"In conclusion, we have a typical commodity price cycle. Prices have dropped to levels destroying capital, bankrupting businesses, idling massive amounts of equipment and manpower. The cycle is reversing now..."
The argument against that statement of course is that's what capitalism is all about - creative destruction. Amazon is a poster child for that.
"That is why I can say categorically “the fix is in”. In other words, fields are declining, meaning investment is far below levels required just to replace production. The only thing that will change the vector of these declines is more spending, lots more spending, and the only thing will spur lots more spending is higher prices. Significantly higher than $40/bbl."
The author used the EFS as an example:
"However for example purposes, let’s look at the Eagle Ford. There are some 10,000 wells in the Eagle Ford producing today, and they are all in decline. The EIA estimates the average Eagle Ford well adds 800 bopd in its first month of production. Last month, Eagle Ford production is estimated to have declined by 60,000 bopd. That implies that 75 new wells per month must be drilled and completed to just replace this 60,000 bopd. Assuming it takes 15 days to drill a well, that implies around 38 rigs drilling and around 25 frac fleets running above what is running today! Today, there are 42 rigs drilling for oil and we estimate 10 – 15 frac fleets running in the Eagle Ford…so just to replace production, the industry would have to increase rigs running by nearly 100 percent and frac fleets by 150 – 200 percent. This would require a massive mobilization of capital and manpower. "
The counter argument here of course is the rapid advances in technology (look at some of CHK/EOG/COP slides for EFS). New wells have much higher IPs and well designs have increased EURs significantly (so say the producers). Thus less capital and manpower required. So maybe not massive but still substantial.
GFTA.
SSN Price at posting:
0.5¢ Sentiment: None Disclosure: Held
