$65 Oil Will Not Bring Back Shale Drilling

By | June 17, 2016

$50 is not the new $100/bbl.

The pundits are claiming that costs are now so low that if the price of oil gets above $60, drilling in the shales will resume and drive prices back down. I don’t think so. First many drillers and rigs are down for the count as when they reach bottom, they have more pricing power as their brethren diminish. Next, no one drills just to break even. They may complete the DUCs (drilled but uncompleted) but those are sitting for so long, anticipate mechanical issues to come up.

Next, companies are writing down reserves like mad under pressure from the SEC. They have to. You cannot promise to complete a PUD (proven undeveloped) well when you have hundreds of wells you are claiming as reserves (but yet to be drilled) and you have five years to do so. One company was told they had a 14 year supply of wells if they ramped up to the max number of rigs available. They wrote them down and promptly filed for bankruptcy.

Nope, we have a long way to go for a real recovery.

Air-Drilling Atoka Gas- 1986

Air-Drilling Atoka Gas- 1986