The Permian Basin Blues

They’ve got the Permian Basin blues. Nothing they can do. Orders rigs when prices were high and so they drill a hole and let it die.

While the rig counts rise, it slows the profits for shale operators and the cost of production is going up. Baker Hughes reported that drillers added just two oil rigs and over the last four weeks rig additions were the lowest since November. Smaller shale firms are feeling the pain and the economics in the shale patch will cause the reporting agencies to once again lower the US oil production forecast.The Energy Department on Tuesday lowered its forecast of U.S. oil production next year by 1 percent in what may be the beginning of a trend.

This weekend the Houston Chronicle wrote that small Permian shale producers are beginning to feel the impact of the recent slide in oil prices, warning they could postpone exploration and production plans, slow hiring and spend less on oil field services that underpin thousands of jobs in Houston area. The Chronicle says that even as larger companies plow full speed ahead in the nearby Permian Basin, these smaller, privately held firms are sending up the first signals that the industry’s recovery may be losing steam as oil prices remain stubbornly below $50.00 a barrel. Many oil producers had expected prices to reach about $55 a barrel by mid-2017 and built budgets around the expectation; now, with prices near $45, they are adjusting.

The Houston Chronicle says that Eagle Energy Inc., a small Canadian oil company that drills in Texas and has offices in Houston, recently said it plans to cut jobs, executive compensation and other costs as oil prices languish far lower than the firm expected. They also quote Jack Byrd, president of Byrd Operating Co., a small producer in Midland, who said oil prices slid far below levels needed for his company to expand operations, so instead, his firm has sold off some unprofitable property, steered away from drilling ventures with other companies and has avoided borrowing. “We’re back in a holding pattern at these lower prices,” said Byrd. “We won’t do any work that’s not absolutely necessary, and we won’t spend any money we don’t have to. It has to make economic sense.”