Thursday, April 28, 2016

What Has Been Will Be Again, What Has Been Done Will Be Done Again; There Is Nothing New Under The Sun -- Ecclesiastes 1:9 -- April 28, 2016; Pioneer In The Wolfcamp -- Cash Costs Down To $14/Bbl

Flashback, 1987.

This is a story for of the US oil bust back in 1987. It is remarkable how it sounds just like today. A huge "thank you" to the reader who sent me this link.

From The New York Times, March 1, 1987, almost 30 years ago:
This session in Mr. Rudman's den did not seem to be a run-of-the-mill opening for a discussion about the oil industry, but very little is run of the mill about Mr. Rudman, from his remarkable vigor to his contrarian instincts to his eye-catching attire. At 77, he is a legend in the oil industry, a maverick who has made his fortune by following his instincts. And now that exploration efforts have slowed to a virtual standstill in the depressed oil patch, the venerable oilman is once again moving against the crowd, spending millions of his own dollars to drill new wells.
Mr. Rudman, whose career dates to back the 1930's, is an independent operator in a field increasingly dominated by corporate behemoths, a health food devotee in a world more attuned to t-bones, an aficionado of plumed hats and red velvet tuxedos in an industry that prefers conservative suits or blue jeans. And as unremitting gloom shrouds his fellow oilmen, he also stands out as an optimist.
''I've been waiting 56 years for this,'' said Mr. Rudman. ''It's the greatest opportunity that has ever existed in my lifetime. The way I figure is that if the price of oil is 50 percent of what it was and your drilling cost is 50 percent of what it was, you're in the same situation only the deals are so much better now.'' During the boom years, he said, too many investors were crowding each other out of the best opportunities. ''Right now, I figure I'm going to go at it as hard as I can. I'm spending every dime of my income on drilling wells.''
Other oilmen maintain that Mr. Rudman's optimism should be taken with a few grains of salt. He can afford to be enthusiastic, they say, because he scored a remarkable coup in 1981, at the height of the oil boom, by selling off all his producting wells to the Petro-Lewis Corporation. In a debt-ridden industry, he is one of the last of an endangered species, a cash-rich oilman. He said he is investing millions of his own dollars in approximately 70 wells this year.
Mr. Rudman bases his optimism on the lowered costs of drilling wells in a depressed industry. With the number of active oil rigs in the United States down to 839 from a peak of 4,530 in 1981, rigs can sell for 10 cents on the dollar. Promoters who once charged fat fees for oil deals are now desperate for investors. Most of the wells that could be drilled for $1 million to $3 million a few years back can be done for half that now. Mr. Rudman figures he has more chance of getting in on a deal that could turn into a major find, and he is certain the current carnage in the industry will eventually lead to shortages and substantially higher prices.
Forbes Suggests The Same Thing

Forbes suggests America's oil boom just taking a breather:

Pioneer Natural Resources is a bellwether company, a Platonic ideal of all that is possible for America’s oil industry. Pioneer has the strongest balance sheet of any of the American independents with $2.5 billion in cash against about $3 billion in debt. It has built up a massive 800,000-acre position in the Permian Basin, a region that has emerged as the single best oil province in America, where the rigs are still running even at these prices.
Finding oil is not the issue for Pioneer, it’s how to get it out of the ground as quickly and efficiently as possible. The company figures it has about 12,000 drilling locations in the Permian, enough for about 90 years of drilling at its current pace. Pioneer’s balance sheet is strong enough and its land is good enough that even as America’s oil industry has flatlined (with U.S. oil output down to 9 million bpd from a high of 9.6 million) Pioneer has managed to keep growing its output, which at 222,000 barrels of oil (and gas equivalent) per day is about 10% higher than a year ago.
The company, as I wrote in this late 2014 profile, will be a survivor.
Pioneer reported impressive first quarter earnings yesterday and its stock is up 6% in Tuesday morning action. Sure the company had a big net loss, bringing in just $685 million in revenue against $1.1 billion of expenses. But when you back out that pesky stuff like $350 million in non-cash depreciation expense, Pioneer pretty much broke even. It is still running 12 rigs (down from 30 in 2014), and has gotten its cash costs down to about $14 per BOE.

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