The permian pitfall_ a race to the bottom for tight oil _ oilprice. com

Remember the shale gale and Saudi America? The scale of those outlandish delusions has now dwindled to plays in a few counties in West Texas and southeastern New Mexico. Gas konigsforst Saudi Permian.

It’s a race to the bottom as investors double down on the tight oil companies that can still tell a growth story. Current electricity examples Permian-weighted E&P companies are the temporary darlings of Wall Street as other tight oil plays have lost their luster.

We are in the middle of a truly silly price rally. Electricity shock in the body Other rallies of 2015 and 2016 took place despite substantial production surpluses and too much inventory. Electricity and magnetism physics definition Then, there was some hope that higher prices might result if over-production could be brought under control. Gas estimator Now, the world’s production and consumption are near balance but oil prices remain mired in the $40 to $50 per barrel range.

This current rally will end badly because there is something more fundamental keeping prices low. Power outage houston reliant Despite repeated assurances from IEA and EIA that demand growth is strong, it is not strong enough to draw down outsized global inventories.

Hope for an OPEC production freeze at next month’s meeting in Algiers is the main factor driving this rally. Static electricity zapper The problem is that the world liquids market is as close to balance as it ever gets—over-supply has been less than 0.5 million barrels per day for the last two months (Figure 1). Electricity outage sacramento Oil prices were more than $100 per barrel at similar or greater production surpluses in 2013 and 2014.

Figure 1. Electricity production by source World liquids production minus consumption shows that the present market is as close to balance as it ever gets. Igas energy shares Source: EIA and Labyrinth Consulting Services, Inc.

In 2015, when the average production surplus was 2 million barrels per day, it was a different story. Physical science electricity review worksheet Over-production is not the problem now as it was then. Electricity projects ks2 If OPEC freezes production, it won’t make any difference.

As long as oil prices are range-bound between about $40 and $50 per barrel, it makes more sense to store oil than to sell it. Electricity experiments for 4th graders The carrying cost of storage is less than what can be made by rolling futures contracts over each month. Bp gas card login Inventories will stay high until prices break out of their current range but outsized inventories make that impossible. Electricity wikipedia in hindi Catch-22.

There have been four oil-price cycles in 2015 and 2016–the first three each lasted approximately 6 months (Figure 2). Gas 93 octane Each new cycle began with high price volatility that fell as price peaked. Electricity flow direction We are currently in the upward arc of Cycle 4.

The oil-price volatility index has fallen to levels similar to when prices peaked during the last cycle suggesting that current WTI futures prices just above $48 per barrel may already be near the peak for this cycle. Electricity billy elliot instrumental Prices may increase into the low-$50 per barrel range as they did in June before falling again.

The latest cycle began when NYMEX futures prices fell below $40 per barrel in early August. Grade 6 electricity project In the succeeding two weeks, they have climbed to more than $48 (Figure 3).

A factor beyond a possible OPEC freeze is the weakened U.S. Gas and sand dollar because of expectations that the Federal Reserve Bank will not raise interest rates at least until December. Gas constant for helium The value of the dollar against other major currencies has fallen 3 percent over the last month (36 percent annualized). 3 gases in the air WTI futures prices have increased 22 percent since August 1.

A third factor driving the current price rally is long-term concern about supply because of under-investment in oil development projects and exploration since the oil-price collapse. Gas after eating pasta Recent statements by the International Energy Agency that demand may outpace supply in the next few years underscored that anxiety.

Figure 3 shows that oil prices appear to be range-bound between about $40 support and $51 per barrel resistance levels. Gas equations chemistry The upper boundary is largely controlled by record-breaking volumes of U.S. Walmart with a gas station near me and world crude oil inventories and the fact that producers add rigs and production with each upward swing in oil prices.

This market looks for any excuse to raise prices. Electricity trading strategies Every price upswing is seen by some as the beginning of a return to oil prices above $70 per barrel. Q gastrobar dias ferreira We seem to selectively forget that the staggering inventory levels of crude oil make this impossible until those volumes are drawn down substantially. Gas house gorillas Oops.

U.S. Electricity kwh calculator crude oil inventories fell 2.5 million barrels this week but have increased a net 1.6 million barrels over the last month during what is supposed to be de-stocking season (Figure 5).

Figure 5. Electricity trading hubs U.S. La gas prices 2016 crude oil inventories and comparison with 2015 levels and the four years preceding. I electricity bill com Source: EIA and Labyrinth Consulting Services, Inc.

Storage volumes are 57 million barrels more than at this time in 2015 and are 143 million barrels higher than the 5-year average. Gas block install This is definitely not a basis for a sustainable oil-price rally. Electricity austin Until inventories are drawn down by at least another 125 million barrels, a recovery to somewhere approaching mid-cycle 2014 levels of about $80 per barrel is technically impossible.

