Shale War Full Frontal

Tyler Durden's picture

Despite Saudi prince bin Talal's explanations of the imbalances between supply and demand being the prime driver of lower oil prices, we thought a look at just where that over-supply is coming from might provide some context into the 'shale oil war'. As the following chart shows, since the start of 2014, rig counts in Saudi Arabia, Kuwait, and UAE have surged (just as they did in the mid-2000s). As of this week, US rig counts are now at 14 month lows as it appears clear that the core OPEC producers are intent on drowning the shale oil industry in excess supply.

 

Data: Baker Hughes

Chart: Bloomberg

 

And as T.Boone Pickens noted previously, the last time this happened (massive oversupply from Saudis), the US rig count was more than halved (from what then was an unprecedented surge)...

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Carpenter1's picture

Shale implosion: 5,4,3,2,1,..

OV61FVF's picture

Deflation is a fickle bitch. Where's Mr. Yellen?

SWRichmond's picture

when was it exactly that we refused to invade Syria?

cossack55's picture

1917

BTW-OT (sort a)

BDI now 63 points away from all time low. Yippee

wallstreetaposteriori's picture

of course he's pissed.  He is one of the largest shareholders of citigroup..... bhawhahahahwhaha

knukles's picture

No no no no no no no....
Bin Talil doesn't mean that there's a supply imbalance from OPEC and ME production, he means there's an oil supply glut because of expensive US oil production.

Now go figure, y'all

RaceToTheBottom's picture

Well, we can have GS be given further trillions to bailout the shale industry.  
It is for GS's children, after all. 

SteveNYC's picture

"You've been giving us this green paper for decades in return for our hydrocarbons. Sure, the green paper has lost some of its value, but, as long as the game keeps going we are OK with that. But now, you expect to compete with us, hit our market share, AND keep giving us green paper for the privelege? F*ck no!"

 

wrs1's picture

The green paper is worth more than the gold because now they have to sell 27 barrels of oil to get an ounce of gold.  Not so smart and oh by the way, you think they can keep their production constant without a rising rig count?  That would mean their wells are pumping out more each day than less.  So what if their rig count rises?  The production in Texas has nearly tripled in the last three years, the Saudi production has been declining so they added 30 rigs, BFD.  The US has added a lot production and could easily absorb it by refusing to accept Saudi oil dumped under the market price.

angel_of_joy's picture

No can do ! Oil is a fungible commodity. Back to Econ 101...

LostandFound's picture

Bingo! the QE expansion and Shale Oil correlation shows this....

Eternal Complainer's picture

Maybe its time for some more shock & awe

Al Tinfoil's picture

The shale business needs ZIRP, $6 per mmbtu gas and $120 per barrel oil to be profitable.  The fall in oil prices has exposed the lack of profits, the dependence on ever-increasing debt, and reliance on high-yield bonds.  Unless Auntie Janet pumps QE into shale, and the World price of oil skyrockets, the shale output will pretty much disappear by the end of 2017, IMHO.

As to the relative number of rigs in Saudi Arabia vs the US, keep in mind the typical Saudi hole produces something like 6,000 BPD oil while the average new shale hole produces about 330 bpd oil (EIA Drilling Productivity Report Jan 12, 2015).  I believe the average production of all holes (new and old) in the Bakken is about 125 Bpd oil.  

In its November 5, 2013 Today in Energy report, the EIA gave figures for "Rigs needed to sustain prior month's production" of oil and gas as about 170 for the Bakken and 250 for Eagle Ford.

The production of the average shale hole falls about 60% in the first year, and has fallen by 85% to 90% after 36 months.  Thus, if drilling in the shale plays stops, expect shale production to be minimal by 36 months later. 

wrs1's picture

Far as I know, that 6000 bpd is an old number and further more, increasing wells in the same reservoir leads to less oil per well and depletes the reservoir too quickly by depressurizing it.  It is after all a finite pool they are sucking the oil from.  The Saudi fields need water injection in order to bring up oil now, it doesn't flow much on it's own and has to be forced out.  You don't know that the additional rigs aren't drilling injection wells and in that case don't produce squat.  

 

Now your numbers on shale profitability are just stupid.  Plenty of shale wells have been profitable at far less than your numbers because those numbers haven't been achieved during the shale boom and yet plenty of shale wells have paid themselves off completely in less than a year.  Furthermore, shale well production is still rising  2000 BOE/d  wells with 70% oil aren't uncommon at all in the Wolfcamp.

 

What did EIA predict for the price of oil to be in 2015  a year ago?  Think anyone should put much faith in their data and projections?

kliguy38's picture

They have only begun to drown

Al Huxley's picture

And here I thought the Saudis were our buddies...

EDIT - well, other than that time they brought down the WTC.

Winston Churchill's picture

Do dancing Israeli's ring any bells ?

The Saudis were set up as 2nd line patsies if Americans weren't dumb enough to buy the official

story.Nobody ever went broke underestimating the intelligence  erectus americana,so they

were not required..

Al Huxley's picture

Hey, you'd have to be some kind of crazy conspiracy theorist not to believe at least one of the official accounts of what happened.   

