What Do Low Oil Prices Mean To Drilling Boom?

I have been told different things about what the low oil prices mean to the drilling boom in the Utica, especially to the Ohio boom where we have more oil than gas... Does anyone have any accurate info on this subject....

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Permalink Reply by Joseph-Ohio on December 15, 2014 at 2:57pm
Although I see / read alot about it I've never taken a drink of that Kool-Ade myself Jesse.

Just cause there's alot of it being offered doesn't mean that we have to partake of it
Permalink Reply by Joseph-Ohio on December 15, 2014 at 11:32pm
Bust our E & P and further damage our economy to keep the nasty parts of the world calm fat and happy ?

Nah - I don't want any of that Kool-Ade thank you just the same.
Permalink Reply by John Henrie on December 15, 2014 at 1:13pm

Just watch and see. If the Fed raise interest it will slow down. If they don't raise interest rates it will be fine.

Permalink Reply by John Henrie on December 15, 2014 at 2:10pm

Inflation

Permalink Reply by Ryan on December 15, 2014 at 3:45pm

If the fed raises rates in the near future (which it most likely will not) borrowing costs for drillers will go up, which will lead to even less E&P activity than the reduction in oil prices will soon bring about. Most independent E&P's rely on junk bond financing to survive, and if interest rates are increased this funding source no longer becomes a viable option.

Permalink Reply by Larry Wagenman on December 15, 2014 at 6:42pm

Its all on the 'coulda been camel herders' who run the global show:

In fact, if the following news turns out to be correct, it could get a lot worse. OPEC says it could oil prices to fall to $40 per barrel with no problem.

“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current the environment doesn't warrant a special OPEC meeting. “We need to wait for at least a quarter” to consider an “emergency” meeting, he said.

From Reuters we read - OPEC's unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.

Speaking at a conference in Dubai, Abdullah al-Badri defended November's decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.

"We agreed that it is important to continue with production (at current levels) for the ... coming period. This decision was made by consensus by all ministers," he said. "The decision has been made. Things will be left as is."

Some say selling may continue as few participants are yet willing to call a bottom for markets.

Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November's decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.

"Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect," he said.

If the crude oil market did fall all the way to $40 per barrel and prompted a special OPEC meeting, there will be many more fireworks in the days ahead.

Permalink Reply by Joseph-Ohio on December 15, 2014 at 11:04pm
Wondering what kind of 'fireworks' OPEC refers to ?

They should be more specific, shouldn't they ?

What kind of 'fireworks' do they want I wonder ?
Permalink Reply by Philip Brutz on December 17, 2014 at 3:08am

http://www.wsj.com/articles/oil-prices-skid-on-russia-output-plan-1...

U.S. Oil Prices Resume Slide Ahead of Stockpile Data

Analysts Expect a Drop of 1.9 Million Barrels

By 
GEORGI KANTCHEV
Updated Dec. 17, 2014 8:24 a.m. ET
20 COMMENTS

LONDON—The rout in oil prices continued on Wednesday after a brief respite the previous day, as a global oversupply of crude showed no signs of abating.

Oil prices have almost halved since the summer, with producers from the U.S. to the Middle East ramping up output even as demand growth for the commodity has weakened around the world.

Brent, the global benchmark, fell below the key $60 a barrel mark on Tuesday and continued sliding on Wednesday to reach levels last seen in May 2009.

IN THE MARKETS

Contributing to the bearish sentiment was data from the American Petroleum Institute late Tuesday which showed an unexpected 1.9 million barrel rise in weekly U.S. oil stockpiles. The market is awaiting stockpile data from the U.S. Energy Information Administration, which will publish its more closely watched numbers later today. Analysts expect a drop in stockpiles of 1.9 million barrels.

“The focus is on U.S. production as this is currently the key to the global oil balance,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “With no signs that production growth will slow, prices will remain under pressure.”

On Wednesday, Brent crude on London’s ICE Futures exchange touched an intraday low of $58.71 a barrel, the commodity’s cheapest price in five-and-a-half years. In electronic trading on the New York Mercantile Exchange, WTI futures for delivery in January traded below $55 a barrel, down 2.6%. On Tuesday, the U.S. crude had snapped a four session losing streak to end up $0.02.

“What we saw yesterday was a dead-cat bounce but the negative trends of oversupply and weaker demand growth are still persisting,” Mr. Weinberg said. “New lows can be expected and I wouldn’t wonder if the market tests the $50 mark before the end of the year.”

