WTF… “next oil boom”? Here we go again… http://www.texasoilcareers.com/texas-oil-industry-headed-huge-oilboom/?utm_source=dlvr.it&utm_medium=facebook
LMAO. Good luck raising financing.
^^This could pass as a piece in The Onion. It seems THAT rediculous.
does anyone know where the equipment would move if an oil rig closes down (in the US)?
Do these just sit and wear down at the rig location, or are foreigners usually interested in buying them?
I’m thinking at the price of 26/barrel, these rigs must have considered selling (or actually sold, went bankrupt,etc) and not just stopping production for a certain amount of time.
Also, curious about Canada as well, but I believe Canadian production has a much lower average cost
It is my understanding that Canada is the highest cost producer in the world. At least that’s what I read in an article sometime last year. Intuitively, this makes sense. The majority of our oil doesn’t come from conventional wells, it comes from the Oilsands up around Fort Mac in the Athabasca region. It’s called the Oilsands since our Oil is literally mixed in with sand and clay and other stuff. It takes alot more effort to process our raw bitumen, thus it costs alot more to make a barrel of oil up there.
The # of active oil rigs in Alberta has dropped off a cliff this past year and a half. But, Oilsands production has increased. This just tells you how the extraction process is different between the two. What the Oilsands has going for it is scale. There’s soo much oil up there that economies of scale comes into play. I’m not sure what’s happening with the rigs, but you should see the amount of equipment at the Ritchie Bro’s auction yard.
Anyone want to lend me $500,000 cdn so I can buy a fleet of skid steers and go sell them in California? Probably make 10-20k profit off each skid steer via the exchange rate bonus and the cheap prices from the auction yard.
Should be $75+ by EOY.
That’s a terrible understanding. Canada has lots of high fixed cost projects, like oilsands, but many are low cost per barrel once producing. Then we still have some cheap conventional oil, and more expensive tight oil like the U.S. boom. Just looking at Canadian production as an average number is over simplifying to the point of complete misunderstanding.
I don’t know actually, Stockton_Malone might be right. Canadian oil production that actually uses rigs (excluding in sutu oilsands which I’m assuming is still more expensive due to the need to process the bitumen) may have a lower average cost than the U.S. Either way, rigs aren’t nearly being used as much here too (in Alberta). 272 Active rigs in January 2015. 120 Active rigs in January 2016.
A drilling rig’s profitability isn’t directly tied to the price of oil or gas. These rigs won’t go bankrupt just cause oil is at 26/bbl. They’ll go bankrupt if they’re not drilling anymore. The same can kind of be said for a service rig…producers might be losing money, but they still need to service their wells. Even shutting down a newly unprofitable well will give some service rigs some business.
^ The problem there is margin compression. It’s supply/demand. When things are booming, rigs have huge margin because there isn’t enough of them to execute all the capex. So they go out and buy new rigs on credit. Oil crashes and now you’ve got drillers at 50% debt and they can’t generate the gross margins to pay the bondholders. It’s an industry on the edge of a knife really. They run so much leverage for a hugely cyclical business.
Yes exactly. Things would play out on a case by case basis. I don’t think companies would want to just up and ditch their rigs, not unless they really have to. Shale wells in the u.s. are supposed to have short lifetimes, and drilling in the oilsands should keep increasing, so the industry will still need tons of rigs. I couldn’t really comment on how much overcapacity there is though. At an extreme level, some of the equipment would just be left idling for years.
^ In many cases it’s not the driller’s choice. If you can’t pay your bondholders, you don’t get to chose to wait out the trough of the cycle.
So, June marks two years since drilling peaked. How ya feeling? Has it played out as you expected? Ng went much lower, and stayed low, than I expected. Definitely a couple deviations out on my possible outcome distribution. Probably the same with oil, but it didn’t hurt as much. The recovery off the bottom has been nice though and I did increase my allocation, so the pain may end up being worth it. This year has been incredible.
rig count up 80+ in 2 months… highest supply glut in 90+ years…everyone and their mother short oil
so how low will it go $35?
Still waiting for $20. I didn’t believe that last “bottom”, recession isn’t here yet.
At $20 the barrel would be worth more than the oil.
time to short? How do you guys short Oil? Just short USO? But USO prices do not follow actual oil futures prices do they?
I like SCO. It is triple levered so you have to be careful with the exposure (I do as little as 5 shares!) The liquidity is not as good as futures contracts so it is best for capturing a large move over days or weeks. Also, you don’t want to hold it too long due to decay. You could also sell a CL contract (WTI crude oil). Be aware that you will want to roll each month to keep with the active traded month. The exposure is $10/tick … or $1000 per every dollar change in WTI I just got done taking the ride from 45 to the 40 handle. I got out because the move was so dramatic I was nervous about a rig count or other possibly bullish triggers reversing the move. I’m going to watch for a possible second entry. I might see if something sets up after the Wednesday inventory report.
^Better off shorting upstream oil pure play producers if you are trying to profit from declining oil. Definitely not the play they were a few months ago. But NA ng producers seem to me just about the only value around. I own a basket of twenty or so. Many can be found in the FUM index, if interested. Bought some more GPOR and BXE today. Volatile sure, but just close your eyes for two years. Cheap oil should be good for ng and if oil spikes and rigs come on line, oil will act as a hedge for falling ng. Most ng producers have some oil production and some even have oil acreage just in case oil spikes. Sustained high oil will prove devastating for ng.
SCO…3x leveraged…damn dude…i don’t have the guts to do this. I might do few shares for fun but i feel like this is no different than going to vegas…
why do you guys see oil hitting 20? i don’t have the exact numbers but we had a short meeting about this in Q1 and we (we as in at work) agreed that oil cannot go below 30…if it did it would quickly bounce up which it did.