Top Story | Exclusives / Features | Oil & Gas Prices

What to Expect From Operators if Oil Price (WTI) Stays at $50?

Share Print Bookmark    |    Thursday,December 06,2018

OPEC talks ended without any "substansive" oil cut deal.  

There was talk of a 1MMbbl/d cut, and the market responded negatively by sending oil prices down -2.4%.   This is a clear indication that more action is needed.

Our view here at Shale Experts is that, what we are seeing now in the oil market is very analogous to late 2014, early 2015 when we had a oversupplied market to the tune of 1.4-1.6 million barrels (MMbbls).

The onus then was on OPEC/Saudi Arabia to cut production, which would have put a floor under prices, they opted not to and as a result we saw oil price slide to $50 WTI  and then to $36 WTI.

We are now in the same environment, where the "market", (we use this term loosely), is looking for a cut in the neighborhood of 1.3-1.5 MMbls/d before a floor can be placed under oil price. 

While this time, we are dealing with some of the same factors, growing US Production, Russia Production and Saudi Production, we also have another wildcard.  This wildcard is the President of the United States who has said in tweets that he wants to keep oil prices low.

We believe that if no meaningful cut is established to the tune of  1.3-1.5 MMbls/d then we should expect 2019 prices to be range bound between $50 and $55.

We did a quick look at what activity might look like for US and Canadian E&Ps in a $50WTI, $20 NGL and $2.35 Gas. 

We believe that in such a price environment, US E&P would drop between 100 - 140 rigs and completion activity would decline 22-24% YoY.  

US Proppant consumption would also drop 15% YoY as most of the DUCs would be completed with higher intensity fracs.

Below is a snippet (full report available to permium Subscribers) with our estimates based on expected revenue and current production.

Source : Shale Experts Activity Database

As you can see from the table above, we would see cuts in capital program and as a result drilling & completion plans for 2019 at a $50 WTI.

As we look at the current oil market, I am reminded by the famous quote from Winston Churchill. 

"Those who fail to learn from history are doomed to repeat it.

-- Commentary by Rons Dixon, President & CEO.

The table above is from our new premium service, Shale Experts Capital & Activity Tracker is a premium service.
Please contact us 713-876-7700 to find out how to add it to your subscription.