Good stufff, thanks. I came up with around mid 8mm mid 16 but not near as detailed as yours. Goldman apparently came out with a new projection, just saw a conclusion, no details. They have missed the short term call so far but see $60 for the long term. Again, seems the midstream cos would be a safer bet with this scenario. Or Goldman just wants to cover their short positions for their bad bet on oil, believe they though it would see $30s before recovering. Seems the supply cost curve is not very smooth, you jump from the ME to the top tier shales at $60s and then the other global reserves at maybe $90. So maybe the range is $60 to $90. ME and efficiency of the shales seem the factors. At least a conclusion today, WTI and Brent in the $60s currently feels ahead of itself.
"We lower our Brent oil price assumption to $60-$65 for 2016-2019, falling to $55 for 2020," Goldman said.
"We see global oil demand being met by U.S. shale, which is continuing to benefit from efficiency and productivity improvements, and OPEC," the bank's note to clients added.
Admittedly, my numbers are fairly simplistic. The best wells are being drilled now. Does seem that the equilibrium will be lower than most think. And the other conclusion in my mind is I'm not sure the Permian Basin can supply the world. Actually your conclusion makes me feel even better about my infrastructure bets, which are more about volumes than price. Thanks for the info. Do you have a guess at US production mid year next year assuming rigs stay at less than 700.
Below is excerpt from NY Times piece. Oil rigs are down to 660ish from 1600. The globe needs 6mmb/d new to replace and meet demand. SA has a couple of million spare. Most global projects need much higher prices than the shales to be profitable. Guessing the decline is 25%, 1.25mmb/d on shales, plus .25mmb/d on conventional, 1.5mm/d total. Can 660 rigs replace 1.5mmb/d just to stay level. Don't think so. So you have a world that need 6mmb/d more in the next year, not coming from the US at $60. The Saudis could use their 2.5mmb/d spare capacity, you still need 3.5mmb/d to stay even. Can the US stay level at $75? A few cos seem to say they would start ramping up at $70ish. Not smart enough to figure the new equilibrium and timing, but $60 is way too low and $100 is too high. And it the article is right that Midland becomes the center of the global oil business, the midstream cos do well if it's $75 or $90.
There is a strong chance, energy experts say, that this could be the beginning of decades of United States
dominance in the oil markets, and that dominance will be accompanied by relatively inexpensive energy. The shale fields around the country are plentiful, and there is much more to be drilled. Lower prices have already driven down drilling and other service company costs by more than 15 percent.
But more important, the drilling and fracking technology that has made the shale revolution possible is rapidly improving, bringing production costs even lower and raising the yield of each well. For instance, more powerful computers are improving multidimensional geological modeling for well planning. And production output is improving through experimentation in the mixing and use of proppants like sand and ceramics to keep fractures in shale open to release more oil.
Birdog, Ginnie is in FW, I'm in CO, she's been trying get some work done on the house for a week to no avail. Has been raining here as well.
And another perspective that maybe shows the macro call on oil and gas prices is the critical one, the value of reserves at $80 vs $60 is 100% greater. DNR at $80 would be worth $16 vs $8 for $60. Not that precise but shows the sensitivity to the commodity price. Not sure that values are reflecting the current price, maybe a few dollars more, so fairly valued. And if the infrastructure cos can narrow the $10 WTI/Brent diff to zip with more pipe, e and p values appreciate 50%. A reason I think midstream will still do well.
Just read a piece about Shell, might still be in the market for NA shale assets even after the BG deal, but said it would be in areas they already operate, Permian, Utica, Canada... Think this is the maybe the conventional thinking. And there is probably a subset of cos that have too much debt to grow and will merge, the ROSE deal with Noble. Looking at the curve, 5 years out oil is $78 and gas is still in the $3s. The likes of EOG, CLR, PXD say they will ramp up in the $70s but how much comes back at that price is not clear to me. Again, my bias is midstream, with exports and $75, oil and gas infrastructure will be needed, even if we don't get back to $90 next year. Boone thinks we will, but I'm not there yet, it's is hard to not accept his forecast. But think about what we were talking about 10 years ago, peak oil and double digit nat gas prices. Still think you buy all things Permian if you want a long term play, midstream first, TRGP, MMP, PAGP, EPD... Maybe OXY and PXD...
jr, one other thought, the cos buying don't have exposure to the best rocks, NBL buying ROSE for the Permian and EF. I'm guessing that the buys will be in the Permian. I would guess that a co like OXY would be a target but it takes a major. I don't think cos will buy more acreage as the top tier cos, PXD, already have decades of inventory.
