Falling oil price

The oil price is fallen from 107$ to 45 $ , last update oil commodity price is 57$, one year forecast is 60$. How does effect the economy? A lot of people could say, it is good if the oil price is falling down, Economy take advantage, might in short term could be true. But in one-year term i will not be so sure. 

It is important to analyse the impact on Oil industry. Because from this impact will depend the next forecast oil price and future economy shock.

Let's analyse the Oil industry and oil well drilling cost:

We divide in offshore and onshore activity

Impact cost of Carry out Offshore drilling activity:

Deep water: drilling ship and Sami sub up to 12.000 feet of water

Daily rate cost of drilling ship: 500.000 to 800.000 $/day

Sami sub: 250.000$ to 500.000$

Jack up - up to 400 feet of water

Daily rate 150.000 to 250.000 $

Onshore activity:

Daily rate of land rig from 35.000 $ to 100.000$/day

The cost is just estimation the variable of daily rate depend of which location performing drilling activity and the complexity of drilling process.

Let's calculate to realize the oil well with drilling ship considering worst case 800.000$/day

Forecast time to realize the well 2.5-month 

75 days.

75 days x 800.000$ = 60.000.000$

Estimate production BARRELS/DAY = 2000 BBLS

APPLIEND A STUPID CALCULATION: 2000 X 107$= 214000 $/DAY

How many days to pay off the well?

Drilling cost/daily production: 280 days 

If we apply the same calculation with 58$ something change:

2000 bbl. x 58$ = 116.000$/day

Well Pay back after: 517 days - 1,5 year

But if applied the properly calculation the days will be much more as below, if we take in consideration other factor:

A well is said to reach an "economic limit" when its most efficient production rate does not cover the operating expenses, including taxes.^[5]

The economic limit for oil and gas wells can be expressed using these formulae:

Oil fields:

Gas fields:

Where:
 is an oil well's economic limit in oil barrels per month (bbls/month).
 is a gas well's economic limit in thousand standard cubic feet per month (MSCF/month).
 are the current prices of oil and gas in dollars per barrels and dollars per MSCF respectively.
 is the lease operating expenses in dollars per well per month.
 working interest, as a fraction.^[6]
 net revenue interest, as a fraction.
 gas/oil ratio as SCF/bbl.
 condensate yield as barrel/million standard cubic feet.
 production and severance taxes, as a fraction.
^[5]

When the economic limit is raised, the life of the well is shortened and proven oil reserves are lost. Conversely, when the economic limit is lowered, the life of the well is lengthened.

When the economic limit is reached, the well becomes a liability and is abandoned. In this process, tubing is removed from the well and sections of well bore are filled with concrete to isolate the flow path between gas and water zones from each other, as well as the surface. Completely filling the well bore with concrete is costly and unnecessary. The surface around the wellhead is then excavated, and the wellhead and casing are cut off, a cap is welded in place and then buried.

At the economic limit there often is still a significant amount of unrecoverable oil left in the reservoir. It might be tempting to defer physical abandonment for an extended period of time, hoping that the oil price will go up or that new supplemental recovery techniques will be perfected. In these cases, temporary plugs will be placed downhole and locks attached to the wellhead to prevent tampering. There are thousands of "abandoned" wells throughout North America, waiting to see what the market will do before "permanent" abandonment. Often, lease provisions and governmental regulations usually require quick abandonment; liability and tax concerns also may favor abandonment.

In theory an abandoned well can be reentered and restored to production (or converted to injection service for supplemental recovery or for downhole hydrocarbons storage), but reentry often proves to be difficult mechanically and not cost effective.

What reaction will have the oil industry?

1) The first act it will be to release drilling ship and semi sub to stop deep-water activity, explorative well particle hit.

2) Decreasing the offshore activity - releasing Jack up Rig

3) Shale gas activity will be hit due to expensive drilling and production process.

4) Other expensive onshore activity will be suspended.

5) All facilities and service for oil industry will decrease the activity

What happen when the Rig is released?

I will make the easy example to show the impact in oil drilling process in case activity suspended for long time, describing team work and efficient of rig -which huge impact they have in cost we call NPT - no production time - and in safety.

I take as example the land Rig:

Before start the Drilling activity, Oil Company chosen the oil rig, then it has to be inspected, move to location. Almost of oil Rig you noticed the inefficient issue only when you are drilling, also the personal has to learn to work as team. As experience each rig before become in compliance with general golden rules need 6 month some time more. So the well you schedule to drill in 2 month, will be  drilled might in 3 month due to the effect of NPT. 

When the Rig is released the Drilling contract has not interest to service it, also the personals will be released. 

But the time arrive the call, the time to re-service the Rig, moving to location, start drilling, to recruit staff with knowledge and experience and to train drilling team work as professional team. Require 1 0 2 year before start in efficient manner oil activity. 

