Largest Bakken Producer Shuts In Almost All Production

Guest “end the hostage crisis now!” by David Middleton

Continental Resources Halts Shale Output, Seeks to Cancel Sales
Devika Krishna Kumar and Liz Hampton, Reuters

Fri, 04/24/2020 – 04:20 AM

The largest oil producer in North Dakota has halted most of its production in the U.S. state and notified some customers it would not supply crude after prices dived into negative territory this week, people familiar with the matter said.

Continental Resources Inc., the company controlled by billionaire Harold Hamm, stopped all drilling and shut in most of its wells in the state’s Bakken shale field, three people familiar with production in the state said April 23.

Global oil prices have plunged because of excess supplies and tumbling demand due to the coronavirus crisis.

U.S. crude prices plunged into negative territory this week—meaning suppliers had to pay people to take oil—due to lack of storage space, prompting moves by operators to halt output.

Shut-ins have been particularly swift in North Dakota, which produced more than 1.4 million bbl/d of oil in 2019, making it the second-largest U.S. producing state after Texas.

State officials say production has already dropped by about 300,000 bbl/d. This month, rival operator in North Dakota Whiting Petroleum Corp. became the first major shale producer to file for bankruptcy.

Coming into this year, Continental produced nearly 150,000 bbl/d in the Bakken, according to company figures.

[…]

Hart Energy

Continental Resources has also declared force majeure on current contracts to deliver crude oil at current prices. Legal experts are dubious regarding their force majeure claim. Continental, one of the most financially successful “shale” players, does not hedge production and was, therefore, highly exposed to the sudden price drop.

Continental Resources Draws Anger with Decision to Cancel Oil Sales
Liz Hampton, Stephanie Kelly and Devika Krishna Kumar, Reuters

Fri, 04/24/2020

Oil billionaire and influential Trump adviser Harold Hamm drew a sharp response from a top industry group and questions from legal experts after his company, Continental Resources Inc., said April 23 it could not deliver crude to customers, citing hardships based on low prices.

With fuel demand destroyed by the coronavirus pandemic as people worldwide stopped driving and taking flights, oil producers have been forced to store hundreds of millions of barrels of crude and fuel that would otherwise have been consumed. With tanks now brimming, producers are cutting output.

Continental Resources, the largest producer in North Dakota, stopped all drilling there, shut in wells and issued a force majeure notice, according to three sources familiar with the matter, an action typically reserved for situations out of a company’s control, such as natural disasters.

[…]

However, North Dakota oil regulators this week decided not to label current production as “economic waste,” which would have them the rationale to mandate production cuts. The state’s Industrial Commission said it will hold a meeting soon to consider this possibility, but regulators have been reluctant to mandate cuts.

“I think it’s going to be very difficult for them to assert economic force majeure, which is basically what they’re doing,” said Ted Borrego, who has practiced oil and gas law for over 45 years and teaches at the University of Houston Law Center. “I think the chances of success are pretty close to zero.”

Continental also produces in Oklahoma, which this week issued an emergency order allowing producers to shut in wells without fear of losing leases.

[…]

A producer who saw the notice predicted legal action, saying, “The only way there will be a force majeure on the producer side is if states prorate production.”

Continental is exposed to weak prices because it did not hedge future production, betting economic growth would lift prices. Many large shale producers use derivatives as a type of insurance policy to lock in a price for their future output.

Bakken crude this week was selling regionally at roughly $3/bbl, far below the U.S. benchmark, said Ron Ness, president of the North Dakota Petroleum Council. Benchmark U.S. WTI crude settled at $16.50 on April 23.

Hart Energy

Does Continental have a valid force majeure claim? The recent plunge in oil prices is entirely due to government malfeasance, starting with Red China: The ChiCom-19/Fire Marshal Gump Hostage Crisis. So, maybe they do… Of course this raises the question, “Could financial institutions declare force majeure and refuse to honor $50-60/bbl hedge contracts?” It’s a potential “slippery slope.”

“ChiCom-19” is my intentionally politically incorrect rebranding of all things pertaining to the Chinese Communist coronavirus. “Fire Marshal Gump” is my nickname for Dallas County’s chief executive, County Judge Clay Jenkins. Generically, Fire Marshal Gumps are the tyrannical mayors, county officials and governors who have unconstitutionally placed their citizens under house arrest to protect us from the Kung Flu.

