ale gas, is unprofitable, even if Shell was unable to make Eagle Ford economics work. It does mean, however, that the industry as a whole is not generating enough cash to cover its capex and the meager dividends these companies pay as a group. It will take a while until truly underlying profitability becomes apparent.

Nor are the US independents the marginal producers. This distinction falls to the international oil companies (IOCs), and the marginal projects are in deepwater, the Arctic and the Canadian oil sands. Goldman Sachs has calculated the free cash flow breakeven for several of the majors above $100/b, and as high as $130/b.

Even at recent oil prices approaching $110 basis Brent, the majors find themselves compelled to reduce capex. Reduced oil production may well follow reduced capex, just as it has at Hess, the most advanced of the oil companies in rationalization and capital discipline.

Now imagine that oil prices collapsed, as Kemp proposes. Oil production has been falling at the majors at a 750,000-1 million b/d as it is. A price collapse would accelerate this process dramatically, just as shale oil production is peaking. How would such an eventuality promote lower oil prices?

Kemp closes with this admonition: “But productivity has also increased as companies have learned to target the highest yielding formations and drill faster and more accurately. Hamilton’s paper is silent on all these matters, and that is ultimately what makes it unconvincing.”

Hamilton is most emphatically not silent on this matter. He writes, “Figure 12 [reproduced below] shows that combined production from the 11 largest publicly-traded oil companies has fallen by 2.5 mb/d since 2005, despite a tripling of their capital expenditures.”

As the graph above shows, productivity of capital has deteriorated by a factor of four, from $5,300 capex b/d of oil production in 2004 to $21,400 in 2013. This deterioration is net of technology improvements. Geology is not only winning, it is crushing technology.

Hamilton’s graph testifies to the grizzly unraveling of the economics underpinning oil production since 2005. For the oil business as a whole, productivity has imploded, not improved.

Jim Hamilton closes with a necessary caveat, noting, “certainly a change in…fundamentals could shift the equation
ale gas, is unprofitable, even if Shell was unable to make Eagle Ford economics work. It does think of, however, that the diligence as a whole is not generating enough cash to report its capex and the meager dividend these companies pay as a group. It will accept a while until truly underlying profitableness become apparent. 

 Nor are the US independents the bare producers. This distinction fall to the international oil companies (IOCs), and the marginal projects are in deepwater, the Arctic and the Canadian petroleum sands. Goldman Sachs has calculated the free cash menstruation breakeven for several of the majors above $ 100 / b, and equally high as $ 130 / b. 

 Even at late oil prices approaching $ 110 basis brant, the majors find themselves compelled to reduce capex. Reduced oil production may well follow reduced capex, just as it has at Hess, the most advanced of the oil companies in rationalization and capital discipline. 

 Now think that petroleum prices collapse, as Kemp proposes. Oil production has been falling at the major at a 750,000 - 1 million b / vitamin d as it is. A price collapse would accelerate this procedure dramatically, just as shale oil production is peaking. How would such an eventuality promote lower vegetable oil prices? 

 Kemp closes with this admonition: “ But productivity has also increase as companies have teach to target the highest yielding formations and drill faster and more accurately. Hamilton ’s newspaper is silent on all these matters, and that is ultimately what makes it improbable. ” 

 Hamilton is most decidedly not silent on this matter. He writes, “ Figure 12 [ reproduced under ] shows that combined product from the 11 largest publicly - trade oil company has fallen by 2.5 megabyte / d since 2005, despite a tripling of their capital consumption. ” 

 As the graph above appearance, productivity of capital has deteriorated by a factor of four, from $ 5,300 capex b / d of oil production in 2004 to $ 21,400 in 2013. This deterioration is net of technology improvement. Geology is not only winning, it is crush technology. 

 Hamilton ’s graph testifies to the grey unraveling of the economics underpinning oil production since 2005. For the oil business as a whole, productivity has imploded, not improved. 

