murmurs beginning to be heard

[purkey]

on big oil guys thinking about capping wells. They are putting out feelers to leaseholders and royalty owners asking thoughts. They are all tired of this and getting no direction or help from anyone in DC that has a clue about oil and gas. I doubt anything occurs. Most likely, by the time they get any traction enough to matter the price will be going up...maybe.

 

[Colorado_Poke]

They are all tired of this and getting no direction or help from anyone in DC that has a clue about oil and gas.

What do you expect anyone in DC to do? This is, at it's root, a global supply/demand issue. The only thing that can correct this is a rebalancing of the market.

 

[hollywood]

Not to make this political, but this line of thinking always kind of makes me shake my head.

Person A - the economy and the (fill in the blank) industry works best when there's the most minimal amount of interference and direction from the govt as possible! The "free market" will resolve 99.9% of all the issues if the government would just get out of the way and let the "experts" run things.

(Then thinks go sideways)

Person A - why isn't the government doing more about this issue, why are they not providing "leadership" to help us all out? Why did the government allow this to happen in the first place?

The govt didn't force them to drill those wells, they made their own decisions after assessing the risks and benefits of doing so, why now would they look to anyone else to answer the questions they are asking? They should know the costs and potential losses/gains from capping a well, shouldn't they be able to figure it out themselves?

 

[purkey]

let me clarify....when the US goes in to these meetings with opec or even individual countries, the people representing the oil interests of the US don't have a clue as to what needs to be done to "help" the US compete with these other countries. They are hog tied and stupid and these other nations seize that opportunity knowing they are dealing with a bunch of glorified drama class pussys that should be someones' secretary instead of representin' the US. No one is asking the gov't to pave the way...that has never happened and never will. But, the US has enough clout to try to get some things that are an advantage for the US. Putin seems to understand that. Iran is the only country not willing to reduce oil and that is because the US negotiators are clueless to pretty much everything real world. Iran was handed a huge gift by the US. That is the best example I can think of as to being out maneuvered...and there are many many more situations where the concern was getting something else done at something else's expense. The opportunity costs go into infinity.

 

[hollywood]

Purkey, by what authority does the US govt have the right to dictate to other countries how much oil they should produce out of their own domestic sources?

Bottom line, we don't have the ability to force any other country to reduce, increase or otherwise involve ourselves in how they manage their own resources, besides some "friendly" suggestions.

Nearly every trade agreement concerning "oil" in the WTO agreements (or the GATT predecessor) prevents the US from varying tariffs, and effectively blocks us from taking unilateral action against other member nations without violating the agreement itself. (Nor can we take action to protect or subsidize our own domestic industry without violating the trade treaties we have in place.)

In the past, the most consistent complaint by the US Govt (since the 1973 US "oil crisis") has always been that the OPEC nations and their allies have stifled production, creating a "false" shortage that kept prices artificially high. With that 40+ year track record, it would be kind of hard at this time to turn around and argue exactly the opposite: that the various crude oil/natural gas producing members of the WTO should in fact lower production to help the US oil/gas industry.

If you can think of a way that our government can impact trade policy to assist our domestic oil/gas industry at this time, without running completely afoul of our treaty obligations under the WTO I would certainly be open to listening to them. But how can you "negotiate" anything, when the other side knows you have virtually no power to make any demands in such negotiations?

 

[parlayn_poke]

let me clarify....when the US goes in to these meetings with opec or even individual countries, the people representing the oil interests of the US don't have a clue as to what needs to be done to "help" the US compete with these other countries.

The next time the US sends a representative to an OPEC meeting will be the first time.

 

[Orange Jennyslipper]

Drill, baby, drill!

 

[ells2090]

Wells being shut in is not some recent rumor and you can argue about DC and the Keystone Pipeline and export ban, but the US forcing OPEC's hand is a big stretch. Iran is not going to agree to a reduction this soon because they just came out of sanctions and want to regain some market share. And if you want the US to mimic Russia, then I guess the gov't could force producers to stop growing production.

 

[long-duc-dong]

Wells being shut in is not some recent rumor and you can argue about DC and the Keystone Pipeline and export ban, but the US forcing OPEC's hand is a big stretch. Iran is not going to agree to a reduction this soon because they just came out of sanctions and want to regain some market share. And if you want the US to mimic Russia, then I guess the gov't could force producers to stop growing production.

Don't think he's talking about shutting wells in. I believe he's referring to "capping" or drilling the well and not completing it for production. I could be wrong though.

 

[parlayn_poke]

Don't think he's talking about shutting wells in. I believe he's referring to "capping" or drilling the well and not completing it for production. I could be wrong though.

