Why Shale Oil Can’t Simply Turn the Spigot Off and Stop the Flow

We’re learning far more about the oil business than we ever thought we would, due to the price crash brought on by the coronavirus and the Saudis and Russians dumping. Yes, oil and gas are an industry that goes together–but natural gas really is a different kind of business overall. Different kind of drilling, different kind of pipelines, different economics. We don’t know about you, but we always thought an oil driller could simply shut-in a well (essentially turn off a valve) and later, when the economics returned, just open the valve again and let the oil flow. Boy were we wrong! Shutting in a well is a major decision with long-term consequences. It’s not just flipping a switch or turning a valve.
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Oil & Gas Experts Say Industry Itself to Blame for Oil Price Crash

Simon-Kucher & Partners, a global strategy and marketing consulting firm along with Rice University surveyed 195 oil and gas industry experts from around the world. They published their findings in a report titled “2020 Oil & Gas Crisis Study.” The upshot, the sentiment, is that the current crisis faced by oil companies is largely homegrown. We did it to ourselves.
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“End Game” – America’s Shale Oil Industry Begins to Shut Down

In the end, physics and not government intervention is forcing the end of large amounts of shale oil production across the U.S. With a forced shutdown of the world’s economy (including the U.S. economy) due to the coronavirus pandemic, some 30 million barrels per day of oil the world would have used (out of a previous 100 million bpd) has disappeared. Demand has dried up. Yes, the oil apocalypse is here. Welcome to Hades. Some of our favorite oil superheroes will not make it out alive.
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Carnage Continues: Rig Count Down Another 76, Marcellus Down 2

The U.S. rig count continues in a freefall, losing massive numbers of rigs each week. Over the past month rigs have gone down 47, then 45, then (gulp) 80, and then 74 (see Rig Count Plunges Another 74; M-U Count Steady as She Goes). Last week the rig count crashed another 76–the second-highest loss for one week in the modern era. Most of rigs disappeared from the oil patch. However, last week the Marcellus lost 2 rigs too.
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U.S. Oil Industry: April Will be Terrible, May Will be Impossible

As the price of oil continues to crash and burn, U.S. shale oil companies are “living a nightmare.” Companies are now laying off employees by the thousands and beginning to shut-in wells. Everyone is holding their collective breath waiting for a tidal wave of bankruptcies, hoping it won’t come, fearing it will. What is it like living inside the oil price crash bubble in Texas? Believe it or not, an article in the well known fake news source New York Times does a pretty good job of describing the hell that America’s shale oil companies are now living through. A quote from one operator: “April is going to be terrible, but May is going to be impossible.” And, “I’m just living a nightmare.” That about sums it up.
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Oil Price Crashes -$56; First Time in History Sellers Pay Buyers

Frankly, we’re speechless. Yesterday the price of West Texas Intermediate (WTI) oil for near-term May contracts went from trading at $18.27 per barrel (bbl) to minus $37.63, a drop of $55.90 in a single day. This is the first time in history sellers of oil in the U.S. (more properly the contracts to buy oil) are paying buyers to accept it–because the sellers have no place to store physical oil should they keep the contracts. This is a complete and utter meltdown in the oil market. Trading for May contracts ends today, thank God. The June contract is (so far) showing deals trading at $15.59/bbl. That’s still a disaster, but not as bad as paying someone else to take the oil! What caused this price crash, and where does it go from here?
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Trump Mulls Plan to Pay Oil Drillers to “Keep it in the Ground”

“Keep it in the Ground” (KIITG) has been the rallying cry of idiotic, low-brain function environmentalists for the past 3-4 years. They want “fossil fuels” to be kept in the ground, never to be developed. President Trump is mulling over a plan to KIITG–but not in the same way. Advisers to the President are proposing that the federal government pay for oil from American producers now, at historically low prices, but that the producers don’t deliver the oil right now. In fact, don’t drill at all–just keep it in the ground, out of the world market, in an attempt to lower world oil supplies and prop up the price.
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The “Upside” for Marcellus/Utica in the Oil Price Crash

We’ve previously brought you various articles, and comments on articles, describing how Marcellus/Utica drillers may benefit from the current crash in global oil prices. How? A number of oil drillers in Texas, Oklahoma, North Dakota and other oil states are not only not drilling new wells right now, but they’re also not completing previously drilled wells and in some cases, they are shutting in existing/flowing wells. All of which means there will be a rapid decline in the amount of “associated gas” being produced in those states. Less associated gas means less supply and less supply means higher prices–for M-U drillers. We spotted an article that does a good job at defining how this will likely play out. How much less associated gas can we expect? What does that mean for natgas prices (when will they go higher)? What if the price of oil is $40/barrel rather than $30/barrel?
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“Lower for Longer” Not Only for NatGas, but Oil & Petchem Too

