America clung to the prey: why prices are falling, and oil production there

One of the veterans of the “shale revolution” in the United States, founded in 2003, the independent oil company Linn Energy on Thursday announced the start of the search for “strategic alternatives” to strengthen its balance sheet in the conditions of collapsing oil prices. Essentially, this means that the concern with oil and gas assets in various parts of the US, proven oil reserves of 342 million barrels. and annual revenue of $3.6 billion (in 2014) in the near future may file for bankruptcy, enters into trade publication Fuel Fix (going with the support of the Saudi group Saudi Aramco). A year and a half of falling prices for oil cost of securities of the company fell by more than 50 times its market capitalization now stands at $197 million (a ridiculous figure for an oil and gas company).

Miners: the third — bankrupt

Balancing on the verge of bankruptcy Linn Energy is the last of the cases of ruin of the oil producers due to low commodity prices. Count of bankruptcies leading consulting firm Haynes & Boone: according to him, for the whole of 2015 announced its financial insolvency 42 US oil companies, their total debt is $17.2 billion has Not been spared by the crisis and oilfield services industry — over the past year, the U.S. accounted for 39 bankruptcy with a total debt of $5.3 billion.

Two of the largest bankruptcies were declared in the middle of last year. In July protection from creditors asked the Corporation Sabine Oil & Gas belongs to the group of billionaire William Macaulay. With assets of $2.5 billion it owes nearly $2.9 billion. Two months later, declared bankruptcy Samson Resources company, whose debt exceeded $4.3 billion Shortly before the bankruptcy of one of the investors — Japan Itochu — sold his stake in 25% stake for a nominal $1.

In December the research firm Wolfe Research predicted: of the hundreds of U.S. companies engaged in the exploration and production of oil and gas by mid 2017, one third will be through bankruptcy or through a forced sale.

Rigs: minus two-thirds

With the fall in oil prices, many U.S. oil producers operate at a loss. So at a rough estimate of the consulting firm AlixPartners, North American (USA and Canada) oil and gas producers on a weekly basis lose about $2 billion For the calculation were taken from the January prices, when Brent was hovering around the $30-35 per barrel.

The Agency leads its assessment of the profitability of the major “unconventional” (shale) oil fields by 2016. The least expensive is the Deposit Niobara in Colorado: the cost of oil production there ranges from $32.5 and us $48.5 per barrel. Deeply unprofitable was the Tuscaloosa marine field (Alabama), where the extraction of one barrel of oil can cost from $65,6 $78,9.

“Some producers hoped that the period of low prices will not last long, and prefers to work on very low margins or even at a loss, only for the sake of cash flow,” says the Director of the Institute of energy policy Vladimir Milov. Practice shows that not everyone is able to ride out the crisis. However, mil is confident that a wave of bankruptcies will lead to the cleansing of the market from excessively overleveraged and financially unstable companies. And purchase of such equipment may result in the emergence of new players in the American oil industry.

The main advantage of shale oil production, reminiscent of AlixPartners, is an opportunity in the shortest possible time to end production with the loss of profitability, then, the increase in world oil prices, as quickly to restore it. The speed of reaction is partly confirmed by data on weekly rig count published by Baker Hughes, is the main indicator of the expansion of the oil and gas industry.

The number of drilling rigs reached to US a historical record of 1609 pieces — in October 2014, when a barrel of Brent cost just above $90. Further, the number of installations began to rapidly decline. In the spring of 2015 oil prices slightly recovered some of the drop, and since the beginning of the summer (with a lag of two to three months) have been a growing number of rigs. At the end of August in the oil market again prevailed a tendency to decrease, following this, began to fall and the number of installations. At the end of January 2016 it is reduced to 498 — a minimum since March 2010.

Prey: almost unchanged

Despite a three-fold reduction in the number of drilling rigs, a reduction of shale oil in the US is practically non-existent. The energy information administration at the U.S. Department of energy (EIA) reports that in the successful October 2014, the seven largest shale deposits of the country was mined daily million barrels of 5.02. The disastrous February 2016 this figure amounted to slightly less of 4.83 million barrels. More than half of all produced in the States of oil. By the spring of 2015 oil production in the US has completed its multi-year growth, but since then not decreased, but teetering around 9.4 million barrels. a day.

Why is the rig count falls and production? The fact that the number of installations speaks about the number of future wells and current is a measure of the willingness of oil companies to expand its work. Similarly, the number of wells not directly proportional to the extraction — well-different. As noted by EIA, the oil producers closing in the first place the oldest and most inefficient wells. For example, at one site the oil around Spraberry in Texas in the fall of 2014 closed on 19 of the 26 wells with an average production cost of $53,9 per barrel. But in another area with a cost of $30 for 18 existing towers added another ten.

The efficiency of new wells is rising, indicates consulting Director at the Russian branch of IHS Maxim Nechaev. According to him, at the peak of the shale boom, a large number of wells have been drilled at random, without serious evaluation. “Now when drilling are being used more accurate methods of prediction and only those drilled wells, the probability of success which is great. Because of this, the efficiency of drilling in 2015 has greatly increased: each spent on the drilling of the dollar was 70 percent greater than in 2014 and earlier,” says Nechayev.

According to EIA, seven of the largest deposits, which provide 92% of oil production across US shale oil, from October 2014 to February 2016 average production from new wells increased from 311 to 497 bbl. a day. This is the weighted average level on the field Bakken, for example, it has increased from 530 to 724.

Reducing logistics costs have also played a role. “The cost of drilling and drilling crews greatly decreased, operating costs also declined: Americans have learned to optimize the supply chain and share with contractors the losses from declining oil prices,” says Nechayev. The introduction of wells in operation has decreased in recent times from 35 to 17 days, The Economist cites data from IHS.

Outlook: negative

Despite the increased efficiency, shale oil production is expected to fall. “The number of rigs continues to fall sharply… and it will continue to affect the level of production in shale production in the months ahead,” says OilPrice. Even if will be closed all expensive wells with little impact, over time, this category will be performed, and is now thought to be an effective extraction at the wellhead in the Bakken oilfield, which is famous for its high flow rate, after a year of development decreases (*.pdf) an average of 65%.

According to the January statistics, EIA, new wells in the Bakken field in January of this year brought 40 thousand Barr. a day, but due to the depletion of old total oil production at the field fell by 24 thousand barrels. Of the seven main oil-producing areas of the US production growth was observed only on the fields Permian and Utica (on 5 thousand and 1 thousand barrels. a day). The total volume of production at all deposits has dropped by 116 thousand Barr.

“Lenders realize that many of current operating wells are not worth the invested money and only operationally effective. This means that new wells in these conditions to buritica will only be available when the collector is very high quality, which has a limited amount of shale deposits,” says Nechayev. According to his estimates, only 20-30% of shale wells can be profitable at oil prices below $35. This, in turn, means that the natural production decline in already drilled wells will not be offset by production at new wells. Acceleration of production decline could begin soon, he said.

Nowhere to get

At the end of January 2015, the oil reserves in the USA reached a historical maximum in 502,7 million barrels. Two months ago this was the main argument in favor of the lifting of a longstanding ban on exporting American oil.