[Tanada]

$this->bbcode_second_pass_quote('AdamB', '')$this->bbcode_second_pass_quote('Tanada', '
')While the USA has made remarkable gains in supply from tight oil it still has a long way to go to get back up to 10 M bbl/d of the 1970 peak, and even though demand is lower than it was five years ago the USA is still importing lots of oil from OPEC as well as Canada and Mexico.

[AdamB]

$this->bbcode_second_pass_quote('Tanada', '')$this->bbcode_second_pass_quote('AdamB', '')$this->bbcode_second_pass_quote('Tanada', '
')While the USA has made remarkable gains in supply from tight oil it still has a long way to go to get back up to 10 M bbl/d of the 1970 peak, and even though demand is lower than it was five years ago the USA is still importing lots of oil from OPEC as well as Canada and Mexico.

[Tanada]

$this->bbcode_second_pass_quote('AdamB', 'A') BUNCH of words Tanada, and very number intensive, when none were required. You see, I was more wondering what you meant when you said "long way to go"?

From 2013, did you perceive that this would be more than the 2 years it required to get back to the 1972 peak or so, or the 5 years to where we were producing more in December on a weekly basis than the average from 1972?

Back with your 2013 hat on, what were you thinking, both in terms of time, and effort? Did you think it could happen within a few years, or were you thinking more like a decade, and maybe even, never? How about the effort side, assuming the US did make it back to the 10 million barrel a day levels, what kind of effort did you think that might have involved? Oil shale (as opposed to resource play development), hydrates, GTLs, or could you have imagined back then that the resource plays themselves would be able to do it? Under a lower price environment no less?

I would say that my biggest surprise was the surge in the Permian. Once the price cratered, I just figured that natural decline would be the story and that would nicely balance against additional demand until the market clearing price increased again, and then drilling would begin again in earnest and THEN production would begin to increase again. I completely underestimated the Permian and Wolfcamp and Spraberry development using what was learned in the Marcellus, Eagle Ford and Bakken plays.

[GoghGoner]

$this->bbcode_second_pass_quote('', 'H')owever the people working the Permian figured out how to turn a profit at the $40/bbl average price for 2016 and they just got stronger in 2017 as prices crept upward.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')he poster boy company of the shale revolution is Pioneer Natural Resources (it was CHK but they don't wear any clothes now). PDX gross income was negative 23 million last quarter (3q of 2017). They did make a gross profit but once they pay interest on their debt, they are losing money.

[GoghGoner]

Questionable sources? Like their financial statements?

Net income is a simple to understand metric (earnings minus expenses) and it is negative for the best shale company out there, you can fool some folks but you ain't fooling me. We don't even want to look at the Marcellus players.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'N')et income is a simple to understand metric (earnings minus expenses) and it is negative for the best shale company out there, you can fool some folks but you ain't fooling me. We don't even want to look at the Marcellus players.

[ROCKMAN]

T - "Nope I admit freely that I thought the bankruptcies in the shale industry would be much faster and reach much deeper." Which is why I spent many words here explaining why almost every one of those shale players filing bankruptcy (Chapter 11) represented a big gain for the shale playing industry: less debt to service and thus higher net income along with increased borrowing ability. But obviously not a big plus for those that loaned monies to the shale players.

Take one of the biggest shale players that filed bankruptcy: Halcon. The result: the company shed $billions in debt and interest payments. And without those burden was given a $600 million reserve based credit line. And what has Halcon done with its new lease on life? They've used it to be become one of the new big players in the Permian Basin hot shale trend. It had crippled itself trying to become the new big dog in the Marine Tuscaloosa Shale. A play that had not proved it very viable even before the oil price crash.

Yes, as odd as it seems to folks who don't understand how Chapter 11 works, the price bust that has led to those bankruptcies has actually helped numerous companies fund there efforts in existing shale plays and the new Permian Basin shale play. Essentially Chapter 11 bankruptcy is typically the ultimate "get out of jail free" card for some companies that overextended themselves and got caught with the oil price crash.

Truly humorous for those few of us here when some offered those bankruptcies as harbingers of the "end of the petroleum industry" when in reality it was just the opposite. Some here have so invested themselves in that foolish expectation they still can't acknowledge the fact that $60+/bbl oil allows profitable drilling efforts. Within a year (or maybe even 6 months) they will probably have to move the goal post and offer us a new model. That is if they are willing to "show their faces" here. LOL.

