Production WILL NOT respond to $50 oil
Posted: Tue May 17, 2016 1:46 pm
Here is a good article from Barrons:
http://blogs.barrons.com/stockstowatcht ... s&ru=yahoo
As you can imagine, I get a lot of e-mails and a lot of reports sent to me. One notion that is getting a lot of press is that upstream companies will rush out to complete a lot of well and/or ramp up drilling programs when oil tops $50, causing a quick rebound in oil production. THAT WILL NOT HAPPEN.
1. This industry does not turn on a dime. If oil went to $100/bbl tomorrow, we'd see some increase in activity but not enough to reverse production decline until well into 2017. The logistics to ramp up activity in today's oilfield are much different than they were even ten years ago.
2. Most companies need to focus first on balance sheet repair. Debt holders need to see some repayments before they will be happy with increased drilling.
3. I think the companies with strong balance sheets (like our Sweet 16) will focus more on making acquisitions. Why drill when you can buy producing assets cheaper.
4. Most public company boards are very resistant to increasing capex budgets once they are set. Budgets are set in November/December and rarely change until the next year.
5. Credit facilities are based on 3rd party reservoir engineer's annual reports. Most companies will not have expanded credit limits until after year-end reports come out mid-Q1.
CLR, DVN and NFX mentioned in the article above.
http://blogs.barrons.com/stockstowatcht ... s&ru=yahoo
As you can imagine, I get a lot of e-mails and a lot of reports sent to me. One notion that is getting a lot of press is that upstream companies will rush out to complete a lot of well and/or ramp up drilling programs when oil tops $50, causing a quick rebound in oil production. THAT WILL NOT HAPPEN.
1. This industry does not turn on a dime. If oil went to $100/bbl tomorrow, we'd see some increase in activity but not enough to reverse production decline until well into 2017. The logistics to ramp up activity in today's oilfield are much different than they were even ten years ago.
2. Most companies need to focus first on balance sheet repair. Debt holders need to see some repayments before they will be happy with increased drilling.
3. I think the companies with strong balance sheets (like our Sweet 16) will focus more on making acquisitions. Why drill when you can buy producing assets cheaper.
4. Most public company boards are very resistant to increasing capex budgets once they are set. Budgets are set in November/December and rarely change until the next year.
5. Credit facilities are based on 3rd party reservoir engineer's annual reports. Most companies will not have expanded credit limits until after year-end reports come out mid-Q1.
CLR, DVN and NFX mentioned in the article above.