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PeakOil is You

PeakOil is You

THE Price of Crude pt 14

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

Re: THE Price of Crude pt 14

Unread postby wildbourgman » Fri 07 Jun 2019, 17:28:43

Rockdoc, I've read multiple sources and seen some of the quarterly reports. I see a lot of parenthesis in areas they should not be. I also work in the industry and I'm seeing some things that make me think its a Ponzi scheme just as we've seen before.

Let's see how it shakes out in the next year or so and then talk. I've bee wrong before, I've been right before too. the-set-up-for-a-collapse-of-oil-prices-t68469-40.html

One thing to add, I have worked with many folks in many positions from upper management to the newest roustabout that are shocked on every single downturn. I might be a sock puppet for some folks calling for shale companies to fail, but I'm not a cheerleader who cheers all the way to the unemployment line with no savings because I believed the oilfield B.S. during every single boom. I've seen it from the 1980's until now and my gut instinct has served me right fairly well after being punched a few times.
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Re: THE Price of Crude pt 14

Unread postby rockdoc123 » Fri 07 Jun 2019, 19:14:00

I also work in the industry and I'm seeing some things that make me think its a Ponzi scheme just as we've seen before.


excuse me while I call BS. I worked in the industry for 30+ years and at the senior executive level for many years at several companies. After SOX legislation there was virtually nobody out there that was a publicly traded company who could possibly pull of a "Ponzi scheme" or any other kind of scheme. Full reporting is full reporting as required by the SEC. I've laid out the results for many of the shale companies here and it is clear the only way it looks like they aren't making a profit is if you include paper accounting entries which have nothing to do with real day to day cashflow (the analogy I always give is nobody would include the depreciation of their house or car in their annual budget plans).

I might be a sock puppet for some folks calling for shale companies to fail, but I'm not a cheerleader who cheers all the way to the unemployment line with no savings because I believed the oilfield B.S. during every single boom.


I doubt there is a single one of us who worked in the industry during the first major downturn that didn't anticipate it would happen again. The problem is if you are like some here who keep predicting it to happen tomorrow every day you are never able to take advantage of the upturn periods which can be short. That is what the unconventional story is all about right now, companies who know that the price is fickle but have prepped their company to crank up activity the minute that price shows a rebound....if that is for a few years great, if only a few months that's OK as well. A lot of the smaller startup shale companies overextended on debt during the runup and plateau years of $100 oil. They were encouraged into that position by their investors and the investment banks who wanted them to grow rapidly and secure more land which of course cost more and more due to the ever-increasing competition at high commodity prices. When it all came to a price crash in 2014 due to too much success and oversupply many were caught out overexposed on the debt side of things. From what I've seen most of the companies still around are avoiding that this time, instead paying down debt as fast as they can and the investment banks are helping out by being very, very selective to who they offer debt instruments.
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Re: THE Price of Crude pt 14

Unread postby GoghGoner » Sat 08 Jun 2019, 06:22:23

Commodity price trend is down. This isn't related to the small, incremental oil supply additions that we have seen this year. I tend to focus on metals and emerging economy exchange rates to figure out whether oil is moving independently or it is part of some larger movement in the global economy.

It is somewhat akin to sticking your finger in the wind and seeing what direction it is pointing. But cherry-picking media articles and making sweeping generalizations just to argue nonsense seems much less sensible to me. I haven't done any counts but there are plenty of media articles recently that supposed demand to be the culprit.

http://pubdocs.worldbank.org/en/169031559692506553/CMO-Pink-Sheet-June-2019.pdf
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Re: THE Price of Crude pt 14

Unread postby wildbourgman » Sat 08 Jun 2019, 07:22:50

RockDoc, are you serious about the SEC reporting thing stopping fraudulent actors, have you kept up with Tesla in the news? So I cheerfully call BS on your calling BS. Although we could parse words whether or not my use of Ponzi scheme is correct, it may be hyperbole, but I'm comfortable with my current assessment until time proves me right or wrong.

I doubt there is a single one of us who worked in the industry during the first major downturn that didn't anticipate it would happen again. The problem is if you are like some here who keep predicting it to happen tomorrow every day you are never able to take advantage of the upturn periods which can be short.


We are certainly not in the same circles. The people I'm around never see the next downturn and rarely financially prepare for it and always believe the industry cheerleading. They lose cars, houses and families get torn apart every single time they believe the industry BS. Also don't think that just because I'm calling for another bloodbath in the shale industry that I don't take advantage of the market as I see fit. I'm ok.

That is what the unconventional story is all about right now, companies who know that the price is fickle but have prepped their company to crank up activity the minute that price shows a rebound....if that is for a few years great, if only a few months that's OK as well. A lot of the smaller startup shale companies overextended on debt during the runup and plateau years of $100 oil.


If you were so inclined you could read where after the last downturn started I'm pretty sure I wrote that the rebound would be slower and more disciplined and it was to a certain extent, although I may have been overly optimistic. One of the problems I have with your line of thinking that I quoted is that with every price rebound that causes any kind of boost in activity will be met with higher drilling and completion cost. The drilling and service companies are bearing the brunt of the so called discipline, so its not being disciplined if you have no other choice.