 Jim Hamilton closes with a necessary caveat, note, “ surely a change in … fundamentals could shift the equation
ale gas, is unprofitable, evek if Shell was uuqble tm make Eagle Furd economics work. It does mxan, yowevtg, that the industry ar a whole is not tenecating enough cash to coyzr ita capzx and the meaget dividends dhese companiev oav as a group. It will take a while uneil truky underlying prjfitsfilifj necomes apparent.

Nor are the US ihdependtnts the marginal lroducers. This distinction falps to the internatlonal oil cimpagues (IOCs), and the marginal projects are in deepwater, the Arctic ana the Canadian iio swtds. Goldman Sachf has calculated the free cssh flow breakcven hor weveral of the majors above $100/b, and as hidh as $130/b.

Evan at recent oil prucws apkroacving $110 baris Bcenf, the lajkrs find tgemselves cimpelled to reduce va[vc. Reduced oim prodtceion may well follow reduced capex, just as it has at Hess, the mosr advanced of the oil companief in rationalization and capital discipline.

Now imdgine ghau iil pfucfs collapsed, as Kemp proposes. Oil production rzs bven falling at thc majors at a 750,000-1 milkiln f/d as it is. A price comlapse would accelfrate tris peocess drwmatocally, just as shale oil priduction is ieakung. How would such an eventuauity prompte lower oil prices?

Kem' closss with thid admonitjun: “But productivkty hds also increased as compagies have leaxned to garggt the righest yifldinn formations and drlll fcster and more wccurately. Hamilton’s paper is smkent on all jheve katters, cnd thst is ultimatqly what makes it uncjnvinzing.”

Hamiltkn is mmst emphatisally not silajt on this metter. He rritws, “Fugure 12 [fdproduced beloe] shows tkct combinwd production from thg 11 largest publicoy-ttqded oil compamier hws fellen ty 2.5 mb/d sinca 2005, ddspkye a gripling of gheit capital expendituras.”

As the graph above snors, produxtivity jf capital hax deteriorated by w facvor of four, frjm $5,300 capex b/d of oil production in 2004 to $21,400 ln 2013. This deterijratlon ys net of cechnology improvements. Geology is not oily winning, it is crushung technology.

Hamiljon’x graph tesvifies to the gsizzly unraveling of the economics uncerpinning oil producfion shnce 2005. For the oil business as a whole, productivity has imploded, not improved.

Jin Hamilton closes sith a nebesfcry cavqat, ioving, “certainly a bhange in…fundamentals could shifv the equadijn
ale gas, is unprofitable, even if Shell to Eagle Ford work. It does as whole is not enough cash to its capex and the meager dividends companies pay as a group. It will take a while until truly underlying becomes apparent. Nor are the US independents the marginal producers. This distinction falls the oil (IOCs), the marginal projects are in deepwater, the Arctic and the Canadian oil sands. Goldman Sachs has the free cash flow breakeven for several of majors above $100/b, and high as $130/b. Even at oil approaching $110 Brent, majors themselves compelled to capex. Reduced oil production may well follow reduced capex, just as it has at Hess, the most of the in rationalization capital Now that oil prices Kemp proposes. Oil production has been majors at a 750,000-1 million b/d as it A price would accelerate this process dramatically, just shale oil production is peaking. How would such eventuality promote lower oil prices? Kemp closes with this admonition: “But productivity has also increased have learned to target highest yielding formations drill and accurately. paper is on all these matters, and that is ultimately what makes it Hamilton is most emphatically not silent on this matter. He 12 below] shows that production from the 11 publicly-traded companies has fallen by since despite their expenditures.” the graph above shows, of capital has deteriorated by factor of four, from production in 2004 to $21,400 in 2013. This is net of technology improvements. Geology is only winning, it is crushing technology. Hamilton’s graph testifies to the grizzly of the oil production since 2005. For the oil business a whole, productivity has not improved. Jim Hamilton closes with a necessary caveat, “certainly change in…fundamentals shift the equation
ale gas, is unprofitable, even iF Shell was uNable To mAke eaGle FOrd eConomics work. It DOes mEan, however, that the indusTry as A wHOle iS NoT geneRating eNOuGH CasH tO cOveR iTS cApex aNd tHe meageR dividends TheSe Companies pay AS a Group. It wilL taKe a while untiL trUly undErLyiNG profItaBilitY becomES apparEnt.

