JPT - The Great Shale Shut-In: Uncharted Territory for Technical Experts

Facing crippling crude prices and a historic supply overhang, the once-booming US shale sector is for the first time being forced to shut in thousands of wells across its most prolific tight-oil basins.

Accurate production data lags by months in the US, but analysts are reporting onshore shut in totals to be somewhere between 100,000 to 400,000 B/D. The largest cuts announced so far come from ConocoPhillips which said in addition to its Canadian oil sands projects that it is shutting in nearly the entirety of its US onshore position—some 2,400 wells, representing about 165,000 B/D.


A projection from commodity researchers at JP Morgan Chase suggests as others follow suit these curtailments may reach 1.5 million B/D may be shut in by June.

https://pubs.spe.org/en/jpt/jpt-article-detail/?art=6972&utm_source=jpt&utm_medium=social-content&utm_campaign=TJ%20social&utm_content=The%20Great%20Shale%20Shut-In%3A%20Uncharted%20Territory%20for%20Technical%20Experts

Reuters - U.S. oil firm Continental Resources halts shale output, seeks to cancel sales

(Reuters) - The largest oil producer in North Dakota has halted most of its production in the U.S. state and notified some customers it would not supply crude after prices dived into negative territory this week, people familiar with the matter said.

Continental Resources Inc (CLR.N), the company controlled by billionaire Harold Hamm, stopped all drilling and shut in most of its wells in the state’s Bakken shale field, three people familiar with production in the state said on Thursday. 

https://www.reuters.com/article/us-continental-resources-shale-north-dak-idUSKCN2260PX

EIA - U.S. crude oil inventories are approaching record-high levels

Recent declines in demand for petroleum products have contributed to record increases in U.S. commercial crude oil inventories. Transportation fuel demand has decreased as a result of reduced economic activity and stay-at-home orders aimed at slowing the spread of the 2019 novel coronavirus disease (COVID-19). Refiners have been able to reduce the amount of material they run through refineries (as measured by gross inputs, which includes crude oil, unfinished oils, and natural gas plant liquids) relatively quickly in response to falling demand, but crude oil production has not responded as quickly, leading to large crude oil inventory increases.

https://www.eia.gov/todayinenergy/detail.php?id=43555&src=email     

Corporate Finance - Goodwill and Goodwill Impairments

I will start this post by stating that I am not an accountant nor do have an MBA. I am an engineer/sales rep/wireline hand that is interested in corporate finances. I try to learn from as many different sources to understand the quarterly earnings reports issued by my customers and competitors so that I can get a clearer picture of their plans.  My goal in this post is to share a bit of knowledge that I've learned and give some clarity to quarterly reports.

Being an ex-Schlumberger Wireline hand, I usually go through Schlumberger's quarterly report to understand where they are heading and how they think the market is trending. They are usually one of the first oilfield service companies to publish their report and because they are the largest Oilfield Service Company, people pay attention to their reports

In Q1 2020 and Q3 2019, they showed large losses on their income statement due to impairments. The majority of the impairments were due to goodwill impairments. While goodwill is shown on the balance sheet, it is rarely discussed unless there is a decrease in the value of the goodwill.

Goodwill is created when a company acquires another company for more than the value of its assets. The premium paid cannot be attributed to any tangible or intangible asset. It is the premium the company was willing to pay over the fair market value of the company in order to acquire it. 

For example: Company A has a value (assets minus liabilities) of $10 Billion and Company B purchases that company for $13 Billion. Company B paid a premium of $3 Billion dollars, which will be recorded on their balance sheet as $3 Billion in goodwill. 

Goodwill is a huge asset on the balance sheet of many large companies, especially those who grow through acquisitions rather than organic growth. Goodwill can decline over time. If the synergies between the companies exist and produce benefits, then the value of the goodwill still exists. If that value decreases, then the value of the goodwill is reduced and that is counted as a goodwill impairment. 

Goodwill is consider an intangible asset and is recorded on the balance sheet as a long term asset. An intangible asset is an asset that is not physical. Examples of intangible assets are goodwill, brand recognition and intellectual property. Figure 1 is from Schlumberger's Q1 2020 earnings report and it shows their assets and liabilities for Q1 2020 and Q4 2019

Figure 1: Schlumberger Q1 2020 Earnings Report - Assets and Liabilities

Goodwill is the largest asset on the balance sheet, accounting for 27% of the total assets on the balance sheet. In the past decade, SLB has grown their business through acquisitions. Two of the largest acquisitions in the last decade were Smith International in 2010 and Cameron in 2016. 

As Figure 1 shows, goodwill decreased by $3.1 Billion dollars between Q4 and Q1. Going through the report, SLB stated that they performed an impairment test and found that some of the goodwill on their balance sheet was impaired due to market conditions, resulting in a $3.1 Billion charge. This charge was related to their Drilling and Production segments. 

US accounting standards require companies to evaluate the value of goodwill on a yearly basis, (usually in the third quarter) to determine the value of the goodwill. If the value of the goodwill has decrease, a goodwill impairment charge is recorded . The impairment test can also be triggered by a market event, such as a global pandemic resulting in massive loss of demand.

When looking at SLB's Income Statement, the goodwill impairment charge is recorded under the Impairments and Other line (Figure 2). 