Fortunately, the US Attorney General may take action against the Fire Marshal Gumps of America:

Barr calls stay-at-home orders ‘disturbingly close to house arrest’
The attorney general said the Justice Department may consider taking legal action against states that go too far.

April 21, 2020, 5:06 PM CDT / Updated April 21, 2020, 5:12 PM CDT

By Pete Williams

WASHINGTON — Attorney General William Barr said Tuesday that the need for strong restrictions to stop the spread of the coronavirus may be passing and that the Justice Department might consider taking legal action against states that go too far.

“There are very, very burdensome impingements on liberty,” he told radio talk show host Hugh Hewitt, “and we adopted them for the limited purpose of slowing down the spread. We didn’t adopt them as the comprehensive way of dealing with this disease. We are now seeing that these are bending the curve, and we have to come up with more targeted approaches.”

[…]

The Justice Department took just such an action just last week, filing a statement in support of a small Mississippi church that sued city officials who tried to shut down a drive-in church service while allowing a local drive-in restaurant to stay open.

He called stay-at-home orders “disturbingly close to house arrest.”

NBC News

ChiCom-19 and Fire Marshal Gump are reversing this faster than Sandy Cortez on amphetamines could…

https://wattsupwiththat.com/2019/03/11/another-failed-energy-prediction-peak-oil-demand/

Speaking of Sandy Cortez

I couldn’t make this sort of schist up if I was trying.

79 thoughts on “Largest Bakken Producer Shuts In Almost All Production

  1. David, I am tempted to think that a global pandemic, which specifically hits your sector of the economy directly, does qualify for force majeure. Billionaires, in my experience, tend to be clear thinkers, so I am also tempted to think they will figure out a survival strategy. Are you surprised that AOC, and other liberals, don’t want to go back to work? Reserve me a seat on the gravy train and legalize marijuana and no pasa nada. Here’s some positive news: Uncle Alberto (Argentina President Alberto Fernandez) has decreed that starting tomorrow all persons in Argentina can leave their house and walk for one hour no further than 500 meters from their house (while obeying mask, social spacing, etc protocols)! This is timely for me as the dogs had persuaded me to revolt, so tomorrow is partial freedom day. Stay sane and safe.

    • In Spain, one of the strictest lockdown countries, children are now allowed to go out for 1 hour with a parent and from 2nd May everyone will be allowed out for walks and exercise.

      • In South Africa, residents of walled and gated communities are NOT allowed to walk inside their complex, even with separation! And from the first of May, we have an 8 pm to 5 am curfew – apparently the virus wanders around at night, and could get shot by the army patrols!

  2. I would not hold my breath waiting for AG Barr to do anything for the American people. He is part of the Swamp.

    • We could have worse. A lot worse. He hasn’t yet put a foot wrong. When he does, shout about it.

    • I don’t think much, if any, oil was physically delivered at no cost, or negative pricing.

      Since congressional Democrats have blocked funding to top off the SPR, DOE will lease out storage space to the industry.

  3. Smart business move and I doubt there is anything else they could do to minimize the damage. This will definitely be a hiccup in their spreadsheet.

  4. We haven’t even begun to plumb the depths of the economic disaster enforced on the public by our government in the hopes they will “flatten the curve”. Often they use the words “to save lives”. There is no proof that any lives will be saved except where medical facilities have been overwhelmed.

  5. I’m beginning to wonder if legal action by citizens against their governments might be possible after this fiasco ends. I live in BC, Canada’s westernmost province; we are in economic shut-down from both federal and provincial government directives.

    From Bonny Henry’s presentation Saturday afternoon: (Bonny Henry is BC’s Chief Medical Officer, a provincial government position)

    Total Covid19 cases to date in BC: 1,948.

    Total Covid19 (‘related’) deaths to date: 100

    Total number of Covid19 patients in hospital: 96 (note that there are 199 hospitals in BC). Less than one patient in every other hospital. Or, on average at least half of the hospitals have NO Covid19 patients, and the other half will on average have at most one. In which hospitals are there over-worked medical staff?–I’d like to have even one identified.

    Not from Bonny Henry’s presentation: BC’s population as of January 2020: 5.11 million.

    Total identified cases as of yesterday afternoon is 1,948/5.11 million = 0.038% of the population.

    Total deaths as of yesterday afternoon is 100/5.11 million = 0.00196% of the population. (This number rounds off to….0%.)