I don't see the shale plays lasting due to high cost versus high depletion rates per well, no amount of discipline will change that. In my view some of the offshore South America, Africa, and Mediterranean look more attractive long term. Also I'm bullish natural gas very long term and that is where I could be nudged to change my mind on shale at some point. So I'm not at all an energy Perma- Bear, just shale oil (as of now).
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Re: THE Price of Crude pt 14

Unread postby wildbourgman » Sat 08 Jun 2019, 09:45:09

A ‘’Gusher Of Red Ink’’ For U.S. Shale


https://oilprice.com/Energy/Energy-Gene ... Shale.html
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Re: THE Price of Crude pt 14

Unread postby rockdoc123 » Sat 08 Jun 2019, 11:03:15

RockDoc, are you serious about the SEC reporting thing stopping fraudulent actors, have you kept up with Tesla in the news? So I cheerfully call BS on your calling BS. Although we could parse words whether or not my use of Ponzi scheme is correct, it may be hyperbole, but I'm comfortable with my current assessment until time proves me right or wrong. 


Please show me an oil and gas company that has falsified their SEC annual or 10K filings. Please show me an oil and gas company that has violated restrictions regarding disclosure.
Tesla is not an oil and gas company and, in fact, the SEC went after Musk and they eventually negotiated a settlement around his pulling a fast one with regards to disclosure in a very public manner. At this point if individuals decide to continue to invest in Tesla then they are responsible for their own outcomes, the SEC did it’s job in bringing this forward and penalizing the company. The SEC publishes the investigations and penalties each year. If you believe oil and gas companies are lying on their SEC submissions, then I really think you haven’t informed yourself regarding independent audit requirements nor enforcement and have likely not bothered to read any of the filings of the oil and gas companies you claim are running Ponzi schemes. This Ponzi Scheme claim is a classic one that generally comes from people who get all of their information from Gold Bug blogs.

One of the problems I have with your line of thinking that I quoted is that with every price rebound that causes any kind of boost in activity will be met with higher drilling and completion cost. The drilling and service companies are bearing the brunt of the so called discipline, so its not being disciplined if you have no other choice. 

In the downturn service companies take a hit to stay in business, to some extent that offsets the often exaggerated charges they used during the good times as a consequence of demand outpacing supply. But also during the downturn companies learn how to cut costs. They find out that zipper fracking saves a lot of logistical time and costs, they find ways of optimizing drilling fluids, trucking, drilling time etc. When the oil price rises those cost cutting measures don’t go away even though actual service costs will begin to rise. And the service companies themselves are exposed to some well needed cost optimization. I can’t count the number of drilling companies I’ve seen go under simply because when oil and gas prices are high and there is lots of work they run out and buy way too many rigs and hire way too many staff in the hopes of growing fast. Those drilling companies that operated within their means, not seeking huge equity in the market or debt, and sticking to a business model that churned out decent returns were able to survive and are there for the next rise in commodity prices

I don't see the shale plays lasting due to high cost versus high depletion rates per well, no amount of discipline will change that


As I have explained numerous times to others here the “shale plays” have break-even costs that are generally much less than any of the offshore operations. The also only have fast depletion in the first 24 to 36 months. Not sure what thread it was but I posted graphs from a study done recently which backs up the theoretical views on tight fractured production where you have hyperbolic decline and exponential decline….a period of decline where it can be 65%/annum or higher but then a very long period where wells decline at a couple of percent and produce at low rates for very long periods. That low rate decline is why the shale players are in this business, it is predictable and if you have enough wells producing in that phase it is a very nice stream of income that requires very little in the way of OPEX or intervention as opposed to the offshore. A company that has a thousand wells producing in the low decline rate at 50 bbls/day would be seeing cashflows in the $500 MM/yr range which is not chump change. Using an average EUR for those thousand wells results in 250 MMB of reserves which when valued on a normal P1 basis for A&D would be around $5 billion, again not something to sneeze at. The vast majority of the blogs posting negative things about shale have zero understanding of the science or the business, getting your information there is not value-added activity.

A ‘’Gusher Of Red Ink’’ For U.S. Shale


OK, what did I just say up thread? All of these news articles and Rystad included look at the cash flow from operations that are reported under IFRS guidelines in annual or quarterly reports. That includes DD&A which is a paper accounting exercise and doesn’t address how much actual cash is coming into the operation versus how much is being spent. Rather than read these articles why not educate yourself as to how to read an oil and gas financial report…they are all public domain documents if the company is publicly traded. If all of these "analyzes" had any truth there would be no unconventional industry given regardless of how stupid you think we are nobody who has ever run and oil and gas company will go for more than a very short time losing money before they seek a solution.
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Re: THE Price of Crude pt 14

Unread postby wildbourgman » Sat 08 Jun 2019, 11:40:28

If all of these "analyzes" had any truth there would be no unconventional industry given regardless of how stupid you think we are nobody who has ever run and oil and gas company will go for more than a very short time losing money before they seek a solution.


Actually I think that the folks that run these companies are pretty smart. They pay themselves first and damn the torpedoes, because they are safe regardless the outcome. The people that engineered the housing bubble were pretty smart and didn't get caught by the SEC too. I'm willing to chalk this up to lets just see how it turns out.

My prediction is that the pure shale players get mostly wiped out, or bought out by the majors for pennies on the dollar and then eventually (not too long) the majors will move on and real companies will take the stripper wells left behind and make them work in a much smaller way than a " shale miracle".

Actually my prediction isn't much of a prediction, because it happens all the time that small time oil men end up with old worn out strippers.
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