Figure 2: Schlumberger Q1 2020 Earnings Report - Income Statement

The total impairments for Q1 2020 were $8.523 Billion. Figure 3 shows the list of impairments that were recorded during the quarter

Figure 3: Schlumberger Q1 2020 Earnings Report - Total Impairments

When looking back to Q3 2019, Schlumberger recorded $12.7 Billion in impairments. There were $8.8 Billion in impairments associated with goodwill. As part of the third quarter impairment test, they realized that the value of the goodwill associated with Cameron and Smith International had decreased and they were required to take a goodwill impairment charge. Figure 4 shows the list of impairments from Q3 2019

Figure 4: Schlumberger Q3 2019 Earnings Report - Total Impairments

When Baker Hughes released their Q1 earnings, they showed a $10.2 net income lost which can be attributed to a goodwill impairment charge of $14.7 Billion. Figure 5 shows the Consolidated Income Statement for Baker

Figure 5: Baker Hughes Q1 2020 Earnings Report - Income Statement

Figure 6 shows the breakdown of the goodwill impairment charges for the quarter. The majority of the charges come from the Oilfield Services and Oilfield Equipment segments

Figure 6: Baker Hughes Q1 2020 Earnings Report - Goodwill Impairment Summary

When reading the quarterly report and listening to the earnings call, Baker does not reveal the details of the impairment test or details of the loss of goodwill. They are required to report impairment charges but they are not required to provide details. 

As earnings report continue to come out, we should expect to see more impairments on income statements. The decline in oil prices has significantly reduced the market value of companies. The variables that went into deciding purchase prices for companies (future earnings, break even prices, acreage ranking) have changed radically in the past month. The premiums paid by companies to acquire competitors do not look very good under present market conditions and those goodwill impairments will appear on balance sheets in coming months.

JPT - Australia Study Finds Few Environmental Effects From Hydraulic Fracturing in Coal Seams

A comprehensive 3-year scientific study into the air, water and soil impacts of hydraulic fracturing in Queensland coal seams has found few to no impacts on air quality, soils, groundwater, and waterways.

The study also found current water treatment technology used for treating water produced from coal seam gas wells is effective in removing hydraulic fracturing chemicals and naturally occurring (geogenic) chemicals to within relevant water quality guidelines.


Research objectives for “Air, Water and Soil Impacts of Hydraulic Fracturing in the Surat Basin, Queensland,” conducted by the CSIRO’s Gas Industry Social and Environmental Research Alliance (GISERA), were developed in response to community concerns about the potential for chemicals used in hydraulic fracturing operations to affect air quality, soils, and water resources.

https://pubs.spe.org/en/jpt/jpt-article-detail/?art=6965

Hart Energy - Continental Resources Sued over Failed $200 Million Oil Deal

Casillas Petroleum Resource Partners LLC sued Continental Resources Inc., alleging the Oklahoma shale producer last month backed out of a $200 million oil and gas deal as prices crashed.

U.S. crude futures prices have tumbled, with coronavirus-related lockdowns and travel restrictions souring demand as OPEC and other producers waged a price war, sending oil to $13 a barrel this month from $61 at the start of the year.


On March 6, the day a supply pact by OPEC and allies collapsed, Continental agreed to buy oil and gas properties from Tulsa, Okla.-based Casillas. The deal was set to close roughly three weeks later, according to a lawsuit filed in Tulsa County District Court in Oklahoma.

https://www.hartenergy.com/news/continental-resources-sued-over-failed-200-million-oil-deal-187292

OilPrice.com - Shale's Decline Will Make Way For The Next Big Thing in Oil

This week the near term price for crude oil fell to -$37.68 per barrel. This was driven by the expiration of the May futures contract on the 21st of April and holders not wanting to take physical delivery of a 1,000 barrels of the commodity.

The world presently is ‘swimming’ in oil as we all know by now. For an ‘oilie,’ like me, it was just another fairly depressing day watching the industry in which I spent my working life implode. To improve my mood I shifted my thoughts to re-grounding in the overall thesis and direction I saw for oil in the future. Not the far-flung future where the world will run on moonbeams and daffodils, but just a short piece down the road. Perhaps two or three years. Are we still going to need oil and gas?

https://oilprice.com/Energy/Crude-Oil/Shales-Decline-Will-Make-Way-For-The-Next-Big-Thing-in-Oil.html

EIA - Low liquidity and limited available storage pushed WTI crude oil futures prices below zero

On Monday, April 20, 2020, West Texas Intermediate (WTI) crude oil front-month futures traded on the New York Mercantile Exchange (NYMEX) were priced in negative dollars per barrel (b) for the first time since trading began in 1983. At about 2:30 p.m. ET, WTI traded as low as -$40.32/b; prices remained below zero for part of the following trading day.


Market participants that hold WTI futures contracts through expiration must make or take physical delivery of WTI crude oil in Cushing, Oklahoma, unless they have made other arrangements ahead of time. Typically, most market participants close any futures contracts ahead of their expiration through cash settlement—buying or selling offsetting contracts—to avoid taking physical delivery; only about 1% of futures traded go to physical delivery. The extreme market events of April 20 and April 21 were driven by several factors, including the inability of traders who had purchased futures to find other market participants to sell futures contracts to.

https://www.eia.gov/todayinenergy/detail.php?id=43495&src=email  

Baker Hughes Rig Count - April 24 2020

US Rig count declined for the 6th week in a row, dropping 64 rigs in the last week. The Permian Basin lost the most rigs, dropped 37 rigs this week. Since March 13, the Permian has lost 172 rigs, a 42% drop in activity.

