A statue of a pumpjack and drilling rig sits next to a gas station. The ban on Russian oil imposed by the United States President may mean that oil producers in the Permian Basin will need to pump more oil to meet demand. The largest basin in the United States is the Permian Basin. Joe Raedle is the photographer.
One of the latest lines of attack in the finger-pointing over rising gasoline prices is that U.S. oil companies are sitting on a huge number of permits, content to reap huge profits while they refuse to drill for oil.
This is mostly false, but with a truth that is never taken into account. Let's talk about what's really happening.
The truth is that the number of rigs drilling for oil in the US is increasing. The increase in the Baker Hughes North America Rig Count is significant. This is the fastest pace it has ever climbed at. The notion that oil companies are just sitting on their hands is not true.
The U.S. Rig Count is scheduled to end in 2020.
Since drilling activity is rising, what is the source of the claims that U.S. oil companies aren't drilling? I think there are two things going on.
Many don't understand the lag between drilling and oil production. The drilling count has risen by 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 The conclusion is that U.S oil companies aren't drilling. The chart shows that they are, but it takes time for that drilling to produce results. Efforts to increase production are being hampered by thepletion of existing wells.
The second element has an element of truth. The rig count is rising, but it is still below levels before the Covid-19 pandemic. A three-year look at drilling activity shows the impact of the Pandemic, as well as the steady recovery since the rig count began to recover in the fall of 2020.
The U.S. Rig Count is for the year 2019.
Between February and July of 2020, the rig count plunged as demand for oil plummeted. There are a number of consequences from this plunge that we are still living with today, and that are driving oil prices higher.
Why aren't oil companies increasing drilling at a faster pace is a good question to ask. There are many reasons for that. There are shortages of manpower and material in the industry.
Many people left the oil industry when oil demand fell in 2020 because of years of up and down cycles. Many industries are affected by a manpower shortage in the oil industry.
There is a manpower shortage in oilfield services and supplies. Sand used for fracturing is in short supply. It will limit how quickly an oil well can start producing oil.
Several oil companies went bankrupt during the 2020 plunge. They won't be drilling for oil.
Many oil companies have said that they are going to be more financially disciplined than they have been in previous boom and bust cycles.
Critics of the oil and gas industry have seized on this financial discipline as proof that oil companies are holding back production. One of the biggest criticisms about the boom is that the oil companies never make money. In the past ten years, many oil companies have lost money.
They don't make consistent money because they over invest in oil production to see the price of oil crash. That is not a good business model. The multiple oil price crashes that have occurred in the past 15 years have prompted a number of oil companies to proceed more cautiously.
The U.S. oil industry is made up of thousands of companies that make their own decisions. The oil industry isn't a single entity. Some companies are more aggressive than others. Financial discipline will be maintained by some.
I can assure you that each oil company wants to produce as much oil as they can, because they will be very profitable with oil prices above $100/bbl. They don't have crystal balls, but they can immediately increase production. They don't know where oil prices will be a year or two from now, so they don't seem to be ramping up drilling at an even faster pace.
You have the right to disagree with their decisions. You should be aware of the reasons for these decisions.
All Rights Reserved © 2024