Without analyse other service, like logistic, Service Company etc.

In Final if the price continue to be around 55-58$ x 1 year at least, i predict in middle term the oil will rise up to 100$, can reach also 200$/barrels.

The country like Saudi Arabia, Qatar, middle east where the cost of drilling is less then other country, if they continue to invest in drilling activity, they will have the great benefit. In next future.

tips borrowing

Here are some expert tips on how to deal with borrowing issues.

• Get free advice.
• Don’t panic or ignore the problem: unopened bills won’t go away.
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• If you’re struggling with store or credit cards, stop using them.
• Work out a realistic budget that covers all your income and spending. Check whether there are any benefits or tax credits you’re entitled to that you’re not getting.
• Decide which debts take priority – like mortgage or rent – and which cost you most through penalties or higher interest rates.
• Only agree to pay off debts at a rate that you can keep up – don’t offer more than you can afford.
• Contact those you owe money to as soon as possible. Let them know that you’re having problems. Many companies will be helpful if you talk to them.
• If organisations won’t accept your repayment offers, seek advice.
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• If a debt collector calls at your home, you don’t have to let them in. If you want time to get advice, arrange a later appointment. If a debt collector or lender harasses you, contact your local Citizens Advice Bureau or trading standards service.
• Check if a loan will be secured on your home. If it is and you do not keep up repayments you could lose your home. If you do not understand the terms of a loan, get advice.
• If you’re thinking of taking out a new loan to pay off debt, make sure you find out the total cost of the loan, not just the monthly repayments.
• Think very carefully before borrowing more to pay off your debts. Get impartial advice and don’t rush into signing anything you don’t understand.
• If you are thinking of using a fee-charging debt management company, then make sure you understand exactly what you’re signing up to – check what fees you’ll be paying to the company and how long it will take you to pay off your debts.
• Keep copies of all letters you send and receive about your debts.

• work out a realistic budget that covers all your income and spending
• don’t panic or ignore the problem
• decide which debts take priority
• contact those to whom you owe money.

I think next real estate bubble..will be in Poland

Let's analyze the Polish economy :

1) The Polish economy is too dependent on foreign investment.
2) The major export is to Euro zone and Russia
3) Domestic industries are not enough strong to deal international market.
4) the domestic market is supported by excessive variable mortgages and borrowed money for the purchase of consumption goods
5) 600.000 people have Mortgages in swiss franc
5) Inflation zero
6) Trend of GDP is dropped.



If the crisis of Euro zone continue and EU not cancel the russian' sanction this will have effect on export, the goods should sale in internal market causing down fall of prices. Deflation nightmare.
In case act deflation cut interest on loan and continue to advertise by media easy and resonable loans that in middle time could cause the bubble of debt. If increase the salary to help people to spend buying goods in domestic market this cannot be done to force foreign investors to invest in worker salary and loose profit .I think is not plausible. So the way is to cut tax on salary that could be effect in deficit and stay in EU parameter will be hard. In case of reduction of industrial production this can be effect of unemployed rate, increasing of unemployed rate could be hazard. Because the the Polish economy is sustained by the private debt. I think the polish economy is trapped. I see the Economy depression in Poland. All economies forced by debt to grow are intended to depression. Only way to have stable economy to have a good savings management and ratio of household debt should not be greater than 1/3 of monthly household income. People should avoid variable loan and invest in foreign currency mortgage. It is necessary that every nation to prevent the crisis must invest in sustainable growth and the Gov must not create economic growth on the debt. Invest in Domestic industry prevent to depend to foreign investors.
I Think the Poland will be the new Greece or new Irland in short and middle term. That depend of how fast change the 6 variables that i already written above.

PA.

Mortgage Issue in Poland

http://www.reuters.com/article/2015/01/20/poland-swissfranc-mortgages-idUSL6N0UZ1XR20150120

Polish economic

The status of the Polish economy begins to Have bad performance. I Figure out that in short and middle period that can start the economic cries in Poland due to follow issue:
Inflation : 0
Gdp decrease from 3.5 to 3.3%
Exports to Eurozone decreased due to the crisis
Exports to Russia hit due to of sanctions by the EU
household mortgage and borrowing easily

What i have predicted in middle term:

The central bank act inflation to decrease the interest, increasing the chance to borrow money at less cost, increasing the investment in real estate could be a boomerang due to this could have effect to increase the private debt ,already i think is too high. Cause export Fallen with Euro zone and Russia that can help deflation, many products have sold in the domestic market causing downfall of price. In case the rate of employment increase that could be effect on mortgage and private debt cannot pay off. Real estate crisis in middle term also bank cries due to debt cannot pay off. The scenario could be like ireland.


PA