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Peak Oil Indeed...

The guys in the Niobrara and Barnett are sure freaking out about supply. I'm dealing with the logistics side, but it's certainly ominous in those guys minds.
 
Some of his theories are reasonable, but trying to predict what oil prices will be in 2035 is laughable and pure speculation. Too many factors at play. Geopolitical, natural disasters, terrorism, pipeline disruptions, regulation, etc.

I also disagree with his comment about "the US doesn't stand out in terms of shale resources".. That's a large part of why we're in this mess. What we think the boundaries are of the shale plays we're in keep getting pushed further as more and more reserves are being discovered. Look where we were at 5 yrs ago, hell, 3 yrs ago.
 
And the technology will only get better and more cost effective.

We have a ranch in the Niobrara, so I hear all the gossip up there, but one of the pipeline engineers was telling us that they are planning logistics capacity for a 150 year extraction. I couldn't believe it.
 
And the technology will only get better and more cost effective.

And that's why $45/barrel in 2035 may be equivalent to the $85/barrel in terms of ROI. If anything else, this downturn has put a spotlight on the service companies and their outrageous day rates and package rates, but its no fault to them because the E&P companies were paying it as fast as they could. However, this will weed out the smaller guys due to bankruptcy and buyouts, so there will be less competition once the dust clears.
 
I am pretty ignorant to the O&G industry inner workings. From the outside looking in, it looks like the industry is inefficient and just wasteful. Bonuses and salaries are inflated (again outsider view).
I work in food manufacturing and what we have seen is financial/private equity guys buying up companies in distress. They bring in consultants and "cut the fat" making things more efficient and turn huge margins and profits. If I ever have to work with another AlixPartner I may shoot myself.

Is there a chance this happens to the O&G industry as all of these companies start going under. Will private equity start buying these guys? I read an article that McClendon was starting to get involved with Oaktree Capital. That firm specializes in distressed companies and assets.
 
Private Equity money is flowing in the oil patch, and has been for several years now, both in the Upstream and Midstream sectors. I couldn't tell you how many confidentiality agreements I've done in the past couple of years with PE backed companies interested in assets/providing services, etc.

A lot of the money is focused on start-up, organic growth, PE backed companies. Go out, build an acreage position, flip it, move on to the next area. Or go out, find an anchor tenant, build out infrastructure for that tenant, then flip it.

If you can raise funds or you already have the cash, there are hundreds of deals to be had.
 
Interesting. Then why do they appear to be so poorly ran?

What other industry goes from record profits to bankruptcy so quickly? It get that it happens in the tech industry because it constantly changes. It's competition that beats them. In the O&G industry they all fail at the same time. It's fascinating. It's not like O&G is phased out like technology is every 18 months. We are still using it and will be for the foreseeable future.
 
Interesting. Then why do they appear to be so poorly ran?

What other industry goes from record profits to bankruptcy so quickly? It get that it happens in the tech industry because it constantly changes. It's competition that beats them. In the O&G industry they all fail at the same time. It's fascinating. It's not like O&G is phased out like technology is every 18 months. We are still using it and will be for the foreseeable future.

What industry sees price fluctuations to the degree energy does? It's one of the least static industries in existence with global fluctuations that are driven by market forces outside the producers ability to predict.

Most of these companies are well run and where you see the largest number of bankruptcies is in the supply chain and logistics side where lots of fly by night companies sprout up trying to capture the revenue that is sloughing off the industry. The industry pays the high wages and fees because they are under serious time crunches in regions where very little infrastructure exists.

If Southeast Asia could flood the food market on a whim, then you'd see the same effects in your industry as oil and gas does in it's.
 
I was calling bunk on the predictable prices...which they never are. It costs twice as much to drill a fracked well so why would a lot of these countries double their exposure when they don't have to. Some places all they have to do is stick their finger in the ground and boom goes the dynamite. Cost flux's and the first domino is the price of crude...that drives everything else (obviously). Everybody's prices adjust to profit....and prices vary by quite a bit from one area to another. Hell, they vary in the state of texas by wide margins. There is a ton of potential frack wells out there but nobody is doing it until it's profitable. Imagine cruising along at $105 per barrel and then wake up the next morning at $25. Everything changes. I don't see the industry adjusting to being able to make money at $45 a barrel no matter how much technology you throw at it. It's an up and down industry and always tough to adjust to that. Not many companies can handle a $3.1 billion dollar loss in one quarter. The price has to go up...unless you are a saudi and can drill for $10 a foot.
 
Price variability is more of a tax issue than a supply and demand issue.
 
At no time does he say the price will be "predictable". He is talking about shale plays in places where it can be developed as cheaply or comparably to Saudi Arabia's cost structure.

China has THE MOST technically recoverable shale NG of any country.
 
That's why they've been over here dumping money on projects to learn how to drill it.
 
U.S is actually only 4th ranked in recoverable shale NG, behind China, Argentina, and Algeria.

Russia has the most shale oil.
 
"The only barriers to recovering known fossil fuels are political", Jim Mulva

We easily have enough fossil fuels to last the next few hundred years. By then we'll replace it with something else.
 
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