Re: Rig Count Chart
"I believe shale oil production can increase with half the rigs. At least for a year or two. It happened with Haynesville gas when everyone said it couldn't. Marcellus showed a very similar response to a smaller drop in rigs."
I'm not sure exactly what you and W are saying either. And I'd be careful comparing a single play (Haynesville or Marcellus) that was fairly new at the time with an entire industry that includes a lot more types of plays that are a lot more mature.
Even in just a single play, say the Haynesville, the math isn't the same. The Haynesville was fairly new at the time of the gas price collapse so the magnitude of the production that had to be replaced in order to grow was a lot smaller. People use the analogy of rats on the treadmill, which is a good one for tight reservoirs like shale - the math is such that every year the treadmill goes faster and faster because the magnitude of the production that is in its first couple of years of (high) decline is larger, so there's more production to replace in order to grow. Go back and look at the history of UPRC when they wanted to be King of the Austin Chalk in the early nineties. Even without changes in pricing, eventually the rat drops dead.
There's no question that production for calendar 2015 will be higher than production for calendar 2014. The contributing factors for this are:
1. Momentum from 2014 (despite talk of shale being the new swing producer, it can't start and stop on a dime primarily because of pad drilling),
2. Most companies have really strong hedges in place for 2015 that they can use to bolster their program (can spend more without increasing debt)
3. Capital efficiency will increase, primarily because companies will focus their programs on their best assets. And because costs will come down to rebalance with activity.
By mid-2015 into 2016, #1 and #2 will be gone. And the cost thing should pretty much be done. So you're down to the "best assets" thing, and at a point you've drilled that up as well.
And all of that ignores the changes that will be happening in the plays that aren't shales.
Read an interview with Rich Kinder this week and he says that the world-wide industry can't meet supply growth in the intermediate to long term at $45 or $50. His sense is that an equilibrium price is $65 to $75. I think he's pretty damn close with that opinion, maybe a smidge high on the price, maybe not.