And there was much rejoicing in the land.... Gas Prices

[CexMashean]

Can we get that lay-off blend in the gas already?

[Baron Von Crowder]

[YALE]

trending up in oklahoma. up 20 cents a gallon in last week and a half. not rioting yet but time will tell...

It dipped 25 cents here in Stephenville this week. It's down to $1.54.

[mstng86]

It dipped 25 cents here in Stephenville this week. It's down to $1.54.

Wow, the lowest I have seen on my side of town is 1.77

[CexMashean]

The girth? Do we know how big sean beans hands are?

[Sean88gt]

Up in Fort Worth. Fuckers.

[YALE]

It's fucking cute that Obama nixed the Keystone XL, since demand for Canadian oil is flat anyway.

[Strychnine]

It's fucking cute that Obama nixed the Keystone XL, since demand for Canadian oil is flat anyway.

If one Keystone occupies everyone's short attention spans and maxes out their give-a-shit meter, then I don't care what happens to it.

While the Keystone XL was being debated the equivalent of 10 Keystones were actually built. If it needs to be the sacrificial proposal then so be it. Rope-a-dope.

Between 2009 and 2013, more than 8,000 miles of oil transmission pipelines have been built in the past five years in the U.S., AOPL spokesperson John Stoody said, compared to the 875 miles TransCanada wants to lay in the states of Montana, South Dakota and Nebraska for its 830,000-bpd project. By last year, the U.S. had built 12,000 miles of pipe since 2010.

Here's my favorite part:

“I have always opposed Keystone XL,” tweeted Democrat presidential hopeful Bernie Sanders on Monday. “It isn’t a distraction — it’s a fundamental litmus test of your commitment to battle climate change.”

But the opposition has done little to stop the surge of Alberta crude flowing through the U.S. pipeline systems: Canadian crude oil exports to the U.S. soared to 3.4 million barrels per day in August – a new record.

http://business.financialpost.com/news/energy/america-has-built-the-equivalent-of-10-keystone-pipelines-since-2010-and-no-one-said-anything

[YALE]

There are also a bunch of idiots touting this as a victory for landowners, ignoring that the vast majority of people with pipelines on their land sign easements, and that calling off a project doesn't actually set any precedent limiting future imminent domain proceedings.

[YALE]

$1.46 today.

[inline 6]

Warez all the used raptors at???

[Cooter]

Gas is half priced now. You have to consider oil prices against the raptor index

[GrayStangGT]

Maybe I should trade mine off while the index is still up.

[Strychnine]

In the Pioneer Natural Resources November investor presentation deck, the company presented the above analysis of US shale oil production under various price scenarios based on data from an energy think tank.

At current oil prices, the analysis assumes a pretty steep correction in US shale oil production - about a 25% decrease over the next three years. But what really stood out to us about this chart was that at an average $55 oil price, US shale oil production does not materially decline through 2020. And at an average $65 oil price, it would grow meaningfully.

This shows how far efficiency gains and cost savings have gone to reduce break-evens. It is also the best visualization of our light switch analogy that we've seen to-date. The production price elasticity of US shale suggests limited upside for oil prices for the foreseeable future.

Oh, and Anadarko sent an unsolicited $18B takeover bid to Apache this week.

[Strychnine]

And one more. Lots of red.

Because of the steep drop in oil prices that started last summer, it comes as no surprise that nearly all oil and gas companies have been generating negative operating cash flow. What may surprise some is that this isn't a new development. Negative cash flow has been the status quo since the beginning of the shale oil boom, leading some critics to argue that oil production in the new shale plays is inherently uneconomical. A recent graphic by Oppenheimer tells the tale:

But the story is a little more complex than that. The average price of West Texas Intermediate (WTI) was actually higher in 2009 ($61.95/bbl) than in 2005 ($56.64/bbl), so how is it that the above representative sample of large cap exploration and production companies saw cash flow swing from +$14.7 billion in 2005 to -$6.4 billion in 2009 and -$32.7 billion in 2012? Doesn't this just prove the points the critics are making about the shale boom?

It helps to understand the nature of the boom and bust cycle of the oil industry. During times of low oil prices, oil companies will invest conservatively. Inevitably, demand growth outpaces supply growth, and supplies tighten. This leads to rising prices, and more aggressive investments by oil companies until production growth outpaces demand growth and eventually collapses prices.

Following years of low prices and growing demand by the developing world, oil supplies significantly tightened in the middle of the last decade. That led to world oil prices that would eventually top $100/bbl, and helped spur the shale oil boom by improving the economics of the horizontal drilling/hydraulic fracturing combination.

As the shale boom accelerated, and with prices remaining high, the industry went on a spending spree to get new projects implemented. Oil companies were reducing costs by increasing the number of frac stages per well, even as oil prices were skyrocketing. Margins were so good that oil companies were investing every cent they could get their hands on to capitalize on the opportunity.

It’s easy to understand why they do it. Imagine you are running a business, and making very hefty margins on the products you are selling. You would likely want to plow your profits back into the business to grow sales as long as the margins are strong. If you are getting higher prices for your products each year, you are going to continue to plow that money back into growing the business. But because these types of projects only begin to bear fruit in the years following the initial investments, this may very well put your business in a negative cash flow position even when prices are high.

As long as margins are good, you can grow your business rapidly. But what happens if prices collapse? It depends. If you grew by highly leveraging your business — in other words if you borrowed lots of money to grow it even faster – then you could be in trouble. If, on the other hand you don’t have a lot of debt to service and are able to slash your capital spending, you may be able to generate profits even at much lower product prices.

This spending spree on new projects was the reason cash flow turned solidly negative by 2009, despite the higher oil prices. When oil prices began to fall in mid-2014, companies began slashing capital expenditures. But they are slashing from capital expenditures that a year earlier were based on $100/bbl oil. Oil prices have fallen so far, so fast that essentially all oil and gas companies are still in a negative cash flow position despite the cuts they have made (except of course the refiners, who benefit from low oil prices). And they are slashing based on projections of where they think oil prices will be in the future. Different companies will have different ideas of where oil prices are headed and different levels of indebtedness, so they will naturally differ in how aggressively they will prune capital expenditures.

The U.S. shale boom has already begun to wane as very little oil production in the shale formations is currently profitable. The end result is very predictable, even if the timing is not. While there is broad agreement that a great deal of U.S. oil production is currently unprofitable, some feel like oil prices need to fall further to make a bigger dent in production because crude oil inventories are still quite high. I feel like with the continued growth in global demand, we can already see the supply/demand picture tightening on the horizon. When that becomes broadly obvious, oil prices will again rise, bringing profits to the industry and higher capital spending on new projects. How long that process takes will determine how many oil companies are left standing to reap those profits.

Despite the cost reductions operators have made, the average breakeven cost to produce oil is still higher than it was in 2005. Thus, E&P companies heavily involved in the shale formations are still going to need higher oil prices than in 2005 to push cash flow back to the positive category. But a return to $60/bbl oil combined with the deep cuts in capital spending will likely see many companies back in the black.