Jack Burton's picture

"Dance, Dance, Dance to the Radio" , Joy Division. Punk 70's Britain

"Israelis Dance, Dance, Dance to the buring towers", Israeli Mossad Agents, 9/11 NY.

Some cultural difference! Some dance to Punk, some Dance to Power.

ne1491x's picture

Transmission!

Listen to the silence, let it ring on.
Eyes, dark grey lenses frightened of the sun.
We would have a fine time living in the night.
Left to blind destruction, waiting for our sight

And we would go on as though nothing was wrong.
And hide from these days we remained all alone.
Staying in the same place, just staying out the time.
Touching from a distance, further all the time.

Well, I could call out when the going gets tough. The things that we've learnt are no longer enough. No language, just sound, is all we need now.

Redneck Hippy's picture

The Saudis are my buddies. $20 oil, bring it on.  Texas can go to hell.

ShrNfr's picture

Very shalefish of them those arabs.

Sudden Debt's picture

They’ve increased their rigs with 30% but their supply didn’t increase with 30% so this could well be a overestimation of their reserves.

Their output was on a decline for years while their rig count has soared. Their pumping up little pockets. Also, their costs just went up over 30% for a 35% drop in revenue, that doesn’t sound like a sound thing to do on the long run.

Maybe they’re mad that the UK sold their gold :)

cavedigger's picture

ShrNfr-A reference to Kip Adotta tune?

HardlyZero's picture

We rigged some people.

Riggamortis will set in soon.

CanadaFrank32's picture

So sick of the f**king american stock market being so strong when it is obviously is so weak.

Bell's 2 hearted's picture

21st Century slogans (as allowed by TPTB)

 

Peace thru War

 

Prosperity thru Poverty

 

Strength thru Weakness

buzzsaw99's picture

nominal retail stock prices are a farce and a fraud

Rainman's picture

@  345  p/e does that mean Tesla stawk is a bit spendy ?

Winston Churchill's picture

They are losing money with GAAP accounting ,and thats with only with a 1% warranty provision.

They are bleeding like a stuck pig in reality.

813kml's picture

Tesla earnings will skyrocket after they rebrand as mobile crematoriums.

TheRedScourge's picture

I'd be more focused on the much harder to dismiss fact that they plan to have a tiny fraction as much production as Ford in several years, and already their market cap is a large fraction of the size of Ford's.

Bell's 2 hearted's picture

if you are looking for 2015 energy capex ... check a milk carton 

headhunt's picture

Russia is supporting Iran and their nuclear goals, the Saudis hate the Iranians and do not trust them, so the Saudi's are sending an FU to Russia with love.

NoLongerABagHolder's picture

Wait..... ZH's last 47 articles on oil dropping were about it all being a demand issue......not a supply glut. So Tyler - which one is it?

Bell's 2 hearted's picture

didn't you hear? ... ebola wiped out half the world's population ...

the not so mighty maximiza's picture

 

Shale bailout needed

buzzsaw99's picture

a shaleout? not with this president

RaceToTheBottom's picture

All we need to approve another bailout, this time of the shale industry is for GS to buy a bunch of their junk bonds.  Booom, bailout city!

Sudden Debt's picture

So the saudi’s are not o ly depleting their oil reserves faster, but they’re also deploying their financial reserves to combat the US, their "ally"...

Let’s hope IS shows up on their borders so Ameca can return the favor by sitting on it’s ass, watching and eating popcorn as those saudi’s remind us what being a ally means.

They crippled the worlds economy with 140 oil and now they want to do the same thing all over once the us rig count is down to 60

Bangin7GramRocks's picture

Arabs bad, Mericans good. Mmmmkay!

Consuelo's picture

'Food good, Fire bad'...

USA!!!   USA!!!   USA!!!

JustObserving's picture

Saudi Arabia produces about 10% of world oil production and its oil production has been falling even with all those extra rigs:

Saudi Arabia Crude Oil Production is at a current level of 9.64M, down from 9.74M last month and down from 10.14M one year ago. This is a change of -1.03% from last month and -4.93% from one year ago.

https://ycharts.com/indicators/saudi_arabia_crude_oil_production

Nassim's picture

They need more rigs, because their best resevoirs are depleting - fast. Ghawar is way past its best days.

Rusputin's picture

If you like your crude price, we can halve your crude price!

Automatic Choke's picture

Aside from the usual rants and posturings, does anybody have more technical information on that rig-count curve?

There are two clearly different scenarios.....

    1)  peak-oil-ish:  as wells deplete, SA is sinking more wells of less capacity each to keep the total flow up....a real sign of eventual production downturn

    2)  purely political:  new wells are high flow comparable to old....sinking more is a price-war tactic.

Anybody have any real information to support either conjecture?

 

 

cavedigger's picture

Auto-for a good primer on Saudi production check out the very readable"Twilight in the Desert" by Matt Simmons. Based on what I read there I would say 1) in your post above is very plausible. Either that, or they need more holes to flood the existig reservoirs.