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Message
re: OPEC agrees to production cut
Posted on 9/28/16 at 7:59 pm to EngineerOnDemand
Posted on 9/28/16 at 7:59 pm to EngineerOnDemand
quote:
EngineerOnDemand
Thanks for the explanation.
Most people are just posting that they didn't like my post and didn't state what was wrong, so I guess they had no valid response. Anyway, I'm not in that industry. I'm a consumer. While I want gas to be as cheap as possible personally, as I said, I'm good with gas being a price that isn't too high to the consumer, but allows the oil companies and their partners to make some profit.
As a consumer, it's easy to remember $100+/barrel oil and $4+/gallon gas, and watch the news and see that BP/Exxon/Shell were making $1B a day profit. I would hope they saved some of that money for days like you are describing.
As a consumer, $4/gallon gas puts a huge burden on most people. I know the price of gas is tied to the price of oil at a certain level, but they don't seem to trend up and down together, at least not at a 1:1 correlation.
I threw out $2-2.25/gallon as a fair price. That's about where we are now locally, but have been as low as $1.70 in the last year. Once it gets above $2.75/gallon I see it being a burden for many people around me. I can't really speak to people in other parts of the country.
I also don't work in an industry that benefits or suffers form the price of oil. I try to be as sympathetic as possible, but it's not a world I live in.
I also remember when the $4/gallon gas was around, the baws on here bragging about upgraded trucks/boats/homes. As I mentioned to an earlier poster, Apple can charge whatever they want, no one "needs" an iPhone, but most everyone needs gas. I like profit and prosperity, but there has to be order to it as well for the good of the overall economy.
What's the happy medium? What's the sweet spot for oil prices and gas to be affordable, but worth the cost to the companies to produce it?
1
Posted on 9/28/16 at 8:01 pm to EngineerOnDemand
Time to get your truck nuts out of hawk boys.
Posted on 9/28/16 at 8:03 pm to Rhino5
quote:
Oil stocks took off this afternoon too
Reactionary market is predictably reactionary.
Posted on 9/28/16 at 8:08 pm to kywildcatfanone
Not a problem with the explanation. I have an issue with people and speculation that oil companies turn massive profits at the expense of the consumer. It's the most volatile industry from a commodities standpoint, which is why most oil companies are short sighted on returns. I do believe 60-65/bbl would be a fair price point. Should equate to $3.00-3.25/gal of gasoline.
Another conversation we never have is how well off we have it, paying so little for gasoline in comparison to most other countries. In Europe, most consumers pay the equivalent price but per liter. We have one of the cheapest consumer prices per volume in the world. It's also the reason why people buy the largest volume vehicles in the world here ironically.
Another conversation we never have is how well off we have it, paying so little for gasoline in comparison to most other countries. In Europe, most consumers pay the equivalent price but per liter. We have one of the cheapest consumer prices per volume in the world. It's also the reason why people buy the largest volume vehicles in the world here ironically.
Posted on 9/28/16 at 8:18 pm to EngineerOnDemand
I could concede $3/gallon gas if that were an average. Not sure how other people feel about that.
I have heard that gas is around $8/gallon in Europe. I'm sure there are factors for that, but like with a lot of things, I'm sure they have adapted. My guess is they all are driving something akin to a smart car.
If you had $8/gallon gas here, the entire economy would collapse I would think.
I have heard that gas is around $8/gallon in Europe. I'm sure there are factors for that, but like with a lot of things, I'm sure they have adapted. My guess is they all are driving something akin to a smart car.
If you had $8/gallon gas here, the entire economy would collapse I would think.
Posted on 9/28/16 at 8:23 pm to EngineerOnDemand
quote:
Well costs are about $10/bbl to drill, complete and tie in.
Taxes and royalties to owners make up about 25% of revenue, so in a $50 world, $12.5/bbl.
Transportation and processing costs usually run around $2/bbl.
Operating costs are usually around $7/bbl.
So assuming you have no overhead, that's about $20/bbl left over.
Well we aren't in a $50 world and wells typically don't pay out for 5 years, so after discounting cash flows by a standard 10% annually, you are essentially not making any money. Add in the burden of $28/bbl at some points this year, most companies selling to the free market were losing money with each barrel produced.
It's not as simple as putting a damn hole in the ground and producing. It's ridiculous when people claim oil and gas makes a ton of money when most companies haven't shown positive free cash flow in over 2 years.
Not a bad breakdown overall. It is hard to make this kind of breakdown due to the difference between each play.
Overall though you are low on the Transportation/Processing cost. The cost to move from Colorado City to Nederland at committed basis on PE2 ranges from $1.95-$2.90 alone. Source, if anyone wants it. So on top of that you have processing costs, gathering costs, loss allowance, etc. etc. etc. Note that the Permian is relatively close to the Gulf Coast, oil out of the Bakken has to go quite a bit farther.
You may be slightly low on taxes/royalties though that varies from state to state. Some landowners are getting 25% as their royalty period. Then you have taxes on top of that.
So the overall picture is that $50/bbl oil isn't nearly as cheerful as the uninformed think. Upstream can make bunches when prices are over $100/bbl but that is all balanced against the tough times, yet idiots never take that into account.
This post was edited on 9/28/16 at 8:24 pm
Posted on 9/28/16 at 8:24 pm to kywildcatfanone
They drive smaller cars and the railway system is incredible.