Park, I am still buying Williams and a bunch of the infrastructure cos, think they will continue to do well even if volumes are somewhat less. Think cos like OKE, PAGP, TRGP will be in deals this year. Don't own any e and p s at the moment. Last owned BCEI, should have kept PDCE. BCEI seems cheap. I would buy the best rocks and low debt, PDCE is still a good choice, PXD, EOG, OXY, DVN... Not sure you need to look outside the Permian.
Have a great trip, would like to hear your impression of China. Still seems the key factor for energy demand.
jr, have looked at the drill rig nos, 700 rigs gets you to mid 8mmb/d next year, but you are right, costs are coming down and only the best rocks are being drilled, could be less drop than the rig nos would indicate. My guess is $75 is the new $90, but for the best cos with the best assets, they can probably make the same returns at $65 that they could make at $80. The majors think we see $60 for a few years. Boone thinks we get back to the $100 range, that seems too high. The issue with the shales, think it was OAS that said with no drilling, their prod would decline by 25%. Today, I think that we get a $75 price next year. Not sure what it means for the cos, decent returns but not those $100 would produce. And then you have the rest of the world, who knows what the ME can do, deep water and oil sands need $90. I'm not sure the shales can supply the marginal barrel forever but the Permian has decades of inventory. And the industry is talking about refracking which could add a bunch of reserves. Now I think it's a matter of waiting it out, see how fast volumes fall with less rigs but more efficiency.
CS projected $3.61 div for Williams in 18, that's almost a 7% yield on today's price. At 3.5 to 4% yield, stock would be $90 to $100 plus. Seems some type of OKE deal will be done, also PAGP and TRGP. There will be pressure to eliminate IDRs of GPs to keep up with KMI and WMB. Biggest risk is probably int rates. Will be bumpy as the Fed raises. We haven't had a rate increase since 06. Also KSU is down to high $90s, still think it will be taken out also. Seems we should see pressure to merge before rates move up.
PPI down .4%, the 10 yr may have already discounted a move by the Fed.
cbd, I think that deal would benefit both, a good premium for BCEI and positive for PDCE as well. Problem is the price. PDCE has one of the best growth profiles in the mid caps.
WMB buying rest of WPZ. Div next year will be 20% above old guidance, $2.85 at 3%, $95 stock price. They see 10 to 15% growth in div to 2020. Seems the consolidation in the midstream sector should continue.
You forget the $1.5 billion in debt. Would argue that you pay out the $4 value of the hedges and the rest of the assets are worthless at $3 gas and $60 oil.
Just heard a blurb about the Saudis saying $75 in 2025, seems they are talking price down to keep the shale cos from pumping up production. The Saudis don't have a better handle on price that anyone else. But something that will do ok with $3.50 gas and $70 oil for the next five years.
Neither, just investor than bought ATLS in the single digits and sold at $32, so shouldn't be too negative. Spun ARP shares didn't do as well $20 to $9. They need $4 gas to even stay level. ARP will eventually cut the distribution and prod will decline. ROSE sold today for less than half the their high stock price, and they have less leverage and top tier assets. ARP has crummy assets and more debt. Enjoy the dist while you can. Cheers.
Noble buying ROSE. Seems a good deal for Noble, less than half of the high for ROSE. The social issues, a CEO willing to sell, seems key to mergers. Not sure about BCEI but would think it going to take a hefty premium. Noble probably didn't need more Niobrara, same for APC. Would think the Permian will continue to be the top play, because of the size of the potential. Niobrara imo is similar return.
If you need a spread sheet, it's not a great investment, Warren Buffet. Plains says oil averages $50 this year. Too much money chasing e and p keeps volumes up. FANG says they can make the same profit at $60 that they could at $75. The lure of the distribution will keep investors from finding a better e and p. Buy the best rocks and it's not Atlas, far from it.
cbd, traveling, scanned the release, everything looks positive to me. That q 1realized prices were $39 and $2.88, what they are doing makes sense. You are right, will probably surprise on costs. Now it's a matter of how fast we get to equilibrium. Still think we are $40 to $60 plus next year depending on commodity prices. Kind of thought traders would get bored with the trade for a while, Einhorn didn't help, but think he is noise longer term. Cheers.