A reader and I are discussing what does not make sense: why are there / why were there so few completions in the Bakken with prices so high.
I suggest that is supply chain shortages including lack of workers.
The reader's reply, which was, in turn, a reply to an "anonymous" reader:
- r.j. sigmund ("Focus on Fracking")i consider the front end of this report, with its March projections, to be pretty much nonsense anyhow, but how can they come up with a total increase in gas production per rig when all the basins are negative? https://www.eia.gov/petroleum/drilling/#tabs-summary-1 completions only rose by two; with oil & gas price high, people are asking why...i've been trying to answer them best i can... Wells drilled, completed, and drilled but uncompleted (DUC) inventory AnadarkoAppalachia Bakken Eagle FordHaynesvilleNiobraraPermianDPR Regions DrilledCompletedDUC DrilledCompletedDUC DrilledCompletedDUC DrilledCompletedDUC DrilledCompletedDUC DrilledCompletedDUC DrilledCompletedDUC DrilledCompletedDUCDec-13---- 374 ---- 1,238 ---- 570 ---- 959 ---- 132 ---- 457 ---- 645 ---- 4,375 Jan-14 221 215 380 142 108 1,272 178 143 605 339 334 964 29 35 126 164 144 477 583 590 638 1,656 1,569 4,462 Feb-14 195 197 378 166 128 1,310 210 158 657 378 316 1,026 48 36 138 171 126 522 580 519 699 1,748 1,480 4,730 Mar-14 203 238 343 121 178 1,253 224 218 663 345 384 987 44 46 136 170 186 506 609 624 684 1,716 1,874 4,572 Apr-14 229 235 337 194 169 1,278 217 207 673 408 336 1,059 44 54 126 195 194 507 659 632 711 1,946 1,827 4,691 May-14 208 232 313 188 209 1,257 226 208 691 364 347 1,076 33 39 120 205 175 537 643 628 726 1,867 1,838 4,720 Jun-14 225 213 325 192 204 1,245 236 225 702 369 351 1,094 34 39 115 193 186 544 681 616 791 1,930 1,834 4,816 Jul-14 224 214 335 226 172 1,299 250 243 709 363 332 1,125 35 50 100 203 186 561 611 601 801 1,912 1,798 4,930 Aug-14 228 239 324 221 192 1,328 226 207 728 361 365 1,121 35 33 102 206 184 583 652 580 873 1,929 1,800 5,059 Sep-14 240 238 326 184 217 1,295 256 232 752 385 337 1,169 35 37 100 212 208 587 676 600 949 1,988 1,869 5,178 Oct-14 253 232 347 181 193 1,283 186 243 695 381 416 1,134 55 32 123 193 179 601 690 669 970 1,939 1,964 5,153 Nov-14 223 195 375 139 174 1,248 209 202 702 293 401 1,026 37 36 124 161 166 596 569 575 964 1,631 1,749 5,035 Dec-1Mon, Feb 14 at 4:18 PM
Bruce OksolI just saw the Bakken Director's Cut, also, and was surprised how little activity there was (completed wells) considering the high price of oil. My hunch: huge supply change shortages in any number of places -- human resources, sand, trucks, parts to fix trucks, rigs, etc. There is a whole industry set up to rush needed parts to wells being drilled ("hotshot" companies) and my hunch is these guys are having trouble finding parts, or people to do the job.Mon, Feb 14 at 4:41 PM
r.j. sigmund <rjsigmund@gmail.com>To:Bruce OksolMon, Feb 14 at 5:09 PMi pretty much agree...here's my response from last week to an anonymous poster on a labor supply thread on an economic blog, in a series of comments:elsewhere in the same thread:rjsFebruary 9, 2022 at 5:49 pmbaffling, no matter how much you increase wages, some spots are going to remain unfilled…last week the BLS reported job openings increased to 10,925,000 in December, 61.8% higher than in December a year ago…they also reported non-farm payrolls were 2,875,000 jobs below those now indicated for February 2020, our jobs peak…no telling how many those working in February 2020 were among the 900,000+ Americans who died of Covid since, but for argument’s sake lets’s say they’re all still available…,another BLS survey last week showed the population of those over 16 had increased by 3,574,000 since February 2020 (i’m including the 1,066,000 upward revision to population also reported last week https://fred.stlouisfed.org/series/CNP16OV so by my arithmetic, than means there will still be 4,476,000 job openings that can’t be filled at whatever price, simply because of a shortage of warm bodies…
Comment: anyone who tells me there are always enough workers if the pay is high enough, has no clue -- Bruce Oksol.
EIA monthly Short Term Energy Outlook came out today:
https://www.eia.gov/outlooks/steo/
As usual, nothing radical, but some changes, since they can incorporate “what happened recently” (is there a fancy econ term for that)?
Crude price:
Near term up a bunch, since…well price is up now. But very backwardated. Whole strip moved but the impact is more on the near term and less on the .far out. I mean it all goes up (usually)…but the prompt gyrations overstate the long term expectations. EIA actually has their own price deck, not just using the strip. But it usually approximates the strip in shape/amount. Typically slightly higher (although maybe not now, given how crazy the strip is).
