Shale Drillers Pulling Back as Rigs Are Idled Across U.S.

34 Comments on "Shale Drillers Pulling Back as Rigs Are Idled Across U.S."

ghung on Sat, 8th Nov 2014 9:56 am 



“Liquid output from North American shale will rise to 6.5 million barrels a day in December and to 12 million barrels by 2020, he said.” ??!!

Methinks Magnus ignores a lot of externalities. Damned specialists with narrow focus.

steve on Sat, 8th Nov 2014 10:14 am 



Yes Ghung little comments like that are put in news stories so that someone perusing the paper will say well we still have tons of oil in the U.S so back to sleep….never questioning the true answer….It really is amazing how you are not allowed to question these oil claims on a national media stage…

Northwest Resident on Sat, 8th Nov 2014 1:10 pm 



“The slide threatens to curb a production boom in U.S. shale formations…”

“production will continue to boom next year and North America may become self-sufficient in oil by 2016”

Which is it? Curb a boom? Or continue a boom?

This is what I call a bad news/good news article. First, the bad news — cold hard facts. Next, the “good” news — corny predictions to keep the true believer feeling like they have something “solid” to hang onto.

“Executives at several large U.S. shale producers, including Chesapeake Energy Corp. (CHK) and EOG Resources Inc. (EOG), have vowed to maintain or even raise production as they reported earnings this week.”

That’s what they’re saying in public. Most likely what they’re saying in private is something like: “Oh, crap. We’re screwed. We have to keep our investors from running out on us or we are dead in the water. Quick, call the P.R. Department, have them cook up a positive spin to this gloomy news. Something like: ‘Executives at several large U.S. shale producers…etc…'”.

meld on Sat, 8th Nov 2014 3:09 pm 



boom boom pow , gotta pop pop

rockman on Sat, 8th Nov 2014 7:17 pm 



NR – “Which is it? Curb a boom? Or continue a boom?”. Depending on how one defines “curb” both can be true. I’m becoming increasingly agitated by the f*cking word games. LOL. So what does curb mean: slow down…stay flat… decrease? Since curb doesn’t have a quantitative meaning it can assigned whatever you want.

What really amazes me how some folks are acting like they just achieved a ground breaking “aha moment”. It’s as if they think the dynamics are so unpredictable. It was only 5 years ago when falling NG prices caused a 70%+ drop in those rig activity. Sometimes their words seem accusatory: the oil patch mislead the public to thinking the shales would continue booming regardless of future oil prices.

Northwest Resident on Sat, 8th Nov 2014 8:19 pm 



rockman — Yeah, it’s getting to the point where word games is all they have left. Actually, we’ve been at that point for quite a while now and it’s just getting worse.

Two distinct definitions for curb: stone or concrete siding on a road, or to check or restrain something.

Based on the usage in this article, I would say they’re stoned on the side of the street — or something… 🙂

Nony on Sat, 8th Nov 2014 11:41 pm 



How’s employment, Rock?

Northwest Resident on Sat, 8th Nov 2014 11:42 pm 



Not just shale, but deep water looks to be in deep doo-doo too.

Transocean Takes $2.76 Billion Charge Amid Rig Glut

Transocean Ltd. (RIG), owner of the biggest fleet of deep-water drilling rigs, is feeling the effect of an industry wide glut in the expensive vessels just as crude-oil prices tumble.

The company will delay posting third-quarter results after saying earnings would be hit by $2.76 billion in charges from a decline in the value of its contracts-drilling business and a drop in rig-use fees. Shares in the Vernier, Switzerland-based company, which pushed back the release of its earnings report to Monday instead of today, fell 0.7 percent to $29.71 at the close in New York.

Oil’s decline to a four-year low in recent months has caused companies to consider spending cuts, which would further reduce demand for rigs and the rates Transocean can charge to lease them to explorers. The drop in prices comes after rig contractors responded to rising demand during the past few years with the biggest batch of construction orders for rigs since the advent of deep-water drilling in the 1970s.

“Ouch,” analysts from Tudor Pickering Holt & Co. wrote in a note to investors today. The announcement “reflects the reality of this oversupplied floater rig market globally.”

