In Act 3, rig activity continues to drop, production continues to increase, but prices stabilize, trading in a range. In 2008, this period lasted just under two months. Fast forward, if the same trajectory holds, this period of prices trading in a narrow range will end around the end of February.
Act 4. The plot takes a twist. Rig activity continues to drop, production continues to rise, however, prices begin a significant upward climb. In 2008, prices bottomed at the end of the year, the bottom was tested twice, the last time in late February, after which prices rose 100% in 3 months. The price rise will not be as dramatic this time as the fall has not been quite as sharp (2008: ~75%;2014: ~50%). But, all other things being equal, the time frame should be about the same.
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The Final Scene. Normalcy returns. With the new higher price (still well below the previous peak), rig activity recovers. Production, after a period of actual decline, recovers as well. Many will look back wondering why they missed the price rise in Act 4, but in retrospect, it should not be surprising.
Time-lines in 2014/5 will be different than 2008/9. But in the end, like all movies, the ending is the same.
Oil Turnaround May Be Sooner Than You Think ... A Look Back To 2008
Dec. 30, 2014 11:19 AM ET | 9 comments | About: iPath S&P Crude Oil Total Return Index ETN (OIL), Includes: UCO
•Large production cuts already announced.
•New rigs down 7% since November.
•Prices recover before production declines.
We've seen this movie before. The Cartel (OPEC) loses its discipline, causing prices to collapse. Suddenly, instead of calls for oil to go to $150 a barrel, pundits talk of $20 oil. Like all movie remakes, the characters and the scenery may change, but the plot remains by and large the same. The same can be said for the current oil price saga.
Act 1 is already done. A precipitous drop in the price of crude oil leads to a decline in oil drilling rig activity. Drilling rig activity topped out at 1609 oil rigs in early November. To date the reduction in rig count has been relatively modest, at a mere 7% to 1499. (Source: Baker Hughes North American Rig Count; US Energy Information Agency)
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But future cutbacks are coming. According to Forbes, one of the largest players, Continental Resources (Harold Hamm) plans to reduce capital expenditures in the upcoming year by 48%.
A similar reduction by the entire US industry would reduce oil drilling rig to well below 1,000 units, enough to cause an actual decline in US production of oil.
Act 2 has just commenced and may be almost over. During this period, both prices and drilling rig activity decrease. Looking back to 2008, prices hit bottom seven weeks after the end of the peak drilling activity. Translated to the current drama, seven weeks from the peak is, more or less, this week.
Pwe's now will contribute a 5% reduction in oil output for 2015; it's now up to the rest of the companies and countries to do the same to reduce the oil surplus.
Your $20 is a stretch....will only happen if they purchase 250 million shares on a buy back program, which I hope they do when oil recovers a little and they sell some non core assets.
I meant pipelines going east and west taking Canadian oil to world markets and not relying on the USA all the time. I can understand Canadians vacationing in the South, no other choice during the winter.
I agree and am extremely embarrassed that Canadians continually go south all the time when we should be going east and west.
Bought my last at 3.01.....valuation is based on a lower price than today lasting forever....perhaps, but I doubt it.
There is nothing wrong with their debt levels, as debt is good if used correctly as leverage for the benefit of shareholders. They have $250 million maturing each year over the next 3 years, and the recent sale of $350 million can be used for the 2015 maturity. They have debt spaced out comfortably and should not force a liquidity issue. They have $1.5 billion unused credit facility, down from $3 billion, and they are planning to sell some non core assets as well in the future.
PWE is the poster child for high debt for the media although other companies are higher. Their market cap is 30% of book value while other companies are at 60%. PWE does not seem to have any credibility. No one seems to believe them that they are becoming more efficient. They need to show that over the next few quarters. They need to meet their targets, even exceed them. Their plan calling for $85 in 2015 is not helping them. Anyway I am all in except for a little powder.
HOUSTON (Reuters) - Plunging oil prices sparked a drop of almost 40 percent in new well permits issued across the United States in November, in a sudden pause in the growth of the U.S. shale oil and gas boom that started around 2007.
Data provided exclusively to Reuters on Tuesday by industry data firm Drilling Info Inc showed 4,520 new well permits were approved last month, down from 7,227 in October.
The pullback was a "very quick response" to U.S. crude prices, which settled on Tuesday at $66.88 , said Allen Gilmer, chief executive officer of Drilling Info.
New permits, which indicate what drilling rigs will be doing 60-90 days in the future, showed steep declines for the first time this year across the top three U.S. onshore fields: the Permian Basin and Eagle Ford in Texas and North Dakota's Bakken shale.
The Permian Basin in West Texas and New Mexico showed a 38 percent decline in new oil and gas well permits last month, while the Eagle Ford and Bakken permit counts fell 28 percent and 29 percent, respectively, the data showed.
That slide came in the same month U.S. crude oil futures fell 17 percent to $66.17 on Nov. 28 from $80.54 on Oct. 31. Prices are down about 40 percent since June.
U.S. prices fell below $70 a barrel last week after the Organization of Petroleum Exporting Countries agreed to maintain output of 30 million barrels per day. Analysts said the cartel is trying to squeeze U.S. shale oil producers out of the market.