And there was much rejoicing in the land.... Gas Prices

[Ruffdaddy]

Let them.
Because I'm enjoying the shit out of the prices.

Started looking at trucks again and the buy in seems to be falling. I don't care so much about fuel prices, but if I can save 30% on purchase price because an oil field guy is over-leveraged and in deep shit, then so be it.

Then when gas prices are sky high again, they will buy it right back off you even cheaper!

[JC316]

Then when gas prices are sky high again, they will buy it right back off you even cheaper!

Lol, no they won't, they will go out and buy a new truck all over again. Used car dealers like me will get it even cheaper.

[Ruffdaddy]

Haha good point...

[cobrajet69]

One opinion...

Just noticed this morning that a station by my work jumped nearly 30 cents a gallon today.




David

[Ruffdaddy]

Pipeline burst...spilling into the Yellowstone river. There goes keystone.

[Unicorn Jeff]

Pipeline burst...spilling into the Yellowstone river. There goes keystone.

http://edition.cnn.com/2015/01/20/us/yellowstone-river-spill/

[Sean88gt]

They should have said "a little over 1100 barrels were spilled today..."

It sounds less offensive.

[zachary]

They should have said "a little over 1100 barrels were spilled today..."

It sounds less offensive.

I hate the media, they use big numbers to help the cause...1,100 barrels..lulz


"residents said tap water smelled like diesel" - smells like easy money!

There was a 500 barrel spill here in a bayou a few months ago, EPA swarmed in setup all these relay stations, and command centers, held press conferences about how damaging it could be etc.....it was cleaned up in a few hours...was ridiculous amount of effort they put into it to make it a much larger deal than it was.




"Layoffs are cascading through the oil and gas sector. On Tuesday, the Dallas Fed projected that in Texas alone, 140,000 jobs could be eliminated. Halliburton (NYSE:HAL) said that it was axing an undisclosed number of people in Houston. Suncor Energy (NYSE:SU), Canada's largest oil producer, will dump 1,000 workers in its tar-sands projects. Helmerich & Payne (NYSE:HP) is idling rigs and cutting jobs. Smaller companies are slashing projects and jobs at an even faster pace. And now Schlumberger (NYSE:SLB), the world's biggest oilfield-services company, will cut 9,000 jobs."


YAY for low gas prices! woo hoo!

[Strychnine]

So SLB cut 9000
BHI is ditching 7000 as of this morning - 4k more than the number i heard over the weekend.

And now HAL is likely to cut 6000 more by March.

"We have already taken the initial steps on headcount internationally. As North America (NAM) activity falls, we will make adjustments in the US as well. We expect our headcount reductions to be in-line with our primary competitors. We will minimize discretionary spending. There is likely to be more restructuring in first quarter as we put initiatives in place to temper the impact of the market decline."

This comment suggests that the company could cut a further 6,000 jobs by March (based on the average of the Schlumberger and Baker Hughes cutbacks applied to Halliburton's ~80,000 person workforce).

[Strychnine]

As promised, some highlights from a presentation last night.

"Perspectives and Outlook for the US Land Market
John Daniel - Director of Oil & Gas Research for Simmons & Company International
"Simmons & Company International is one of the largest and most experienced independent investment banks specializing in the energy industry, offering M&A advisory, capital markets execution and investment research. Simmons & Company International has offices in Houston, Aberdeen, London and Dubai. Simmons & Company International was founded in 1974"

PM or post up an email address if you want a copy of the slides. There are graphs and charts on oil hedging, capital markets, reinvestment, etc.



Market Update

* E&P capital spending to fall dramatically which will have profound negative impact on the US oil service industry
* US land rig count likely falls in excess of 750 rigs while pricing pressures will be significant
- Normal "premium" rig (VFD drive) day rates are low $20k's/day - Recent quotes rates are as low as $16.5k/day
*Actual rebound in US activity not expected until late 2015 to 2016
* Threshold oil prices required to grow US production (~$75-80/bbl WTI) and sustain international production (~85-90/bbl Brent) have already been substantially breeched. This means drilling and completion acticity will evaporate while in time, threshold prices are likely to move lower due to service cost deflation.
* A faster, harder implosion in oil prices and global E&P capital spending will result in a quicker, steeper recovery in oil prices - timing is the prominent unknown
* Triple digit oil prices were usustainably high - current oil prices are unsustainably low
* Given the speed and magnitude of the ongoing collapse in oil prices, an implosion in L-48 drilling activity is all but preordained - Sooner and harder rather than later and softer is our bet.
* Should global demand continue to grow in line with historical measures, the market should become better and balance by late 2015 / early 2016 and that should lead to better oil prices.


