Opening Prices:
> WTI is down $1.00 to $27.34/Bbl, and Brent is down 77c to $33.34/Bbl.
> Natural gas is up 4.2c to $1.663/MMBtu.
OPEC+ Russia meeting delayed a few days.
The meeting was rescheduled over the weekend to Thursday from Monday, amid a war of words between Russia and Saudi Arabia, indicating that bad blood still exists between the two.
That said, the head of Russia's sovereign wealth fund, Kirill Dmitriev, said Russia and Saudi Arabia were on the verge of agreeing a deal.
“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” Dmitriev, who is also one of Moscow’s top negotiators, told CNBC.
Oil & Gas Prices - April 6
Oil & Gas Prices - April 6
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - April 6
I started my Saturday podcast with a quote: "Something that can't continue, won't continue."
This morning, Raymond James sent out an Oil & Gas Industry Brief focused on how low oil prices have already pushed lots of oil production into cash flow negative. If you'd like to read the full report, send me an email and I will forward it to you.
RJ's Conclusion: Production shut-ins are already underway, and much more to come.
While the amount of shut-in oil production is not yet needle-moving, further price declines would spur many more producers, in a wide range
of geographies, to follow suit. We estimate that 26 million bpd, or one-quarter of global output, has cash costs greater than $15/Bbl, though in
practical terms shut-ins are not likely to reach such a scale. In the U.S., a combination of price-related and storage-related shut-ins could remove
as much as 2.5 million bpd, and half of the impact could be permanent. That has the potential to boost oil prices significantly in 2021 beyond even
our "bullish" forecast of $55 WTI next year.
MY TAKE: RJ is talking about well-level or field level cash expenses, primarily lease operating expenses + production taxes. On the revenue side, an operator has to consider gathering, processing, transportation, royalty payments, regional differences, oil quality differentials; in other words "what is the actual revenue netted back to the wellhead." It is much lower than the WTI or Brent oil price that you see in the news. Worldwide there is more than 10 million bpd of oil that is at risk of being shut-in is WTI stays under $30/bbl and half of the supply impact would be permanent.
This morning, Raymond James sent out an Oil & Gas Industry Brief focused on how low oil prices have already pushed lots of oil production into cash flow negative. If you'd like to read the full report, send me an email and I will forward it to you.
RJ's Conclusion: Production shut-ins are already underway, and much more to come.
While the amount of shut-in oil production is not yet needle-moving, further price declines would spur many more producers, in a wide range
of geographies, to follow suit. We estimate that 26 million bpd, or one-quarter of global output, has cash costs greater than $15/Bbl, though in
practical terms shut-ins are not likely to reach such a scale. In the U.S., a combination of price-related and storage-related shut-ins could remove
as much as 2.5 million bpd, and half of the impact could be permanent. That has the potential to boost oil prices significantly in 2021 beyond even
our "bullish" forecast of $55 WTI next year.
MY TAKE: RJ is talking about well-level or field level cash expenses, primarily lease operating expenses + production taxes. On the revenue side, an operator has to consider gathering, processing, transportation, royalty payments, regional differences, oil quality differentials; in other words "what is the actual revenue netted back to the wellhead." It is much lower than the WTI or Brent oil price that you see in the news. Worldwide there is more than 10 million bpd of oil that is at risk of being shut-in is WTI stays under $30/bbl and half of the supply impact would be permanent.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - April 6
Note from John White at Roth Capital 4-6-2020
E&P Update: What Is Happening Out in the Field?
Since the crash in crude oil prices E&P companies have been conducting a full court press on reducing lease operating expense (LOE). Leaving aside the potential for forced shut-ins of production, we visited with a number of management teams last week on the topic of reducing LOE and what we found is presented below.
> High water cut wells being shut in to save money on the electricity component of lease operating expense. Workovers being postponed and if a low volume well goes offline and needs repair the repair is being postponed.
> Asked all vendors for reduced pricing on non-contracted services. One management reported it was seeing real time reduction on items like salt water disposal (SWD) and workover rigs.
> Minimize downhole repairs for low volume, high cost wells. This is subject to the provisions in the oil and gas lease provisions which generally allow for 60 to 90 days for cessation of production related to mechanical issues.
> Swap out oversized more expensive rental equipment for rightsized less expensive rental equipment. This is economic as long as the cost to do this swap is very reasonable and payout is a month or two. In areas where more production volume was planned but reduced activity has reduced the production forecast, some facilities may be a bit oversized and can be swapped for smaller units.
> Have more field work done with company employees and less with roustabout crews. Now that activity is slowing down company field guys have a little more time to do some maintenance without the aid of a crew.
> Move to intermittent or cycling production on low rate wells that are being used to hold acreage by production (HBP).
> Consolidation and optimization of field pumper routes, where possible.
> In some areas you can manipulate electric usage to avoid peak rates such as running pumps at night when it’s lower cost electricity.
-------------------------
John White follows a lot of small-cap E&P companies. He has removed price targets on most of them and rates them as "Neutral" except for BUYs on ESTE, GDP and MR.
E&P Update: What Is Happening Out in the Field?
Since the crash in crude oil prices E&P companies have been conducting a full court press on reducing lease operating expense (LOE). Leaving aside the potential for forced shut-ins of production, we visited with a number of management teams last week on the topic of reducing LOE and what we found is presented below.
> High water cut wells being shut in to save money on the electricity component of lease operating expense. Workovers being postponed and if a low volume well goes offline and needs repair the repair is being postponed.
> Asked all vendors for reduced pricing on non-contracted services. One management reported it was seeing real time reduction on items like salt water disposal (SWD) and workover rigs.
> Minimize downhole repairs for low volume, high cost wells. This is subject to the provisions in the oil and gas lease provisions which generally allow for 60 to 90 days for cessation of production related to mechanical issues.
> Swap out oversized more expensive rental equipment for rightsized less expensive rental equipment. This is economic as long as the cost to do this swap is very reasonable and payout is a month or two. In areas where more production volume was planned but reduced activity has reduced the production forecast, some facilities may be a bit oversized and can be swapped for smaller units.
> Have more field work done with company employees and less with roustabout crews. Now that activity is slowing down company field guys have a little more time to do some maintenance without the aid of a crew.
> Move to intermittent or cycling production on low rate wells that are being used to hold acreage by production (HBP).
> Consolidation and optimization of field pumper routes, where possible.
> In some areas you can manipulate electric usage to avoid peak rates such as running pumps at night when it’s lower cost electricity.
-------------------------
John White follows a lot of small-cap E&P companies. He has removed price targets on most of them and rates them as "Neutral" except for BUYs on ESTE, GDP and MR.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group