Don’t Mess With Texas

Bloomberg: Texas Is About to Create OPEC’s Worst Nightmare

Fairly sensational headline but some good soundbites.  The pain trade that nobody/everybody expects is for Saudi to keep pumping.  Yes, I know it exhausts their fields and plays havoc with revenue for their massive social programs but it didn’t stop them in ’15/’16.

Now growth is speeding up. In Houston, the U.S. oil capital, shale executives are trying out different superlatives to describe what’s coming. “Tsunami,’’ they call it. A “flooding of Biblical proportions’’ and “onslaught of supply’’ are phrases that get tossed around. Take the hyperbolic industry talk with a pinch of salt, but certainly the American oil industry, particularly in the Permian, has raised a buzz loud enough to keep OPEC awake.

Only a few months ago, the consensus was that the Permian and U.S. oil production more widely was going to hit a plateau this past summer. It would flat-line through the rest of this year and 2019 due to pipeline constraints, only to start growing again — perhaps — in early 2020.

If that had happened, Saudi Arabia would’ve had an easier job, most likely avoiding output cuts next year because production losses in Venezuela and sanctions on Iran would have done the trick.

Instead, August saw the largest annual increase in U.S. oil production in 98 years, according to government data. The American energy industry added, in crude and other oil liquids, nearly 3 million barrels, roughly the equivalent of what Kuwait pumps, than it did in the same month last year. Total output of 15.9 million barrels a day was more than Russia or Saudi Arabia.

“The narrative has shifted significantly,’’ said John Coleman, a Houston-based oil consultant at Wood Mackenzie Ltd. “Six months ago, the market expected the bottleneck to ease in the first quarter of 2020. Now, it expects it in the second to third quarter of 2019.’’





4 thoughts on “Don’t Mess With Texas

  1. What do you think about this? 75% of the companies are losing money?There is no price/production discipline. If the losing companies fold, the majors( with which TPL is associated)may control this better.

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    • I’m not an expert but my understanding of Texas E&P culture is that it’s always been this way. Marginal producers always out there looking for an exit via acquisition and thus ok running cash flow negative especially when capital is cheap. My guess is that the majors have tight control over the whole thing 5-10 years out.


      • You have it right. Spent a few years in the E&P business in the early 1980’s in Texas. Met some “good old boys” that said its not if you make money that counts, its all about the potential to make money that can be sold to better capitalized players.

        One quote that has stuck with me. “You don’t even have to find oil, but just sell the idea the next buyer of the properties will. I made big money last year, and the only oil I found was checking the dipstick on my Eldorado.”

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