16. At $25 oil, the Bakken is at $13 to $15 after transportation which puts operators up there underwater after lifting costs, taxes and carrying royalty owner costs. Sub $30 oil will not only kill development drilling, but it will be where production stops. In cases where operators are committed to selling natural gas produced alongside oil there may be a reason to continue due to supply obligations, but otherwise what’s the point? If you want to lose money buy a boat. It’s more fun.

6 Things to Ignore

1. This is not the 1980’s with 14+ mb/d spare capacity. In 2016, we are oversupplied by about 1.5 percent and it will be at zero by early to mid-2017. The last time we were at zero was late 2013/early 2014 when WTI was at $100 and Brent up around $105+.

2. Lower for longer is true but $29 oil is not. This is a classic over-sold scenario and likely somewhere in the realm of capitulation. Operators and service companies can find a footing at $50 oil. We won’t prosper but we’ll survive. $100 may be a long way off and that’s because ridiculously high, sustained oil prices only leads to ridiculously low sustained oil prices. But who wants $100? It will only get us back to $30. The industry makes no sense at the top or the bottom. The high middle is best.

3. Demand is dropping. Not true. Demand growth may be slowing but not by much. Consumption is up and it is increasing.

4. Chinese demand is down. The rate of growth may slow in 2016 but it will still be up year-over-year. A 6.8 percent Chinese economy is consuming more oil now than a 10 percent economy was 5 years ago. A lot more.

5. We’re going to float the lids right off our oil tanks. Don’t worry. You can sleep tight. We’re not.

6. Efficiency gains are offsetting the declining rig count. This one is always amusing. Give me the rig count and higher density fracking and you take all the recent efficiency gains and let’s see who gets invited to the bank’s Christmas party.

6 Things You Shouldn’t Ignore

1. Q1 oil prices are going to be ugly. Try and ignore them if you can. The market will remain uncertain over Iran as it determines and adjusts to how much oil is coming on.

2. Hedges coming off will not bode well for producers and the service companies looking to them for a lifeline.

3. Spring debt redeterminations may knock the wind out of the E&Ps. If capitulation hasn’t already occurred, it will then.

4. China. The sinking Shanghai Composite Index is oil’s anchor.

5. Pioneer and other chest thumpers getting too aggressive. Any recovery will be short lived if they jump the rig count as they did in the short-lived Spring 2015 rally. Traders are fixated on even meaningless moves in the rig count. Best to play it cool. We all want to work but operators need to practice some restraint.

6. Lack of capitulation. There will be no recovery until there is general agreement that the shorts cannot drag the market any lower. The Saudi’s, with Russia following, can always point to a large U.S. failure as proof that they did not blink first.

14 Things We Owe Ourselves:

1. The water wars of 3 or so years ago are mostly solved. Recycling frac water is now a “gimme”. Marcellus operators like Shell and Cabot are able to boast of 99 percent recycle rates. We still have hurdles with deep well brine injection but the issues are getting defined and will be addressed.

2. Progress is being made on recognizing and reducing methane emissions from well sites. Ultimately, this could slow drilling in places like the Bakken until infrastructure is in place, but it will also move operators to effectively use lease gas to power operations.

3. No government agency provided directives for Halliburton and Pattison to build dual fuel frac fleets that run on clean burning lease gas. They just did it in cooperation with their customers.

4. We’ve proven than natural gas is beyond abundant.

5. There have been fewer bankruptcies than anticipated.

6. No one has been arrested yet for fracking.

7. Harold Hamm was still able to write a billion dollar personal check.

8. Aubrey McClendon was still able to raise fresh money.

9. T. Boone Pickens overshot the mark with an $80 call but his optimism helped us – a lot.

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