Five new horizontal rigs were added last week to drill tight oil objectives in the Permian basin and 12 rigs were added the previous week. Gas national average 2008 Only 1 rig was added in the Bakken play after losing 2 rigs a week ago. Electricity voltage used in usa No rigs were added in the Eagle Ford after losing 1 rig the previous week. Tropico 5 power plant More capital is being spent in the Permian basin than in all the other plays put together.

Overall, 67 tight oil rigs have been added since early June. La gasolina in english Forty eight of those are in the Permian basin, 5 in the Bakken and 6 in the Eagle Ford play (Figure 6). Z gastroenterol Four rigs were added in the Niobrara, 3 in the Granite Wash and 1 in “Other.” Rig count increases began as oil prices peaked above $50 per barrel in early June and continued through the slump toward $40 prices before the latest upward swing to $48 per barrel.

Figure 6. Gas gangrene Permian basin, Bakken and Eagle Ford tight oil horizontal rig count, NYMEX WTI prices and oil-price volatility index. C gastronomie mariage Source: Baker Hughes, EIA, Bloomberg and Labyrinth Consulting Services, Inc.

Weekly changes in the Permian basin rig count are the leading indicator of capital flows and expenditures. Z gas el salvador empleos Permian rig count is more responsive to capital flows than the other tight oil plays because there is more money available for Permian-weighted companies.

In late July, I wrote, “When prices fall and oil-price volatility increases, the floodgates of capital open. Gas finder mn Every genius-investor wants to buy low and sell high. Gas bubble in chest and back Rig count rises with fresh capital, production increases and oil prices fall.”

Figure 7. Electricity 2014 The Permian basin rig count represents more than 60 percent of the U.S. 1 unit electricity cost in andhra pradesh horizontal tight oil rig count. Electricity images cartoon Source: Baker Hughes and Labyrinth Consulting Services, Inc.

This is curious because Permian production from the Bone Spring, Wolfcamp and Trend-Spraberry horizontal plays represents only 21 percent of total tight oil production (Figure 8).

Figure 8. Electricity cost calculator Permian basin daily production from the Bone Spring, Wolfcamp and Trend Area-Spraberry plays is only 21 percent of total U.S. 2015 electricity prices horizontal oil production. Electricity multiple choice questions grade 9 Source: EIA, Drilling Info, North Dakota Department of Natural Resources and Labyrinth Consulting Services, Inc.

It is even more curious because Permian basin tight oil proven reserves rank 42nd in the world just behind Denmark and Trinidad and Tobago based on the latest EIA data (Figure 9).

Figure 9. Electricity for beginners Permian basin tight oil proven reserves compared with world crude oil reserves. Gas stoichiometry problems Source: EIA and Labyrinth Consulting Services, Inc.

Some will argue about potential and possible Permian resources and reserves preferring Pioneer CEO Scott Sheffield’s view of things to reality. Electricity physics khan academy I won’t debate them but the point is that Saudi Permian is a stretch based on any reality-based interpretation of existing data.

Eleven companies now operate 3 or more rigs in the Permian basin (Figure 10). Gas house eggs These represent a mix of independents and major oil companies. Electricity projects for grade 7 Concho operates the most rigs with 15 and Pioneer is second with 13. Gas nozzle stuck in car Energen, Anadarko, Chevron and Apache all operate 5 rigs or more. World j gastrointestinal oncol impact factor Companies that operate at least 3 rigs include Cimarex, Diamondback, Oxy, Parsley and Callon.

The stock performance of all oil companies correlates strongly with oil prices but many Permian basin-weighted stocks have significantly out-performed ETFs (exchange-traded funds) by 2-to-1 to as much as 4-to-1 since the current price rally began in early August (Figure 11).

Figure 11. 3 gases in the atmosphere Stock performance of many Permian-weighted independent stocks out-perform ETFs by 2:1 to 4:1 since the current oil-price rally began. Electricity for refrigeration heating and air conditioning answer key Source: Source: Google Finance, EIA, Bloomberg & Labyrinth Consulting Services, Inc.

Callon’s stock price has increased 34 percent since August 1, 2016. V gashi kenga e zagrebit Parsley’s and Energen’s have increased 22 percent, Pioneer’s has risen 18 percent and EOG’s, 17 percent. Grade 9 electricity quiz These companies have all beaten the 16 percent increase in WTI futures prices over the same period and have substantially out-performed oil ETFs (Energy Select XLE and Vanguard Energy VDE) whose returns averaged only 8 percent in August. Electricity terms and definitions Related: Why Investors Shouldn’t Believe The OPEC Rumors

Most of the Permian companies with strong stock performance also have sizable debt loads and high debt-to-cash from operations (EBITDA) ratios. Electricity jeopardy game The average debt-to-cash flow ratio is 5.4:1, and 4:1 is considered the current threshold for bank loan risk (Figure 12). Electricity usage by appliance Among the independent companies with high stock performance, only Diamondback and Energen have ratios less than 4:1. Gas nozzle prank Parsley, Cimarex and Concho all exceed 7:1.

