Morgan Stanley's Warning | Russell T. Rudy Energy LLC
When oil prices collapsed, rigs counts, and ultimately production, followed suit. “World Oil” reports that Morgan Stanley now warns that the reverse might be taking place. The investment banking firm cautions that as prices recover, rig counts and production will increase, threatening any price improvement.
Adam Longson, who led the Morgan Stanley analysis, notes that the current rig count in the highest initial production counties of the Midland Basin in West Texas continues to rise. In fact the rig count in this area of the Permian Basin, is approaching its 2015 peak. He observes that not only are a relatively large number of rigs running, but they are also in high yield fields. This could ultimately have a significant impact on production.
Art Berman with “Forbes” points out that rigs don’t produce oil, but rather, wells produce oil. Further, even if the rig count drops, that does not necessarily mean that production will. In fact, since 2014 rig counts have been in steady and steep decline, but the number of wells continued to increase through February of this year. This is partly because operators are drilling more efficiently, and partly because more wells are being added than are being plugged and abandoned.
Shale operators walk a fine line; they need revenue from incremental production, but they don’t want to ramp up activity and compromise current prices. However, financing for new wells is becoming increasingly difficult to find. Lenders who are already concerned about the high debt levels of borrowers are naturally hesitant to advance even more money, especially if in so doing, it could compromise future prices.
To read the article in its entirety, please go to http://www.oilvoice.com/n/Morgan-Stanley-Warns-That-Rising-Rig-Count-Could-Undo-The-Rally/3b7a6a3018e6.aspx .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