Baker Rig Count April 24 2020 (Source Baker Hughes)

World Oil - U.S. investigating multimillion-dollar trading fraud via OPEC+ insiders

WASHINGTON (Bloomberg) --The U.S. is investigating whether traders with inside information on Russia’s negotiations with other oil producing nations made hundreds of millions of dollars from illegal wagers on crude price swings, according to two people with direct knowledge of the matter.

The Commodity Futures Trading Commission probe is focused on whether aspects of the strategy that the Russian government pursued last month with other members of the OPEC+ coalition leaked out to market participants ahead of time, said the people who asked not to be named because the scrutiny isn’t public. For the same reason, the U.K.’s Financial Conduct Authority is also investigating suspicious trades in futures contracts, one of the people said.

https://www.worldoil.com//news/2020/4/23/us-investigating-multimillion-dollar-trading-fraud-via-opecplus-insiders

EIA - Withdrawals from natural gas storage this winter were lowest since 2015–16

Working natural gas in storage in the Lower 48 states as of March 31, 2020, totaled 2,008 billion cubic feet (Bcf), 19% more than the previous five-year (2015–19) average for the end of the heating season, according to EIA’s Weekly Natural Gas Storage Report. The 2019–20 heating season, which ran from November 1, 2019, to March 31, 2020, ended with the most working natural gas in storage since the 2016–17 winter, with 1,718 Bcf in net withdrawals, the least in four winters. Continued growth in natural gas production and relatively mild winter temperatures accounted for relatively higher inventory levels.

https://www.eia.gov/todayinenergy/detail.php?id=43475&src=email

Seeking Alpha - A Deep Dive Into Crude Oil's New Black Monday

Summary

• Crude oil's decline into deeply negative territory was triggered by the expiration of May WTI contracts.
• Going into Monday, there was an immense buildup of speculative owners who could not take physical delivery and a lack of commercial buyers due to the COVID glut.
• Prices will likely return to $20-$25, but USO should be avoided due to its extreme roll-cost.
• Crude oil producers are a better way to bet on higher oil, but the best bet seems to be tankers with storage capacity.
• Global oil production may decline to oil demand due to low prices and COVID work furloughs.

https://seekingalpha.com/article/4338683-deep-dive-crude-oils-new-black-monday?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-a-deep-dive-into-crude-oil-s-new-black-monday&utm_campaign=nl-must-read&utm_content=link-0

World Oil - Oil rout looks to break shale’s global oil dominance

HOUSTON (Bloomberg) --A historic crash in crude prices is driving U.S. shale into full-on retreat with operators halting new drilling and shutting in old wells, moves that could cut output by 20% for the world’s biggest producer of oil.

For shale companies, the price of West Texas Intermediate crude went from hunker-down-and-ride-it-out mode to crisis mode in just a few days, with many now unsure whether there will even be a market for their oil. Some 1.75 million barrels a day is at immediate risk of shutting down while the number of new wells being brought online is forecast to plunge almost 90% by the end of the year, according to IHS Markit Ltd.

In short, it’s a swift and brutal end to the shale revolution, which only last year had President Donald Trump proclaiming “American Energy Dominance.”


West Texas Intermediate crude prices turned negative for the first time in history on Monday, meaning at one point sellers had to pay buyers to take it away. Then, the financial squeeze on the May contract spilled over to June and into the wider market, with prices now trading around $10 a barrel, well below the daily pumping cost in large swaths of America’s oil industry.

https://www.worldoil.com//news/2020/4/22/oil-rout-looks-to-break-shale-s-global-oil-dominance

Global Supply Comparison - 1995 versus 2020

Due to the impact of COVID-19, Global demand for petroleum products has fallen dramatically since mid-March 2020. There are many different sources forecasting this total demand drop. The initial estimates were a decrease of 10 million BOPD (barrels of oil per day). Some of the latest estimates are for a demand drop of 20 to 35 million BOPD, representing a total decrease of 20% to 35%. (2020 demand forecast was approx 100 million BOPD)

There is plenty of focus on the negative impacts of this demand drop. I was curious about the comparison of production rates for countries with a demand this low. For easy math, let's assume that daily oil demand will drop by 30 million BOPD to 70 million BOPD. The last time demand was approx 70 million BOPD was 25 years ago in 1995.

For anyone that doesn't remember 25 years ago, the Dow Jones closed above 5000 for the first time, Toy Story was released, the OJ Simpson trial happened and Jordan returned to basketball. I was a college student at the time and I clearly remember April 1995 because I watched the coverage of the Oklahoma City bombing on CNN. 

Global oil demand or supply is usually not just crude oil but all of the petroleum liquids produced. This includes crude oil, shale oil, heavy oil and NGL (Natural Gas Liquids). It's important to note the differences because in the charts below, the numbers will look different than the numbers normally quoted in media sources.

Figure 1 shows Daily Global Production (all liquids) for 1995 and 2019. The data from the Energy Information Administration (EIA) had Global supply averaging 100.6 million BOPD in 2019 and 70.3 million BOPD in 1995, a 43% increase over the last 25 years.

Figure 1: Daily Global Production (Source: EIA)

When comparing the top 15 producing countries, the US is the largest individual producing country of all liquids. The US has also had the largest impact on global production, adding 10.1 million BOPD to the total supply over the last 25 years. Saudi Arabia is the second largest producing country but only added 2.5 million BOPD to global production in that same time. Russia has added more during this time, adding 5.3 million BOPD to the global supply. 