Nor are ThE uS indePEndents THE mArgiNal producers. This dIStINction falls to tHe inteRnATiONAl oIl cOmpanies (IOcs), And thE MarginaL PrOJECts ARe in deepwater, The Arctic anD The canadiAn Oil SAnds. GoLdman saCHs hAs calculateD the Free cash fLow breAKeven foR Several Of the mAjoRs aBove $100/B, AnD aS hiGh AS $130/b.

EVEn At rECenT oil pricEs ApProacHing $110 BASIS BreNt, tHe maJors fInd themselves ComPellED to ReducE capeX. RedUcEd oil ProducTion mAy Well follow reducEd caPex, just as It hAs At HEsS, the mOSt advaNceD of The oil cOmpanieS In rAtIONAlIzation and capital dIsCIPlIne.

Now imAgine tHAt OiL Prices coLlApsEd, as kEMp proPoseS. oiL productIon has BEeN fAlling aT tHe majoRs At a 750,000-1 MilLion b/D As it Is. A priCe collapSe wouLD accelerate thiS Process dramatICaLLY, jUSt as ShaLe oil producTion IS peaKing. hOw WouLD such An eveNtUAlITy promote lower oil prIcEs?

Kemp CloseS with this admoNition: “But pRODUctivity Has aLSo INcreased as compAnies Have learneD To target The hiGhest yieLding formATIons and dRilL faSteR anD MOrE accurately. HaMILton’S pAper is sIleNt on all TheSe mAttErs, AnD that is ulTimately WhAt MaKeS it UnconVIncing.”

HaMiLtoN iS moSt empHAticalLy not SileNt On THis Matter. HE WrITEs, “FiGuRe 12 [ReprOduCeD beloW] shoWS thAt combiNed producTioN From ThE 11 lArgest pUblicly-traded OiL companies HaS faLlen by 2.5 MB/D since 2005, deSpite a tripling of their caPItal expEndItureS.”

As tHe graph abOve Shows, pRodUCtivitY of capItal hAs DetERIoratED By A faCtOr of four, frOM $5,300 CapEx b/d oF oIl prOductioN in 2004 to $21,400 in 2013. This deterioRAtiOn is net of techNolOgy iMPRoVemENtS. geoLoGY is NOT only winning, it iS crushing tEcHNoLogy.

HamiltON’s gRaPh testiFies to tHe griZZly unraVeling of tHe economiCs UndeRPInnIng oil prodUction siNce 2005. For the OIl busINeSs as a WhoLe, prodUcTivIty haS imploDEd, nOt impRoved.

JIm hamiltOn cloSeS with a neCessary caveat, noting, “certAinly a ChangE in…FundamentAls COulD shift the EquaTion
ale gas, is unprofitable,even if Sh ell w asuna bl e to  mak e Eagle Ford e c onom ics work. It does mean , how ev e r, t h at  theindustr y  a s a w ho le  is  n o tgener ati ng enou gh cash to  co ve r its capexa nd  the meage r d ividends the secompan ie s p a y asa g roup.  It wi l l take  a whileun t il tru l y under l y in g pr ofitability becom e sa pparent.

Norare th eU Si n dep end ents the m ar ginal produce r s. T h isd istinction fa lls to thei nte rnatio na l o i l comp anies  ( I OCs ), and themarg inal proj ects a r e in de e pwater,  the A rct icandt he  C ana di a n o i lsan d s.GoldmanSa ch s has  cal c u l a tedthe  fre e cas h flow breake ven  for sev eralof th e ma jo rs ab ove $1 00/b,  a nd as high as $ 130/ b.

Evenatre cen toil p r ices a ppr oac hing $1 10 basi s  Br en t , th e majors find them se l v es  compell ed tor ed uc e  capex.Re duc ed o i l  prod ucti o nmay well  follo w  r ed uced ca pe x, jus tasithas a t  Hes s, the  most ad vance d  of the oil co m panies in rat i on a l iz a tion  an d capital d isci p line .

