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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 GoghGoner » Wed 08 Apr 2020, 09:58:59

No way I would touch oil markets with a ten foot pole right now. Pushing numbers in models probably just results in a bunch of gibberish right now.

EIA reported a 33 million barrel build in total stocks this week and a fall in oil production of 600 kbd.
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Re: THE Price of Crude pt 14

Unread postby sparky » Thu 09 Apr 2020, 12:06:49

.
Sound right , there is a supply train wreck ongoing ,
the quoted price of oil will spin up and down on one tanker load being able to unload or not
there must be a dozen supertankers making circles in the southern Atlantic by now , looking for a buyer
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Re: THE Price of Crude pt 14

Unread postby evilgenius » Thu 09 Apr 2020, 13:25:32

I wonder if Transocean (RIG) will survive? If so, their stock price is very low right now.

I think the world has about a decade to go, maybe longer, before things get tight. If I had anything to say about it, I would have held off on fracking. About right now would have been a better time to start it up. But that's just me holding my thumb in the wind.

I ask about RIG because I wonder if off-shore will rise up like it did in the early 2000's? If it does, and RIG is still a player, the stock could go up something like 100 times in value. Sometime around 2028 a buyer might feel pretty good about their purchase.
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Re: THE Price of Crude pt 14

Unread postby evilgenius » Fri 10 Apr 2020, 06:45:56

I was just reading an article somewhere that said they expect the banks to start taking over certain energy company assets. The article said they would do this in order to protect themselves from energy company insolvency. They didn't say how they would manage to separate the assets from the companies. Maybe that's part of the conditions of financing? If things go wrong, that's the arrangement. I don't know. I would have thought to get those assets the banks would have to stand in line, like any other creditor. That they would have to engage in the bankruptcy process with those companies, pushing for what they are owed.

I find it intriguing. I've said for some time that whatever debt situation develops with fracking can be handled by bankruptcy. That it isn't the danger for the long-term economy that so many have said. I don't conflate financial failure with asset depletion. It is a way to cut out historical costs, so that they don't figure into current operating costs. There is a way to deal with past debt associated with assets separate from those asset's existence. The assets can be rolled up into holding entities that control them. Then a year from now, when the virus has run its course and oil is higher, they can sell the assets. Some new entity can recapitalize and start fracking all over again. This time they wouldn't be burdened by the debt associated with past operations. Such a scheme even comes with a built in idling time, during which fracking can cut production and the world can achieve a balance of supply and demand.
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Re: THE Price of Crude pt 14

Unread postby sparky » Fri 10 Apr 2020, 10:00:56

.
It probably will happen , the banks then will simply let the production drop down by a third or more
thus solving the oversupply problem and their loans
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Re: THE Price of Crude pt 14

Unread postby rockdoc123 » Fri 10 Apr 2020, 10:23:56

I was just reading an article somewhere that said they expect the banks to start taking over certain energy company assets. The article said they would do this in order to protect themselves from energy company insolvency. They didn't say how they would manage to separate the assets from the companies. Maybe that's part of the conditions of financing? If things go wrong, that's the arrangement. I don't know. I would have thought to get those assets the banks would have to stand in line, like any other creditor. That they would have to engage in the bankruptcy process with those companies, pushing for what they are owed.


Loans from banks to oil and gas companies are at the corporate level and not at a secured asset level. What that means is if the company defaults on their loans the bank has access to all assets. In most cases there aren't a string of competing banks as creditors. If a company used Wells Fargo (as an example) to secure loans back in 2015 they probably used them for any subsequent raise as it would require less effort and they then aren't subject to more than 1 annual ceiling test. The only other creditors would be service companies or leaseholders who had not been paid and the bank by taking control of the company assumes the responsibility for those liabilities. So this is pretty much a few step process without any difficulties for the bank other than they end up with a producing asset that they are not in a position to deal with. What the banks will try to do is spin that company out into a separate holding company and hire an operating group to manage it until such time as prices recover enough that the bank can sell the asset at less of a loss. In different times (when there isn't a complete rout on oil prices and the economy at the same time) the banks would simply auction the companies assets and this happened in several instances in 2014 - 2016 when oil prices fell in an otherwise growing economy.
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Re: THE Price of Crude pt 14