Last week, the International Energy Agency, the global energy watchdog, cut its forecast for next year’s oil demand growth by 230,000 barrels a day to 900,000 barrels a day, the fifth such cut in the last six months.

Concerns about slowing demand growth are also compounded by the reluctance of major producers to cut their supply with some even increasing output despite the global oil glut.

Russian Energy Minister Alexander Novak said on Tuesday that his country would maintain its current level of oil production next year, joining the Organization of the Petroleum Exporting Countries which in November decided to keep its output steady. Oil prices have fallen by more than 20% since the OPEC meeting.

On Wednesday, Iraq’s Kurdistan region announced its exports would increase next year to 500,000 barrels a day from the current level of 400,000 barrels a day. Speaking at a London conference, the region’s Minister of Natural Resources, Ashti Hawrami, said he was hopefulthat outstanding issues with the government in Baghdad will be resolved and that the region will continue to fast track infrastructure to bring more oil to the market.

This will add to the global oil glut with increasing stock builds putting further downward pressure on prices. Energy Aspects, a consultancy, forecasts stock builds of 1-1.5 million barrels a day in the first half of 2015, with the increase particularly pronounced in the second quarter when refinery maintenance peaks.

Markets are also braced for the outcome of the U.S. Federal Reserve meeting later on Wednesday, which could signal that a rate hike is likely in mid-2015. Commodity markets have benefited from the easing of U.S. monetary policy in the past few years and could come under pressure if the Fed tightens its stance.

Nymex reformulated gasoline blendstock for January—the benchmark gasoline contract—fell 1.5% to $1.55 a gallon, while ICE gas oil for January changed hands at $537.25 a metric ton, down $14 from Tuesday’s settlement.

—Eric Yep and Sarah Kent contributed to this article.

Write to Georgi Kantchev at georgi.kantchev@wsj.com

Corrections & Amplifications

Brent crude on London’s ICE Futures exchange touched an intraday low of $58.71 a barrel. An earlier version of this article mistakenly put the figure at $59.71.

Permalink Reply by frank speaker on December 20, 2014 at 7:29am

Oil makes countries fat and happy? You've got to be kidding.

Permalink Reply by kim hovis on December 20, 2014 at 1:38pm

Thanks to all the intelligent people who bring their knowledge and opinions to this site. I will continue to learn, keep a positive outlook and ignore all the negatives comments made about how the gas boom is done  Sailors don't jump off the ship just because the wind starts blowen. Billions have already been spent and billions are going to be spent. 3 things I believe.1 The big drilling co's will continue business as usual, 2  energy prices will not be low for very long. 3 We are all blessed we live in America.                                        MERRY CHRISTMAS TO EVERYONE

Permalink Reply by Larry Wagenman on December 23, 2014 at 6:47pm
Permalink Reply by Philip Brutz on December 20, 2014 at 4:01pm

http://www.bloomberg.com/news/2014-12-19/oil-crash-exposes-shale-dr...

Oil Crash Exposes New Risks for U.S. Shale Drillers

By Asjylyn Loder Dec 19, 2014 3:19 PM ET

At least six companies, including Pioneer Natural Resources Co. (PXD) and Noble Energy Inc. (NBL), used a strategy known as a three-way collar that doesn’t guarantee a minimum price if crude falls below a certain level, according to company filings. While three-ways can be cheaper than other hedges, they can leave drillers exposed to steep declines.

“Producers are inherently bullish,” said Mike Corley, the founder of Mercatus Energy Advisors, a Houston-based firm that advises companies on hedging strategies. “It’s just the nature of the business. You’re not going to go drill holes in the ground if you think prices are going down.”

Oil Prices

The three-way hedges risk exacerbating a cash squeeze for companies trying to cope with the biggest plunge in oil prices this decade. West Texas Intermediate crude, the U.S. benchmark, dropped about 50 percent since June amid a worldwide glut. The Organization of Petroleum Exporting Countries decided Nov. 27 to hold production steady as the 12-member group competes for market share against U.S. shale drillers that have pushed domestic output to the highest since at least 1983.

WTI for January delivery rose $2.41, or 4.5 percent, to settle at $56.52 a barrel today on the New York Mercantile Exchange.

