Episode 30: #hottakeover-no-commute
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DRW, what is your opinion of how long oil price stays below $50-ish? In looking at historical price drops, those that are demand driven tend to recover far more quickly (classic “V-shaped” recovery). Would that this was only due to the COVID-19 outbreak. However, those price drops driven by oversupply (most relevantly the 1986 downdraft caused by the SAUDIS when they elected not to act as swing producer any longer — isn’t THAT familiar?!) are far more painstaking recoveries (“U-shaped”, at best).
Even if the US immediately halts ALL drilling rigs and frac fleets, assume that the base decline rate is 25% per year. US production will drop from 12 +/- MMB/D currently to 9 MMB/D, saving 3 MMB/D of overproduction — BUT IT WILL TAKE AN ENTIRE YEAR. And, given that we’re storage-full right about now, we’ve got even more supply to work through globally.
I won’t offer up my thoughts on how long this will take but suffice it to say, it’s not getting substantially better in a hurry. I’m interested in your thoughts in this regard.
I think base decline is closer to 40% so I’ll take the over on declining to 9 mmbo/d by March 31, 2021 as a capital and completions go essentially to 0.
I’m also assuming that current pricing shuts in 10 mmbo/d globally in the next week (including Saudi announcing something around April 1). So over supply by 10 mmbo/d in April is 300 mmbo in storage that at 1 Mmbo/d back to the market will take 1 year to balance.
Russia is the next marginal bbl, so I see their cost of $42 as key. I don’t think we are back to $42/bbl until September or October (assuming we’re restart the world April 30).
So I have low 50s by July 2021.