As you know, I’m relatively new to the oil and gas industry. We started Shale Directories in November 2009. This sharp price decline in oil is the first one I experienced since we started Shale Directories.
We saw a deep price decline in natural gas in 2012 when it went under $2.00. It has recovered somewhat, but seems to be locked in a trading range from $2.65 to $3.00. In fact, natural gas has weathered the current declines pretty well.
In looking at the current state of the oil and gas industry, here are some of my thoughts:
• The price of oil. It dipped below $40 this week, but seems to be rebounding. The question is where is the new “norm.” I’ve heard $60 a barrel is the new $100 a barrel. How long can the Saudis continue to keep pumping to keep prices depressed? It may not too much longer.
Here are some observations:
o The Saudis have issued bonds recently for the first time in since 2007 and more bond issues could be in the future. (Shale Directories, 8/15/15)
o Saudis will be cutting its national budget. (See below)
o OPEC members are pushing for a summit to discuss production. Saudis are resisting.
o Iran will start exporting soon.
o U.S. companies are keeping production consistent in spite of rig count declines.
o Congress will vote to allow U.S. companies to export oil in the fall session. Permission was just given to export oil to Mexico. (Shale Directories 8/22/15)
• The price of natural gas. Natural gas has not seen the gyrations in pricing like oil. Natural gas pricing is driven by Marcellus and Utica production.
Here are some observations:
o EIA has just reported that it expects natural gas production to decline in the Marcellus and Utica. There are not enough new wells being drilled to replace the decline curves of the existing wells. None of the other shale plays can increase production to replace these declines.
o The midstream efforts to move Marcellus and Utica natural gas is moving forward as quickly as possible. As natural gas moves to new markets, many think the price of natural gas will pick up.
o The rig counts in PA, OH and WV have slowly declined over the summer.
o Who knows what will happen to the price of oil. Those companies that can operate profitably with oil in the $40 price range will probably come out of this as winners. Companies that cannot will either be purchased or go into bankruptcy which we are seeing.
o The natural gas price could edge if new wells do not replace the declines from existing wells. I think drilling will probably pick up in 2016
o For those companies committed to the oil and gas, it’s imperative to keep informed. Seminars, expos and conferences are more important than ever for business planning purposes.
o Companies should maintain its sales and marketing efforts as best they can.