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Deciphering The Latest Rig Count Data
Deciphering The Latest Rig Count Data
The main take-away from this week’s rig count is that everything is on track for lower U.S. oil production by mid-year. The weekly changes vary but the overall trend since October is down and that is positive for achieving a better balance between supply and demand.
Please remember the following points and read my previous post “Oil Prices Don’t Change Because of Rig Count” if you haven’t already:
• Rig count is only one indicator of future production trends.
• Week-to-week changes are not critical but trends may become important.
• Horizontal rigs are more important than vertical rigs.
• Bakken, Eagle Ford and Permian basin are the most important plays for tight oil production in the U.S.
This week, the overall rig count was down 75 compared with 43 rigs last week. The horizontal rig count was down 51 compared with 33 rigs last week.
The Eagle Ford Shale play lost 9 horizontal rigs this week, the Permian lost 15 and the Bakken lost 3 rigs.
Rig Count Change Table. Source: Baker-Hughes, Labyrinth Consulting Services, Inc.
(Click to enlarge)
Related: Oil Price Crash A Blessing In Disguise For US Shale
The Bakken horizontal rig count is down 40% from its maximum in 2014. The Permian basin horizontal rig count is down 33% and the Eagle Ford is down 30%.
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Has California’s Fracking Boom Already Gone Bust?
Has California’s Fracking Boom Already Gone Bust?
We accelerate down the runway — a tiny asphalt strip next to Taft Skydiving. Our little Piper Cherokee lifts off and as we ascend, I peer out the window.
Below us is California’s Kern County and more than a century of oil exploration — from the gushers of the 1800s to today’s less robust reality. It’s a spider web of dirt roads, drilling rigs, pump jacks, pipes and boilers.
At least I’m pretty sure that’s what’s below us. The air quality is so bad that the San Joaquin Valley we’re flying over looks like the blurred work of an impressionist painter. Our view is smudged by stubborn smog that’s refused to budge for days.
It’s a perfect metaphor for trying to understand the future of oil and gas production in California, which is why we’ve taken flight in the first place.
For years, the biggest talk in California’s energy industry has been about hydraulic fracturing (or fracking) and whether or not the method of pumping sand, chemicals and water at very high pressure to release trapped hydrocarbons will kick off a boom comparable to surging North Dakota.
There was a time, just a few years ago, that most news reports deemed a shale oil boom inevitable in California. But now, it’s not looking like such a sure thing after all.
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Shale Company Defaults On $175 MM In Bonds Without Making A Single Interest Payment
Shale Company Defaults On $175 MM In Bonds Without Making A Single Interest Payment
Update: And just to prove that people are indeed, idiots, moments ago this hits:
- ENERGY XXI GULF COAST, INC. PRICES UPSIZED PRIVATE OFFERING OF $1.45
BILLION OF 11.000% SENIOR SECURED SECOND LIEN NOTES DUE 2020
We set the odds at 75% that not even odd coupon payment will be made in this case either.
* * * * *
It was just this past June when a report on Seeking Alpha quizzically asked, “Can American Eagle Energy Corporation Fly High Like An Eagle Over The Next Months?”
The answer, it turns out, is no.
According to a Bloomberg report, the Colorado oil producer, whose stock is now trading at a very sub-eagle $0.20, or about $6MM in market cap (the stock was at $6.00 when the Seeking Alpha report came out) has announced it will not make even one coupon payment on its bonds issued less than seven months ago.
Bloomberg reports that after raising $175 million in a junk-bond offering, American Eagle Energy Corp. said Monday thatit wouldn’t make its first interest payment on the debt. And instead of fulfilling its naive bondholders dreams that they will collect an 11% annual coupon for the next 5 years and then get repaid in full, the company hired bankruptcy advisers, Canaccord Genuity and Seaport, to negotiate a restructuring plan with the bondholders. Said bondholders now have two options: give the company more time to try to become profitable (i.e., hope that oil somehow soars from here) or push it into default, and become the new equity holders following a debt for equity.
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Peak Meaninglessness
Peak Meaninglessness
Last week’s discussion of externalities—costs of doing business that get dumped onto the economy, the community, or the environment, so that those doing the dumping can make a bigger profit—is, I’m glad to say, not the first time this issue has been raised recently. The long silence that closed around such things three decades ago is finally cracking; they’re being mentioned again, and not just by archdruids. One of my readers—tip of the archdruidical hat to Jay McInerney—noted an article in Grist a while back that pointed out the awkward fact that none of the twenty biggest industries in today’s world could break even, much less make a profit, if they had to pay for the damage they do to the environment.