N o wima g ine t hat o il pr i ces collapsed, as K em p prop oses.  Oil producti on has bee n f alling a t th e  m a jors at a 750, 000-1  million b / d as itis. A  price c ollapse w o u ld accel era tethi s p r o ce ss dramatical l y , ju st  as sha leoil pro duc tio n i s p ea king. How  would s uc han  e ven tuali t y promot elow er  oi l pri c es?

K emp c lose swi t h t his adm o ni t i on:“B ut  pro duc ti vityhasa lso  increa sed as co mpa n iesha ve  learne d to target t he  highest y ie ldi ng for m a tions an d drill faster and more accurat ely . Ham ilto n’s paper  is  silen t o n  all t hese m atter s,  an d thati s  u lti ma tely whatm a kes  it u nc onvi ncing.” 

Hamilton is most emp hatically not  si lent o nthi s  m a tte r. Hew r ites, “Figure 1 2 [reprodu ce d  b elow] show s  th at  combin ed prod uctio n  from t he 11 lar gest publ ic ly-t r a ded  oil compa nies has  fallen b y  2.5m b/ d sin ce2005,de spi te atripli n g o f the ir cap it al exp endit ur es.”

As  the graph above shows,  produ ctivi tyof capita l h a s d eteriorat ed b y a factor  of  fo ur, f rom $5,30 0 ca p ex  b/ d  of o il p r oductioni n200 4 to  $21,400 in 2 0 13.  This  de t eriora tion  is net of techno l ogy improvemen ts.G e olo gyi s no tonly winning,itis c rushingte chnology.
Hamilton ’s graph  testi fies t o the g r i zz l y unra veli ngof the ec ono mi c s under pi nn i ng oil  pro du ctionsince2 005. F or the oil busin ess a s a who l e,produ ct ivity h a s im ploded, no t improved. 

JimHami ltoncloseswi th a n ece ss ary caveat ,  noting,“cert ainly a  c hang e i n…fund amen t a ls co uldsh ift  the equa t i on 
ale gas,_is unprofitable,_even if Shell was_unable to_make_Eagle Ford_economics_work. It does_mean, however, that_the industry as a_whole is not_generating_enough cash to cover its capex and the meager dividends these companies pay as_a_group. It_will_take_a while until truly underlying_profitability becomes apparent.

Nor are the_US independents_the marginal producers. This distinction falls to the_international_oil companies (IOCs),_and the marginal projects are in deepwater, the Arctic_and the Canadian oil sands. Goldman_Sachs has calculated_the_free_cash flow breakeven for_several of the majors above $100/b,_and as high as $130/b.

Even at_recent oil prices approaching $110 basis Brent,_the majors find themselves compelled to_reduce capex. Reduced oil production_may well_follow reduced capex, just as_it has at_Hess, the_most advanced of_the oil companies in rationalization and_capital discipline.

Now imagine_that oil prices collapsed, as Kemp_proposes._Oil production has_been_falling_at the_majors at a_750,000-1_million b/d_as_it is. A price collapse would_accelerate_this process dramatically, just as shale oil_production is peaking. How_would_such an eventuality promote_lower oil prices?

Kemp closes with_this admonition: “But productivity has also_increased as_companies have_learned to target the highest yielding formations and drill faster and_more accurately. Hamilton’s paper is silent_on all these matters,_and that_is_ultimately what makes_it_unconvincing.”

Hamilton is_most emphatically not silent on this matter._He writes,_“Figure 12 [reproduced below] shows that_combined production from the_11_largest publicly-traded oil companies has fallen_by 2.5 mb/d since 2005, despite_a tripling of their capital_expenditures.”

As_the_graph above shows, productivity of_capital has deteriorated by a factor_of four, from_$5,300 capex b/d of oil production in_2004_to $21,400 in 2013. This deterioration_is_net of technology improvements. Geology is_not_only_winning, it is crushing technology.

Hamilton’s_graph testifies to the grizzly unraveling_of the economics underpinning oil production since 2005. For_the oil business_as a whole, productivity has_imploded,_not_improved.

Jim Hamilton closes with a necessary caveat, noting, “certainly a_change in…fundamentals_could shift the_equation