Pretty sure he is referring to shutting in wells currently on production. No reason to involve royalty owners for drilled uncompleted wells.

 

[ells2090]

Don't think he's talking about shutting wells in. I believe he's referring to "capping" or drilling the well and not completing it for production. I could be wrong though.

There are a crapload of DUCs (drilled but uncompleted) out there. That's the primary use of CAPEX and the concern for the ability to sustain a price rally as everyone starts completing wells at the same time. One example is Whiting who is projected to have ~168 DUCs by YE16.

 

[long-duc-dong]

Pretty sure he is referring to shutting in wells currently on production. No reason to involve royalty owners for drilled uncompleted wells.

Well then the murmurs he's referring to have been going on for quite a while as wells have been being shut in for months now. Thanks for the clarification.

 

[parlayn_poke]

I have not seen much, if any, active production being shut in. Still need to generate cash flow.

 

[long-duc-dong]

I have not seen much, if any, active production being shut in. Still need to generate cash flow.

It's happening here in okc. We haul salt water for many small independent, as well as some major players, and they are shutting some in. Our workload reflects it. And as soon as electricity rates increase for the summer months we will shut one of ours in if oil prices remain the same.

 

[ells2090]

I have not seen much, if any, active production being shut in. Still need to generate cash flow.

Marcellus operators have been shutting in some since last year

 

[Marshal Jim Duncan]

Well then the murmurs he's referring to have been going on for quite a while as wells have been being shut in for months now. Thanks for the clarification.

Both have been going on for quite some time. The DUC's helped cause the collapse of oil prices last summer after the short-lived recovery.

 

[Cowpoke]

It's happening here in okc. We haul salt water for many small independent, as well as some major players, and they are shutting some in. Our workload reflects it. And as soon as electricity rates increase for the summer months we will shut one of ours in if oil prices remain the same.

I'm guessing the ones being shut in are the low producing ones that need pumps or some type of injection?

Is the salt water for fracking or injection? Have heard some companies are struggling due to salt water transportation/disposal costing more than the well is making, but didn't know why already fracked and producing wells would need the salt water.

 

[purkey]

I was just saying I know of some well owners who have been contacted by Chevron inquiring about the ability to shut in. You have to be a fairly big operator in the county to get a call. I know of no one shutting anything down because they can't afford the decreased cash flow. Like I said, they are inquiring is all. I am sure there are some cash heavy people who could afford to do that, but not many. Everyone is complaining about getting half of what they used to, I can only imagine what they would say if they got $Zero$. Don't know how long they are talking about and have no idea what the majority are saying....but I'm guessing a big "NO". Just an effort to try to get the price back up.

 

[Marshal Jim Duncan]

1/2 of what they used to? Try 1/3 -1/4.

 

[long-duc-dong]

They're shutting the wells in due to cost. The types of wells being shut in vary. Your low oil and gas producers will be the first obviously. As an example the well we will more than likely shut in this summer has been producing both oil and gas since 1933. We have it on a reda-pump with an injection well on the same location. Our electric bill to run that thing in the summer will average 15k a month. If oil stays where it is we can't cash flow therefore we will turn it off for a few months.

 

[freeec]

Some operators have been shutting wells in for quite some time. Have heard Apache has shut in 500 wells.

 

[poke2001]

Not to make this political, but this line of thinking always kind of makes me shake my head.

Person A - the economy and the (fill in the blank) industry works best when there's the most minimal amount of interference and direction from the govt as possible! The "free market" will resolve 99.9% of all the issues if the government would just get out of the way and let the "experts" run things.

(Then thinks go sideways)

Person A - why isn't the government doing more about this issue, why are they not providing "leadership" to help us all out? Why did the government allow this to happen in the first place?

The govt didn't force them to drill those wells, they made their own decisions after assessing the risks and benefits of doing so, why now would they look to anyone else to answer the questions they are asking? They should know the costs and potential losses/gains from capping a well, shouldn't they be able to figure it out themselves?

I'm going to save this post for another day. I know I can use it again.

 

[Deepfork]

Purkey, by what authority does the US govt have the right to dictate to other countries how much oil they should produce out of their own domestic sources?

Bottom line, we don't have the ability to force any other country to reduce, increase or otherwise involve ourselves in how they manage their own resources, besides some "friendly" suggestions.

Nearly every trade agreement concerning "oil" in the WTO agreements (or the GATT predecessor) prevents the US from varying tariffs, and effectively blocks us from taking unilateral action against other member nations without violating the agreement itself. (Nor can we take action to protect or subsidize our own domestic industry without violating the trade treaties we have in place.)

