This time it’s different

Let’s face it, most operators have insufficient profits from their business much of the time.  Being an operator is humbling because it is hard to execute well, even in good times. There is a bumper sticker in Midland, Texas that reads: “This time it’s different”.  It’s a sarcastic warning to the oil field to not be reliant on high oil prices.

I keep a spreadsheet of inflation adjusted oil prices. Since 1970, the average is $55/bbl (medium $49/bbl). Which begs the question: How on earth can you sleep well at night thinking that $55/bbl might be in your near future?

Here’s how:

1. Take a good hard look at your business. How do you keep the lights on? Which wells would be profitable at $55/bbl?  Which pumpers would you release?

2. Then, right size your overhead by modernizing your workflows to thrive even at prices lower than today’s price of $64.31/bbl.

3. Use price dips to opportunistically upgrade your well portfolio. Fact: Your current well completions are finite and will eventually be depleted.

4. Consider balancing your company’s oil vs gas ratio. There may be more price upside for natural gas.

5. All else being equal, acquire longer lived properties.  This means that lower permeability rocks are your friend.

The price outlook appears challenging, but maybe the challenges are opportunities in disguise?