Debt Price

Shares of oil companies are also dropping, with a 49 percent decline in the 76-member Bloomberg Intelligence North America E&P Valuation Peers index from this year’s peak in June. The drilling had been driven by high oil prices and low-cost financing. Companies spent $1.30 for every dollar earned selling oil and gas in the third quarter, according to data compiled by Bloomberg on 56 of the U.S.-listed companies in the E&P index.

Financing costs are now rising as prices sink. The average borrowing cost for energy companies in the U.S. high-yield debt market has almost doubled to 10.43 percent from an all-time low of 5.68 percent in June, Bank of America Merrill Lynch data show.

Locking in a minimum price for crude reassures investors that companies will have the cash to keep expanding and lenders that debt can be repaid. While several companies such as Anadarko Petroleum Corp. (APC), Bonanza Creek (BCEI) Energy Inc., Callon Petroleum Co., Carrizo Oil & Gas Inc. and Parsley Energy Inc., use three-way collars, Pioneer uses more than its competitors, company records show.

‘Best Hedges’

Scott Sheffield, Pioneer’s chairman and chief executive officer, said during a Nov. 5 earnings call that his company has “probably the best hedges in place among the industry.” Having pumped 89,000 barrels a day in the third quarter, Pioneer is one of the biggest oil producers in U.S. shale.

Pioneer used three-ways to cover 85 percent of its projected 2015 output, the company’s December investor presentation shows. The strategy capped the upside price at $99.36 a barrel and guaranteed a minimum, or floor, of $87.98. By themselves, those positions would ensure almost $34 a barrel more than yesterday’s price.

However, Pioneer added a third element by selling a put option, sometimes called a subfloor, at $73.54. That gives the buyer the right to sell oil at that price by a specific date.

Below that threshold, Pioneer is no longer entitled to the floor of $87.98, only the difference between the floor and the subfloor, or $14.44 on top of the market price. So at yesterday’s price of $54.11, Pioneer would realize $68.55 a barrel.

‘Better Upside’

David Leaverton, a spokesman for Irving, Texas-based Pioneer, declined to comment on the company’s hedging strategy. The company said in its December investor presentation that “three-way collars protect downside while providing better upside exposure than traditional collars or swaps.”

The company hedged 95,767 barrels a day next year using the three-ways. If yesterday’s prices persist through the first quarter, Pioneer would realize $1.86 million less every day than it would have using the collar with the floor of $87.98. That would add up to more than $167 million in the first quarter, equal to about 14 percent of Pioneer’s third-quarter revenue.

Exposure Cost

The strategy ensures that the bulk of Pioneer’s production will earn more than yesterday’s market price. The three-ways will also prove valuable if oil rises above the subfloor.

“What they have is much better than nothing,” said Tim Revzan, an analyst with Sterne Agee Group Inc. in New York. “But they left some money on the table that they could have locked in at a better price.”

Noble Energy used three-ways to hedge 33,000 barrels a day, according to third-quarter SEC filings. Assuming yesterday’s prices persist, Houston-based Noble will bring in $50 million less in the first quarter than it would have by locking in the floor prices.

Bonanza Creek, based in Denver, Colorado, set up three-ways with a floor of $84.32 and a subfloor of $68.08, SEC records show. If prices stay where they are, the company will realize $8.1 million less in the first quarter than it would have by just using the floor.

Ryan Zorn, Bonanza Creek’s senior vice president of finance, said that the comparison doesn’t take into account the advantages of the strategy. The proceeds from selling the $68.08 puts helped pay for the protection at $84.32, without which Bonanza Creek would likely have purchased cheaper options with a lower floor.

’Much Better’

“The other comparison is if we’d done nothing,” Zorn said. “I view it as being much better than being unhedged.”

Representatives for Anadarko, Noble, Carrizo and Parsley didn’t return e-mails and phone calls seeking comment.

“Because we’ve had high energy prices for so long, it could have given them a false sense of confidence,” said Ray Carbone, president of Paramount Options Inc. in New York. “They picked a price they thought it wouldn’t go below. It has turned out to be very expensive.”

Callon (CPE)’s first-quarter three-ways cover 158,000 barrels with a floor of $90 and a subfloor of $75, company filings show. Callon, based in Natchez, Mississippi, will get $3.3 million less that it would have realized by using the $90 floor, assuming prices stay where they are.

“Certainly, if we’d had the foresight to know prices were going to crater, you’d want to be in the swap instead of the three-way,” said Eric Williams, a spokesman for Callon. “Swaps make more sense if you knew prices were going to go down the way they did, but a few months ago everyone was bullish.”

To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe

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