    Total deaths in BC in 2019–38,374. On average this is 3,198/month; Covid deaths have been occurring for about 2 months. Total Covid is 100/6396 or 1.6% of a normal death number.

    Deaths from Covid are probably over-counted, as there will be some that are listed as Covid19 deaths that actually died of something else but coronavirus was present.

    From other statistics in different jurisdictions (ie California) the indication is that number of infections is grossly under-reported, as testing density just isn’t anywhere close to sufficient to determine that number.

    During the same period of time in BC (1st quarter): there will have been more deaths from each category of auto accidents, suicide, and illicit drug use than from coronavirus, according to the annual report of the BC Coroner’s Service.

    There is simply no rational thought that justifies the shut-down of BC’s/Canada’s economy. Just….none. Does Bunny Henry in particular and government in general really believe it’s functioning correctly? By what standard? From Trudeau on down in Canada when this is over the people responsible for the economic loss should be brought to answer breach of public trust and possibly criminal negligence charges; the damage is certainly extensive. The evidence that early no-or-poor-data models were grossly wrong has been evident for far too long, and it may have been criminal to use them with such poor data in the first place. (I note that from definition a breach of public trust charge does not require malice; negligence is a valid reason.)

    • I did not hear Dr Henry yesterday, but the day before both she and Trudeau sounded as if they are beginning to need to keep us scared so as to avoid a backlash when people realize they have been had. Unfortunately there is still too much fear around in the older group, people who are on pensions and who are not terribly finacially affected by the shutdown. This morning, on dock with a 20 knot breeze blowing between us, the wharfinger backed off hurridly when I got to 10 feet from him. According to the Daily Mail, a vast majority of Brits also want the lockdown to continue. All this is going to make restarting any kind of economic recovery difficult, and I believe the polititians are trying to play into it.

    • Not only are they under-worked based on covid numbers but many elective surgeries have been postponed to keep space clear. Here in Saskatchewan we are getting ready to start re-opening but our lockdown has been a little more reasonable.

  6. In my opinion, this doesn’t make any sense. If they didn’t hedge their production, what contracts are they violating? If they simply have to honor contracts to sell at the market price, why produce anything at all when the market price is so low? Simply get paid to take delivery from some of these -30/bbl futures contracts and deliver them to the customer.

    “notified some customers it would not supply crude after prices dived into negative territory this week.”

    In that situation, what does production have to do with anything? People are getting paid to take the delivery of oil. If they didn’t hedge their oil production, how are they even part of that equation?

    Continental Resources has also declared force majeure on current contracts to deliver crude oil at current prices.

    One part of the article states they didn’t hedge their oil production.

    Continental is exposed to weak prices because it did not hedge future production

    In my opinion, none of this article makes any sense.

    Continental should simply get paid to take delivery of existing oil contracts and deliver them to their customers. Continental doesn’t need to do any production at all in that situation, they simply become the broker of oil that can’t be stored and need to be delivered to a customer.

    Someone please tell me where I’m wrong.

    • That’s not how hedging works.

      Oil producers contract with distributors (pipelines, refiners, etc.) to deliver oil at market prices. Hedges are financial instruments producers can purchase, primarily as an insurance policy against falling oil prices.

  7. In my opinion, this doesn’t make any sense. If they didn’t hedge their production, what contracts are they violating? If they simply have to honor contracts to sell at the market price, why produce anything at all when the market price is so low? Simply get paid to take delivery from some of these -30/bbl futures contracts and deliver them to the customer.

    “notified some customers it would not supply crude after prices dived into negative territory this week.”

    In that situation, what does production have to do with anything? People are getting paid to take the delivery of oil. If they didn’t hedge their oil production, how are they even part of that equation?

    Continental Resources has also declared force majeure on current contracts to deliver crude oil at current prices.

    One part of the article states they didn’t hedge their oil production.

    Continental is exposed to weak prices because it did not hedge future production

    In my opinion, none of this article makes any sense.

    Continental should simply get paid to take delivery of existing oil contracts and deliver them to their customers. Continental doesn’t need to do any production at all in that situation, they simply become the broker of oil that can’t be stored and need to be delivered to a customer.

    Someone, please tell me where I’m wrong.

    • well, they’ve shut in… so they won’t have the oil to deliver in the first place. I’d start there.

  8. It is possible that a force majeure clause might include specific language incorporating “epidemics.”

    It is also not impossible that the generic term force majeure may be adjudged to include “epidemics” or “pandemics.”

