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Permalink Reply by Skip Peel - Mineral Consultant on April 20, 2020 at 9:58

The industry has always been cyclical, boom and bust.  As far as I can tell as to what is different this time around:  credit is hard to come by (impossible for some) and the average onshore well costs $5 to $10M to drill and complete.  This will be a painful shake out and retrenchment which will fall heavily on the smaller operating companies and those deeply in debt compared to free cash flow regardless of size.

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Permalink Reply by JHH on April 20, 2020 at 10:07

It's just very disturbing... and hopefully we'll look back on this terrible day with sad fondness... if that's possible.

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Permalink Reply by Skip Peel - Mineral Consultant on April 20, 2020 at 10:20

The busts are always painful but lead to a healthier industry as the strong companies benefit and the vulnerable companies cease to exist.  The industry has been sick now for about eight years.  The natural gas segment since the supply glut hit in the early 2010s.  The oil segment since the same technical innovations were applied to oil in the mid 2010s.  Unfortunately for consumers, we are locked down and mostly unable to benefit from cheap fuel prices.  That will change but slowly over the remainder of the year.  Heading back to normal may begin for some in the next 30 to 60 days.  Getting to normal may very well take until some time next year.  But then the question becomes what does that new normal look like exactly.

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Permalink Reply by Aaron Moak on April 20, 2020 at 10:41

Skip, this bust comes when pre Covid household debt was 16 trillion, while corporate debt was greater than that. This bust comes as the political culture is very green oriented and the government is heavily indebted and ready to drop subsidies and regulatory ease. Demand will not roar back, and by the time it does, our societal behavior and technology will erase the old oil biz pattern. You get the feeling we are in a different world and not going back.

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Permalink Reply by Skip Peel - Mineral Consultant on April 20, 2020 at 10:52

Cheap money has fueled a lot of business growth over the last decade but none more so than the O&G industry shift to unconventional reservoir E&P.  Yes, there are a number of factors at work when imagining what the future will look like post COVID-19.  The only safe bet IMO is that the new normal will  look nothing like the old.

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Permalink Reply by Aaron Moak on April 20, 2020 at 11:10

I agree. Around there, guess the oil patch will go back to being Dogpatch. 

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Permalink Reply by Steve P on April 20, 2020 at 11:29

My hope is that laid off oil field and service industry workers will be working to build and then operate new factories here in the US to make ... you name it, 25% of the stuff that we now buy from China and India.  We must learn this hard lesson - the lowest price goods aren’t always the wise choice.

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Permalink Reply by Skip Peel - Mineral Consultant on April 20, 2020 at 11:36

Tell that to the C Suites of corporate America.  I can believe they are looking to leave China.  I doubt that they are looking to return to the US.  They are looking for the cheapest non-China labor market as per their usual.

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Permalink Reply by Aaron Moak on April 20, 2020 at 11:57

Once more, you are just stating the facts.....just like Sgt Friday would ask for. There is no way in hell they will come here, unless they are strong armed. Of course, that would not be “freedom”in their eyes, as they are free to make a killing. They also feel free to get a bail out, if needed. But hey, that is the way it is.

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Permalink Reply by Skip Peel - Mineral Consultant on April 20, 2020 at 12:07

I think a significant portion of rational, middle-of-the-road Americans are watching this "bailout" quite closely and will remember how it was structured and applied come election day.  Congress will leave out the less powerful at their own risk.

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Permalink Reply by Aaron Moak on April 20, 2020 at 12:23

Yes, because before Covid-19 there were over 16 trillion of household debt and over 40 per cent of the population making less than 18000 a year. Now, throw over 22 million unemployed with uncertain futures and “rational, middle-of-road” will have a new meaning with keener observation.

Permalink Reply by Skip Peel - Mineral Consultant on April 20, 2020 at 13:27

US crude for June delivery is still trading above $20 a barrel -- but even that's disastrous.

"$30 is already quite bad, but once you get to $20 or even $10, it's a complete nightmare," said Artem Abramov, head of shale research at Rystad Energy.

Many oil companies took on too much debt during the good times. Some of them won't be able to survive this historic downturn.

In a $20 oil environment, 533 US oil exploration and production companies will file for bankruptcy by the end of 2021, according to Rystad Energy. At $10, there would be more than 1,100 bankruptcies, Rystad estimates.

"At $10, almost every US E&P company that has debt will have to file Chapter 11 or consider strategic opportunities," Abramov said.

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