An interesting fact from the Bloomberg documentary "Inside Chevron" last night. Hofmeister, ex-President of Shell stated that the production decline rate for a shale well is 50% the first year [and presumably 50%/year thereafter]. That means that oilco's have to keep the rigs churning just to replace wells that may only have a three or four year life. Presumably they have already drilled the most prolific sites. If you missed it (23 minutes):
Most traditional wells last twenty or more years and decline much more slowly. As the onshore rig count continues to drop, the supply curve should be turning flat soon and then down as the demand curve continues slowly upward. That should turn oil prices upward and so the cycle repeats. Hanging on to my oilco's.
Chevron's $4bn "Bigfoot" platform's "tension legs" (tubular anchoring devices for the floating platform) have failed during installation (sunk to the bottom of the sea) so that production scheduled for December is indefinitely deferred until they figure out how to fix the problem. I'm not cheering (also hold CVX) but that is another couple hundred thousand barrels less to hit the market.
Also covered in the documentary: Chevron (+Exxon, Shell, etc.) IMO will probably slow their US$54bn LNG Gorgon project offshore Australia. It is way over budget and will probably be slow-walked for a while (to conserve cash) until prices recover.
Hofmeister also mentions that large oilco's (like BHP Billiton) have twenty-year timelines in their projects. They do not base project economics on today's prices.