End game to the oil rout, page-33

"Oil is head for $10 to $20 per barrel"

http://www.bloomberg.com/news/artic...ummer-signals-price-rout-is-nowhere-near-done

Personally I think something will have to give before prices like these are reached and here is my argument for why the shale industry can't beat the Saudis at this game.

Despite all the shale/fracking industry cheerleading going on about how they are reducing costs dramatically and at a rapid rate and putting pressure on "bankrupt" Saudi oil, the below articles highlight very clearly the inherent problem that shale/fracking companies face trying to win the price war. Their wells are not as adaptable as conventional wells. You can't cycle (turn on and off) a stimulated well in most instances without losing production, sometimes by as much as 50%.

This means when the US shale producer drills a well the decision to stimulate triggers that individual wells return on capital life cycle which can't be reversed, slowed down or stopped without dire consequences for the future productivity of that well. If the producer is just profitable at todays price and they push the stimulation button on their recently drilled well they can't shut it off if the oil/gas price falls further, so what is a profitable well today could easily become unprofitable tomorrow.  The Saudis can store their oil in the ground by turning the tap of without dire consequences for the future productivity of their wells. The credit fuelled shale industry is caught in a trap of its own making and in a price war that it has created and that it can't win despite all the talk about the increased speed and lower costs of drilling. The reality is that even with increased speed of drilling and the attendant lowering of capital intensities, the more they drill the deeper they dig the hole for themselves as they incrementally just end having to make the choice between losing money on or shutting down older less productive wells. Shutting down (or losing money on) any well before it yields its full economic potential would seem an inherent waste of capital to me and this is what will happen IMO as the bubble bursts.

http://www.cbc.ca/news/business/oil-storage-tanks-filled-to-levels-not-seen-in-80-years-1.3190001
http://www.cbc.ca/news/business/oil-industry-searching-for-storage-options-1.3042550

Eshmun