It’s been a brutal week for oil and natural gas companies in Oklahoma and throughout the oil patch.
Still-distressed commodity prices forced most producers to write down the worth of their oil and natural gas in the ground, leading in some cases to multibillion-dollar charges.
Those non-cash write-downs look terrible on paper and give investors heartburn, but of even bigger concern are the tumbling revenue and cash-flow numbers.
Companies have slashed drilling budgets and curtailed spending in an effort to save cash — and because it’s unwise to drill too many multimillion-dollar horizontal shale wells, which release up to half their total production in the first few years — at a time when commodity prices are likely to remain depressed for at least the near future.
The oil industry is cyclical. Always has been. Probably always will be.
The price will recover, maybe not to $100 anytime soon, but to a point where companies can be profitable. The global supply glut is less than 2 percent of total production. Any number of global events could change to erase that cushion quickly.
But for the near future — whatever that means — domestic and international markets are awash in oil. U.S. production continues to rise even though rig counts have been cut in half, economies are slowing in Europe and Asia, and Iran could soon legally sell oil to the world market.
Jim Greer, vice president of marketing at Tulsa-based Unit Petroleum Corp., said the domestic oil industry is a victim of its own success.
“We really didn’t know what we could do ourselves,” he said Thursday at the Tri-State Oil and Gas Conference in Woodward. “Did anybody dream of making 1,500 barrel-a-day wells in Blaine County? If you’d have said that five or six years ago, they’d lock you up.”
I attend about a dozen oil and natural gas energy conferences throughout the state each year. This year, the mood at the conferences has been noticeably different from at least the past three years. Attendees in Woodward this week were polite and helpful as always, and there was a fair amount of optimism about the future.
But there is noticeable concern about when that positive future will arrive.
“We are in a very crippled state,” Greer said. “To be able to stand here and use any figures and tell you what’s going to happen in three to six months to a year is very difficult to do because we are in a global situation.
“This is not just a captive U.S. situation.”
Still, Greer said he has experienced several such downturns in his 27 years in the industry and that the industry will improve again.
“I don’t have a lot of anticipation for an early recovery,” he said. “Maybe later on this year, but I don’t see anything before the first of the year.”
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