If you’ve read MDN for any length of time you know we’ve preached the gospel of “lower for longer”–that natural gas prices will remain low, quite low, for a long period of time. How low? Likely in the $2/Mcf range (or just under, or just over). Gone are the days of $3 and $4 gas–at least for a period of years. Although that may have now changed with the double shock of too much oil and the coronavirus destroying demand, which affects natural gas prices. How? Less oil drilling in American shale means less associated gas produced by oil drilling. Less supply equals higher prices. But let’s not go down that rabbit trail right now. We spotted a couple of articles by analysts who predict the current oil price crash will have a profound and long-term effect not only on the oil industry but also on the petrochemical industry–the downstream recipient and user of oil (and gas).
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Calling Out API & Big Oil as Enemies of Independent Shale Cos.

The gloves are off. Today we’re calling out the American Petroleum Institute and the Big Oil supermajors that control the API for their selfishness and shortsightedness. Apparently the supermajors have long wanted American shale and the plethora of smaller independents to just go away–so they (Big Oil) could once again control the world market for oil. The result of that philosophy, whether intentional or not, will be to allow foreign countries like Saudi Arabia and Russia to buy up OUR American shale companies, for themselves (see U.S. in Danger of Losing Our Shale Oil Industry to Other Countries). The API hides under the covering of “don’t interfere in free markets” in advising President Trump to not do anything to help American shale. That’s bunkum.
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U.S. in Danger of Losing Our Shale Oil Industry to Other Countries

America is in danger of losing ownership of our shale oil companies to bad actors including Saudi Arabia, Russia and other foreign countries. Those countries are actively, aggressively, purposely waging a price war against us, trying to drive American shale companies into bankruptcy. Why? So they can turn around and buy up our companies and once again control the world market for oil. It is a *hostile* action. President Trump, please don’t let it happen!
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Enverus Finds Bright Spot in the “Dark Side of the Boom”

Enverus, a leading oil and gas SaaS and data analytics company, has just released its latest FundamentalEdge report called, “The Dark Side of the Boom.” The report focuses on the new global supply and demand outlook since the failure of OPEC+ to reach an agreement on temporary production cuts resulting in an all-out price war. It also takes into account the effects on world energy demand as a result of the coronavirus. The report covers not only the crude oil situation but also natural gas, NGLs, rig count changes and more. What “overlooked bright spots” does Enervus find in a sea of bad news?
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Saudi-Russian Oil Deal on Shaky Ground; Texas to Join OPEC++?

Is your head spinning yet with all the news about the oil price crash and what the U.S. may or may not do to “fix” it? Ours is! Last week President Trump tweeted to the world he had a conversation with his “friend” the Crown Prince of Saudi Arabia and the Prince told Trump the Saudis and Russians are close to announcing a major cut in world oil production (see Trump Says Saudis, Russians Agree to Major Oil Production Cut). That news sent oil soaring, up more than $5/barrel. But then Russia denied such talks, and a hasty meeting planned for yesterday between OPEC and Russia (OPEC+) was postponed until Thursday at least. Then a lame-duck Texas Railroad Commissioner (the agency that oversees oil drilling in Texas) piped up to say he wants Texas and the U.S. to join a pact with Saudi Arabia and Russia to restrict oil production. Some are calling it OPEC++. Then, over the weekend, President Trump hinted he may slap tariffs on imported oil if the Saudis/Russians don’t turn back the taps.
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National Rig Count Falls Another 45, M-U Rig Count Holds Steady

Last week we told you about the biggest rig count drop in four years with a loss of 47 rigs in a single week (see Biggest Rig Count Drop in 4 Years – Who’s Still Drilling?). What has to be the second biggest rig count drop in the past four years happened over this past week, with the U.S. seeing another 45 rigs idled in the last seven days. The good news, if there is such a thing, is that the rig counts in both the Marcellus and Utica remained the same–although one rig changed locations from the “dry” Marcellus to the “wet” Marcellus.
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Trump Says Saudis, Russians Agree to Major Oil Production Cut

It’s pretty amazing what a single tweet can do. It can move the price of oil up by $5/barrel! Yesterday President Trump tweeted: “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” The markets reacted quickly bidding up the price of oil to $25.32/barrel for WTI. Let’s hope it continues.
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Contrarian Goldman Sachs: Shale a Winner in Oil Price War

Is this an April Fool’s joke? Bloomberg is reporting comments from Damien Courvalin, Head of Energy Research & Senior Commodity Strategist at Goldman Sachs, saying U.S. shale oil drillers will emerge from the current oil price crash as “a winner.” This is the opposite of every other analyst we’ve read. What does Courvalin see that’s different from everyone else?
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