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North Dakota Admits Half Its Shale Regions Below Breakeven
While talking heads and TV personalities reassure the investing public that low oil prices are "unambiguously awesome" for everyone, it seems the cracks in this narrative are starting to show. From falling wages, surging job cuts, plunging rig counts, and crashing capex, it's becoming a lot harder to 'pretend' that everything's fine. One wonders, when the companies themselves are slashing workweeks and cutting rig counts, when will 'investors' believe... perhaps now that Lynn Helms, Director of the North Dakota Department of Mineral Resources explains to the House Appropriations Committee that at least half of its shale regions are already below breakeven.
From a 12 page presentation...
The following shale regions are below breakevens (at which new drilling would cease)...
Which likely explains the accelerating collapse in rig counts...
...while his monthly gas bill for his Chevy pickup truck has dropped, he admonishes, "That’s not going to replace a paycheck... and I don’t know why this is happening."
...
The impact of the energy industry here is so widespread that for some workers in Lorain, oil prices affect almost every facet of their lives, from home values to roads to jobs.
“We thought this time the going was going to be good for a while,” said Chase Ritenauer, the town’s 30-year-old mayor. “But now Lorain is going to feel the impact of the global economy.”
What happens to all the happy-clappy "low gas prices will spur massive consumption" confusers (which includes - rather stunningly - The Federal Reserve) don't see the surge in spending they expected?
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Note that the majority of the rigs are in the places still above break-even. So what? Half the regions isn't half the rigs is it?
true ... but Saudia Arabia gives thanks on what price it needs to target ...
Saudi has to sell for much less than the break evens listed there. Remeber, there is several dollars per barrel in cost for their oil to be shipped over here and shipping is going up because of their stupid desire to dump oil on our markets. I believe there was an article on ZH yesterday or day before about how shipping rates are rising. This implies that the gulf states and SA are dumping oil out there faster than normal if it's causing shipping pices to rise.
I just spoke at length yesterday with my operator and he says they had a meeting about how to cut costs from 30-55% in various areas. He just finished re-negotiating his rig cost from $22k/day down to $14k/day in order to not buy out the contract and just hire idle rigs. So think about how much profit the rigs were making in this boom and what they were adding to the cost of a barrel of shale oil given that info. Keep in mind that this is a 36% reduction in rig cost he has for the next six months. If prices stay low and rigs continue to be idled, he could see rig prices below $10k/day by june. He holds leases where he can drill wells that produce 20kbbl/mo IP. Suppose a rig is drilling 200 feet per day on average. That means to drill a 14,000 foot well it would take 70 days and the cost would have been $1.54m for the rig costs. However, now he is looking at that cost being reduced to $980k and in a few months, it could be as low as $600k which is $1m savings on the cost of drilling the well. There are plenty of other costs in the drilling that can be reduced accordingly. Then you have the break even cost coming way down and why not drill a 20k/mo well if you know you can. This is the key point, they know the oil is down there. If the costs come down, the oil will come up. Why wouldn't the costs come down if they were inflated to begin with?
Tylers, next I would like to see that table with the GAAP figures. You don't stay in business these days if you are honest.
If I'm an airline company (United comes to mind) I want to buy the entire industry.
Same holds true if I am a railroad or a trucking company.
North Dakota has a bank that can swing the sales too I would think...and then the State might even get a refinery out of the deal.
Maybe a couple hundred refineries actually.
It looks like Dunn must be doing something right!
INTERESTING.... now I wonder are those BREAK-EVEN prices "Market" or "WellHead" prices. The cost to transport Shale Oil is in the range of $12-$15... so at $48 oil, the Shale Oil companies are receiving a WHOPPING $33-$36 a barrel.
Furthermore, if you read any of the work by Art Berman, he states BREAK-EVEN for the typical Shale Oil Well is about $75-$85 if we consider FULL CYCLE COSTS.