Other rig owners may also face write downs, Waqar Syed, an analyst at Goldman Sachs Group Inc., wrote today in a note to investors. Among those that may be affected are Diamond Offshore Drilling Inc., Noble Corp., Ensco Plc, Rowan Cos. and Atwood Oceanics Inc., he wrote.

http://www.bloomberg.com/news/2014-11-07/transocean-delays-results-after-2-76-billion-impairment-charge.html

GregT on Sun, 9th Nov 2014 4:01 am 



“How’s employment, Rock?”

How’s employment Nony?

I’m willing to wager a bet. I’ll bet that Rockman’s employment lasts longer than your does, and that he has already made more money than you could ever even dream of making.

Stop being a complete dick Nony. Grow up, or eff off.

rockman on Sun, 9th Nov 2014 7:31 am 



None – Mine? I’m already working on getting my next gig in place. Low NG took a big toll on my company’s business plan a few years ago. Low oil prices will nibble away at that segment. So me and my crew are aligning ourselves with another small company that has raised $140 million in fund money to take advantage of companies crippled by the low prices and acquire their assets at a big discount. This isn’t my first rodeo, bubba. LOL.

I can make a company as much money during the busts as during the booms. As I’ve mentioned before the highest profit margin I’ve ever generated was during the mid 80′ bust when I developed a lot of shallow NG. NG that was selling for $1/mcf at that time.

Industrywise the service companies take the hit first. And they’ve been making significant adjustments for several months. What’s happening now was predictable. It was just a question of when it would happen. Every boom in the oil patch has been followed by a bust. As soon as the first cracks began to appear the service companies began reacting. Operators will be next. And no: we’re not going to see big press releases from the pubcos about cutting back that will be comparable to those of the early glory days. They’ll try to maintain the illusion of stock value as long as possible.

I survived $10/bbl oil and $1/mcf NG. I’ll get by with $80/bbl and $3.50/mcf. As I’ve said before we do feed on our own. In the oil patch you’re either the cattle or the butcher. Nothing personal…just business. LOL.

Nony on Sun, 9th Nov 2014 7:34 am 



I meant the market in general, Rock.

Nony on Sun, 9th Nov 2014 7:36 am 



Thanks.

Nony on Sun, 9th Nov 2014 7:37 am 



Aside from the theoretical, or what you’ve seen in the past, what are you seeing now in reality? Have layoffs started yet? That was the question.

marmico on Sun, 9th Nov 2014 8:19 am 



The BLS says that oil and gas extraction layoffs did not start in October.

Nony on Sun, 9th Nov 2014 8:32 am 



Marmy, thanks. I wonder how much of that is just a delay (e.g. Rock’s point about service companies the quickest, operators slower) and how much is because drilling is (relatively) insensitive to the drop to 78?

I do know that the Bakken turned off like a light switch when prices dropped to $40 in 2008-2009. And logic just dictates that there will be more exploration, production with higher prices and less with less. But knowing the extent of that is a big question.

Also, it seems a bit in the Bakken, that rather than “running out of sweet spot”, they have been increasing efficiency of drilling and improving completion technique. So, the exact pattern of 2008-2009 could differ a little. And so far rigs are 190+ even though there is a large backlog of wells for completion. Then again, maybe rigs are just staying at current levels there because of the lag with paid contracts?

Davy on Sun, 9th Nov 2014 8:37 am 



Our resident corns showing their nerves?

Nony on Sun, 9th Nov 2014 8:45 am 



Davy, I’ve always said that the shale was more in danger from a price drop more so than geology (depletion) or leverage arguments.

Watching you interpret lower price as a point for peak oil is just bizarre. For one thing it’s the opposite of Rock’s “POD”.

Nony on Sun, 9th Nov 2014 8:48 am 



Marm:

I wonder if there will be cuts in January. We are getting close to the hols and companies can be hesitant to drop the axe then.

marmico on Sun, 9th Nov 2014 9:00 am 



The first thing to look for is a cut in weekly hours. Then a cut in headcount. The 2009 headcount reduction was minor.

Nony on Sun, 9th Nov 2014 9:10 am 



Marm:

Thanks for the data links. Good stuff.

Interesting to look at that boom in 1982 or so. We’re still not up to that. US (over)production cracked the OPEC cartel back in the 80s. Could it happen again?

Davy on Sun, 9th Nov 2014 9:16 am 



NOo, personally I am not excited about any of this bearish news. I want you corns to bitch slap me with good news.

