Crude Oil Production 2005
Now here’s an interesting dilemma. Everybody is all fired up to “drill, baby, drill” so that we don’t have to spend so much money buying the foreign stuff; prices are high so there is lots of incentive to invest in new production; there’s lots of diversity in terms of large and small producers; and the lifting of restrictions of offshore drilling means new territory to be explored. And then the the price falls. . .
“Altogether, the nation’s roughly 5,000 independent operators account for 68 percent of oil and 82 percent of the natural gas produced in the U.S., according to the Independent Petroleum Association of America”, to quote an article by CNN on Friday (see full report here). But, the report goes on to highlight, with the price of crude falling to below $50 a barrel, and combined with the difficulties of obtaining credit because of the financial crisis, and suddenly all that drilling doesn’t look quite as attractive as it did a few weeks ago. An interesting potential side effect is that the combination of falling prices and tight credit could lead to many of the smaller operators being swallowed up by the big boys.
We are all aware of the record profits made by the big oil companies in recent months and this means that they have fairly hefty cash reserves on hand. There are also a lot of small producers who have readily exploitable land-based properties but who are struggling to find the finance to work their claims. Now, for the large, cash-rich companies these small land-based properties might become quite an investment bargain when compared to something like the costs of exploring new territories offshore. Even Chesapeake, America’s biggest gas producer has been cited by CNN as a potential BP target. It will at least mean that those territories will be worked whereas under the small producers they may not have been, the article concludes, but much is going to depend on how long those prices stay that low, and how quickly the big boys act in the meantime.
Tags: Credit crisis, Fuel prices, Oil Companies, Oil Drilling, Oil production