Now of course the conventional wisdom these days interprets that statement to mean that it’s unfair to make those industries pay for the costs they impose on the rest of us—after all, they have a God-given right to profit at everyone else’s expense, right? That’s certainly the attitude of fracking firms in North Dakota, who recently proposed that they ought to be exempted from the state’s rules on dumping radioactive waste, because following the rules would cost them too much money. That the costs externalized by the fracking industry will sooner or later be paid by others, as radionuclides in fracking waste work their way up the food chain and start producing cancer clusters, is of course not something anyone in the industry or the media is interested in discussing.
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Three Reasons Why US Shale Isn’t Going Anywhere
Three Reasons Why US Shale Isn’t Going Anywhere
Have you ever noticed that during extreme economic cycles, when trends are roaring on the upside, or conversely crashing back down to earth, there often appears an air of extremism in news headlines? Take America’s most recent shale oil boom, and bust, for example. On the way up, you may have seen – Why OPEC Could Be Dead in 10 Years. Conversely, now you may have read, Why It Might Be ‘Game Over For The Fracking Boom’.
In the end, the answer lies somewhere in-between. OPEC, although often plagued with internal discord, will still remain the global defacto 900-pound gorilla of crude, and US producers will continue to find ways to crack shale rock cheaper and more efficiently, immunizing themselves to nail-biting commodity roller coaster dips like what was just experienced. And in 2008 (-55%). And in 2001 (-32%). And in 1998 (-38%)….
BP, in its recently-released “Energy Outlook 2035”, predicts OPEC’s market share will return to approximately 40 percent of global demand within 15 years, up from 33 percent today, which is what all this fuss is about anyway.
Related: No Real Oil Price Relief Until Q3
Here are 3 reasons why America’s shale will continue to produce going forward:
1. Oil companies, both large and small, have seen what is possible.
In 2004, Texas oilman George Mitchell made hydraulic fracture stimulation commercially viable by unlocking the right combination of water pressure and lubricants to allow oil and gas to predictably flow from dense shale to the wellbore. A decade ago, producers believed shale held vast oil and gas resources, but to what extent they could be developed had not been determined. Until now.
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“Default Monday”: Oil & Gas Companies Face Their Creditors
“Default Monday”: Oil & Gas Companies Face Their Creditors
Debt funded the fracking boom. Now oil and gas prices have collapsed, and so has the ability to service that debt. The oil bust of the 1980s took down 700 banks, including 9 of the 10 largest in Texas. But this time, it’s different. This time, bondholders are on the hook.
And these bonds – they’re called “junk bonds” for a reason – are already cracking. Busts start with small companies and proceed to larger ones. “Bankruptcy” and “restructuring” are the terms that wipe out stockholders and leave bondholders and other creditors to tussle over the scraps.
Early January, WBH Energy, a fracking outfit in Texas, kicked off the series by filing forbankruptcy protection. It listed assets and liabilities of $10 million to $50 million. Small fry.
A week later, GASFRAC filed for bankruptcy in Alberta, where it’s based, and in Texas – under Chapter 15 for cross-border bankruptcies. Not long ago, it was a highly touted IPO, whose “waterless fracking” technology would change a parched world. Instead of water, the system pumps liquid propane gel (similar to Napalm) into the ground; much of it can be recaptured, in theory.
Ironically, it went bankrupt for other reasons: operating losses, “reduced industry activity,” the inability to find a buyer that would have paid enough to bail out its creditors, and “limited access to capital markets.” The endless source of money without which fracking doesn’t work had dried up.
Could Oil Prices Plummet A Second Time?
Could Oil Prices Plummet A Second Time?
Are oil prices heading for a double dip?
The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year.
However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time.
Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days.
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Oil Prices Don’t Change Because of Rig Count
Oil Prices Don’t Change Because of Rig Count
Oil prices don’t change based on weekly rig count reports.
Yet every week, there are proclamations by analysts that oil prices are poised to recover because of some change in the Baker Hughes North American rig count. Others state that U.S. tight oil production will continue to rise despite falling rig counts because of the miracle of shale rig efficiency.
What this really means is that nobody has any idea about when oil prices will rebound. As I have previously written, that is because nothing has happened so far to cause a change in oil prices.
What can we learn from rig counts? The weekly U.S. rig count is another data point that, along with other data points, can help us to see potential trends while we wait for something meaningful to happen that causes oil prices to rise…or to fall farther. But we have to do some work with the data before we can hope to get anything from the rig count and, even then, we must not read too much into it.
