Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

About those dropping oil prices – #13

More articles on the drop in oil prices I found interesting.

Huge news Wednesday, 2/4, as oil collapsed big time dropping from about 53.50 to 48.50. Oh my, a $5 drop in just one day. Obviously gonna’ break the $40 mark this month, huh?

Oh wait.

Up 2.50 yesterday and another dollar as I write this morning.

Reminds me of the old joke on the days’ news about the stock market:  Stock market was off 500 points today before rallying and closing up 1 and a quarter.

1/24 – The Economist – The tough get going – Companies in the energy field are working to improve their economics.

Look what has happened to the average prices. R.T. Dukes, also of Eagle Ford Shale blog, said it used to be understood that everyone would make money at $80-$85. That data point is down to $70-$75.  He estimates that used to be that 2/3rd of producers were profitable at $70. Now that 2/3rd point is $60.

How is this possible? Technology and ever more innovation. Look what Halliburton is doing. It is

…pushing ahead with upgrades to the equipment and techniques it uses at drilling sites, including improvements to pumps and storage systems. All this, the company says, can cut a typical well’s capital spending by a quarter, maintenance by half, labour by a third, and development time by more than half, compared with the previous approach.

Did you see that? Capital 25%, maintenance 50%, labor 33%, time >50%.

Not sure the OPEC ministers were counting on that.

1/26 – John Kemp, Reuters in Dickinson Press – North Dakota oil rigs drop points to U.S. output decline after May – The drop in drilling rig count will result in a drop of production in North Dakota in April or May, showing up in results released in June or July, according to the author.

By Baker Hughes count, the number of rigs in Bakken, Eagle Ford, and Permian dropped to 794 from 954 at the beginning of October.

New terms for me:

“Cold stack” – oil rig comes off the market and staff to run it are laid off.

“Warm stack” – pulling rig off the market and keeping staff on hand to be ready for a new contract on short notice.

1/27 – Reuters Media in Dickinson Press – US oil well shut-ins start as crude rout batters small producers – Old stripper wells with very high operating costs are starting to be closed in. One small operator is quoted as saying his company is looking at 20 wells as candidates to get closed. He has one with costs of $70 a barrel to operate. RT Dukes of Wood Mackenzie thinks there may be 100k to 200k bopd at risk of getting closed at a price of $40/barrel. Downside of closing in a well is that the land lease is lost if production stops for a certain number of months.

Article says many public companies have operating costs between $10 and $30 a barrel.

1/28 – Edmonton Journal – Lamphier: Oil prices zero in on $40 mark as glut pushes prices lower – Oil dropped to $44.45 on the New York Merc Wednesday. Just looked today (1/29) and saw it had dropped to below $43.70 before recovering to about $43.90. Article says the drop in sectors other than energy is raising concern that the dramatic drop in crude is a warning of a recession about to kick in. Stockpiles of oil are up. Article’s author thinks oil will break the $40 mark in the next few weeks.

2/2 – Reuters at Bakken.com – Oil prices rally above $53 as investors pile in

So many articles are discussing the daily downs and occasional ups in crude oil prices. I’ve not been mentioning them. You can see a good graph of Nymex price here. What was noticeable to me in January was a slower downward trend with a sawtooth pattern, bouncing between the 45 and 50 line. In the last week (as of 2-4) the NY Mercantile price has gone from about 44 up to 53 1/2 and now down to 50.79.

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