Obviously, NOo, you fail to understand The economic compression from both high and low prices. Your Econ 101 mindset of supply and demand in a healthy market is breaking down because there is no healthy market.

What the hell are you going to do in a full on bear market that is in panic and risk off. I guess you will have to retire the cheerleaders tights for farm overalls.

marmico on Sun, 9th Nov 2014 9:30 am 



Interesting to look at that boom in 1982 or so

Chart domestic hydrocarbon production with headcount. Ya, the unit labor costs of the oil & gaz biz must be one of, if not, the most inefficient sector(s). It is probably a worse sector than “do you want to supersize that” sector when it comes to productivity. Google and Apple should take over energy supply de-carbonization -:)

Boat on Sun, 9th Nov 2014 9:51 am 



The good news. America saves 80 billion per year. 250 billion world wide? That buys a lot of potatoes. Just a cycle Davey, nothing to see, move on. Oil prices will recover as the extra money will be spent and increase demand for oil.

Davy on Sun, 9th Nov 2014 9:55 am 



Boat, 80BIL is one months QE, wow that is impressive!

JuanP on Sun, 9th Nov 2014 10:19 am 



Rock “I’m becoming increasingly agitated by the f*cking word games.”
Believe me, you are not alone! Orwell would have been fascinated by the world we live in today.

Boat on Sun, 9th Nov 2014 10:25 am 



Thanks to QE a lot of debt has been refinanced to a much lower interest rate freeing up significant savings for those able to take advantage. Over 1 trillion in savings through 2013 reported. Once again, that buys a lot of potatoes.

Davy on Sun, 9th Nov 2014 10:37 am 



Boat, two edge sword friend. What about main street? What about the people with savings screwed by low rates. You are crowing about something that has mixed results. Why not show some balance. You corns are running out of steam and showing desperation. Let’s hope your optimism holds up but your denial shows desperation not strength.

Boat on Sun, 9th Nov 2014 10:51 am 



What is amazing to me is the 70% reduction in nat gas drilling. The US nat gas market grew by 6.7% last year and is projected to grow more than that this year. Exports to Mexico are up and growing and we flare about a third of the Bakkens nat gas. Yet the price remains stubbornly around $3.85 to $4.50. Just think of the amount of activity if the market ever catches up with production. Good times ahead and the foreseeable future.

Boat on Sun, 9th Nov 2014 10:54 am 



Maybe that is why the stock market is at an all time high? They don’t like 3% But there seems plenty of money to buy up government debt getting close to 18 trillion.

Northwest Resident on Sun, 9th Nov 2014 11:20 am 



“Maybe that is why the stock market is at an all time high?”

That would be an all time high asset bubble expansion, an all time high asset overvaluation that bears no resemblance to reality, an all time stock market high driven in large part by major corporation stock buybacks using cheap borrowed money to keep their stocks inflated, an “all time high” that will violently unwind at some point in the future.

But there’s good news in there somewhere. I’ll leave it to the corns to find that “good news” and let us know what it is. Whatever that “good news” ends up being, rest assured, it is a temporary “feel good” high that is going to leave us all with one helluva hangover when we wake up one morning to find it all gone like a popcorn fart on the wind (plagiarizing Davy’s most excellent imagery).

Boat on Sun, 9th Nov 2014 11:47 am 



Whenever a company buys back it’s own stock it becomes stronger and less subject to market swings. Mostly companies are doing great and profits are up. Buying back stock is like paying off a loan. You end up with less risk. The opposite of what others on this site say.

Northwest Resident on Sun, 9th Nov 2014 12:05 pm 



Boat — I think you’re being overly optimistic here and ignoring some inconvenient realities.

Back in “the good ol’ days” when a corporation bought its stock back with profits generated, that tended to be a good thing and closely approximated what you are saying in your post above.

The inconvenient truth that you’re ignoring is that companies are buying their stock back these days with cheap borrowed money — leveraging up to buy back their stock.

So what, you say?

There is a wealth of information that points out in detail exactly how B-A-D that is. Here’s a sample for you to ponder:

Corporations can’t stop gobbling up their own stock

If you’re wondering why the economy remains stuck in second gear, consider this hypothesis:

Instead of investing in new plants, equipment and products, instead of paying their taxes and giving a long-overdue raise to their employees, big corporations are spending their record profits — plus gobs of newly borrowed money — to buy back their own shares and those of other companies.