But, of course, these public shale oil companies do not PROVIDE that info to shareholders.
If oil prices REMAIN LOW.... the BUST of the GREAT SHALE BOOM may come SOONER than later:
RECORD GLOBAL OIL DEMAND: Even As The Price Of Oil Declinedhttp://srsroccoreport.com/record-global-oil-demand-even-as-the-price-of-oil-declined/record-global-oil-demand-even-as-the-price-of-oil-declined/
How do you buy the entire industry?
I've been wondering when this will effect pipelines/oil transport.
Most likely there will be reneogiations downwards on those contracts.
Increased shipping from Saudis? It could also be from other oil exporters trying to boost volume to make up for reduce revenues as well.
You are completely correct about other suppliers trying to make up for lower prices with increased volume but eiher way, as shipping rates are increased, domestic producers gain some advantage. More pipelines have been added in West Texas this year and the Cactus is a 300k/day line going from the Permian to CC so that should help with oversupply at Cushing. I am very much hoping that pipeline eliminates the dings my oil is taking due to oversupply at Cushing when it comes on line in April.
As far as North America is concerned, it wouldn't be Saudis who would capture bigger market share, but rather Venezuela. Saudis would certainly like to grab bigger market share in Europe and US and tailored their pricing policy accordingly (i.e. cutting prices for US and European customers and increasing for the Asian ones), but I think it is more likely they will lose this battle to Venezuela and Russia respectively given better logistics for the former. Also, look at Strait of Hormuz in 2015, things might heat up there and restrict flow of oil from Middle East. Just a tad of speculation on my side, but it seems reasonable to expect. Also, despite recent slide in prices I'd be careful shorting oil, it went down too far too quickly - upswing could be equally violent.
Did you see that PEMEX is now wanting to by 100kbbl/day of LTO oil to mix with theirs for refining?
http://www.firstenercastfinancial.com/news/story/61122-us-oil-export-ban...
That will be coming from the Cactus Pipeline most likely.
That might work, assuming the rig owner can actually survive at those prices. He may only be doing this as a better alternative to making zero, in which case the strategy is only a short term solution.
But there's a bigger problem, that being the fact that producers' report bull shit numbers which bear no resemblance to reality. I went over the income statements of a few dozen tarsands and shale players and when i included ALL operating expenses, their cost per barrel looked nothing like the number they report.
Tarsands were $80-$100
Shale were $70-$85
Saving 35% won't be enough, they need to save much more, and that's assuming prices don't fall further, which they almost surely will.
If i were you, I'd spend less time trying to solve the oil industry's cost problems, and more time planning to survive on far less income.
I am doing just fine thank you. I am fine with the income I am making now from more sources than oil. I sell timber and development properties as well. I am fine. I am in the process of developing a water station agrement because drilling will continue and the need for water will continue. I own water as well as oil and the water goes for over $1/bbl out where my producing oil interests are.
If a rig isn't operating, it might be sold for scrap and it really doesn't matter who owns it if it's scrapped and not available. If rigs become cheap enough, someone solvent will pick them up just like those that will probaly pick up the marginal oil properties on the cheap. I am not sure why the arguments advanced about how all the current shale players are going belly up only to be bought out don't apply to rigs or other service components as well. Thus, the solvent players benefit from the collapse of the boom. My oprator is solvent and so am I. I don't like to see this kind of widespread and unnecessary destruction, some kind of pullback was warranted but it should have stopped around $80 and I think that we will be back there by June with current production levels.
If we get back to $80 bucks after Americans realize in the 1st quarter Uncle Sam did some serious ass raping on their tax returns, $80 bucks a barrel will be war in your front and back yard just like the rest of us. Raising the price of oil is now in a bad position just like the Fed raising interest rates. When both or either rise, a shitstorm will be here. Then everything we own will no longer matter. Game Over!!!
Looks like I ruffled some feathers...must be correct. Thanks fuckers.