Figure 12. Electricity load shedding Most Permian operators have debt-to-cash flow (EBITDA) ratios that exceed bank-risk threshold of 4:1. Gas efficient suv 2015 Source: Google Finance and Labyrinth Consulting Services, Inc.

Another reason for the highly volatile stock prices of most Permian companies is in their stock valuations. Electricity generation by state On average, the ratio of current to mid-2014 stock valuations is double the ratio of first half 2014-first half 2016 NYMEX WTI oil prices (Figure 13).

Figure 13. Electricity 101 presentation The average ratio of 2016-2014 stock valuations is double the ratio of 2016-2014 WTI futures prices for Permian-weighted companies. Electricity year invented Source Google Finance, EIA and Labyrinth Consulting Services, Inc.

Stock prices of shale companies with good positions in the Bakken and Eagle Ford have also increased but those companies have a harder growth story to tell. Gas 85 Average well density in the Permian horizontal plays is about 1 well per 860 acres. Electricity and magnetism connect to form That is less than half of the 1 well per 382 acres per well in the Bakken and one-fifth of the 1 well per 172 acres per well in the Eagle Ford play (Table 1).

Table 1. Electricity 24 hours Current well densities for the Bakken, Eagle Ford and Permian horizontal plays. Electricity news in nigeria Source: Drilling Info and Labyinth Consulting Services, Inc.

The main cause of the collapse of global oil prices in 2014 was a production surplus. Gas 1940 hopper That continued to be the key factor throughout 2015. Electricity 4th grade powerpoint Now, over-production is still a concern but the market has been close to balance for the last 6 months.

For most of 2016, however, liquids consumption growth has declined. Save electricity images It increased with falling oil prices and peaked at the end of 2015 when monthly average oil prices were near $30 per barrel (Figure 14). Electricity nyc As prices recovered into the $40 to $50 range, consumption growth dropped. Electricity cost nyc The global economy is apparently too weak for prices in this range.

Growth occurred only when oil prices were below disturbingly low thresholds. Gas x strips walmart Declining consumption growth is the likely cause of persistent high inventory levels and range-bounded prices.

The dream of Saudi America has fallen on hard times since oil prices collapsed. Electricity symbols and meanings Persistent and often misleading claims about technology, efficiency and lower cost have kept hope alive for true believers. Electricity rates el paso The truth is that production costs are more than oil prices. Types of electricity tariff The present situation cannot be sustained without even more carnage in the oil industry.

Investors have identified the plays and companies that are in the best position to survive and they are in the Permian basin. Electricity symbols ks3 As the field of attractive companies dwindles, more short-term investment is directed toward the perceived winners. Gas usa These favored companies can go to the capital markets more or less at will with new stock or bond offerings and easily raise hundreds of millions to billions of dollars. Gas jockey This allows them to continue drilling and spending, and accounts for the upsurge in Permian rig counts at the beginning of every new price cycle.

Those who bought stock in Permian-weighted companies made a good profit this month. Electricity news australia Those companies are attractive to investors not because of their underlying financial strength. Gas efficient cars 2016 It is because they satisfy the reach for yield that is no longer met by Treasury bonds or other conventional investments in a low-interest rate and low-growth economy.

Like the companies, the Permian plays are attractive mostly because they don’t lose as much money as the other tight oil plays and have a better growth story. Electricity worksheets for grade 1 They are the best of a bad lot. Electricity 80s song But they still lose money at oil prices less than $50 to $60 dollars per barrel at the wellhead. Electricity in indian states There is about a $5 differential between Permian wellhead and benchmark price so $55 to $65 per barrel WTI prices are needed for Permian tight oil plays to break even.

Permian basin tight oil production will peak around 1 million barrels per day and begin to decline in the mid-2020s based on our models. Electricity in human body wiki Those models assume a return to $75 to $80 oil prices in the next 3 to 5 years and that capital will be readily available to fund ongoing drilling. Physics c electricity and magnetism study guide If either assumption is too optimistic, the plays will peak later but will not produce any more oil. 4 gases in the atmosphere besides oxygen and nitrogen The Permian basin has good, prolific plays but it is no Saudi Arabia.

The Bakken and the Eagle Ford were all the rage for investors until lower-for-longer oil prices were accepted as the new reality during the second half of 2015. Gas works park seattle Now, investors believe that the Permian basin is the only place with profitable plays at low oil prices. G gas lol Eventually, they will tire of the Permian also and may be lured back to the Eagle Ford or Bakken by some new tall tale about technology or efficiency.

Investors will provide capital as long as the stock plays earn them the yield that they need. Gas lighting urban dictionary Companies will dress themselves and their plays up in order to compete for the capital offered.

With every new price rally, investors and companies think that this time oil prices will finally recover to a level where the companies can make money again. B games zombie But with every price rally, rig counts and production increase, demand falters, inventory rises and prices fall back.