Thursday, December 13, 2018

Unemployment Claims Well Below Forecast -- Keeping America Great -- The Market, Energy, And Political Page, Part 3, T+38 -- December 13, 2018

Unemployment claims, link here:
  • prior: 231K
  • revised: 233K
  • consensus: 228K
  • actual: 206K
Break-evens: re-posting, from BTU Analystics:

Later: I am inappropriately exuberant about the Bakken. See first comment: the reader notes that breakeven costs today (late 2018) are probably (much?) greater today than they were in 2017. That's possible (although I disagree). When it comes to breakeven costs, one can find numbers across the entire spectrum. 

This is how I see it. First, the average is across the area that is being measured. In this case, the "area" is the core Bakken (or the best Bakken; tier 1). Second, the average includes all operators in the area being measured. 

The third thing is that operators manage their assets. They may not produce at maximum rate for any number of reasons. In the Permian, they are certainly not producing at maximum rate: they don't have the takeaway capacity. I would assume with takeaway capacity being very "dear," operators are very, very careful with their drilling choices, to the extent that they can. In some cases, they have to drill to hold their lease regardless of the breakeven costs.

After taking all of that into account, the most important thing for me is to understand that this is an average, which means that if the breakeven price is $40, there are areas in the core Bakken where the breakeven price might be as high as $75 for some operators. To offset that incredibly high breakeven price -- even in the core -- there are some operators that need to bring that breakeven price way down. So, I won't argue that the breakeven price in the core Bakken is (much?) higher than what it was last year (I don't agree, but I won't argue the point). But even in 2015 it was $45; and, in 2016 it was $55 -- during the Saudi Surge when WTI was heading toward $20. 

So, pick your breakeven number.

It is generally agreed that all things being equal, it is the IP that is the biggest variable that contributes to breakeven prices. If all wells cost the same to drill / complete, a well that produces 150,000 bbls in six months has a better breakeven cost than a well that produced 50,000 bbls in six months. Enerplus, Whiting, CLR, Slawson, BR, and a few others are reporting incredibly high production numbers for the first six months after the initial frack. I would assume their breakeven costs are a whole lot lower than those operators who are not reporting such high IPs. 

In addition, even in the core, there are better spots than others, and the operators can certainly pick and choose which pads they want to complete. 

I won't even get into the "neighboring well effect." This is perhaps the most interesting variable that no is discussing. It will become more obvious as the years go by.

Scroll through the cums for the wells completed in 3Q16 (or any other quarter) and compare those cums with the cumulative totals for wells completed this current quarter (link here). The difference between the lists is incredible. 

So, I won't argue the point that breakeven costs -- comparing apples to apples -- are higher this year than last year. I simply see that average as an average, and the better operators are coming in a lot better than the average to offset all those poor performers. 

This was a long reply: some will retort that "I protest too much." Suggesting that I am really, really wrong on this. But as noted, I am inappropriately exuberant about the Bakken.

Disclaimer: this is not an investment site. Do not make any investment, financial, travel, job, or relationship decisions based on what you read here or think you may have read here.

Pax Trump On The Korean Peninsula

At the sidebar at the right, a link to "Pax Trump On The Korean Peninsula." That was first posted several months ago.

Whoever thought we would see this in less than two years?

Now this, from twitter:


  1. Bakken breakeven may have been $38 WTI when oil wells cost $6 million each. In reality, since most wells are around $8-$9 million at this time with heavier fracs and increased stages breakeven price is in reality at least $50. Same areas it is lower due to geology, some areas higher so I guess it is difficult to pinpoint one number. The $10+ differential does not help either...

    1. My hunch is that operators can get breakeven to well below $38 if they want.

  2. Almost becomes a moot point when you can spud multiple well, targeted for different strata, off of a single well head.

    1. Wow, thank you. You are so correct.

      There are so many variables with regard to "breakeven costs" and horizontal/fracking. Folks are still using the metrics that are used for conventional drilling when evaluating unconventional plays.

      There are so many variables. I think folks are going to be surprised how inexpensive unconventional oil turns out to be once we get to re-works, mini-re-fracks; major re-fracks, pad drilling; etc.

      One even begins to wonder if "depletion allowances" make sense for unconventional plays. Don't take that out of context, of course, but more and more examples pop up every day in which production is increasing when declining production should be taking place. I've been posting example after example after example.

      They are going to end up re-fracking almost every well that was drilled before 2014. It might not happen until 2040 but it will happen.

  3. Makes sense that as the original Frack settles re-fracking opens it back up again.
    Also if, and it's a big if, oil is a replenishing resource (not the use it til its gone motif) Refracking to re-release replenished source make total sense.

    1. I'll come back to this later as I talk more about unconventional drilling / tight oil.