Energy Prospectus

Dan

Heard a blurb on morning tv that the report is saying 'lower for longer'.....$80 oil not until 2020. Another pundit saying that DUCs can be turned on and oil extracted very quickly, so supply is still tight even with the declining rig count.

Thoughts?

U.S.oil supply is falling by 100,000 barrels per day month after month.
Active rig count keeps falling week after week.

There are a lot of uncompleted horizontal wells that can be completed (~5,000), but it will not happen quickly. It takes time to mobilize the capital, crews and equipment. If oil rebounds to $60/bbl, my SWAG is that half of them would be completed in the first quarter. It would not be enough to stop U.S. oil production from continuing to decline. In 2014 the upstream companies completed 27,000 horizontal wells. This year, 10,000 more horizontal wells were completed.

There are over 60,000 horizontal shale and other tight formation wells and they are all on steep decline.

It takes 1,000 rigs drilling for oil in the U.S. just to hold production steady. By year-end there will only be 500 rigs drilling for oil.

People outside the industry do not understand how many good people it takes to get stuff done in the field. Many thousands of people who worked for the drillers and oilfield services firms have been laid off. If oil goes to $80/bbl on 1-1-2016 it will take all year to mobilize the workforce and equipment to stabilize U.S. production.

I have lived through six oil price cycles.
> At the top, everyone says it will last forever
> At the bottom, everyone says it will last forever

Now go look at the ten year chart for oil prices and tell me what you see.