Between the 1995 and 2019, there are large increases from Iraq and Brazil. The numbers for Iraq are skewed because Iraq was still recovering from the fallout of the invasion of Kuwait and Desert Storm. Brazil's increases are the result of Pre-salt exploration and production.

There have been some significant decreases in production over this time, including a 38% decrease in Mexico (lack of investment), a 40% decrease in Norway (depletion) , a 58% reduction in the UK (depletion), and a 69% decrease in Venezuela (sanctions).

When comparing global oil production, the comparison is usually between OPEC and the rest of the world. Figure 2 shows the OPEC, USA and Russia daily oil production (all liquids). This group represents 61% of the total production in 1995 and 66% of the production in 2019.

Figure 2: Daily Production of OPEC, US and Russia (Source: EIA)

The OPEC Countries produced the most oil in both 1995 and 2019 but still trail the US in total additions to global supply, adding 7.8 million BOPD in this time. 

When discussing US Oil production, the main number is Crude oil production and excludes Natural Gas Liquids. Figure 3 shows the change in Daily US Oil production from 1995 to 2019. In 2019, the US averaged 12.2 million BOPD in crude production and an additional 7.3 million barrels per day in additional petroleum liquids.

Figure 3: US Daily Oil Production by Production Type (Source: EIA)

As Figure 3 shows, US Daily Production slowly decline until 2007. At this point, the impact of unconventional production begins to appear. With the exception of 2016, the US has increased oil production every year. Original production forecasts for 2020 had US production increasing to more than 13 million BOPD (Crude oil) but due to COVID-19 impacts, we should expect a production decline instead.

The EIA allows for a comparison of just crude oil production (it also includes lease condensate production). Figure 4 shows the daily crude oil production by country. In 1995, daily global crude production was 62.4 million BOPD and in 2019, it was 82.3 million BOPD (a 32% increase.)

Figure 4: Daily Global Crude Oil Production (Source: EIA)

On a crude oil basis, the US had the largest increase in production since 1995, adding 5.7 million BOPD (86% increase) to the global supply. Russia was second, adding 4.8 million BOPD (81% increase) to the global supply. Canada has also made significant additions in the last 25 years, increasing production by 144% due to increased production from the Heavy Oil plays in Northern Alberta.

Figure 5 compares OPEC, US and Russia Daily Crude Oil production. As a group, OPEC has added 6.1 million BOPD since 1995, surpassing the crude oil increases of USA and Russia.

Figure 5: Daily Crude Oil Production for OPEC, USA and Russia (Source: EIA)

COVID-19 will have a short term but extremely dramatic impact on global oil demand. Once the quarantine guidelines are lifted, oil demand should return to between 95 and 100 million BOPD. This data shows that OPEC, Russia and the US have been the major contributors to oil production growth since 1995 and will bear the brunt of supply decreases in the short term. OPEC and Russia have taken mild steps at reducing production to slow growth of oil going into storage. US oil production will decline naturally due to low prices and low investment. With decline rates near 40% for unconventional formations, we should expect a significant decrease in US production through 2021.

As with all oil cycles, there will be a high to match the low. While US shale oil production has added low cost oil to the global supply, it has also resulted in a limited international exploration. COVID-19 has resulted in additional cancellations or delays of international projects. At some point within the next 3 or 4 years, the lack of investment in exploration will result in an under supply of oil production and the next boom will begin. 

Forbes - The U.S. Oil ETF, USO, Is The Culprit Behind Oil’s Massive Plunge

Watching the May contract for oil futures this morning, I was shocked at the amount of coverage given to “oil’s plunge” Monday morning.  That may be because I watch the May 2021 WTI futures contract, which has fallen $0.18 per barrel to $35.34 in early Monday trading, not the May 2020 contract which has fallen an astounding $7.42 (more than 40%) to $10.84 per barrel and drawn all the headlines.  

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/#7d25978724e8

Seeking Alpha - Oil: Winter Is Coming In The Shale Patch

Summary

• We reconfirm the business case for oil in an energy hungry world.
• We venture a guess about the lasting impact of the coronavirus on people's behavior.
• Document the further and accelerating decline of shale.
• Forecast where the money being taken out of shale may eventually go to shore up flagging oil production.
• We highlight a section of the energy market we are keeping a close eye on for entry points.

https://seekingalpha.com/article/4338465-oil-winter-is-coming-in-shale-patch?app=1&ifp=0&utm_medium=email&utm_source=seeking_alpha&mail_subject=pre-market-summary-on-your-portfolio-competitors&utm_campaign=nl-portfolio&utm_content=link-7

Seeking Alpha - Schlumberger: A Brutal Oil Shock With Long-Lasting Consequences

Summary

• Schlumberger Ltd. posted first-quarter revenues of $7.455 billion, which topped estimates, but declared a $0.125 per share dividend, a cut of 75%.
• The company increased its cash position this quarter to $3.344 billion, with $6.8 billion of liquidity available to the company at the end of the quarter.
• It still makes sense to own such companies long term, but the immediate strategy is to trade short term a large part of your position.

https://seekingalpha.com/article/4338421-schlumberger-brutal-oil-shock-long-lasting-consequences?ifp=0&utm_medium=email&utm_source=seeking_alpha&mail_subject=pre-market-summary-on-your-portfolio-competitors&utm_campaign=nl-portfolio&utm_content=link-6

Baker Hughes Weekly Rig Count - April 17 2020

The US Rig Count remains in freefall, dropping 72 rigs in the last week. Since the March 13, there have been 259 rigs laid down, a 34% reduction. With both WTI and Brent in the low $20's, we should expect rigs to continue to drop. 

