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.

If you like having gas for your car, food in the stores, and turning lights on after dark, here’s good news: Outlook for energy looking brighter.

Gonna' be seeing more of those in North Dakota soon. Photo by James Ulvog.

Gonna’ be seeing more of those in North Dakota soon. Photo by James Ulvog.

Outlook for energy production in the US is getting better and better. Might want to get out your sunglasses.

  • Low oil prices have spurred innovation amongst US drillers; file this under unintended consequences for OPEC.
  • Breakeven prices in US shale approaching that of OPEC producers; ponder that the breakeven price for Saudi Aramco is not the same as breakeven price for the Saudi government.
  • Overview of news in 2016 for oil & gas; good news for companies that survived the year.

12/2 – Tyler Morning Telegraph – Saudis awakened a sleeping giant when they declared war on fracking – Editorial says the Saudis made a serious mistake waking up the slumbering giant of fracking land. The artificially high prices allowed the frackers to get started. The artificially low prices forced them to innovate, cut costs, and start producing at breakeven points competitive to the OPEC giants. Not a good move.

Wouldn’t it be grand if that paragraph was the four-sentence history of fracking?

Production costs are half what they were two years ago.

One economist has a fabulous comparison. The shale revolution has opened up production equal to the output of 2 Kuwaits. He points out we went to war to keep 1 Kuwait open and functioning. Now we have 2 Kuwaits in the heartland of the US. Didn’t even have any wars to discover 2 Kuwaits in our own backyard.

Very cool.

The next couple of years are going to be bumpy in the oil patch, according to the article. But shale drillers will be in the driver’s seat.

Article closes by saying that is what the Saudis have as an unintended consequence of declaring war on shale.

Don’t bet against human ingenuity. You’re gonna’ lose.

11/30 – Reuters – Leaner and meaner: U.S. shale greater threat to OPEC after oil price war – Lots of fascinating tidbits in the article.

First, the OPEC plan is called a price war by Reuters. I agree.

Lede says that production costs in Bakken are almost as low as Iran and Iraq. Cool.

Here are some breakeven prices listed in article, from other sources:

  • $21.66 – Qatar
  • $15.50 – Iran
  • $12.50 – Saudi Arabia
  • $11.38 – Iraq

Keep in mind Saudi Aramco may have a $12.50 breakeven, but the Saudi government has a $92 breakeven to balance the national budget.

Lynn Helms is cited as saying there is an area 2,000 square miles large in Dunn County where the breakeven cost is $15. That puts thousands and thousands and thousands of wells between Iran and Saudi Arabia in terms of breakeven.

Article cites NASWellCube providing the following breakeven prices in Bakken. I have estimated the amounts from the graph:

  • 2013 – slightly below $70
  • 2014 – just barely below $60
  • 2015 – just over $40
  • 2016 – about $25

Eagle Ford, Niobrara, Permian Delaware, and Permian Midland all show similar drops, although from higher starting point.

12/22 – The Million Dollar Way – Oil And Gas – 2016 in review – Forbes – This post points to a fantastic article in Forbes on 12/20 – The Oil And Gas Situation-2016 Year In Review.

The major points, as summarized by The Million Dollar Way:

  • the Permian Basin exploded
  • costs of drilling plunged
  • EURs soared
  • hundreds of companies filed for bankruptcy
  • fracking was exonerated
  • anti-development moved from upstream to midstream
  • LNG exports ramped up
  • oil exports almost doubled
  • the US became a net exporter of natural gas
  • OPEC “surrendered”

Each one of those points warrants three or four long posts. Great summary of the oil and gas world in the Forbes article. Check it out.

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