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Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

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Why Well Efficiency Is Overvalued

Oil Rig

When investing in energy companies, or anything else for that matter, we’re playing a bit of a game. There’s tons of information out there coming from oil companies and the analysts that cover them, trying to paint a certain picture on oil. On the other side are the media, mostly lacking in perspective and experience, trying to make a headline or story pitch that will get lots of views, clicks and interest.

Into that morass, we have to figure out what’s really happening, and make predictions on where to put our investment dollar. It’s not easy.

I don’t accuse anyone of misrepresentation – the oil companies are merely trying to show things in their best light, the analysts are trying to spur trading activity. Most journalists on oil come from a generalized financial background and don’t have a clue. But if you look hard, you can find unbiased, deeply researched data. And there are some experienced oil players that have no ‘side of the fight’ they need to be on, and can interpret data and generate useful opinions on where the next investment opportunity might be. I like to think I’m one of those players.

Let’s look at one idea that’s been getting enormous traction, but that I disagree with, during this oil shake-up of the last two plus years: That we’ve entered a new era of lower oil prices that are here to stay and oil companies have prepared themselves to survive it.

We know that most shale oil companies have spent much of the last two years concentrating on lowering spending, increasing efficiencies and doing a big PR effort to assure shareholders and Wall Street that their economics can withstand low oil prices longer than the other guy, with cash neutral promises that have been laughably in the $40-55 a barrel oil range.

Now, look at just a bit of data on Bakken shale drilling from a relatively unknown source (but a terrific one) – Enno Peters of Shaleprofile.com:

(Click to enlarge)

(Click to enalrge)

(Click to enlarge)

This raw data is spectacular in its simplicity, but even more in the lack of added commentary – without much analysis to accompany the interactive post, we’re free to draw whatever conclusions seems obvious from these graphs of Bakken shale oil production since 2007. Here are mine:

First, production in the Bakken is now in decline – it is not clear…




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