oil prices

Shale Energy Business Briefing: Sunday, December 21, 2014 Analysis

By On December 22, 2014 8:45 am

Pain – and Lots of It – Coming Soon to Your Favorite Crude Oil Play

By Rick Stouffer, Senior Energy Editor, Shale Energy Business Briefing

Editor’s Note: The recent and ongoing plunge in crude oil prices is impacting the shale oil and gas (O&G) industry, plus all the ancillary businesses, which count on O&G to make their bottom lines black.

The following presentation by Wunderlich Securities analysts Irene Haas and Jason Wangler gives a thorough, detailed look at what has happened and, more importantly, what will happen in the industry moving forward.

After fighting through low natural gas prices and moving to the oil basins, oversupplied markets across the board (which hurt utilizations and pricing), and finally getting to an era of growth during 2014, oil prices collapsed.

While the impact of WTI (West Texas Intermediate) oil moving from basically $100/Bbl to $60/Bbl in just a few months hasn’t been felt just yet, rest assured the pain is coming — and coming soon. What is even scarier about this downturn than the 2008-2009 difficulty is that this time it looks as if there is no basin or commodity to shift activity into.

That said, we expect the rig count to see a dramatic drop off in the next few months within most oil basins, and for those rigs not to work elsewhere, but instead to be mothballed. This drop in activity likely hurts pricing nationwide, reversing recent trends as equipment, both existing and on order, likely has a tough time finding work.

A ‘Harsh’ Fall in Rig Count

Capital expenditure cuts from the exploration and production (E&P) space haven’t been felt yet, but they are coming in force through January; watch for completion deferrals to run rampant. The 3Q14 results of most oilfield service company names were solid and 4Q14 activity should also look solid; moving into 2015, however, we expect a dramatic drop off in activity due to most every E&P company indicating or outright guiding to lower drilling and completion activity.

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