Unread postby vtsnowedin » Fri 10 Apr 2020, 11:10:16

Did I see a headline yesterday that 170 of the Saudi royal family test positive? That might shake things up a bit.
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Re: THE Price of Crude pt 14

Unread postby sparky » Fri 10 Apr 2020, 14:44:27

.
one could not exclude that the banks "oil assets" would be eligible for some hefty government assistance
it might not go to the banks themselves but would improve the resell price of the new restructured entities
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Re: THE Price of Crude pt 14

Unread postby dolanbaker » Fri 10 Apr 2020, 15:02:23

vtsnowedin wrote:Did I see a headline yesterday that 170 of the Saudi royal family test positive? That might shake things up a bit.

Don't you mean "Sheikh things up" :)
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Re: THE Price of Crude pt 14

Unread postby evilgenius » Sat 11 Apr 2020, 09:18:43

So the state of failure to pay the banks is a sort of donut hole of capitalism. The bondholders get stiffed. Normally, they would have a primary position in the reorganization of whatever company. But these companies aren't about intellectual expertise as much as they are about assets. They may even have been influential companies, in terms of innovations in the industry. The banks have first rights over the assets. The bondholders get a hollow company.

A bankruptcy judge might intervene to change that from time to time, I suppose, unless the arrangements are iron clad. You have to wonder if the bondholders won't sue for power regarding this, before the slaughter begins to take place? I should think it likely they won't move in time.

I don't know how this situation developed. I could see that it was likely to transpire, but that was from knowing intermediary conditions. I don't know the initial conditions. Is this just what was decided was a good way of managing risk when oil exploration can take a lot of money and the results can be so hit or miss?
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Re: THE Price of Crude pt 14

Unread postby shortonoil » Sat 11 Apr 2020, 10:15:40

Loans from banks to oil and gas companies are at the corporate level and not at a secured asset level.


That is only true for some revolving lines of credit. Capital loans are backed by assets. But, at $20/ barrel no one, including the banks, are going to be operating these wells. They are now big time cash flow negative. Shale wells, being pressure drive wells, however can be capped almost indefinitely. These wells may sit for years before they are reopened; unlike water drive conventional wells where the pressure must be maintained, or the oil is permanently lost in the formation. Shale acts as a diluent that is required for the processing of conventional oil. As their production is needed they will be opened from time to time to fulfill that requirement. Of course, if the price of oil does not recover relatively soon the oil industry won't need it because it won't be there anymore. Goldman is saying that production will have to decline by 25% to rebalance the market. It is likely closer to 18% which will bring world GDP down to $69 trillion a year. We should be there on our present trajectory in about 8 months, and 18% of the industry will go with it. We are simply witnessing how the oil age ends.
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Re: THE Price of Crude pt 14

Unread postby rockdoc123 » Sat 11 Apr 2020, 10:37:17

That is only true for some revolving lines of credit. Capital loans are backed by assets.

Please show us an example of a "capital loan" applied against an individual asset with respect to oil and gas companies. In all my years in the industry I never came across one.

Shale wells, being pressure drive wells, however can be capped almost indefinitely. These wells may sit for years before they are reopened; unlike water drive conventional wells where the pressure must be maintained, or the oil is permanently lost in the formation. Shale acts as a diluent that is required for the processing of conventional oil. As their production is needed they will be opened from time to time to fulfill that requirement.