In the past, the most consistent complaint by the US Govt (since the 1973 US "oil crisis") has always been that the OPEC nations and their allies have stifled production, creating a "false" shortage that kept prices artificially high. With that 40+ year track record, it would be kind of hard at this time to turn around and argue exactly the opposite: that the various crude oil/natural gas producing members of the WTO should in fact lower production to help the US oil/gas industry.

If you can think of a way that our government can impact trade policy to assist our domestic oil/gas industry at this time, without running completely afoul of our treaty obligations under the WTO I would certainly be open to listening to them. But how can you "negotiate" anything, when the other side knows you have virtually no power to make any demands in such negotiations?

Wood, I am no expert in foreign relations, however, we just sent over $100,000,000,000 back to Iran which relieves a need to have higher oil prices. We also send $$ to major oil producing countries which also relieves the need for higher oil prices. I agree that we can't force higher oil prices, but we can use out policy to not subsidize low oil pricing.

 

[hollywood]

Actually Deepfork, much of what has been claimed about that release of funds to Iran is simply not true.

The vast majority of that money was NOT held in the US, but rather in foreign bank accounts (in an escrow account), in the countries that had been buying Iranian oil for decades. As they were prohibited from paying for it, they still took delivery, upon agreement that the funds would be released to Iran if and when sanctions were lifted. Nearly all of that money was actually in banks within the borders and control of China, India, Japan, South Korea, and Turkey. The US held only about 11% of the total that was released.

Bottom line, it's exceedingly difficult to wield a carrot or a stick to try and influence what amounts to domestic production decisions in relation to any country which is a member of the WTO. (This is not just applicable to oil/gas, but virtually all products.) We can't impose "differential tariffs" due to the "most favored nation" element of the treaty which requires us to treat ALL member nations identically. That also prohibits from banning imports or taking other steps that would be violative of the most favored nation clause.

 

[hollywood]

Poke2001,

Would it be helpful for you if I included the following corollary to my earlier observation?

A. Many people want the government to regulate very intimate personal decisions and/or who favorable more regulation of various aspects of business, land control (zoning) often advocate for such practices publicly. (And support candidates and govt appointees who favor same.)

B. Upon finding out that those restrictions may also fall on themselves and impact their personal life, or their businesses, often these very same people suddenly decide that they think that those rules should only apply to "the other guy." That they should be left alone and unhindered by the same laws, regulations and policies they previously supported.


Basically, the same equation - just different sides of the aisle.

 

[purkey]

yep, just keep sending me that earl and I'll get ya on the flip flop there good buddy.

hillbilly talk

 

[poke2001]

Poke2001,

Would it be helpful for you if I included the following corollary to my earlier observation?

A. Many people want the government to regulate very intimate personal decisions and/or who favorable more regulation of various aspects of business, land control (zoning) often advocate for such practices publicly. (And support candidates and govt appointees who favor same.)

B. Upon finding out that those restrictions may also fall on themselves and impact their personal life, or their businesses, often these very same people suddenly decide that they think that those rules should only apply to "the other guy." That they should be left alone and unhindered by the same laws, regulations and policies they previously supported.


Basically, the same equation - just different sides of the aisle.

I know, just giving you a hard time. I agree with you here. I'm in the industry and would personally benefit if the government intervened, but that would be bad for the country in the long run. What I'd like to see is for the government get out of business all together. Quit picking winners and losers across the board and let the market pick the technologies of the future.

 

[squeak]

The government sure stepped in to help the steel industry.

 

[hollywood]

squeek,

As I recall, the reason the Govt "Stepped In" to assist the steel industry was because the Govt's of China, India and a few others were providing their own domestic industries with subsidies and other benefits which were actually prohibited by the WTO Treaty.

So, we hiked some tariffs on steel originating from those countries as a result. Eventually, the WTO ended up agreeing with the US and allowed for us to do it, or the original problem created by the Chinese and Indian Govts could be corrected. Those tariffs are no longer place

The WTO isn't a suicide pact, if countries are acting contrary to the treaty, then you can retaliate and put into place measures designed to off-set the damage being done. In the case of imported Oil, an increase in production worldwide is not something that would appear (to me anyway) to be violative of the treaty. As I mentioned, no one at the WTO is going to take a complaint from the USA seriously if we lodged an argument that OPEC member nations and others have upped their domestic production, when for 40+ years we've been complaining that it was their stifling of domestic production which was "anti-trade" and harmful to the USA.