Abstract Since the oil price collapsed last year, the US shale oil industry has suffered heavy losses. The shale oil company has not only drastically cut back on this year's expenses, but the number of existing rigs has fallen to its lowest level since June 2011. A group of smaller shale oil companies have begun bankruptcy restructuring. Shale oil...
Since the oil price collapsed last year, the US shale oil industry has suffered heavy losses. The shale oil company has not only drastically cut back on this year's expenses, but the number of existing rigs has fallen to its lowest level since June 2011. A group of smaller shale oil companies have begun bankruptcy restructuring. Shale oil seems to be in danger of being squeezed out of the market by Saudi Arabia.
But the British "Financial Times" believes that the shale oil industry is not so vulnerable. Faced with sudden low oil prices, the shale industry is dramatically reducing the break-even line by streamlining costs and rapidly increasing mining efficiency through technological innovation.
Shale oil companies are increasingly adaptable to low oil prices. With the recovery of oil prices in the future, the US shale oil industry may be reborn.
Saudi Arabia suppresses shale industry into trough
Wall Street has repeatedly mentioned that this round of crude oil fell, an important reason is that Saudi Arabia wants to use high-cost output such as shale oil to reduce production and let oil prices fall, so as to maintain market share and reshape the international market. .
Although Saudi Arabia has always denied this, Saudi oil minister al-Naimi has repeatedly stressed on many occasions that low oil prices are the fault of other oil-producing countries, and that they should be reduced if they want to cut production. Naimi also said in a speech in Berlin this month that the Middle East countries are not obligated to "subsidize other high-cost producers."
The shale oil company is clearly part of his "high cost producer." Moreover, the strikes of the Saudis have already begun to bear fruit.
Since June last year, US WTI crude oil has fallen by nearly 60%, and the US shale industry has also been hit hard: profits have fallen, jobs have been reduced, investment has stagnated, and equipment has been shut down. In fact, since the crude oil plummeted last year, a large number of US shale oil wells have been closed, and the industry has rapidly integrated.
Since the peak in October last year, the number of US shale oil rigs has plummeted by 46%. The US Energy Information Administration (EIA) said last week that Bakken and Eagle Ford's crude oil production will begin to decline next month in the three major shale oil producing areas, and only the Permian basin production area will continue to grow.
Optimistic shale oil company
However, recent earnings reports released by independent small and medium shale oil companies in the United States show that although oil exploration activities in the entire industry have shrunk dramatically, no company expects production to decline. These companies are precisely the main force of this round of shale revolution.
From the point of view of the production cost of shale oil, once the oil well is put into production, the cash flow required for the later operation will drop sharply, which is even larger than that of the traditional oil field. Therefore, shale oil companies need to maintain stable production. These companies have told investors that even if the number of rigs is reduced, they can still maintain a fairly high output.
For example, EOG Resources plans to cut capital expenditure by 40% this year, but production has only shrunk by 3%; Hess plans to cut spending by 14%, but production is expected to increase by 12%. If this year's shale oil company's projected output is finally achieved, then you will see an alarming number.
This dramatic scene has happened before. In 2008, US natural gas prices were avalanche, and many analysts had predicted that shale gas producers would be completely eliminated. The US shale gas rig dropped from 1,606 in the summer of 2008 to 268 last week, but shale gas production is steadily rising.
Today, many companies that have been in trouble because of the collapse in oil prices have experienced the collapse of natural gas that year. They need to prove again that they are not so easy to be beaten.
Reduce investment without reducing production
The analysis of the Financial Times of the United Kingdom pointed out that there are three reasons why shale companies can reduce their input without reducing output. First, many of the pressures of reduction are passed on to other upstream and downstream companies such as rig suppliers by delaying payments and canceling orders.
Second, shale companies spend the rest of their investments on the most productive equipment. Reduce inefficient rigs and employees to keep core oil fields running efficiently.
Third, shale companies may also increase production through technological advancement. For example, through the use of pad drilling, the downtime of the rig can be greatly reduced, and as many rigs as possible can be developed with as many rigs as possible.
EIA research shows that in the past year, the oil output of a single rig in the three major shale oil areas increased by an average of 24% to 30%.
In October last year, research firm HIS estimated that the median break-even line for US shale oil producers was $57/barrel. This means that after a sharp cut in costs this year, the balance line will move down sharply.
Wall Street News also mentioned in previous articles that the closure and restart of shale wells is very simple compared to traditional oil wells. The traditional oil wells must adopt “closed wellsâ€, which is not only costly, but it takes several months or even years to restart the oil wells. This also gives shale oil greater flexibility in the competition.
Rise from the ashes?
Today, many analysts expect oil prices to pick up during the year. For example, Goldman Sachs expects that US oil will fall to a rebound of US$40.5 and rise back to US$65 in 2016.
EIA head Adam Sieminski said that the future growth of the shale oil industry depends on how low it can be: "In the past, we knew that shale oil companies could live well at $100. Today, we find that they can afford it for between $50 and $75."
If oil prices really rebound as many analysts predict, then US shale oil companies are likely to regain their lives. Even at the price of $75/barrel, it is still able to continue to increase production.
Galvanized Welded Wire Mesh,Welded Wire Mesh Fence,Garden Welded Mesh,Welded Wire Mesh Galvanized
Shenzhou City Hongda Hardware Products Co.,Ltd , https://www.galvanziedwire.com