Considerations for Oil Producers During COVID-19

OG BRIEF #11

June 16, 2020

To Curtail, Shut-In, or Re-Open Oil & Gas Wells?


In April, crude oil plunged to negative prices but swiftly recovered, even surprising ConocoPhillips CEO Ryan Lance, one of the first US producers to announce voluntary production cuts - nearly half a million barrels of oil per day. But now the CEO of the Houston oil company talks of potentially re-opening wells.

In this OGBRIEF I speak with Derek Krieg, Co-Founder of Oilfield Basics - in Episode 67 of the Discover Podcast.

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This not-so-brief discussion dives into some of the more complex considerations that America's 9,000 independent oil and gas producers and majors face in today's volatile and low price environment...


10 Production Management Considerations

  1. Break-Even Economics

  2. Business Model

  3. Lease and Finance Covenants

  4. Operating Expenses: Fixed and Variable

  5. Scale and Marketability: Volume/Proximity/Pricing Terms

  6. Reservoir Fluid Type

  7. Reservoir Potential and Drive Mechanism

  8. Asset Life of Cycle

  9. Future Development Potential

  10. Capabilities & Diagnostics


Questions remain about which wells to open, shut-in, or just choke back. And what will be the overall impact?


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FUEL FACTS:

The COVID-19 pandemic has reduced global and domestic transportation, resulting in ~20% reduction of petroleum consumption worldwide.
EIA forecasts that demand for global petroleum and liquid fuels will average 83.8 million barrels per day (b/d) in the second quarter of 2020, 16.6 million b/d lower than at the same time last year.

US RIG COUNT

"The number of rigs drilling for hydrocarbons in the Gulf of Mexico has averaged 33 during Q2 thus far, showing a nine-rig, or 21%, drop compared to the Q1 average, according to Enverus Rig Analytics. If the situation holds constant through the remainder of the quarter, this would be the lowest level of GOM rig activity in Enverus’ data, which dates back to 2Q14. After bottoming at a quarterly average of 34 in 4Q16 after the last oil bust, the count has stayed in a tight range around 40. This compared to a peak of 72 in 4Q14.


As of June 11, there have been 20 well starts in the GOM during Q2. This compares to 42 in Q1 and 25 in Q4. The highest quarterly tally in Enverus’ dataset, which dates back to 1Q14, was 102 in 3Q14. The lowest number of spuds came in 4Q16, with only 15 wells started.


The number of rigs running in the US as of June 10 has fallen by 20% in the last month and is down 70% in the last year. The largest monthly declines by play in the last month occurred in the Gulf Coast Basin (minus 45%), Williston Basin (minus 35%) and Permian (minus 25%)."


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