Posted on 9/28/16 at 8:25 pm to kywildcatfanone
quote:
Greed is the problem here.
no, your limited understanding of the world you live in is "the problem here"
Posted on 9/28/16 at 8:26 pm to kywildcatfanone
Yeah, they have much smaller vehicles and most don't commute far to work. They also use public transportation to avoid driving everyday to work. The kicker is just like everything else in the world, people adapt pretty well. Just like when gasoline was over $4/gallon, people thought a lot more about their traveling decisions. You just weigh the pros and cons.
Craziest thing about all this is airlines claim a majority of their costs are related to fuel. Well tickets haven't really came down with fuel prices coming down. I could imagine the first year they may have hedged their prices high and these costs were pushed on the consumer, but it's very difficult to hedge oil more than a year. Prices have been down for almost 2 years, so their costs should have been much farther down in the last year, but they're not. You can't blame the producer for that...
Craziest thing about all this is airlines claim a majority of their costs are related to fuel. Well tickets haven't really came down with fuel prices coming down. I could imagine the first year they may have hedged their prices high and these costs were pushed on the consumer, but it's very difficult to hedge oil more than a year. Prices have been down for almost 2 years, so their costs should have been much farther down in the last year, but they're not. You can't blame the producer for that...
Posted on 9/28/16 at 8:28 pm to CorporateTiger
I was just ballparking it for people not in the field. I do think an average breakeven price for most producers is in that $40-45/bbl range. But I wanted to show the complexity.
Posted on 9/28/16 at 8:29 pm to EngineerOnDemand
quote:
Craziest thing about all this is airlines claim a majority of their costs are related to fuel. Well tickets haven't really came down with fuel prices coming down. I could imagine the first year they may have hedged their prices high and these costs were pushed on the consumer, but it's very difficult to hedge oil more than a year. Prices have been down for almost 2 years, so their costs should have been much farther down in the last year, but they're not. You can't blame the producer for that...
Agree. Airlines raised prices when fuel costs were high, and they never came down. People seem to have accepted that. The also added baggage fees, which rake in billions of dollars each year.
Posted on 9/28/16 at 8:32 pm to EngineerOnDemand
No understood.
I just wanted to provide a concrete example and further reinforce the complexity involved in this stuff.
I just wanted to provide a concrete example and further reinforce the complexity involved in this stuff.
Posted on 9/28/16 at 8:38 pm to kywildcatfanone
quote:
I'm good with oil companies making profit, but it doesn't need to be extreme profits at the expense of the buying public who need their services.
It is an open market refineries like Valero, Chevron, Marathon Phillips 66, Shell, Exxon and PBF all have to compete with one another and this prevents price gouging and also promotes efficiency.
There was a reason Standard Oil was deemed a monopoly and broken up into Exxon, Mobil and Chevron by the US government. It was to create competition in an open market to reduce and stabilize prices.
Posted on 9/28/16 at 8:44 pm to EngineerOnDemand
quote:
Wednesday at a meeting in Algiers.
Im guessing they took the ferry?
Posted on 9/28/16 at 8:57 pm to EngineerOnDemand
Let's not forget, the last 8 years of the current administration have not been exactly kind to business in the lines of regulations. Increased regulations in O&G and the other industries that feed it and feed off of it cause higher operating cost.
Posted on 9/29/16 at 3:04 am to EngineerOnDemand
quote:
Taxes and royalties to owners make up about 25% of revenue, so in a $50 world, $12.5/bbl.
I'd say that's a low estimate if you are including taxes and royalties.
Posted on 9/29/16 at 6:31 am to JudgeHolden
Well I've seen royalties as low as 12.5% and as high as 33%. Oil severance taxes in TX I think are 4.6%. Add in 2.5ish% for ad valorem and your average is probably closer to an all inclusive 30%. Once again we are starting to splice. Another consideration is not many people get WTI pricing from a regional perspective, it's usually a location and regional differential of about $2-6/bbl depending where your market is.
Posted on 9/29/16 at 6:54 am to kywildcatfanone
quote:
I could concede $3/gallon gas
Why? That's $1.00 higher than it is now. More in my area, actually.
If everyone instead paid 50 cents a gallon tax that money could be used to pay 700,00 laid off workers $100k a year.
That would actually work out better for most.
Posted on 9/29/16 at 7:17 am to EngineerOnDemand
That's another reason why we need to wean off of oil. Foreign oil is under a non competitive cartel. Domestic oil is heavily subsidized by the taxpayers. Free markets non existent and loathed by all producers.
Posted on 9/29/16 at 7:44 am to Overbrook
quote:
Domestic oil is heavily subsidized by the taxpayers.
Where did you get this ridiculous information from? Oil is one of the most competitive free markets in existence. It's purely based on a supply and demand curve which is why we have seen the huge swings in prices. In fact, we (the US) are one of the few countries (maybe only) where royalties are paid to individuals and not just the government. So the people who are fortunate enough to have economic minerals in this country are compensated for it. In Canada for example, you get a lease from the government and the people on the land have to just deal with the fact you can produce from under their house. They get absolutely nothing in return. The states and US government also don't shy from taking their pay by either severance taxes, ad valorem taxes, or straight income taxes which are one of the highest in the world for corporations.
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