The latest data from Dealogic shows that U.S. companies have announced more than half a trillion dollars in mergers and acquisitions this year, 34 percent ahead of last year’s brisk pace. Chief executives in the tech, telecom and pharmaceutical industries apparently can’t look themselves in the mirror these days if they don’t have some industry-altering deal in the works. Wall Street investment bankers are predicting a banner year for fees and bonuses.

In the short term, of course, all this deal making has the effect of lifting the entire stock market as every company rushes to get in on the action and every company becomes a potential acquisition target. But over the long term, studies show that mergers and acquisitions destroy shareholder value, particularly those done when stock prices are at or near their peak, as they are now.

Meanwhile, the corporations of the Standard & Poor’s 500-stock index spent $477 billion last year buying back their own shares, a 29 percent increase over 2012 and the most since the peak year of 2007. The idea behind buybacks is that they are a tax-advantaged way to return profits to shareholders by boosting the market price of their shares. Since the stock market tends to value companies by multiplying the profits per share times the number of shares, reducing the number of outstanding shares has the arithmetic effect of boosting the stock price.

Buying back shares is so in vogue that 80 percent of the S&P 500 did it over the past year, according to Kiplinger. Among the more aggressive have been Boeing, Caterpillar, Cisco, 3M, Microsoft, Safeway and Travelers, who all bought back more than 10 percent of their shares, reports Zero Hedge, the widely followed investor Web site. Apple alone has announced it would spend $130 billion to repurchase shares. Last week, Ford joined the parade with an $18 billion buyback.

And make no mistake: In the short term, the buyback strategy works. Stock buybacks in the S&P 500 transformed what would have been an 80 percent rebound from the lows of 2009 into a 178 percent increase, according to a study by Fortuna Advisors.

It would be one thing if most of these stock buybacks were paid for out of the trillions of dollars in cash now sitting on corporate balance sheets. But as it happens, most of them have been paid for by near-record levels of corporate borrowing. Of the $3.4 trillion in additional debt taken on by nonfinancial corporations since 2009, nearly 87 percent has been sent off to shareholders in the form of dividends and stock buybacks, according to Paradarch Advisors.

The poster child of the corporate sector for this leveraged buyout is IBM, which in the first quarter bought back more than $8 billion of its own stock, almost all of it paid for by borrowing. By reducing the number of outstanding shares, IBM has been able to maintain its earnings per share and prop up its stock price even as sales and operating profits fall.

The result: What was once the bluest of blue-chip companies now has a debt-to-equity ratio that is the highest in its history. As Zero Hedge put it, IBM has embarked on a strategy to “postpone the day of income statement reckoning by unleashing record amounts of debt on what was once upon a time a pristine balance sheet.”

More significantly, IBM since 2102 has invested four times as much in stock buybacks as it has on the capital expenditures needed to grow its business over the long term.

*** And so there you have it, Boat. Cherry pick the “bright spots” out of the big picture if you want, and you obviously do. But the sad fact is that companies are sacrificing investment in projects and growth-oriented policies that would (in normal times) generate future profits to get a SHORT TERM BURST in higher stock prices.

Why would they do that, you might ask? Excellent question. Maybe because they know that growth is dead, that it doesn’t make sense to invest in a future growth program that stands no chance of succeeding??? You tell me why.

John on Sun, 9th Nov 2014 12:54 pm 



I have this crazy notion that the recent drop in oil prices is a coordinated effort by Saudi and American interests, to give American shale oil producers an alternative explanation for diminishing production. “We can’t produce oil at this price”, as opposed to “Most of the shale oil has already been produced.” It’s just an idea.

Northwest Resident on Sun, 9th Nov 2014 1:23 pm 



John — I’m right there with you on that suspicion. Especially given the fact that shale oil production has been exposed as a Ponzi scheme operated by high finance, investment banks and Wall Street. And now that the gig is up and suckered investors are starting to realize just how badly they’ve been lied to, the investment wizards and scammers need a convenient excuse — something like: “Honest, Mr. Investor, we were right on the verge of turning a huge profit but that darn Saudis lowered their price. (shrugs shoulders) Who could have expected that?”

Pure speculation, of course.