    Individual facts and circumstances (and, yes, litigation) will be the primary determinants.

    From wikipedia:
    …Force majeure in any given situation is controlled by the law governing the contract, rather than general concepts of force majeure. The law of the contract often specified by a choice of law clause in the agreement, and if not is decided by a statute or principals of general law which apply to the contract…

    Hedging won’t do a damn bit of good if your counterparty goes bust.

    • Continental Resources it appears will not be able to declare force majeure. Continental’s out is to declare bankruptcy.

      Force Majeure appears also does not apply for a hedge fund that is trying to avoid paying out because the price of oil dropped more than would be reasonably expected.

      If the covid virus made it impossible to get a key ingredient to complete a task on time and there was no alternative, that could be grounds to declare Force Majeure and get a contract rescheduled.

      A hurricane for example could make it impossible to complete the construction of building on time. That is force majeure.

      In this case, Continental Resources can execute the contract . The problem is the price of oil dropped so it is no longer profitable to continue to drill to maintain production rate.

      Courts do not do not change contracts to make them fairer.

      https://www.shearman.com/perspectives/2020/03/covid-19–force-majeure-event

      Events Capable of Constituting Force Majeure
      The “test” for force majeure usually requires the satisfaction of three distinct criteria:
      • the event must be beyond the reasonable control of the affected party;
      Yes
      • the affected party’s ability to perform its obligations under the contract must have been prevented, impeded or hindered by the event; and
      No

      • That is how this differs from force najeure declarations during Obama’s unlawful drilling moratorium. Oil companies were prevented from drilling wells, making it impossible to fulfill rig contract obligations.

        I don’t think Continental’s only other option is bankruptcy.

        • I wish there was. I really do.

          Continental’s cost of production, is higher than the price of oil, plus transportation and tankage costs.

          Until the price of oil recovers, Continental’s only option is bankruptcy, as no one will lend them money to loss money, ….

          This 30% reduction in world GDP has damaged a machine that does not start up well.

          There are thousands of US companies that are facing imminent bankruptcy. States and cities are facing bankruptcy and are already now asking for federal loans. Banks of course will be next. Stress tests did not include the virus scenario.

          Isolation until we go broke, is a stupid plan. There are better options.

          • Continental can reduce costs, sell assets, look for merger opportunities and/or operate at a loss for while. If we’re still looking a sub $30/bbl oil six months from now, we will be in a Road Warrior scale global depression and probably still under house arrest.

          • The whole whoowho flu was a put up. It was designed to do just what it is doing. That is what happens when the population is stupid.

  9. This is what the Left winning looks like. Any weapon, any tactic, any means. Putin must be sporting a very self-satisfied smirk currently.

    • Note that the 56% probability prediction was dated 4/4/2020, over two weeks prior to the price collapse.

    • Probability of Bankruptcy SHOULD NOT be confused with the actual chance of a company to file for chapter 7, 11, 12 or 13 bankruptcy protection. Macroaxis simply defines Financial Distress as an operational condition where a company is having difficulty to meet its current financial obligations towards its creditors or to deliver on the expectations of its investors.

      Continental needs $42/bbl to cover their current operating expenses.

      • They fit the Macroaxis (whatever the frack that is) definition the day Putin declared war on Saudi Arabia.

  10. “In this case, Continental Resources can execute the contract . The problem is the price of oil dropped so it is no longer profitable to continue to drill to maintain production rate.”

    That is not true, oil is going for -$30/bbl at delivery. The Oil Contract isn’t for oil specifically produced by Continental, oil is a commodity. Continental just has to deliver oil. Why in God’s name wouldn’t Continental simply GET PAID to take delivery from a hedge fund that is holding those Oil Futures, and deliver that oil to the customer? Unless Continental has contracts promising that they were going to sell oil for -$30/bbl, I don’t see the problem. Someone, please help me understand why Continental is in trouble when simply taking delivery of oil can make you $30/bbl? Am I missing something here?

    Why produce oil when the stuff can be purchased on the market for -$30/bbl? The Hedge Funds will literally pay you to take delivery for their contracts.

  11. BTW, thinking through this, it even gets more stupid.

    Assume Continental did, in fact, sell Futures on their oil production. They would have sold those contracts well in advance of expiration so they would have been making $30/$40/$50 bbl per contract depending on when they were sold. Just because oil is now going for -$30/bbl has nothing to do with what they originally sold the contract for.

