Perm'anently Out To Lunch

Oil prices are down 8.5% in less than 3 weeks and according to Art Berman the outlook in the oil market is backwardation until 2Q2019: 

 

A market savvy bunch in the Permian? Nah:

https://www.reuters.com/article/us-usa-oil-hedging-midland-analysis/u-s-shale-firms-miss-out-on-70-oil-after-hedging-at-55-idUSKBN1J91QK

 

Russia and OPEC have had enough of cutting their respective production, and revenue, so America can grow its shale oil production, and debt, and are now intent on regaining lost market share, again: https://oilprice.com/Energy/Energy-General/Is-Russia-Bailing-On-The-OPEC-Deal.html 

 

Product bottlenecks are sooooo bad that WTI delivered to Midland receives $20.50 per barrel LESS than the same barrel delivered to Houston, with no hope for additional takeaway capacity until 3Q2019:

http://www.4-traders.com/SPRAGUE-RESOURCES-LP-14670204/news/Sprague-Resources-LP-The-differential-between-Brent-and-WTI-increased-to-double-digits-on-Friday-26709954/

 

Waha natgas prices are something in the order of $2.00 MMBTU, if you can sell it (pipeline capacity is 98% full), and apparently you can't sell it. The Mexican market is, at the moment, pissed off about tariffs. THATS the good news, the bad news is GOR is going up across both basins:

 

So, what else is there to do but flare it.

 

https://viirs.skytruth.org/apps/heatmap/flaringmap.html#lat=29.43243&lon=15.26825&zoom=3&offset=15 . Look at the exponential increase in flaring that has occurred in the Delaware Basin since last 2017 thru the first half of 2018. Remember, the E in BOE well economics is now NA, for not applicable, and that is America's, not Siberia's, natural gas resources being wasted. The threat of having to shut wells in, or GASP(!)not actually drilling new wells is very real.

 

New Mexico is restricting fresh water use for frac'ing in the Delaware Basin, because it is concerned about its groundwater resources. Not Texas. Apparently in the desert of West Texas, right across the State line from New Mexico, we have an abundance of fresh water and oil is way more important than water:

 

"New Mexico official says Texas landowners are “stealing” millions of gallons of water and selling it back to New Mexico for fracking...."

https://www.texastribune.org/2018/06/07/texas-landowners-new-mexico-stealing-water-fracking/

 

At current WTI oil prices and a $10 per bbl. discount the weighted net back price, or take home pay for the Permian, after royalty deductions, taxes, incremental lift costs, G&A expenses and interest on long term debt per BO is less than $23. A typical well costing $10,000,000 to drill and complete then takes more than 434,000 BO just to reach payout.

 

Based on realized production data filed with the Texas Railroad Commission using known decline rates, now many Permian basin wells, even with increased productivity, now look like they might make 434,000 BO to payback well costs? shaleprofile.com

I estimate the top 20 unconventional, shaley carbonate producers in the Permian Basin carried with them to West Texas,  from the Eagle Ford, etc., or created while in West Texas, $89 billion dollars of long term debt that averages 5.8% in  interest expense, meaning those 20 pay something like $5  billion dollars a year in interest...and interest rates WILL be going up this week, another 1/4 BP with more rate hikes on the way: https://www.marketwatch.com/story/feds-goal-is-to-signal-an-unhurried-pace-of-interest-rate-hikes-2018-06-08 Money supply is tightening and investors/lenders are getting jumpy.
 

Regardless of all the minor little headaches outlined above, Permaniacs like Concho Resources, just paid RSP over $79,000 per undeveloped acre and the HZ rig count and drilling permits in the Permian Basin keep going up:

http://www.energyeconomist.com/a6257783p/exploration/detail/permian/Permian_Basin_Overview.html

 

Sand companies are shaving off all the sand dunes in West Texas to pump back down stinking shale wells, parts of entire counties are sinking from subsidence, a nasty motel room in Pecos costs $500 a night, a chorizo and egg breakfast taco goes for $11 and  ten good men a month get killed plowing in the back of vacuum trucks on SH 285. Halli and H&P are tired of losing money so Permian well costs are going, as is all steel associated with a well because of tariffs. 

 

What else?  Oh yeah, folks keep losing big bucks:

https://oilprice.com/Energy/Crude-Oil/Why-Arent-Permian-Oil-Producers-Profitable.html.

Discount funky non-GAPP accounting methods, asset sales, one time tax charges taken in 2017 and, in spite of higher well productivity and help from OPEC, only a few Permian producers eeked out some free cash flow recently. 

 

On the other hand, there is this; this should piss everyone off, big time: "...realized pay for the CEOs at 10 large E&P companies has added up to $2.1 billion over the past decade – coinciding with annualized total shareholder return of negative 0.1 percent."

https://www.msn.com/en-us/news/money/shale-ceos-lack-incentive-to-find-your-holy-grail/ar-AAyAaSY

 

Other than that, everything is just peachy and using other peoples money its...

 

 

 

 

 

 

Share on Facebook
Share on Twitter
Please reload