RE: Operational Update18 Nov 2020 15:46
Larger Shale operators in Texas really need prices in the WTi $60s to make a profit and cover up historic mistakes. That might be due to over-paying for acreage in the past or over-developing certain sites and having enormous parent /child issues. Natural declines in these areas can be 80% once the child is born.. Oil companies in Texas don't want to admit how bad it is.. Yes there is a massive stock pile of child DUCs, but many won't be used because they aren't worthwhile developing unless oil is $80 plus.. Larger operators that are drilling tend not to stock pile the DUCs as the capex is enormous so they might as well frac and get going straightaway.. In 6 mths time, let see how much oil the US produces.. We already have a decline in 6 mths from 13m bopd to 10.5m bopd... The US will have to work very hard to maintain 10m bopd.
You also have consistent annual write-downs of reserves.. and this has been going on for several years.. People are holding onto acreage that might have cost $40K/acre but might be worth only $5k/acre now. Once we get to WTi $50, many larger ones will grab any hedging that's available.. If we get to $60, many smaller mama & papa outfits will start expecting to drill from the back yard.. and the Texas Railroad Commission will give them all permits.. As my cousin from Texas said the other night.. It's the Texas Mafia out there and no-one can stop them.
We all expect the vaccines to help stimulate economic activity in 2021. and as Goldman Sachs suggested, will drive up demand for oil.. boost it to $60 plus and then taper to high $50s by end of 2021.. $55 average from mid 2021 onwards imv. Opec+ really need to keep steady for all of 2021 as even they have said they still expect to be above the 5 year stock holding average at the end of 2021, .. unless they also expect US production to tail off further in 6 mths time.. just like Mark Gordon did. GL.. $55 will have to do.
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