First, the total North American or U.S. rig count is a practically meaningless number. Rig counts rise and fall all the time whether prices are rising or falling. In the chart below, the rig count shown in red changed weekly whether oil prices were rising or falling.
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The Fracking Bust Exacts its Pound of Flesh
The Fracking Bust Exacts its Pound of Flesh
Breath-taking booms and obliterating busts have made the oil and gas business. Booms draw money, which begets more money, which allows for technologies to be invented or perfected, and it builds enthusiasm that turns into blind faith among investors, and they throw more money at it. The money gets drilled into the ground. The debt remains on the balance sheet. Production soars. Demand doesn’t keep up. Storage levels rise. The price begins to plunge. And all heck breaks loose.
The fracking bust didn’t start last summer when the price of oil began to skid. It started in October and has progressed with phenomenal rapidity. In the latest week, according to Baker Hughes, which publishes the data every Friday, drillers idled an additional 33 oil rigs. Only 986 rigs were still active, down 38.7% from October, when they’d peaked at 1,609. In a period of 20 weeks, drillers have cut the number of rigs drilling for oil by 623, the steepest, deepest rig-count nose dive in the data series:
The result should be lower oil production.
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Bakken Decline Rates Worrying For Drillers
Bakken Decline Rates Worrying For Drillers
I have been supplied an Excel spreadsheet of all North Dakota wells back to 2006, thanks to Enno Peters and Dennis Coyne. I only used the data back to 2007 however. This is a wealth of information if we want to know how many wells came on line in a given month, we simply count them. We are given the monthly production data for each month. And since we have the monthly production data we can very easily figure the decline rate of each well, or any group of wells for any month or year.
A note on the data. The first month’s data was almost always for a partial month. Sometimes the well came on line near the first of the month and sometimes near the end of the month. To get around this problem I have started with the second month, which is the first full month, and used that month as the first month of all my data. All data and charts below include all North Dakota wells, not just the Bakken.
Production per well has gradually increased each year. 2014 was the highest first month production but also the highest decline rate. Note that on the first month 2014 production is 29 barrels per day above 2013 1st month and 131 barrels per day above 2008 1st month. But the 2014 10th month was 7 bpd below the 2013 10th month. And by the 2013 only 7 barrels per day separated the 2008 data and the 2013 data.
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Will US Shale Boom Continue Or Have A Hiatus?
Will US Shale Boom Continue Or Have A Hiatus?
The conventional wisdom recently has been that North America will keep producing shale oil for some time despite the higher costs associated with hydraulic fracturing and the 50 percent drop in oil prices over the past eight months.
The thing about conventional wisdom is that it tends to be challenged, sometimes successfully. And shale’s biggest producer in the United States, EOG Resources Inc., is saying the recent rapid growth in its own shale production will end this year. And this idea is supported by people with experience in oil.
Certainly, though, the logic behind the theory of continued shale production is solid: Oil prices will bottom out, then begin to rise to the point where crude from shale becomes profitable again despite the cost of fracking. The only question is whether OPEC would then accept US shale as a competitor and cut its own production to shore up prices.
Related: Is Oil Returning To $100 Or Dropping To $10?
A forecast issued Feb. 17 by BP was more specific. The BP Energy Outlook 2035expects US production will grow rapidly for the immediate future, then “flatten out.” Or, as BP’s chief economist, Spencer Dale, told The Wall Street Journal, “U.S. [shale] oil can’t continue to grow rapidly forever.” And OPEC will be ready to fill that vacuum.
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Quakes in Gas Fields Ignored for Years, Dutch Agency Finds
Quakes in Gas Fields Ignored for Years, Dutch Agency Finds
Safety board’s report a relevant read for any fracking zone.
A report from the Dutch Safety Board has accused the oil and gas industry and Netherlands Ministry of Economic Affairs of willfully downplaying the risk of earthquakes caused by the rapid depletion of Europe’s largest gas field.
The board’s conclusions offer lessons for other regions coping with earthquakes caused by fluid injection and hydraulic fracturing.
Ever since the shale gas industry changed the seismic record of states and provinces like Oklahoma, Texas, Kansas and British Columbia, many industry lobbyists and regulators have been quick to deny and dismiss citizen’s concerns about the seismic hazards.
The Groningen field, which lies under a 900 square-kilometre area in the northern part of the Netherlands, has been drained by a consortium — Nederlandse Aardolie Maatschappij, or NAM — jointly owned by Exxon Mobil and Royal Dutch Shell since the 1960s.