E&P Capital Spending

* Aside from low commodity prices, other factors affecting E&P capital spending include:
- Capital markets window is effectively closed
- Unfavorable hedging positions
- Ultimately, balance sheets will force capital discipline
* We do not have enough information at this time to ascertain 2016 cash flows for the E&P group on a bottoms-up basis, but from a top down look at realizations, the cash flow outlook is very challenging next year - and with that the ability to fund any kind of oil production growth for 2016 and with some impact into 2017 as well.


Oil Service

* Rig count down ~250 rigs, with ~130 let go in the last two weeks
* Multiple companies cite leading edge price concessions in the 20-30% range
* Oil service industry is reducing headcount, slashing capex, and taking a defensive posture
* Reasonable supposition is that oil service revenue declines on a y/y basis will likely be in the 35-50% range (verbal note: closer to the top end of that range)
* Margins will be hit hard, particularly in 1H'15 as revenue will fall faster than costs can be reduced.
* Presently model a ~750 rig count decline in 2015, roughly a 32% y/y reduction in activity
* Industry layoffs will be severe and wage reductions will be needed


US Well Service Market

* A prime example of an industry that is deconsolidated
* New entrants to this market have exploded in recent years. Arguably this was one of the most consolidated business segments prior to 2004 and today it is one of the most fragmented.
* Recent field comments point to growing pricing pressures while utilization levels are poised to move lower
* Believe large well service franchises will see rig hours reduced by 15-20% on a y/y basis in 2015
* No new capacity expected in 2015 (confirmed by Nick Petronio, former Pres of Nabors Well Services who was in attendance)
* 2009 drill rig count dropped 40% - Well service similarly dropped ~40% y/y then also


Concluding Remarks

* Believe current turmoil in the oil markets will have a relatively short duration. Quarters not years.
* We believe the carnage within the oil service sector will be significant, but also short-lived as the longer-term macro view will be supportive of higher commodity prices
* Next 4-6 quarters will be quite painful for the oil service sector as meaningful cost reduction programs will be required and capital discipline will be the order of the day
* Many oil service franchises will quickly enter survival mode where equipment will be cannibalized and maintenance will be deferred
* This will effectively reduce oil service capacity as oil equipment will go away and broken equipment will get parked
* As service companies neglect fleets equipment quality and service quality will be diminished. In the end E&P companies will get what they pay for
* As the carnage unfolds this would be an ideal tine for industry consolidation
* Our expectation is that we begin to see an improvement in industry activity levels in the mid-2016 timeframe

[Strychnine]

* We do not have enough information at this time to ascertain 2016 cash flows for the E&P group on a bottoms-up basis, but from a top down look at realizations, the cash flow outlook is very challenging next year - and with that the ability to fund any kind of oil production growth for 2016 and with some impact into 2017 as well.

Further down the thought process on this bullet point...

Supermajor CEO Says Oil Could Go To $200

Representatives from governments and industry are convened this week in Davos, Switzerland for the World Economic Forum. 2,500 heads of state, industry leaders, artists and philanthropists are gathering with the goal of "improving the state of the world." A predictably hot topic being discussed has been the drastic fall in oil prices since June.

The CEO of Eni, Italy's O&G supermajor, warned at the conference that oil prices could rise up to $200 per barrel if OPEC fails to cut supplies. Claudio Descalzi said, "A lot of our projects are long term to have production in five or six years. And that is a problem. If you are cutting capex drastically now - we can have a lack of production in four or five years creating a new increased oil price at $200 maybe."
"What we need is stability... OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way," he continued.
The Eni executive said on the sidelines of the conference that the oil industry would reduce capital spending by 10-13% this year due to falling prices. But he said the world should avoid a further massive drop in investment in E&P as this would yield oil shortages in the future, thereby leading to price increases.

Addressing OPEC, he said, "OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way."

[quikag]

Good info. Thanks, Strychnine!

[Strychnine]

Just putting my guess in writing here...

Rig count -81 on Friday.

[Denny]

Ya... it's going to be a bumpy ride.

[Strychnine]

OPEC Chief Says Oil Price Has Hit The Bottom

OPEC Secretary General Abdullah al-Badri said on Wednesday that he did not see the price of oil declining any further
Wednesday (1/21/15) marks the 9th consecutive day that crude has held a trough after falling for about 7 months.

The price will not go to $20 or $25, I think the price will stay at where we are now. We have seen this before -- prices coming down very fast and go up very slow. I tell you, the price will rebound and we will go back to normal very soon."

"If we had cut in November we would have to cut again and again as non-OPEC would be increasing production. Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let's produce the lower cost oil first and then produce the higher cost...Prices will rebound. I saw this 3-4 times in my life,"

- OPEC Secretary General Abdullah al-Badri