RE: Is Shale shot (again)..LOL4 Dec 2019 10:11
That's an encouraging article Hawkey - assuming that the fundamental argument, about the second Shale Boom being largely due to cheap equipment (frac-spreads) coming onto the market as operators went bust in 2015, is correct. The main takeaway is that growth in production (not production itself) in 2020 could be......' less than 450,000 bpd, i.e. half of what EIA, IEA and Rystad are predicting.'
He suggests that WTI must float upwards towards $75 because cheap equipment, obtained from administrators during the bust, used for shale production is no longer available and therefore pumping costs for increased production are sure to increase. That would put Brent in the region of $80+ with a knock-on effect on G's sp to around 250p at today's production (ie excluding Bina Bawi etc). This bit of the article stood out for me:
On reflection, OPEC made a big blunder in 2015 when they decided not to cut, so as to “protect market share”, which translated into English meant, “Kill Shale”.
If they had cut, Brent would likely have bottomed at $67, as predicted by the one commentator who saw that a massive bust was on the cards, three years before it happened.
In which case, many operators who went bust; would not have gone bust.
So their almost-new frac-spreads would not have been sold at auction for pennies
So the investors who had financed those, would have insisted that they get a decent return on the $30 million.
So they would have held out for higher day-rates
So the breakeven cost would have stayed high.
But when Brent hit $35, the investors got wiped-out, assets were sold by banks for pennies, and the survivors could offer spreads priced one-third of the price in 2014.
So combined with the new multi-pads, cheaper sand, and faster horizontal drill-bits; shale became viable at $45 when only two years before it had hardly been viable at $100.
That’s the beauty of U.S. bankruptcy laws.
Whether OPEC will stand-hard on the present cuts, and even cut a little more; is hard to predict, but we shall learn soon what they decide.
One thing is sure; they can take back control now, if they want.
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