The Dutch government, a minor petrostate, is highly dependent on revenues from gas extraction, pulling in an average of 12 billion Euros or US$16.3 billion a year.
According to anti-drilling group De Groniger Doem Beweging (The Groningen Ground Movement), approximately 60 per cent of the 60,000 homeowners in the Groningen region have recorded earthquake damage to their homes over the last decade. Many homes now remain unsellable in the industry-made earthquake zone.
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The Easy Oil Is Gone So Where Do We Look Now?
The Easy Oil Is Gone So Where Do We Look Now?
In 2008, Canadian economist Jeff Rubin stunned the oil market with a bold prediction: With the world economy growing at 5 percent a year, oil demand would grow with it, outpacing supply, thus lifting the oil price from $147 to over $200 a barrel.
The former chief economist at CIBC World Markets was so convinced of his thesis, he wrote a book about it. “Why the World is About to Get a Whole Lot Smaller” forecast a sea change in the global economy, all driven by unsustainably high oil prices, where domestic manufacturing is reinvigorated at the expense of seaborne trade and people’s choices become driven by the ever-increasing prices of fossil fuels.
In the book, Rubin dedicates an entire chapter to the changing oil supply picture, with his main argument being that oil companies “have their hands between the cushions” looking for new oil, since all the easily recoverable oil is either gone or continues to be depleted – at the rate of around 6.7% a year (IEA figures). “Even if the depletion rate stops rising, we must find nearly 20 million barrels a day of new production over the next five years simply to keep global production at its current level,” Rubin wrote, adding that the new oil will match the same level of consumption in 2015, as five years earlier in 2010. In other words, new oil supplies can’t keep up with demand.
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What is Saudi Arabia not telling us about its oil future?
What is Saudi Arabia not telling us about its oil future?
It is popular these days to speculate about why Saudi Arabia cajoled its OPEC allies into maintaining oil production in the face of flagging world demand. As the price the world pays for oil and oil products has plummeted, the price OPEC members are paying in terms of lower revenues is high, even unbearable for those who didn’t save up for just such a rainy day.
Was the real reason for the decision to maintain production the desire to undermine rising U.S. tight oil production–which has now proven embarrassingly vulnerable to low prices after years of triumphalist talk from the industry about America’s “energy renaissance”? Were the Saudis also thinking of crippling Canada’s high-cost tar sands production? Was it Sunni Saudi Arabia’s wish to undermine its chief adversary in the region, Shiite Iran? Was the Saudi kingdom doing Washington’s bidding by weakening Russia, a country that relies so heavily on its oil export revenue?
The Saudis say explicitly that they believe non-OPEC producers must now balance world oil supply by cutting back production rather than relying on OPEC–meaning mostly Saudi Arabia–to do so. And, those cutbacks in the form of drastically reduced investment are already taking place in the United States, Canada and around the world as low prices are forcing drillers to scale back their drilling plans dramatically. It is not well understood, however, that almost all of the growth in world oil production since 2005 has come from high-cost deposits in the United States and Canada which has made the two countries easy and tempting targets for the Saudis’ low-price strategy.
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Fracking Bust Deepens, Sets Records
Fracking Bust Deepens, Sets Records
The fracking bust that is following the phenomenal fracking boom is deepening relentlessly, week after week, and there is still no respite in sight.
Drilling activity peaked in October last year, when 1,606 rigs were drilling for oil, with a four-month lag behind oil prices. But by October it was clear that the oil-price plunge wasn’t a blip, and in November oil fell off the chart. It was then that the industry reacted with vertigo-inducing rapidity. And the number of rigs drilling for oil, which Baker Hughes publishes every Friday, began to plummet.
In the latest reporting week reported Friday, drillers idled an additional 34 oil rigs. Now only 1,019 rigs are still drilling for oil, down 590 rigs from the October peak, a 37% plunge in 19 weeks. The steepest rig-count plunge in the data series.
But drillers have to service their mountain of debt with which the fracking boom was funded. They can’t afford to cut production. To stay alive, they cut operating cost and capital expenditures, and they’re laying people off. But they focus their remaining resources on the most productive plays, using the most efficient technologies, with a single-minded focus on raising production while spending less.
The hope is that this strategy will get them through the oil bust if it doesn’t last too long. But because everyone is thinking in those terms, US production overall continues to rise – it averaged an estimated 9.2 million barrels per day in January.
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