what a load of complete and utter nonsense. Exactly what is a "pressure drive well" pray tell? Please find that definition in the Sclumberger oil field dictionary....good luck. You make terms up and present them as if somehow they are scientifically valid. There is no such thing and I have written numerous times on this site about the exact drive mechanisms at work. It is gas depletion which allows for the tight formations to produce, the less gas content in the oil (lower GOR) the less productivity. The wells can be shut-in and brought back on without intervention if the gas content is high enough but almost all of these wells have either PSP or downhole ESP pumps installed and that is the main reason they will be easy to bring back on production. And as to the statement "unlike water drive conventional wells where the pressure must be maintained" that is just ridiculous. A well that produces from a formation with a natural water drive will always maintain its pressure naturally, in fact, that is the reason why it is next to impossible to calculate reserves using material balance methods in such reservoirs...the pressure never drops as production proceeds simply because the water drive maintains pressure through full pore replacement. Even in the case of an artificial water drive whether it is a line drive or a five-spot/seven-spot patterned drive turning the pumping off does not somehow mean all the oil will never be recoverable. When the injection wells are brought back on stream you are basically at the spot when the wells were all shut-in, wettability doesn't change and irreducible water saturation remains the same. The only case where a well that is shut-in and may not be brought back on stream is where there is no pump installed and production is at a relatively low level. In this case liquid loads up in the well bore and the pressure from the reservoir is insufficient to lift it. The well can be brought back on stream but it requires bringing a gas lift system to the site and that additional cost would mean the price of oil would have to be much, much higher.
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Re: THE Price of Crude pt 14

Unread postby sparky » Sat 11 Apr 2020, 13:30:47

.
I'm curious about decreasing the extraction rate ,
is there some advantage in production cost or life span for the wells ?
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Re: THE Price of Crude pt 14

Unread postby vtsnowedin » Sat 11 Apr 2020, 13:54:58

sparky wrote:.
I'm curious about decreasing the extraction rate ,
is there some advantage in production cost or life span for the wells ?

Well of course if you can put off producing oil at $20 a barrel to a later time when you can sell the same oil for $100 a barrel you would, but you need to make the payments while you wait for the price to rise.
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Re: THE Price of Crude pt 14

Unread postby sparky » Sun 12 Apr 2020, 04:40:17

.
I was wondering about the technical cost of going on a slow down extraction
Fracking always had a pretty steep depletion curve ,
is it possible , like for the blasted virus , to "flatten" the curve
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Re: THE Price of Crude pt 14

Unread postby vtsnowedin » Sun 12 Apr 2020, 05:37:55

sparky wrote:.
I was wondering about the technical cost of going on a slow down extraction
Fracking always had a pretty steep depletion curve ,
is it possible , like for the blasted virus , to "flatten" the curve

I don't see any drilling and fracking company with deep enough pockets to not need maximum cash flow as soon as the well is brought on line. It is probably physically possible and might even be beneficial to total well production but it gets vetoed by the financial realities.
I believe the Saudi's have had their best wells throttled for decades to save some "for future generations".
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Re: THE Price of Crude pt 14

Unread postby JuanP » Sun 12 Apr 2020, 14:07:56

"OPEC+ strikes last minute deal to cut almost 10 Mbpd of oil production"
https://www.rt.com/business/485616-opec ... agreement/

It's probably not enough to balance the market, though, so it remains to be seen how much this might raise oil prices.
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Re: THE Price of Crude pt 14

Unread postby sparky » Sun 12 Apr 2020, 14:28:39

.
It's not enough just now , or rather to the 1st of May when it kick in
it all depend on the re-starting of the world economy ,after 2 months , the cut drop to 8 millions barrels /d until the end of the year , then 6 millions for the 4 first months of 2021 .
that doesn't seems to be enough but let's be realistic , that about the most which could be agreed

A big question mark is the US production , but economics alone should see the cut implemented de facto if not de jure
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Re: THE Price of Crude pt 14

Unread postby REAL Green » Sun 12 Apr 2020, 17:02:28

I am wondering if this could be peak US production:
https://www.eia.gov/dnav/pet/hist/LeafH ... RFPUS2&f=M

2019 11,856 11,669 11,892 12,123 12,113 12,060 11,823 12,385 12,479 12,674 12,866 12,804

2020 12,744
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Re: THE Price of Crude pt 14

Unread postby Plantagenet » Sun 12 Apr 2020, 19:43:19

REAL Green wrote:I am wondering if this could be peak US production:

2019 11,856 11,669 11,892 12,123 12,113 12,060 11,823 12,385 12,479 12,674 12,866 12,804

2020 12,744


It may very well be the US peak if the price of oil doesn't go higher pretty darn soon.

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