Oil Price - Many Shale Companies Are Already On The Brink Of Bankruptcy

OPEC may have reached a deal to cut 10 million bpd, but for many U.S. shale producers, it is too little, far too late.

Much ado has been made about Saudi Arabia and Russia’s push to end their cooperation in the production cut deal a month ago, flooding the markets with oil at a perilous time. While some have suggested that it was a deliberate attempt to break the U.S. Shale industry that has run roughshod over the oil industry in the last few years, upsetting the market balance of the oil cartel.

https://oilprice.com/Energy/Energy-General/Many-Shale-Companies-Are-Already-On-The-Brink-Of-Bankruptcy.html

World Oil - Texas Railroad commissioners face difficult decision on prorationing

The special open meeting on potential prorationing, held by the Railroad Commission of Texas (RRC) on Tuesday, was an event for the ages—a truly historic moment. In its aftermath, the three Railroad commissioners are faced with what may be the major decision of their professional lives—whether to prorate or not. And, in tandem, the fate of many industry companies and individuals’ jobs could be hanging in the balance.

https://www.worldoil.com//magazine/2020/april-2020/special-focus/world-oil-analysis-texas-railroad-commissioners-face-difficult-decision-on-prorationing?id=31307113

Rystad Energy - COVID-19 Report - Scenarios and impact on global energy markets

Highlights of this edition include:

• As of 14 April, 39 million people have likely been infected with Covid-19, according to our updated model. Reported cases were approximately 2 million as of 14 April, a number which our analysis suggests represents just 5% of true cases.
• We also anticipate that fields will need to be shut-in globally as storage will quickly fill to its limit. The current OPEC+ deal will contribute to these shut-ins, but the announced cuts are not large enough to secure a market balance.
• Global liquids demand will fall by 27% to 72.5 million bpd, and 90.3 million bpd for the full year, after the impact of lockdowns and travel restrictions.

https://www.rystadenergy.com/newsevents/news/press-releases/covid-19-demand-update-oil-seen-down-9point6-jet-fuel-down-31-road-fuel-down-9point6-in-20202/

Seeking Alpha - Marathon Oil Faces Tough Outlook As Hedges Offer Little Protection

Summary

• Marathon Oil has drastically cut capital expenditures and reduced drilling activity considerably in all regions in response to the crash in oil prices.
• The company has improved its hedge coverage but it still offers little downside protection, while a large chunk of production is not backed by any hedges.
• Marathon Oil has a decent balance sheet, but its debt levels could start to climb if oil prices fail to meaningfully recover in 2021.

https://seekingalpha.com/article/4337846-marathon-oil-faces-tough-outlook-hedges-offer-little-protection

Seeking Alpha - Crude Oil Is All About Demand

Summary

• OPEC's recent agreement has amounted to an almost ten million barrel per day output cut.
• We're seeing unprecedented declines in demand.
• Inventories are rising.
• Rig counts are falling.
• Crude oil will recover on any whiff of demand.

https://seekingalpha.com/article/4337751-crude-oil-is-all-demand

Rystad Energy - US rig count in freefall, giving OPEC+ confidence in shale output drop

While the OPEC+ group discussed historic output cuts last week, independent US oil and gas producers kept lowering their capex and activity for financial reasons as a response to lower oil prices. Last week we saw US horizontal oil drilling falling 20% from the mid-March peak, a record-fast decline for a three-week period. Activity has now shrunk by another 45 to 50 rigs, which brings the drop from the peak to 26% within four weeks. 

Such a low rig activity level is already substantially below the maintenance activity requirement for the US Land region with a six- to nine-month horizon. Regardless of ongoing output shut-ins, US Land has now lost its production growth momentum. A rebound in rig activity will be needed if oil prices recover for US Land to enter a renewed production growth phase in the future.

https://www.rystadenergy.com/newsevents/news/newsletters/UsArchive/shale-newsletter-apr-2020/

Spears - Coil's Tortuous Path

I sit on a bunch of boards. I do not sit on these boards because I am a financial wizard. I’m the opposite. I keep the book “Finance for Dummies” at my elbow so I can look up things like EBITDA or Preferred Shares or Cost Accounting.

I was freshening my overview of cost accounting one quarantined day last week when I came across the death spiral phenomenon in cost accounting. This death spiral occurs when a company repeatedly eliminates products or services without reducing fixed costs. The concept refers to situations in which a company falls into a spiral of increased fixed costs and lower production volumes (I borrowed this definition from somewhere, but don’t remember where!).

https://spearsresearch.com/insider/2020/4/10/px2n098orhqsysn3npyet008zz3m7l

Seeking Alpha - Chesapeake Energy: Survival Mode

Summary

• Our worst fear has to come to pass - the stock is going to be reverse split.
• On top of operational issues in the past and the massive debt, energy prices have collapsed.
• To survive, we believe we need a sizable rally in energy, to the tune of at least $1.00 in natural gas and $25 in oil.
• Expect further price erosion.

https://seekingalpha.com/article/4337436-chesapeake-energy-survival-mode

Oil Price - U.S. Oil Drilling Grinds To A Halt At Key Shale Hotspots

Oil and gas production in the United States has peaked and is already in decline. 

