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I am posting this on October 27, 2014, for my private notes. I am posting it at the bottom of a very, very old note that I doubt anyone will ever find.
I'm writing it, trying to figure out how "this" (the slumping price of oil) will play out.
This was the start of an e-mail that I never sent to Don. Combine this note with my posted note of October 15, 2014.
I might finish it at a later date:
There is a glut of oil driving down prices. Production has to be cut to move prices up. Companies cannot agree to work together to cut production (collusion) and it wouldn't work any way.I assume it will play out like this if prices look like they will remain low for the foreseeable future. Bigger, better capitalized companies will buy smaller companies. The smaller companies may not show much of a profit in the sale, but at least they won't go bankrupt, and perhaps the CEO, some officers will keep their jobs with the new company.Some companies will merge.There will be fewer companies. The old companies and/or the merged companies will then have increased production but not as much as if all the companies still existed.NOW:Company A: 1,000 bopdCompany B: 800 bopdCompany C: 600 bopdCompany D: 400 bopdTotal: 2,800 bopdTHEN:Company A buys Company D but cuts production from 1,400 bopd to 1,200 bopd.Company B and C merge: new company cuts production from 1,200 bopd to 1,000 bopdTotal: 2,200 bopdSo, overall production is decreased, but companies A shows growth; and the merged company (B/C) shows growth (compared to the individual companies before they merged).There could be a scramble for smaller companies to find a white knight to buy them out, or merge.In the Bakken, if everyone perceives the glut to last for the foreseeable future, operators are going to drill only in their very best areas. There will be a gradual movement to the area around Watford City.
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