Shale Boom Tested as Sub-$90 Oil Threatens U.S. Drillers – Bloomberg

“There is some concern in the market broadly that ultimately the chickens of declining demand and increasing supply will come home to roost,” Bobby Tudor, chairman and chief executive officer of Tudor Pickering Holt & Co., an energy-focused investment bank in Houston, said in a Sept. 23 phone interview. Tudor was previously a partner with Goldman Sachs Group Inc.

Capital market transactions that would have been done three or six months ago will probably be postponed because of the downturn, Grant Porter, vice chairman in Barclays Plc’s energy group, said in an Oct. 2 phone interview. Barclays is the biggest adviser to U.S. energy companies selling shares this year, data compiled by Bloomberg show.

U.S. output is rising as companies are now getting more wells out of each rig and more oil out of each well, said Eads, whose team includes 26 technical experts. In the Permian basin of west Texas, the country’s largest onshore field, there are twice as many rigs but five times as many wells, according to Eads.

Each rig in the Permian added a record 171 barrels of new oil a day in October, up 21 percent from a year ago, EIA data show. In the Texas’ Eagle Ford, each rig is getting 536 new barrels a day, up 20 percent, according to the agency.

‘Holy Toledo’

“The thing that blows me away is every day somebody walks into my office with some new project, and I say ‘Holy Toledo,’” said Eads, who was a fraternity brother at Duke University with Chesapeake Energy Corp. co-founder and former Chief Executive Officer Aubrey McClendon. “It’s unreal. We see that once a month.”

Globally, second-quarter consumption grew the least since 2011, according to the IEA. The adviser to industrialized countries cut its demand forecasts last month by 0.2 percent for this year and 0.1 percent for 2015.

The slowdown is “nothing short of remarkable,” the IEA said in a Sept. 11 report. It attributed the decline to slowing economic growth in China and Europe. Higher U.S. production and Libyan exports are contributing to ample supply, the agency said.

Trading Oil

Advances in freeing natural gas from miles-deep shale rocks drove down prices 86 percent in April 2012 from the 2008 high. Prices peaked at $15.78 per million British thermal units in 2005 and dropped to a low in 2012 as shale resources pushed U.S. output to new highs.

Oil prices are harder to move because crude trades more globally than natural gas, according to Stephen Trauber, vice chairman and global head of energy at Citigroup in Houston. While oil can be carried on ships, trucks and pipelines, gas has to be frozen before it can cross oceans.

Crude prices might not fall enough to shut in production. About 70 percent of U.S. reserves would remain economic with global prices at $75 a barrel, according to Wood Mackenzie, an industry consultant based in Edinburgh.

OPEC also may prevent further declines because members need high prices to support social spending. Saudi Arabia needs $87.63 a barrel to balance its budget, compared with $66.50 for the United Arab Emirates and $92.96 for Iraq, the International Monetary Fund estimates.

LNG Exports

The U.S. has approved four facilities to liquefy gas for exports. While the U.S. prohibits most crude exports, finished products such as gasoline trade freely. Producers are lobbying to loosen the rules for crude too.

The last time the U.S. had a domestic oil boom was in the 1980s, following the Arab embargo. It ended when new supplies overwhelmed the market. Prices dropped to $9.95 a barrel in April 1986 from $32.35 the previous August, and the annual average stayed below $30 a barrel until 2000.

“What always happened is you’d get too much oil and gas and the price gets too cheap and you quit drilling — can’t make money,” T. Boone Pickens, founder and chairman of BP Capital LLC in Dallas, said in a Sept. 15 phone interview. “You break the price down and you’ll stop the boom right quick.”

To contact the reporter on this story: Isaac Arnsdorf in New York at iarnsdorf@bloomberg.net

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Dan Stets, David Marino

via Shale Boom Tested as Sub-$90 Oil Threatens U.S. Drillers – Bloomberg.