Larger Returns for the Small Independents
The view and opinion expressed in this article are that of the author and do not reflect the official policy or position of the Oklahoma Energy Producers Alliance.
On its face, this article seems discouraging to American oil and gas producers. But most of us in the industry know the oil and gas industry is not one monolithic industry. It has many moving parts.
The larger, more aggressive oil and gas companies depend on capital raised from the markets. While the small, independent business in the oil and gas sector raises capital from the markets as well, they also raise a large portion of their drilling capital from individual investors. Rates of return for the small business producer are more attractive than the large high-cost horizontal drilling companies. While it is difficult, the low-cost small business oil and gas sector is still drilling wells and is in much better shape.
None of us take delight in the contraction and in some cases the outright demise of the American horizontal shale drilling industry.
But the American “shale boom” and the 3 million barrels a day they added to the world oil supply is a major reason oil prices have been depressed for the last seven years. The slowing down of their activity has already had a positive impact on prices. They simply cannot resume full-scale drilling at $50 oil.
The small business producer can survive and even replace diminishing reserves at that level. So the Mark Twain quote, “the rumor of my demise has been greatly exaggerated,” applies.
OEPA Board Member