The latest data from the EIA’s Drilling Productivity Report sees widespread production declines across all major shale basins in the country. The Permian is set to lose 76,000 bpd between April and May, with declines also evident in the Eagle Ford (-35,000 bpd), the Bakken (-28,000 bpd), the Anadarko (-21,000 bpd) and the Niobrara (-20,000 bpd). 

Natural gas production is also in decline, a reality that occurred prior to the global pandemic but is set to accelerate. The Appalachian basin (Marcellus and Utica shales) are expected to lose 326 million cubic feet per day (mcf/d) in May, a loss of 1 percent of supply. In percentage terms, the Anadarko basin in Oklahoma is expected to see an even larger drop off – 216 mcf/d in May, or a 3 percent decline in production. 

https://oilprice.com/Energy/Crude-Oil/US-Oil-Drilling-Grinds-To-A-Halt-At-Key-Shale-Hotspots.html

Oil Price - China Plans To Copy Mexico’s Mega Oil Hedge

This weekend, OPEC and its partners managed to agree on a historic oil production cut to the tune of 9.7 million bpd. The initial number the cartel eyed was 10 million bpd, some 300,000 bpd higher than what it managed to agree upon.

Most global oil producers were happy to cut output in the face of the greatest glut in history, but one nation wasn’t keen on participating.

As Oilprice.com reported last Friday, Mexico was asked to cut oil production by 400,000 bpd, a large cut for a producer that has seen its production gradually decline over the last decade.  The North American country would have suffered a double whammy of low oil prices and falling production if it wasn’t for their hedging strategy. 

https://oilprice.com/Energy/Crude-Oil/China-Plans-To-Copy-Mexicos-Mega-Oil-Hedge.html

Seeking Alpha - ProPetro adopts poison pill to thwart takeover threats

ProPetro (NYSE:PUMP) says its board has approved a shareholder rights plan to guard against a potential takeover of the company amid the sharp drop in oil prices and oilfield service activity.

ProPetro says the rights plan is similar to plans adopted by other publicly held companies; in general, rights can be exercised only if a person or group acquires beneficial ownership of 10% (or 20% in the case of certain passive investors) or more of the company's outstanding common shares, or announces a tender or exchange offer that would result in such ownership.

Billionaire investor Dan Wilks recently acquired a 10% stake in the company, potentially with an eye toward a deal.

https://seekingalpha.com/news/3560469-propetro-adopts-poison-pill-to-thwart-takeover-threats

BTU Analytics - Natural Gas’ Historic Reversal of Fortune: Oversupply to Drastically Short in Months?

The world as we know it has flipped on its head over the past 30 days.  The US went from full employment to 17 million Americans filing for unemployment. The White House has discussed how the US might participate in joint action with OPEC+. Oil producers who were searching for every way to cut G&A by $0.25 per barrel are now inquiring about the ability to dispose of oil down disposal wells when crude storage fills.  But what hasn’t received enough attention is the impact of this new world on natural gas markets. The stage is being set for what could be a historic swing in fortune in natural gas markets over the coming months.

https://btuanalytics.com/natural-gas-historic-reversal-of-fortune-oversupply-to-drastically-short-in-months/

World Oil - Weaker U.S. shale producers will bear the brunt of OPEC+ compliance moves

WASHINGTON (Bloomberg) --President Donald Trump said the “big Oil Deal” sealed on Sunday will save hundreds of thousands of American jobs. But the agreement he brokered depends on a sharp downturn in shale that will likely bring about a wave of bankruptcies and job cuts.

Days of frantic diplomatic maneuvering culminated in an agreement on Sunday by OPEC+ to pare production by 9.7 million barrels a day, ending a devastating price war between Saudi Arabia and Russia and belatedly tackling a plunge in demand caused by the coronavirus outbreak. The lockdowns enacted across much of the world to slow its spread have caused consumption to crater by as much as 35 million barrels a day.

https://www.worldoil.com/news/2020/4/13/weaker-us-shale-producers-will-bear-the-brunt-of-opecplus-compliance-moves

World Oil - Mexico’s secret weapon in the oil price war

LONDON (Bloomberg) --As Mexico and Saudi Arabia fight over a deal to bring the oil-price war to an end, Mexico has a powerful defense: a massive Wall Street hedge shielding it from low prices.

With talks well into their third day, the Mexican sovereign oil hedge, which insures the Latin American country against low prices and is considered a state secret, is a factor that may make the country less inclined to accept the OPEC+ agreement.


For the last two decades, Mexico has bought so-called Asian style put options from a small group of investment banks and oil companies, in what’s considered Wall Street’s largest -- and most closely guarded -- annual oil deal.

https://www.worldoil.com//news/2020/4/10/mexico-s-secret-weapon-in-the-oil-price-war?id=31307113

Oil Price - Trump Confirms U.S. Will Help Mexico Out With Production Cuts

U.S. President Donald Trump on Friday confirmed that the United States would “help Mexico along” in achieving the production requests that OPEC+ has asked it to make.

“I don’t know if it’s going to be acceptable. We’ll find out. The United States will help Mexico along and they’ll reimburse us sometime at a later date when they’re prepared to do so,” Trump said at a White House press briefing on Friday afternoon, without elaborating on the extend of the “help.”

https://oilprice.com/Latest-Energy-News/World-News/Trump-Confirms-US-Will-Help-Mexico-Out-With-Production-Cuts.html

Oil Price - Banks Could Start Seizing Shale Assets

U.S. banks are preparing to start seizing the assets of ailing shale oil companies, Reuters reported today, citing unnamed sources in the know, who said that the banks must take this dramatic step if they want to avoid losses on the loans they extended to the industry.

