Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, May 3, 2015

an oil glut without drilling rigs; production, inventories and the fracklog..

we got rid of another 27 drilling rigs this week, the 21st week in a row that the rig count fell from the prior week, the longest and steepest such decline in drilling activity in US history...Baker Hughes reported that the number of oil rigs operating in the US this week fell by 24 to 679, while gas rigs fell by 3 to 222, and miscellaneous rigs working were unchanged at 4, leaving 905 rigs still being operated on May 1st; that's down from 1854 in the same week last year, when 1527 rigs were drilling for oil, 323 were drilling for gas, and 4 were classified as miscellaneous...this week’s totals are also down from the recent peak of 1609 oil rigs that were operating during the week ending October 10th, and the recent peak of 356 gas rigs that were operating during the week of November 11th....all 27 rigs taken out of service this week had been based on land, leaving 868 on land; the offshore rig count was unchanged at 34 and 3 rigs remained on inland waters...of the types of drilling rigs still operating, 699 were horizontal rigs, down from 720 last week and 1247 a year ago, 113  were vertical, down from 212 last week and down from 396 a year ago, and 93 were directional; up from 91 last week but down from 211 a year ago, with the horizontal rig count down from the record 1372 set during the week of November 21st... 

once again, most of the rigs idled had been operating in Texas, where the rig count was down by 13 to 380, with the shutting down of 8 rigs in the Permian Basin and 5 rigs in the Eagle Ford...another 4 rigs that had been operating in the Mississippian were idled, leaving 25, as Oklahoma saw 7 fewer rigs this week...drillers also shut down 2 rigs each in New Mexico and Pennsylvania, while Alaska, Arkansas, Kansas, and Louisiana each saw one rig idled...meanwhile, both Wyoming and North Dakota saw an additional rig added, while the rig counts for California, Colorado, Ohio, Utah and West Virginia were unchanged...

meanwhile, US production of oil rose for the 1st time in three weeks during the week ending April 24th, inching up to 9,373,000 barrels a day, from 9,366,000 barrels a day the prior week, still 4.7% higher than the 8,951,000 barrels per day being produced when oil rigs peaked on October 10th, and up 12.2% from our production of 8,352,000  barrels a day during the 4th week of April last year...on the other hand, our oil imports slipped a bit, falling by 319,000 barrels per day from the prior week to 7.4 million barrels per day during the week of the 24th...according to the weekly Petroleum Status Report (62 pp pdf) from the EIA, our crude oil imports still averaged over 7.6 million barrels per day over the last four weeks, just 0.9% below the same four-week period last year...that's still more oil than we're using, though, because for the week ending the 24th, U.S. commercial crude oil in storage increased by 1.9 million barrels to a new record of 490.9 million barrels, 22.9% higher than the 399.4 million barrels we had stored in the same week last year.. 

the chart below, from Zero Hedge, gives us a good visualization of how our oil production has hardly been affected by the 57% reduction of oil drilling rigs in operation over the past 6 months....the weekly count of operating oil rigs since 2011 is shown in red and indicated on far right logarithmic scale, which in turn is superimposed on a graph of our oil production in thousands of barrels of oil output per day, shown in blue by the inner right scale...we can see that our oil production had continued to rise uninterrupted over the past 4 years, nearly irrespective of the count of oil drilling rigs operating at any point over that time, and has only started to decrease slightly as of the middle of March, while the oil rig count crashed from 1609 in early October to 679 currently...

May 1 2015 oil rig count vs production

furthermore, many of the rigs that have been operation over the past 6 months have not yet even resulted in productive wells, because operators have been deferring completion due to the low price environment...known as the fracklog, these are wells that have been drilled but not yet fracked, sometimes because the oil and gas companies are waiting for a higher price for their product, other times because their budgets don't yet allow for all the wells they've drilled to be completed.....Moody's reports that North American producers have cut their capital spending 41% so far this year, and since fracking a well and putting it into production can account for as much as three-quarters of its total cost, slowing completions has become the way that some companies are reining in their outlays...and as you're all aware, a fracked well has the greatest output during the initial months of its production, and then it quickly falls off, dropping by as much as 80% after 2 years...so if the oil companies believe that prices will be higher in the future, it only makes sense to hold off on that initial rush of oil (or gas) output until prices are higher, rather than sell it now while US prices are still below $60 a barrel and natural gas prices have been just above 20 year lows...according to a March interview with Continental Resource CEO Harold Hamm, about 85 percent of U.S. wells aren't being completed at these prices...

the graphic below, from a recent Bloomberg article titled U.S. Shale Fracklog Triples as Drillers Keep Oil From Market, gives us an idea of just how many wells are in this limbo-like stage, where they have been drilled but not completed...included within that graphic are smallish graphs in turquoise which show the count of uncompleted wells (wells that have been drilled but not fracked) over the period from 2013 to February of this year for each of the major basins that Bloomberg intelligence investigated...they report that as of February, there were 4,731 wells drilled but not yet fracked, and hence not yet producing....the lion's share of those are in Texas, where you can see that 1540 wells in the Permian Basin and 1250 wells in the Eagle Ford have been drilled but have not yet been fracked, representing oil and gas still in the ground that could be quickly produced should the price be right...also note that there are 401 uncompleted wells in Pennsylvania, where this week we learned that the natural gas was being delivered to customers at the lowest price in 19 years, in a state where utilities are required to pass along the producer price of natural gas without a price change...also note that Ohio drillers have built up a fracklog of 324 unfracked wells, which would amount to nearly 22% of the 1482 horizontal wells ever drilled in Ohio since fracking started; that's future production that can't go elsewhere if we enact a severance tax...according to Bloomberg, these totals represent daily production of about 332,000 barrels of crude being left in the ground, effectively stored in the shale, such that if they were all fracked in short order, it would be like adding another Libya to the global oversupply...alternatively, we could just about shut down all the rigs in the country and still see oil and gas production rise for another half year...

fracklog via Bloomberg, April 23

April 2015 Febraury fracklog

otherwise, it's been a quiet news week in the oil patch, with no news of any blockbuster studies or of fiery oil bomb train derailments...the Transportation Department did announce an agreement with Canada to impose tougher safety standards on trains hauling crude, which will require 9/16th-inch steel frames on tankcars rather than the 7/16th-inch frames now in use, and mandate a new braking standard for trains carrying crude, but they are not expected to curb volatility of explosive crude oils such as that from the Bakken, and they’’ll still allow some existing tankers to stay in service through 2025....Sherrod Brown has introduced a bill to address the later, which would charge fees starting at $175 dollars per car for use of those older tankers, then increasing to $1400 over the next two years, which would be offset by tax credits for rail operators switching to newer, supposedly safer cars...we would note, though, that most of those explosive derailments that we covered earlier this year involved those new state of the art Model CPC1232s that already exceed Federal safety standards...

(more here)

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