Crude production:
They seem to have incorporate both the recent outperform on production (we hit almost 11.8 MM bopd in NOV, from the last 914 survey) as well as the price deck going up. They moved DEC estimate up from 11.6 to 11.8 for instance. They do have a drop down in JAN (not sure why, maybe reversion to their model, maybe seasonality). They have 11.64 for JAN…but last month they had 11.56. So up some. And then their exit rate for DEC22 moved up from last month prediction: 12.19 going to 12.39. And DEC23 also up: 12.67 to 12.84. All of that still puts us under pre-Covid levels of production.
Overall:
A. The industry will naturally produce more when incented more with price. Still much slower under Biden (given price) than under Obama/Trump. But…it’s something to see some growth.
B. EIA has had a habit of misunderestimating shale. But I don’t think that’s the case now. Rig counts are very moderate, given price levels. We are in a regime where it is easier for EIA to make predictions.
i am watching usa distillate fuel and kerosene: stock and production.
I think inventory watching is overrated. If we’re backwardated, there’s an incentive to minimize inventory. If we’ve a forward curve to store it. (I’ve been at a refinery where we actually filled the tanks to try to make money on the roll…not sure it did anything but it made the McKinsey/Goldman/Carlisle hotshot manager feel like he was.) There’s this whole thing of looking at inventories to see if it looks like we have current supply/demand under/over 1. But really, the info you need is already in the futures strip itself.
I’m not an expert on refined products demand. Sort of makes sense that jet fuel would be in more demand. But really the US never went off a cliff like overseas areas did. Lot of internal air travel (which is most of ours, unlike Austria say) kept going even during the pandemic. Or had mostly come back last year. There’s a seasonal effect also (more travel in the summer), so the system is probably fine to meet demand even if up, right now (since we are in the slow time of year). Will be interesting to see what happens in the summer though.
odd enough that you should mention oil & gas production on a labor supply thread…DUCs (drilled but uncompleted wells) are at record lows in 4 major basins, and the lowest since February 2014 nationally….but a lot of what i’m seeing on industry sites right now are complaints they can’t find enough workers to increase production, even at higher pay…we already have 1.7 job openings for every person who’s looking for work, in almost every industry…but you can’t just hire anyone off the street to drill a well to 15,000 feet and then horizontally a mile or more through a 200 thick band of shale; in Ohio, there’s a Utica Shale Academy to teach that job….then, even if you get your extra wells drilled, you still have to contract a fracking crew to complete it for production to start…i’ve seen that a couple oilfield service providers are now talking about fielding another completion crew, but that won’t happen in the first half; you’d be talking about maybe 25 or 30 semi tractor trailers loaded with specialized equipment and the experienced personal to man them…
which brings me to this, from about a week ago:
DOI announces $1.5B in funding for orphaned well clean up – The Department of the Interior announced $1.15 billion in funding is available to states from the Bipartisan Infrastructure Law to create jobs cleaning up orphaned oil and gas wells across the country.This is a key initiative of President Biden’s Bipartisan Infrastructure Law, which allocated a total of $4.7 billion to create a new federal program to address orphan wells. Millions of Americans across the country live within a mile of an orphaned oil and gas well. Orphaned wells are polluting backyards, recreation areas, and public spaces across the country. The historic investments to clean up these hazardous sites will create good-paying, unionjobs, catalyze economic growth and revitalization, and reduce dangerous methane leaks.
the original theory behind funding the orphan well cleanup was that it would put unemployed oil and gas workers back to work…but with the industry already looking for workers, what do does DOI expect to do, train those who quit their jobs flipping burgers or stocking shelves to clean up those hazardous well sites? so it appears that either the orphan well cleanup effort will stall from a shortage of capable workers, or it will be done poorly by those who don’t know what they’re doing, creating a whole new problem of leakage from hundreds of poorly capped wells sometime in the future…
1. Good job steering it back to wages! For the reasons MC mentioned, I’m always skeptical of worker “shortages”. If you pay enough you can get people. It’s not like we have anywhere the activity of 2014 or even 2018. Yes, they’ve gotten sick of the boom/bust. But still, pay enough and you can get them. I’m not even sure that wages have reached the insane levels we saw in 2014 or 2018 yet either (especially CPIed). Not saying they haven’t just don’t know. And the whole “people complained and a news story was written is too anecdotal.
2. DUCs are low, agreed. There was a bulge of DUCs from the slowdown, but we’re getting close to working inventory now. Eventually, it becomes a constraint and you have to add rigs or drop spreads.
I usually figure 2:1 ratio needed. oil-directed rigs versus spreads (oil and gas, they don’t differentiate). It’s a very ballpark-y thumb rule but seems to work. Right now oil rigs is at 497 (post Covid record), but spreads are at 265 (and were as high as 275 before the holidays). So, we are a little under my 2:1 thumb rule. Not awful though. I do wonder if one of the reasons for the slow post-Xmas rebound of spreads is the DUC inventory situation and basically rigs becoming a bottleneck.
OPEC reported their production for January today, up by just 64,000 barrels per day over December…..the cartel including Russia had committed to increasing production by 400,000 barrels per day each month since July; it’s now looking like they’re running ~ 800,000 barrels per day short of that; almost 1% of global demand…
i earlier mentioned backwardation as another constraint on increasing US production…March 22 WTI closed just short of $90 today, but March 2023 WTI, which probably better represents the price they’d get after filing for a permit, moving a drilling rig to the site, and contracting a backlogged completion crew to frack the well, closed at $78.54…
and there it is, right in front of my eyes, but i missed it; if oil is $90 today but futures say it’s worth $78.54 a year from now, no one in their right mind would want to hold any inventory…