shallow sand wrote:In our area in 1998, almost half of the oil production was shut-in. Some was voluntary, but most was due to operators running out of cash and going bankrupt. The largest operator in the area went under, and its production dropped by 2/3 in a year as the money simply ran out.
I read where most assume that the producing shale wells will not be shut-in because they are profitable and the money has already been sunk to drill and complete them. I suppose some production may be bought by solvent operators at fire sale prices. However, if the price keeps dropping and stays there for awhile, why wouldn't the same thing happen that has happened in the past? The operator runs out of cash, lays off everyone and files BK. There is no one to pump the wells and no money to pay utilities, down hole chemical, water haulers, etc. It is not easy for the bankruptcy trustees to operate oil production, especially if there is no cash with which to hire contract operators.
Would appreciate input.
The IEA boosted projections for supplies outside Opec in 2015 by 200,000 barrels a day, forecasting output will expand by 1.3 million barrels a day to 57.8 million a day. Non-Opec supply will climb by a record 1.9 million barrels a day this year, it estimated.
"Despite lower crude oil prices, we expect US production to continue to grow apace in 2015," expanding by 685,000 barrels a day, the agency said.
GoghGoner wrote:The IEA estimates the surge in the US will continue through next year.The IEA boosted projections for supplies outside Opec in 2015 by 200,000 barrels a day, forecasting output will expand by 1.3 million barrels a day to 57.8 million a day. Non-Opec supply will climb by a record 1.9 million barrels a day this year, it estimated.
"Despite lower crude oil prices, we expect US production to continue to grow apace in 2015," expanding by 685,000 barrels a day, the agency said.
Alfred Tennyson wrote:We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.
Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.
“Anything that becomes a mania -- it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”
The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis.
Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44 percent to $60.46 a barrel since reaching this year’s peak of $107.26 in June.
Yields Surge
Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7 percent in June, according to Bank of America Merrill Lynch index data. At least three energy-related borrowers, including C&J Energy Services Inc. (CJES), postponed financings this month as sentiment soured.
“It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said.
Companies rated Ba1 and lower by Moody’s and BB+ and below by Standard & Poor’s are considered speculative grade.
Stimulus Effect
The Fed’s three rounds of bond buying were a gift to small companies in the capital-intensive energy industry that needed cheap borrowing costs to thrive, according to Chris Lafakis, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Quantitative easing “has been one of the keys to the fast, breakneck pace of the growth in U.S. oil production which requires abundant capital,” Lafakis said.
One of those to take advantage was Energy XXI Ltd. (EXXI), an oil and gas explorer, which has raised more than $2 billion in the bond market in the past four years.
The Houston-based company’s $750 million of 9.25 percent notes, issued in December 2010, have tumbled to 64 cents on the dollar from 106.3 cents in September, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They yield 27.7 percent.
Energy XXI got its lenders in August to waive a potential violation of its credit agreement because its debt had risen relative to its earnings, according to a regulatory filing. In September, lenders agreed to increase the amount of leverage allowed.....
MO this forecast is based on the assumption that oil companies are too stupid to see the writing on the wall so they will blindly go forward drilling a massive number of wells that they know will lose money because they are drilling a massive number of wells. People in the real world do not stay in business for very long if they act in such a contrary fashion.
Riyadh, Asharq Al-Awsat—Saudi Arabia is playing a strategic game by refusing to back a cut in OPEC oil production, lowering international oil prices, according to Gulf-based economists.
The price of oil continued to fall this week after the International Energy Agency (IEA) forecast weaker demand in 2015. Brent crude fell to below 63 US dollars per barrel on Friday, its lowest price since July 2009.
Suhail Al-Darraj, a Saudi-based economist, told Asharq Al-Awsat that he expects Brent crude oil to maintain price levels of no less than 60 US dollars per barrel. “We may see prices dip below this level, but not for long. Oil prices have become a major source of concern for many countries and international companies,” he said.
Darraj said that the oil price drop is most affecting countries like Venezuela, Iran and Russia, but is actually serving Saudi Arabia’s interests. “The declining oil prices are serving the strategic interests of the Kingdom, and in my view Saudi Arabia’s oil policy is characterized by a great deal of wisdom,” Darraj said in reference to the ongoing competition between shale and crude oil.
OPEC took the decision not to reduce oil production despite an oversupply in world markets at its annual meeting in late November. Oil prices have fallen sharply since June this year as increasing North American production of shale oil has flooded the market at a time of sluggish economic growth.
Darraj confirmed that many oil companies have stopped, or slowed, oil production due to falling prices. He added that billions of dollars are being lost due to the high cost of shale oil exploration, adding that it will be increasingly difficult for shale oil producers to continue a high level of output due to the accelerating slide in oil prices.
As for how Saudi Arabia has so far been able to absorb the impact of falling oil prices on its economy, the Saudi financial expert said that the steady value of the US dollar to the Saudi riyal has helped. “Iran and Russia have suffered a double blow during the current crisis, with the currency of both countries declining in line with falling oil prices.”
Gulf-based economist Fahad Al-Mashari told Asharq Al-Awsat that Saudi Arabia’s interests will be meet so long as crude oil stabilizes between 60 and 70 US dollars per barrel, adding that other oil-producing
states—particularly those relying on shale oil production—will be unable to sustain long-term profits if oil prices do not improve.
“Shale oil producers will suffer from the sharp decline in oil prices, while Saudi Arabia will succeed in protecting its share of the market, particularly after some international companies stop producing oil to save costs,” Mashari said.
In many cases, it would have taken longer for a large company like Whiting to put together a prearranged bankruptcy, but Whiting had already been in talks with its creditors starting back in 2019, said Sarah Foss, a Debtwire restructuring analyst.
Head of the TX RRC now says that planned capex cuts by US frackers will reduce production by >30% within 3 months.
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