[ROCKMAN]

Goner - Not that Doc needs my help but again one has to understand what our "expenses" are. A major "expense'...the depletion allowance. From wiki:

"The oil depletion allowance in US tax law is an allowance claimable by anyone with an economic interest in a mineral deposit or standing timber. The principle is that the asset is a capital investment that is a wasting asset, and therefore depreciation can reasonably be offset (effectively as a capital loss) against income. The oil depletion allowance has been subject of interest, because of the relationship of big oil with the US government, and because one method (percentage depletion) of claiming the allowance makes it possible to write off more than the whole capital cost of the asset."

Did you catch that: "...makes it possible to write off more than the whole capital cost of the asset." The asset production we sell to generate income is then used to reduce taxable earnings sometimes by more the "whole capital cost of the asset". IOW the depletion allowance is one of those "expenses" reducing income. My owner started our company with two goals: 1 - build a big reserve base we would later sell and 2 - generate as large a depletion allowance as possible. The way our company was designed he could use the DA to reduce taxable income of the combined corporation. Our sister company had a huge income with almost no write off to reduce taxes. Many times our owner chewed us out for not drilling enough and generating more DA. Not once did he complain about any dry hole we drilled. But since we weren't shale players we never could find enough viable prospects to drill (and thus generate DA) he had to find other methods to reduce the tax bill. IOW the exploration company couldn't generate "expenses" to reduce our combined incomes.

That might sound odd to many here but not to a corporate accountant.

[GoghGoner]

My interest in bankruptcies is that somebody doesn't get paid what they loaned the company and these entities may not have money to hand them again. I think banks did back off but private equity is still available. I don't have hard numbers on how much credit is now available to these scammers. I also know you don't like that word since you are in the industry but I call a spade a spade.

Depreciation isn't broken out so I can't comment how much of that is baked into the expense numbers but I would guess that companies make that number as large as legally possible, I would. Depreciation is also a real expense for a company. Things will have to be replaced. That still doesn't mean that a negative net income is healthy -- especially, with a company who spends capital on immediately declining revenue sources. One could argue that these companies will become profitable once oil goes to XXX dollars but the costs also rise with rising oil prices. We seem to be in a bull market right now for commodities but there are no guarantees, and if the price goes down again, folks who loaned these companies money will not be paid just like this last cycle. No shale bonds for me.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'D')epreciation isn't broken out so I can't comment how much of that is baked into the expense numbers but I would guess that companies make that number as large as legally possible, I would. Depreciation is also a real expense for a company.

[GoghGoner]

Depreciation isn't an expense? Holy cow and you are telling me I don't know what I am talking about?

How many shale bond investors took a major haircut in these bankruptcies? All due to a predictable cycle -- commodity prices go up and they go down. You oil guys trivialize bankruptcies because you don't believe companies should pay their debts. It would be nice to go back 100 years before things went totally amoral.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'D')epreciation isn't an expense? Holy cow and you are telling me I don't know what I am talking about?

[GoghGoner]

Well, looked like derivatives were the largest "other" expense and not depreciation last quarter for PXD.

Here is an interesting story regarding the cash flow issues (which I haven't gone into at all, I was only discussing net income in past posts). Anybody could look up on the internet and see they are also have cash flow issues along with negative net incomes. Ironically, they will not take full advantage of the rise in prices since they are more heavily hedged this year due to cash flow concerns.

http://news.ihsmarkit.com/press-release/energy/north-american-eps-hedging-more-production-support-free-cash-flow-and-returns-g?hootPostID=6ec63360b7a1838a3c70daee99210bc8

$this->bbcode_second_pass_quote('', ' ')“The North American E&P peer group is more hedged for 2018 than for comparable periods at this time in previous years, which suggests a shift in strategy,” said Paul O’Donnell, CFA, principal energy analyst at IHS Markit and author of the hedging analysis. “Companies are seeking more predictable cash flows because of greater investor demands to improve corporate returns and keep capital spending within cash flow.”

“The higher level of hedging is less about supporting aggressive production growth and more about increasing investor confidence that these companies are serious about becoming more financially disciplined,” O’Donnell said.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'W')ell, looked like derivatives were the largest "other" expense and not depreciation last quarter for PXD.