As The Price Of OIl Drops, How Low Does It Need To Go? -- CNBC; The JV Team Hacks The Varsity Team In CENTCOM; Barrons On EOG, Hess, Devon, COP

From CNBC:

Even if the Brent price index falls another 20 percent from Friday's closing price—to $40 a barrel—just 1.6 percent of the world's oil supply would represent unprofitable production.

Energy consultant Wood Mackenzie analyzed production data from 2,222 oil fields around the world to see just how much further oil prices would have to fall to make them "cash negative"—costing more to operate than the oil is worth. That price can act like a brake on production, according to Wood Mackenzie analyst Robert Plummer. 

Among the first, in order:

• stripper wells: cost $20 to $50/bbl to maintain
• Canadian tar sands fields, below $40; when Brent hits the high $30 range; but not easy to stop/start Canadian oil sands
• UK North Sea start to lose money below $50/bbl; but stopping production at some of the older fields could end them forever; also better to lose a little money on production than lots of money shutting down rigs

Overall:

The impact of $40 oil on global production would be very small, based on data covering some 75 million barrels a day of production. At $50-a-barrel Brent, only 190,000 barrels a day is unprofitable, representing just 0.2 percent of global supply. Seventeen countries supply oil that is cash negative at $50, with the main contributors being the United Kingdom and the United States. 

At $45 a barrel, only 400,000 barrels per day, or just 0.4 percent of global supply, are unprofitable. Half of that is from conventional onshore production in the U.S. And at $40 a barrel, just 1.5 million barrels per day represents unprofitable production, or just 1.6 percent of global supply. Most of that production comes from several oil sands projects in Canada.

Even when a field becomes cash negative, it doesn't necessarily prompt producers to shut down right away.

"The first response is usually to store oil produced in the hope that the oil can be sold when the price recovers. Operators may prefer to continue producing oil at a loss rather than stop production, especially for large projects such as oil sands and mature fields in the North Sea."

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The JV's Hack CENTCOM Social Media Accounts

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Link here. I'm listening to radio news with President Obama addressing cybersecurity.

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EOG, DVN

This is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here. I am posting this because it helps me better understand the Bakken. I don't plan on making changes to my investment portfolio in the next 72 hours, perhaps not even in the next 30 days.

The opening statement is exactly correct, and I just wrote that same thing yesterday or the day before, and it's on the blog. 

From Barrons;

[The] new swing producer in global oil is US unconventional, not Saudi Arabia….we assume that with Saudi and OPEC now effectively abandoning their role as swing producer, the oil market will be balanced by rises and falls in US activity and production growth…

There is an upside risk that Saudi and OPEC do cut production over the coming year, as fiscal balances get more and more scary.

However, most observers now recognize our view that the short time cycle of US unconventional means that any sustained cartel action to artificially raise prices will simply be met by greater growth from US unconventional.

Many long term oil investment themes, such as ultra-deepwater, frontier exploration and development, Canadian oil sands developments, and geopolitically challenged investments such as Russia, UK (fiscal risk) and Venezuela, are now stymied by a price planning cycle that will not allow their development.

For new investment in those themes, that require greater than $80/bbl long term planning assumption, we will likely need a sustained period, certainly longer than five years depending on the length of the current down cycle of below break-even prices for those themes, before companies will re-commit to that growth.

Rather, the cycle will shorten and be set by rises and falls in US activity.

This is positive for well exposed US unconventional players that have the balance sheet to survive the volatility. We prefer EOG – the key play on the “Eagle Ford Call”. Hess has balance sheet, better management, and is a higher risk play on the “Bakken Call."

ConocoPhillips is our play on the end of the oil age. It has terrific unconventional exposure but enforced capital discipline that effectively forces the company to return cash to shareholders and shrink its size in an orderly manner. Devon has outstanding exposure to US unconventional. If EOG is the new Saudi Arabia of global oil, then Devon is its Kuwait.

All Outperform.