD as new potential reserves were brought in.64

http://www.gloria-center.org/2005/06/du ... 005-06-07/

[ROCKMAN]

Folks again need to focus on how a “marginal producer" is defined by. $30/bbl oil isn't going to cause any existing wells in the US, the KSA or anywhere else in the world to stop producing. Once again: I have many wells that would still generate nice net cash flows at $10/bbl. So does the KSA. But there are very few NEW wells in the US that would be drilled at that price. But guess what folks: neither does the KSA and most other NOC’s. As has been pointed out before the most of the remaining reserves YET TO BE DEVELOPED in the KSA and the rest of the world won’t be brought on line with low oil prices. Don’t believe me? Watch for the budget projections: a lot of foreign projects, including those of OPEC nations, are going to be shelved IMHO

[Subjectivist]

Folks again need to focus on how a “marginal producer" is defined by. $30/bbl oil isn't going to cause any existing wells in the US, the KSA or anywhere else in the world to stop producing. Once again: I have many wells that would still generate nice net cash flows at $10/bbl. So does the KSA. But there are very few NEW wells in the US that would be drilled at that price. But guess what folks: neither does the KSA and most other NOC’s. As has been pointed out before the most of the remaining reserves YET TO BE DEVELOPED in the KSA and the rest of the world won’t be brought on line with low oil prices. Don’t believe me? Watch for the budget projections: a lot of foreign projects, including those of OPEC nations, are going to be shelved IMHO

How long does it take to activate a project that has been put on the shelf?

[ROCKMAN]

sub - Varies a good bit depending on the project a location. Cancel a Deep Water rig a d it could take a couple of years to get it back AFTER you decide to start drilling again. Same can be true for seismic crews. In the KSA it could be fairly quick if it's in a existing field but much will depend if they have the equipment local or not. In the US it will depend first if your leases have expired and you have to pick them up again.

And, of course, will depend on how quickly capex sources become available. Given how many might get burned in the next year they may be hesitent to plow many in very fast even after prices recover.

[rockdoc123]

In the US it will depend first if your leases have expired and you have to pick them up again.

and how much equipment has been stacked for any length of time and requires an overhaul before being serviceable and/or how much was scraped and cannibalized for parts as the smaller service companies surrendered.

Good article today I was reading which reminds me about the stripper wells. Shut those puppies in and there is no guaranty you can start them up again cheaply or physically.

[Pops]

Good article today I was reading which reminds me about the stripper wells. Shut those puppies in and there is no guaranty you can start them up again cheaply or physically.

That's interesting doc, do you have a link?

[basil_hayden]

Good article today I was reading which reminds me about the stripper wells. Shut those puppies in and there is no guaranty you can start them up again cheaply or physically.

That's interesting doc, do you have a link?

It's on Bloomberg, and I've already thought of an item we use in environmental applications that would solve the petroleum shut-in problem: the Flut-E liner. Probably ought to patent the application before blabbering about it on the internet.

[rockdoc123]

the Flut-E liner. Probably ought to patent the application before blabbering about it on the internet.

flexible liners and other similar products are available for the oil industry already. There are also gel polymers that can inhibit water flow and various other methodologies such as sliding sleeves.
The problem here is that the stripper wells (at least the newer ones) were all drilled as cheap as possible and with a limit on completion. The idea being that the low production rates could not handle high initial costs. So if that stripper has an operating cost higher than net cash flow (meaning it would be shut in) there is really no way it could carry the cost of bringing out a service rig, pulling the existing liner and re-running a new liner. Even at the higher oil price Operators are scrambling to keep costs to a minimum so a sudden hit of several hundred thousand to run a new completion would be a large pill to swallow. The old rule of thumb I was used to (sound like a cranky old timer here) is if you couldn't make your workover payout in less than a year it probably wasn't worth doing, but of course your mileage may vary.

[shallow sand]

I have been led to believe that KSA and their neighbors new projects are ok even below $25 Brent? Not true?

[shallow sand]

Some stripper production can be shut down for awhile with few problems. The waterfloods are a different story altogether, and I will bet they make up the majority of stripper well production. I presume CO2 floods are in the same boat, but do not have personal knowledge of those operations.

There are many places where stripper wells making low fluid volume are shut in during each winter. They mostly come back ok, and usually produce a flush the first day or two.

[dinopello]

It really is as if no one gets that 60-70-80%% of that 5mmbd will be gone in a year without continued drilling - this ain't grandpa's glut.

Well, KSA probably gets it, hence the declaration that the cheap oil prices will be here for a long time. They are trying to drive out as many as possible in the time they have of cheap oil. It's a good business strategy.

[rockdoc123]

Some stripper production can be shut down for awhile with few problems.

Like everything else in the oil and gas business there is no "one size fits all" explanation. The issues are always to do with water, pressure and solids and given varying completion styles and vintages in all the wells predicting is difficult. I think the point made is that not all wells will be able to be turned back on economically.

I think it is important to note that the the former Saudi energy advisor said Saudi Arabia could hold out for 8 years not that they would. To do so would mean cutting their budget seriously for a considerable time period. The reason their budget has been so high as of late is largely to keep the populace complacent through increasing services and jobs for the growing youth population. They are considerably worried about the Arab Spring and similar ISIS related issues that have sprung up across the Arab world in the past few years.

In reality all they have to say is "we don't like the price this low and think it should be around $80/bbl" and bingo the price will rise to $80/bbl and stay there as long as everyone refuses to sell for less and everyone who is buying is prepared to pay that price (which they were just a few months ago). Remember that the supply/demand imbalance didn't suddenly happen one day in November, what did happen was the Saudis first discounted oil sales and then made several well-timed press statements about not cutting production and wanting the high cost producers out of the picture. If the Saudis get a whiff of any increasing unease amoungst their citizens they will do something.

[dinopello]

BP: low oil prices for up to three years

He added that could send UK petrol prices below £1 per litre.

Italian oil group Eni has said the next spike could be around $200 a barrel.

Opec secretary general Abdullah al-Badri, also speaking at Davos, defended the group's decision not to cut output.

He said: "Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs?

"Let's produce the lower cost oil first and then produce the higher cost,"

"We will go back to normal very soon," he said.

[dinopello]

Prince Alwaleed Bin Talal, chairman of Kingdom Holdings said the world will never again see oil at $100 a barrel.

The lack of balance between oil's supply and demand means the road back to $60-$70 range will be "not that easy, not that quick," the prince said, adding that markets may not even have found the bottom yet.

[Tanada]

I strongly doubt it will take 8 YEARS to drive marginal producers out of the market. I believe in my most self serving opinion it might take 8 MONTHS, possibly even twice that long, but in no wise will it take 8 YEARS.

Looks like my 16 month prediction wasn't all that far off. Can't say the same for the 8 month try though

Might as well point out my own mistakes before anyone else does lol. We do the best we can and we get what we get.