Bullshit. Why should oil be $80 when it was $35 before QE? The historical price of oil adjusted for inflation is closer to $40
It was $147 before QE so what? Pick a number and apply some post hoc logic to it? I can do the same thing doesn't mean anything at all.
thanks for the input
a couple of things ... 1) one of my main concern is for 2015 capex in energy sector ... one of the few bright spots in the "recovery" ... no doubts plans are being shelved left and right 2) your point addresses one of the reasons i think oil will go lower ... a lot lower. No one seems interested in cutting output (for a variety of reasons) ... in the face of shrinking demand due to global slowdown
Those numbers smell like well-only break-evens, without a proper cost of capital built in.
Also, sometimes the company likes to pay its mgmt and also shareholders and such.
Those are not full-cycle breakevens...if they were the shale industry would have turned a profit well before now and it hasn't.
Exactly ! That's "break even" using operational costs only (with a very limited definition of those, too). The oldest trick in the book... Meanwhile those derivatives which were supposed to "hedge" oil investments are starting to act like popcorn...
Deflation coming to your home town soon.
Transportation, an airport, wind farms. That's what will be coming in my view.
The cost of shipping oil from Saudi Arabia to the USA is far lower than the cost of sending oil from North Dakota to the refineries in the East.
Take a look here at what they are actually getting for their oil at the well-head
http://paalp.com/_filelib/FileCabinet/Crude%20Oil%20Price%20Bulletins/Da...
they have very low oil output becuase they are old - 10% and less of max after 3 years..
Not sure what this had to do with my post, maybe you are on the wrong thread?
It means the saudi's have tp keep prices at $50 or below for almost 3 years to crush the frackers
less, i bet they have about max 1 year.
First year decline rates are like 50% on shale wells out in the Permian and they aren't at 10% after three years. One thing we don't know, is how long they will produce when they reach a stable production rate. Interestingly, my well pressure has gone from 1800psi to 800psi but production is only down from 850bbl/day to 700bbl/day. Furthermore, my well is still spewing trash from the plugs and so it's not even having a full month of production each month due to having to be worked over. Now hopefully that won't affect it's final rate of production that much but what it's doing is keeping the decline rate from being precipitous as your initial suggestion assumes. I think you are seeing gas wells with those kinds of decline rates and I would agree about that but not oil wells.
Can you recommend a good book on natural gas drilling?
The sky is always falling here, meanwhile, in the real world...
Grocery prices are falling locally especially the heavy stuff: milk, potatoes, produce, and all the snacky junk which is mostly packaging and transportation anyway.
Thanks to grain prices being cut in half, and lower oil prices, food, transportation, clothing, and all manner of imports should fall significantly in the next few months.
Back to Chicken Little.
Well.......eventually Johnny Consumer will finally realize he has a few extra coins jangling around in his pocket at the end of the month and start binge spending like no tomorrow.
Don't know whether to feel sorry for the guy or invite him into the 92+ million unemployed club.....
So......is this still Bush's fault?
Or. can we finally pass the buck and start blaming it all on Obiden?
kaiser
The ugly head of deflation will beat the beautiful ass of low prices every time.
The derivatives market is control central if there is a fire in the control room the fact that the engine still runs won't mean a thing.
Oil is one of the more liquid markets in the world. It is on exchanges, and sensibly margined.
Unlike nearly everyone here, I trade it now and then.
The Ponzi will collapse, but not from low oil prices.
"Oil is one of the more liquid markets in the world."
That's actually kind of funny. Frozen Concentrated Orange Juice (FCOJ) is a SOLID market (until it thaws)...
I invest in the oil market once a week (30 gallons at a time).
If oil prices don't go back up, we will have a bond crisis. Then the Fed will show us what printing really is. The past several years will look like piker shit.
Kaiser, would like to know whereyou live, east cost, prices HAVE NOT budged.... $4 a pound burger $1 a pice green peppers have nothing to do with transport costs nor does the price of milk.....