    Now it even gets better. Assume they sold the contract for $50/bbl. The other day they could have purchased that contract back from the Hedge Fund for -$30/bbl, meaning Continental actually was making $80/bbl. Effectively Contental would simply deliver to itself, which simply means they leave the oil in the ground. Continental should be making a killing if they have already sold contracts that are expiring, that is the exact position they want to be in.

    Once again, someone please tell me how Continental is in trouble? Yes, I understand prices are now below production costs, but that has to do with contracts in the future, not today. If COntinental can’t produce oil in the current market, then they shouldn’t sell any more futures. If they have contracts to provide oil at the current cash price, they should simply take delivery of oil and get paid $30/bbl to do so. There is no way for COntinental to get in trouble unless they are selling oil for less than -$30/bbl, which I seriously doubt. If they are entering into contracts to pay their customers to buy their oil they deserve to go bankrupt.

  12. CO2. There is a lot wrong with your understanding. Futures are settled monthly for delivery in crushing. The negative price on the May contract was only for one day prior to settlement when longs got caught without storage and traders knee they could catch them in a bind. Continental has flow commitment s to pipeline company’s. Even if you wanted to you couldn’t get oil from Cushing to where Continental has commitment s.

    • Yep. And Continental isn’t even getting the Cushing price. Bakken oil is around $3/bbl right now.

  13. “It can’t actually be purchased for -$30/bbl.”

    Yes you can, and you are likely to see this situation again as capacity is reached. Hedge funds and ETFs like USO purchased a large number of futures, and they can’t/don’t want to take delivery. On expiration date they had to pay people to take delivery for them. Continental could have been one of those taking delivery. If they had outstanding futures they could have made a future by simply buying them back.

    “That’s correct….show up with a tanker truck and ask for 3000 barrels of oil and a check for $90K and you will find both the valves and check-book remain closed.”

    That isn’t even close to true. That is exactly what happened. They literally had to pay people to take delivery. The -$30/bbl is the storage cost. BTW, that situation is getting worse and will likely happen again if production isn’t stopped or consumption increased or both.

    “Futures are settled monthly for delivery in crushing. The negative price on the May contract was only for one day prior to settlement when longs got caught without storage and traders knew they could catch them in a bind.”

    I’m pretty sure that is exactly what I’ve been describing. The expiration of the futures contracts forced hedge funds and ETFs to pay people to avoid delivery. The ticker symbol is USO, and the oil markets were in super contango.

    “Continental has flow commitment s to pipeline company’s. “

    OK, that is the information that was needed. This situation has nothing to do with futures, and more a cash/ market price immediate delivery issue. Now that makes more sense. They must have signed a contract that delivers continual supplies at the market price. Now that the market price is below the production price, then they are in big trouble if they try to meet it with current production. That situation is wildly different than what is happening in the futures markets, but still, Continental could easily take delivery of those -$30/bbl offerings and transport them from Cushing to wherever the Pipeline depot is. Don’t they have railroads and trucks out there? Also, there is a huge glut of oil that needs to be reduced. Continental’s problem isn’t production, it is transportation from Cushing to the pipeline. Where is the Pipeline Depot? How far from Cushing it is? That is the problem. Continental needs to cover the transportation cost of existing supplies, they don’t need to produce any oil. This is a logistics problem, not a production problem.

    BTW, how should this issue really be solved? Extend the pipeline to Cushing. That is a no brainer. Why aren’t we? Watch Michael Moore’s new movie.

    • I work for hedge fund and we trade the crude futures contract. We trade typically the contract with the highest volume. Once the contract with highest volume becomes the next furthest out contract we exit the old contract and roll out positions to the new contract. We rolled out to new contract a couple of days before the May contract went negative. Typically a hedge fund doesn’t want to take delivery of actual product so will get out before contract expiration. If bunch of funds that are long the contract are getting out before expiration it will drive the price down. If there are no buyers that are prepared to take delivery the price can go negative, though this is first time I have seen it in 20 years for any commodity.

      • “If bunch of funds that are long the contract are getting out before expiration it will drive the price down. If there are no buyers that are prepared to take delivery the price can go negative, though this is first time I have seen it in 20 years for any commodity.”

        I believe that is what happened. USO held I believe 1/4 of all contracts and couldn’t sell them. They have since changed their prospectus to allow them to buy the more distal contracts, so this event may not happen again if they were able to spread out the purchases.

