If you live in or around Houston, Texas and you cannot help but hear concerns about the effects of lower oil prices over the past several months on local jobs and the economy. Having worked in the industry since 1985, booms and busts are a part of the fiber of the industry. More integrated global markets along with political instability and conflict in many regions throughout the world that are rich in production and reserves have not helped with predictability of oil and gas pricing. However, I believe good ol’ American ingenuity continues to provide a silver-lining for the oil and gas sector.
To start, U.S. energy companies are at least partially responsible for the current situation. Through incredible innovation in technologies, including increased rig automation, hydraulic fracturing, more accurate directional drilling, better seismic imagining and sophisticated waste-water treatment, the industry continues to more effectively find and produce oil and gas. These innovations have made our country the number one producer of natural gas in the world and the second largest producer of oil (behind Saudi Arabia) according to the U.S. Energy Information Administration. It is this growth in production and a decision by OPEC to not reduce production in November 2014 (most believe in reaction to the increase in U.S. production) that dropped oil prices from over $100 per barrel last summer to current prices hovering around $50 per barrel.
However, in recent months, we have seen that the lower prices help drive down further the cost of drilling and producing oil and gas, even in costly shale and tight gas situations. Service companies continue to provide innovative approaches and lower costs (and prices) to their operating customers. Operators are now focusing on projects that are economic in both the short and long-term under more conservative pricing scenarios. While the current commodity price environment does not appear to be ideal for the industry, we believe the industry is set-up quite nicely for a time when even a moderate ($20 per barrel) increase in oil prices will bode well for the energy sector. We continue to work with clients in and effected by the industry to help maximize value in today’s world. Give us a call if we can be of any assistance with your legal needs.
Bret L. Strong