Agreed. I'm in DC area and prices on everything are still the same. There has been ZERO deflation here on anything. Still waiting for it...waiting....waiting....
Keep spending those trillions...you're doing great.
Pacific Northwest... same story.
haha ... CRB (commodity basket) has been trending down since 2010 ... and almost every day sees new multi year lows
Sign of Recovery????
I tend to treat the BDI as a damned fine indicator. It is tanking.
You're either a liar or an idiot. Probably both.
I do grocery shopping each weekend and haven't noticed any food prices dropping.
Put up a link showing where food prices are dropping.
http://www.mainstreet.com/article/why-your-steak-and-other-food-prices-a...
http://www.nbcnews.com/business/economy/meat-prices-expected-keep-climbi...
Your are obviously queer.
I wasn't talking about gerbil food.
If the prices don't include delivery costs, almost all are below breakeven prices.
http://www.rmoj.com/
As of 1/8/15
Williston Basin Sour $23.35
Williston Basin Sweet $32.45Dup
Glass half full ... or half empty?
Depends on if your drinking or pouring....
The glass is too big. Duh!
Half, that's bull shit. Pull up a google finance page on any of these companies, compare their revenues to operating income for the period ending sept. 30, when the oil price was still in the high 80's, note the profit margin, then knock off 35%
Making any money? Hell, many of them weren't even making money at $85
The fact that many of them were issuing junk bonds when it was $100/bbl tells you that there is some serious accounting bullshit going on here. I want to see the GAAP break even prices.
I'm afraid the only place you are likely to find GAAP is in the history books.
Fair enough.
Extending Low Oil Prices Will Kick the U.S. 'growth' Economy right in the Nuts http://forum.prisonplanet.com/index.php?topic=264446.0
subprime auto loans going belly up will be coup de grace
The crap auto loans are relitively small compared with the other turds but it'll be really obvious. The people on the street tend to notice dealerships closing down.
The crap auto loans are relitively small compared with the other turds but it'll be really obvious.
As God as my witness there was a peanut sticking out of my shit today. I have not ate a peanut in over a year, Doc....but, hey. my eyes did not lie.
Auto loans are the peanut in the Fed shit.
Hyperinflation is the response of the printer to deflation 'debt is the essence of fiat', when it fails it will be met with massive printing to save the system at the expense of the currency...at least that is how it is always done. Every dead fiat of the past 100 years died the same way. Deflation is simply not tolerated in a purely fiat system in which currency can be used to buy debt about to default. It simply is not allowed to happen that way...ever...
How does a 'credit-based' system hyperinflate?........I could never figure this out in my head. I can see how debt-free money could hyperinflate. In a debt-based fiat system, would the debt correspond to the 'paper' being printed?
U
It is a base money phenomenon. The central banks have to create cash equivalents and that is why there are always the wheelbarrows and large bags of cash. You are correct in that credit dries up as people realize the currency is failing. They will no longer lend.
Look at what the Fed has done. It took credit instruments (say MBSs) and bought them for cash...in this case reserves at the Fed which are an obligation to print cash on demand. That cash is sitting tight now but if a bank in HK is worried about the obligation of an American bank the FED would have to start shipping cash, not just to that bank but to ALL the banks...and there is your hyperinflation.
RUTROH!
1/3 of the business economy operates below break even all the time.
And we cannot even calculate how many American households are operating below break even....
No one operates at a profit all the time. It's the times they do that make up for the losses. If they operate at a loss perpetually then they have to borrow or go out of business. It's pretty stupid to look at one quarter and project it forward forever, everyone here hates it when that gets done as a basis for rising stocks but then they turn right around and do the same on the downside for the ones they want to bash. Guess it depends on whose ox is being gored as to when you rely on a specious argument to make your case.
Gotta love the Dakotas. They don't waste 10 cents on fancy graphics.