    • I was referring to physical delivery of the oil.

      This has nothing to do with logistics or pipelines. The only solution is a reduction in production and/or increase in consumption.

      • David, I think part of the confusion here is that the real situation was that only a few contracts for delivery in one place, Cushing I believe, were involved in the -$30 price, and because Cushing is almost full. The press glossed over this fact in almost all reporting, probably because as usual they don’t understand the oil business.

        • Cushing has nothing to do with this. Oil producers generally have contracts with pipeline companies. You can’t produce a well if you don’t have a place to put it. Generally, the pipeline company pays the market price, less a transportation fee (tariff), for the oil. This morning, North Dakota Light Sweet is selling for $7.27/bbl. One estimate I saw was that Continental needs an average price of $32/bbl to cover operating costs. They can operate at a loss for years, if necessary; but $7/bbl might not even cover lifting costs.

          • David, help me understand this issue. Continental has a contract to deliver oil at the market price less transportation costs to a pipeline. The contract is likely for some certain grade of oil like WTI. The contract doesn’t state that Continental has to produce the oil, they just have to deliver it. Oil is a commodity. Currently, the market price is below production costs. Given that situation, why isn’t Continental buying oil on the market in the surplus areas and transporting it to the pipelines? They must have trucks to move the oil from their wells to the pipeline. Also, when the market price is below the production costs, why isn’t Contential not simply buying the futures contracts to gain the oil needed to supply to the pipeline and let someone else take the loss of production? Any insight would be appreciated.

          • The transportation costs are for the pipeline. The wells are generally hooked up to a pipeline.

  14. “Since congressional Democrats have blocked funding to top off the SPR, DOE will lease out storage space to the industry.”

    This too is another no brainer. The Army Corps of Engineers should have every fuel truck they have lined up in Cushing and when the contracts come due have the Hedge Funds pay them $30/bbl to take delivery. We could literally restock the SPR and get the Hedge Funds to pay for it. That isn’t a joke. They need storage, conventional storage is at or near capacity, why not have them restock the SPR?

    • Where are all those “leave it in the ground ” people now. Seems like putting it back in the ground would make them happy.

  15. I think David’s ridiculous insistence on calling it ChiCom-19 may have finally convinced me that WUWT is no longer worth my time. I’ve been here since the beginning too.

    • For someone who’s “been here since the beginning” you name is not instantly recognizable, so I have to call BS on your concern trolling. But hey, if it’s “no longer worth my time” to you, then what are you still doing here? and why did you waste your time posting how it’s not worth your time? hmmm?

      • ChiCom-19 attracts “concern trolls” like bright lights attract moths. I haven’t followed the comments in Christopher Monckton’s or Rud Istvan’s posts… Are there similar concern trolls complaints? The call it the “Chinese virus” and “Wuhan #coronavirus”. The main difference is that I denote the Communist aspect.

        • Don’t forget Kung Flu. Heaping insults and abuse upon those who instigated a “worldwide pandemic”, yet again, is the duty of every free human on this planet. Those defending CCP are the enemy, too.

    • How about “Anything but a name connected to China” virus? That’s first choice ballot from the forbidden city. My vote is “The Made in China” virus.

  16. How much forbearance can the oil industry withstand?

    Perhaps, it’s better to say shale oil business.

    Because that’s what Continental Resources seems to be seeking.

    Will that help or hurt the little guy? (in the business)

    • Apart from a lack of hedges, Continental is better positioned than most “shale” players to ride this out.

      It’s impossible to generalize this. Almost every company is in a different, but bad, position.

  17. Of course they can do this. You can’t kill the economy by declaring an emergency, and then claim there is no emergency for force majeure. It’s not like the refinery needs or even has room for it in the first place, so this really is a non issue.

    • If the North Dakota regulatory agency imposed production cuts, force majeure would be clear cut.

  18. I am a partner in several producing oil wells in North Dakota. In some cases, we are paying shut-in royalty to the mineral rights owner for permission to shut in the wells and wait. In the active water floods, we feel it would damage the asset, and be difficult to return to current production levels if we stop the project, so we are producing at a loss to preserve the long term viability of the field.

    • In the Gulf of Mexico, we will often produce sub-economic wells as long as possible to delay plugging and abandonment costs.