U.S. shale companies rely heavily on loans, and now that they are facing the perfect storm of slack demand and low oil prices—even after the tentative deal OPEC+ announced yesterday—the chances or survival for many of them are slim to nonexistent.

https://oilprice.com/Energy/Crude-Oil/Banks-Could-Start-Seizing-Shale-Assets.html

World Oil - Saudi Arabia and Russia end their oil-price war with output cut agreement

LONDON (Bloomberg) - Saudi Arabia and Russia ended a devastating oil price war on Thursday, agreeing to slash output together with other members of the OPEC+ alliance in an effort to lift the market from a pandemic-driven collapse.

The tentative deal came after strong pressure from U.S. President Donald Trump and American lawmakers, who fear thousands of job losses in the U.S. shale patch, not to mention Wall Street chaos. The price crash has also threatened the stability of oil-dependent nations and forced companies from Exxon Mobil Corp. to small independents to rein in spending.


OPEC and its allies, meeting by video conference, agreed to cut production by about 10 million barrels a day in May and June, delegates said, asking not to be identified ahead of an official statement. Saudi Arabia and Russia, the biggest producers in the group, will each take output down to about 8.5 million a day, with all members agreeing to cut supply by 23%, one delegate said.

https://www.worldoil.com//news/2020/4/9/saudi-arabia-and-russia-end-their-oil-price-war-with-output-cut-agreement?id=31307113

Baker Hughes Rig Count - April 10, 2020

US Land Rig count continues to fall in response of the supply shock of the OPEC-Russia Price War and the Demand shock due to COVID-19. This week, OPEC and Russia came to an agreement on reducing production by nearly 10 million BOPD in May and June. Canada is shutting in production due to lack of storage and the US should see natural production declines. 

While these actions will not balance the markets, it should aid in reducing the overall supply build expected in Q2 2020.

Oil Price - Global Oil Producers Agree On Joint 10 Million Bpd Output Cut

OPEC has succeeded. On Thursday, the OPEC++ group agreed, in principle, to cut 10 million bpd in oil production, according to media. But will it be enough? Today’s oil prices suggest not.

As oil inventories burst at the seams and threaten oil prices the world over, the oil markets have been riveted by the Organization of Petroleum Exporting Countries’ (OPEC) actions as it relates to potential production cuts. While many analysts doubted that the group, and various other states who agreed to sit down with OPEC to hash out a new market stabilization plan, would cut as much production as would be necessary to draw down inventories, the group’s actions have never been more crucial to the survival of the entire oil industry.

https://oilprice.com/Energy/Oil-Prices/Global-Oil-Producers-Agree-On-Joint-10-Million-Bpd-Output-Cut.html

Rystad Energy - SHUT-INS ARE HERE! CANADA LEADS GLOBAL LIST OF THOSE IN TROUBLE, SET TO SEE ABOVE 1.1 MILLION BPD HALT

The Covid-19 pandemic has devastated global oil demand while producing countries fail to agree on output cuts, and as onlookers have predicted, it was a matter of time until shut-ins would start. A Rystad Energy analysis shows that Canada is the oil producer most affected so far, with the damage estimated to reach above 1.1 million barrels per day (bpd) in shut-in production in the second quarter of 2020.

https://www.rystadenergy.com/newsevents/news/press-releases/shut-ins-are-here-canada-leads-global-list-of-those-in-trouble-set-to-see-above-1point1-million-bpd-halt/

SHUT-INS ARE HERE! CANADA LEADS GLOBAL LIST OF THOSE IN TROUBLE, SET TO SEE ABOVE 1.1 MILLION BPD HALT

Oil Price - The Oil Price War: A 3-Ring Circus

Summary

• U.S., Russia, Saudi Arabia not on the same page.
• Virtual meeting on April 9th does not include the U.S. or Canada.
• Russia refused to cut production March 6th but blamed Saudi Arabia for the oil price war.
• Saudi Arabia called Russia dishonest.
• U.S. has threatened to use tariffs or worse if Saudi Arabia continues to flood oil markets, but the end appears short as storage fills up.

https://seekingalpha.com/article/4336543-oil-price-war-3-ring-circus?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-shopify-s-plummet-investors-opportunity&utm_campaign=nl-must-read&utm_content=link-9

World Oil - Trump faces bitterly divided companies in his bid to save shale

HOUSTON (Bloomberg) --In Saudi Arabia, there is one oil company, the state-run behemoth Saudi Aramco. This makes for a fairly simple process to set policy goals when the country negotiates output quotas with rivals.

In the U.S., there are more than 6,000 oil drillers -- everything from tiny wildcatters in the shale patches of Texas and North Dakota to global giants like Exxon Mobil Corp.


That would seem to make formulating a coherent U.S. negotiating stance next to impossible. And yet, President Donald Trump appears to be intent on seeking to broker a dramatic cut in output along with Saudi Arabia and Russia to prop up plunging prices.

https://www.worldoil.com//news/2020/4/3/trump-faces-bitterly-divided-companies-in-his-bid-to-save-shale?id=31307113

Oil Price - OPEC And Partners Eye A 3-Month Output Cut

Countries part of the OPEC+ group are discussing the idea to implement oil production cuts for at least three months from May to July, Russian news agency TASS reported on Tuesday, citing two sources at OPEC.