Don't remember whether it is North or South, but one of the states has a legislature which meets for TWO WEEKS, every other year. Now that's sane government.
The quote below from a previous post today should be kept and Copied - with extreme prejudice and sarcasm, at every opportunity going forward...
"US growing well above trend potential: The US economy is on course 3%+ growth rates over the coming quarters, well above the 2.2% at which we estimate trend potential. This week’s numerous data releases, including the key September employment report (we look for +260K on non-farm payrolls) should confirm firm US growth."
LENR .. that is all
Most of the rigs are on the cheapest plays which bodes well for those jobs, but this will also quicken depletion rates.
Which of these is now accelerating the fastest: ISIS or the downward price of oil?
Because the Saudis don't have two years. I gve them a year before their tender virgins are being raped at home by serious Muslims.
Pretty sure you're right. They are basically paying off their rabble now and when daddy dies they will be knocking at the gates. It's their version of the FSA. Whoever 'officially' takes the throne will have some serious decisions to make to keep it all afloat.
ISIS are Saudis.
dup
You can bet your very last dollar that as the whining increases from those in the oil bidness they will start angling for gubmint assistence/bailout. It is being set up right now.
I accidently tuned into the always obnoxious Shean Hamity on the radio about a month ago. He was crowing in his nasely voice about Amerikan independence from foreign oil. How fracking etc... is going to create more and more jobs, and those high paying jobs will just keep growing. Never once did the turd mention that it is all based on $100.00 plus oil.
Trees really do not grow to the sky no matter who thinks they have an app for that.
Bring on $20.00
Look at the oil price for bakken sweet as of friday morning, from the Plains Marketing website, www.paalp.com $32..............all but one county in the bakken is below break even.
NORTH DAKOTA
`
#
Williston Basin Sweet................................................................................................................…
31.94
*
.....................
40.0-44.9
....................
1
Williston Basin Sour......................................................................................…
so they all fail tomorrow?
No, not tomorrow. It takes time for the group home bus half those "workers" came in on to get back up here to the Bakken to pick them back up. It will take about 6-8 months to flush, probably, half the operators in the Bakken.
The service companies will go first.......maybe I could interest you in some NES, Nuverra Environmental stock ??....$2million in cash flow, $550 million in borrowed money.
The carnival will end soon enough.....not tomorrow though.
Better them than me I suppose, my oil is selling for a lot more and we are solvent.
Look at the oil price for bakken sweet as of friday morning, from the Plains Marketing website, www.paalp.com $32..............all but one county in the bakken is below break even.
NORTH DAKOTA
`
#
Williston Basin Sweet................................................................................................................…
31.94
*
.....................
40.0-44.9
....................
1
Williston Basin Sour......................................................................................…
LMFAO - Anyone see that "Hotel Impossible" show where they renovate nasty hotels? The most recent one was at Williston's cheapest hotel/whore and crackhouse. By the end he'd convinced the owner to invest half a million in its complete renovation and transformation into a decent hotel, since, in the show's estimation, Williston was just starting to 'boom' and would probably be totally thriving metropolis within a few years, with families moving to be with their loved ones in the industry, and then logically their extended families visting and needing lodging Proof? New apartment and hotel construction surrounding the hotel.
This sucker, he basically was bribed/shamed on live TV to give away half a million dollars to a lost cause, for ratings.
WBH may be the first to go belly up, but there will be plenty more that follow...
http://www.globaldeflationnews.com/shale-oil-companies-on-the-ropes-firs...
Oil prices are down nearly 60%, yet pump prices are down 25%.
Some muthafuckers are making more now than ever!
They are playing games, making fortunes, the little man is fucked in the ass as usual. People need to wake the fuck up.
with debt to EBITDA ratios greater than 4 and interest rates at 25% they have no choice but to keep drilling just to keep making the interest payments on their debt...
That's not a "Weighted" half, right?