      The last thing anyone shut in producing wells for an extended period of time. We generally have to shut fields in at least a couple of times per year for hurricanes. Sometimes, you can never get the well back to where it was when you shut it in. Sometimes, wells will come back on better than they went off.

  19. Since this may not be an act of nature, but possibly an accidental release by China, perhaps there is another route for some to avoid the pain.

    • The state of Missouri has filed a lawsuit against Red China. The Foreign Sovereign Immunities Act limits, but doesn’t preclude, filing lawsuits against foreign governments in US courts.

  20. In the legal world people refer to what Continental is claiming as “Price Majeure”. They don’t want out of these contracts because delivering the oil is beyond their reasonable control- but because its painfully expensive for them. Even if “Pandemic” is listed in the Force Majeure clause as a mitigating factor, they still must show the pandemic rendered the contracts performance “ beyond their reasonable control”. That is simply not the case here. Continental looses in court on this one.

  21. Remove Covid 19 from the equation and you have Wyoming in the early 80’s. A crash of Biblical proportions. We were due for another one, virus or not.

    • A 1 million bbl/d OPEC+ production cut would have sent oil to ~$60-65/bbl. The Soviet-Saudi price war dropped it to $30. Only the rather sudden 30% drop in demand due to ChiCom-19 hostage crisis could have dropped it to where it is now,

      No virus and no OPEC+ shenanigans and oil would be ~$40-50/bbl. Not good, but not a crash of Biblical proportions.

  22. Here we go:

    HOUSTON, April 27, 2020 /PRNewswire/ — Diamond Offshore Drilling, Inc. (NYSE: DO) (“Diamond” or “the Company”) today announced that the Company and select subsidiaries have filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas…

    DO was not in demonstrably bad shape as of 12/31/19.

    Equity/Assets: 55% (vs. S&P 500 mean of ~38%)
    Current Ratio: 1.57
    Cash flow for TTM was essentially breakeven.

    _________________
    For those who don’t know, DO is the 2nd largest offshore drilling company.

    • I don’t see how any of the drilling contractors avoid some sort of restructuring if this drags on much longer.

  23. David,
    Thanks for your continued attempts to enlighten the benighted; even the nonsensical concern trolls! I recently purchase and watched all of the Mad Max movies to get a better understanding of what the ChiComs and their LSM and DemoKKKrat allies are trying to accomplish.
    Mad Max 2 (Road Warrior) made the unfortunate mistake of trying to make heroes of a small band of humans who pump and refine their very own oil! Just imagine the liberal heads exploding whenever they watch! This has been fully rectified in the latest episode; Furry Road. I don’t why this one received so many accolades except for it being so PC; the world was destroyed for the scarce resource “guzzolene” and all the evil doers are white males. Hollywood is boringly predictable.
    With the intentional infection of the the world economy with Chi-Com 19, the Wuhan Flu, it seems that a decision has been made to move toward a Matrix type scenario. The millennials and the young will hooked into Interweb with Chi-com mind control devices and their parents and grandparents will be isolated or killed off with unnecessary or incorrect medical procedures. Have you scene the interview of Dr. Erickson, a Bakersfield urgent care physician? It seems we have been lied to and led in the opposite direction from what standard practices would call for.
    The intentional destruction of wealth and freedom by means of the Chi-Com 19 virus is the greatest and most expensive scandal in human history; even worse than the Russian Collusion Hoax and Spygate scandals perpetrated by our LSM urinalists and the DemoKKKrats!

  24. “Legal experts are dubious regarding their force majeure claim.”

    Maybe not, but the remedy for default is the difference in price between the contract and the market. In this case where the market is in collapse, there will be no damages, and no re4ason to pay a lot of legal fees to get that result.

  25. The per well production, even after many wells have been taken out of service, is down to levels seen in 2008. The Bakken rush is now over. To keep production from falling the sector needs to keep destroying capital it does not have. And it was not China that shut down the economy but stupid politicians who don’t understand math. Voters were too scared to protest the manipulation of the AGW data. They are too scared to point out the manipulation of the virus data. The US has 27% of the total deaths reported but 5% of the population? How does that make sense to anyone?

    And let us ask about the total deaths this year versus last year during the same period. Does the virus cure heart disease, strokes, liver failure, diabetes, etc.?

    • The future of the Bakken, and all other oil production, depends on the future of oil prices.

      Right now, the total number of deaths from all causes only seems to be elevated in the New York City area.

Comments are closed.