“Three months. I believe the deal can be made from May because April deliveries have already been scheduled,” a high-ranking source in OPEC told TASS, while another source noted that a potential production cut would be “definitely longer than until June.”  

Russia’s energy ministry has received an invitation from OPEC to take part in Thursday’s video conference, and Russia confirms it will take part in that meeting, an official at the energy ministry told TASS on Tuesday.

https://oilprice.com/Energy/Crude-Oil/OPEC-And-Partners-Eye-A-3-Month-Output-Cut.html

Rystad Energy Shale Webinar - Is US shale paying the price for the Saudi-Russia Price War

Artem Abramov and Alisa Lukash joined us for our April Shale Webinar to answer the question "is US shale paying for the Saudi-Russia price war?" Their presentation covered the reality of a $20 WTI price world, an update on US storage capacity, production shut-ins and more.

Rystad Energy April Shale Webinar

Wood Mackenzie - Coronavirus pushes oil towards the abyss

The crude oil market is staring into an abyss. The challenges are physical – dealing with extreme oversupply – and financial, with market participants from wellhead to forecourt under severe duress. Ann-Louise Hittle and Alan Gelder, who, respectively, lead our oil market and downstream analysis, helped me to piece together how things could unfold.

https://www.woodmac.com/news/the-edge/coronavirus-pushes-oil-towards-the-abyss/?utm_source=linkedin&utm_medium=social&utm_content=the-edge-oil-abyss&utm_campaign=the-edge

Rystad Energy - Heavily indebted US upstream industry on track for record number of Chapter 11 filings in 2020

Whiting Petroleum this week opened the door of Chapter 11 filings but will not be the only company to cross that threshold. As the US upstream industry is heavily indebted, the current price environment is likely to create the largest number of such filings in modern history in 2020, a Rystad Energy impact analysis shows, with more than 70 oil and gas operators expected to be in trouble to meet interest payments at an oil price of $30 per barrel of WTI crude.

As the Covid-19 pandemic and the global oil-price war continue to put pressure on oil prices, the number of Chapter 11 filings could further climb into triple digits with 150 to 200 cases in 2021 if a price level of $30 WTI persists.

https://www.rystadenergy.com/newsevents/news/press-releases/heavily-indebted-us-upstream-industry-on-track-for-record-number-of-chapter-11-filings-in-2020/

Rystad Energy - OPEC+ poker game on Monday: Russia holds better cards than Saudi Arabia

A month after the last unproductive OPEC+ meeting and with Covid-19 slashing demand amid the ongoing price war, the US has managed to broker a new extraordinary meeting for oil-producing nations. Russia and Saudi Arabia will be back to the negotiating tele-table on 6 April 2020 to discuss the output cuts of at least 10 million barrels per day (bpd), first announced by US President Donald Trump on Twitter on 2 April 2020.

The deal would help balance the demand shortfall and bring prices back to more profitable levels and help avoid production shut-ins. The sticking point is how much each producer is willing to cut. But, in case of another deadlock between Russia and Saudi Arabia, which of the two oil majors is better positioned to withstand an extended oil price war with fewer losses?


A Rystad Energy research shows that Saudi Arabia will suffer a bigger hit than Russia in all five financial criteria we examine: the impact on oil and gas revenues, fiscal breakeven price, fiscal deficit and foreign currency reserves, budget deficits and domestic policy.

https://www.rystadenergy.com/newsevents/news/press-releases/opec-poker-game-on-monday-russia-holds-better-cards-than-saudi-arabia/

Baker Hughes Weekly Rig Count - April 3 2020

JPT - Sealed Wellbores and the Unlikely “Breakthrough” Behind Cheap, Accurate Fracture Diagnostics

A little over 2 years ago, amid the flat farmlands of central Oklahoma, Devon Energy sent a suite of measurement technologies downhole to study how hydraulic fractures move between wells during the stimulation treatment. The operation in the STACK tight-oil play was what the industry calls a “science project.”


Once the field work was done, and as engineers got to work on the data, they expected to uncover some new learnings. What they did not expect was to find themselves on course to invent a new way to measure the size of fractures, the speed of their growth, and the energy that it took to form them. Knowing these parameters invites the use of the scientific method to control fracture growth for optimal productivity.


https://pubs.spe.org/en/jpt/jpt-article-detail/?art=6764

Rystad Energy - COVID-19 Report - Scenarios and impact on global energy markets

We have now published our 4th Edition of the COVID-19 Report (released on April 1). Rystad Energy's COVID-19 Report will be regularly updated, offering scenario analyses and evaluating the impact on global energy markets.

https://www.rystadenergy.com/newsevents/news/press-releases/rystad-energys-covid-19-report/

Oil Price - Russia Decides Not To Boost Oil Output

Russia is not raising its crude oil production because it doesn’t make sense for Russian firms to boost output while the market is oversupplied, a Russian government official told Bloomberg on Wednesday, the day on which the OPEC+ pact expired and Saudi Arabia is gearing up to flood the market with oil.

While the Saudis have been pledging record oil exports over the next few months after the OPEC+ deal with Russia collapsed in early March, Russia has hinted that the current market situation with oil prices so low and the surplus so high wouldn’t make economic sense for its firms to boost oil production now. 

https://oilprice.com/Latest-Energy-News/World-News/Russia-Decides-Not-To-Boost-Oil-Output.html