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Summary of the Oil Bust

by Elizabeth Alford on July 20, 2015

June marked the anniversary of the beginning of the 2014 oil crash. What started as a slow decline in crude prices accelerated into a full-blown crash throughout the fall. Once prices finally bottomed out in March at $48, they had dropped by more than half.

As things became worse, uncertainty and predictions of doom became commonplace. Some analysts forecasted possible economic ruin for oil-dependent states and others warned of the crippling of the industry. But many seasoned oilmen saw the downturn as a wake up call of sorts and an opportunity for producers to take a hard look at their systems, processes, personnel, technology and strategies outside of the frenetic pace the boom required.

Following is a summary of some of the key effects of low crude prices:

Cutting Costs: Since last fall, producers have been forced to tighten their budgets and change their strategies in order to stay competitive. These tactics have worked well and first quarter 2015 results show many companies are surviving by slashing costs.

Bankruptcies:  Since january, six oil other producers have filed bankruptcy including Sabine,  American Eagle Energy, Quicksilver Resources, BPZ Resources, WBH Energy and Walter Energy. Analysts are warning that this is just the tip of the iceberg and many are forecasting bankruptcies will increase later in the year. read more

Innovation: Cutting edge producers are pushing the science and technology to new levels as they work to get the most out of their resources. These include advancements in 3-D seismic research, telemetry, remote guidance and innovations in  CO2 or nitrogen-style completions. A Wall Street Journal article recently said that this increased efficiency has fundamentally changed the industry. “Oil production is becoming a modern manufacturing process. The frackers are engaged in ‘just-in-time’ production, analogous to the methods pioneered by Japanese manufacturers in the 1970s and 1980s, which led directly to hyper-efficient global supply-chain management perfected by Wal-Mart in the 1990s.”

Economic Impact: An estimated 20,000 jobs have been cut across all sectors of the industry, but both Texas and North Dakota report that the oil crisis has not had the severe impact on their states as expected.  Data shows that Texas dipped in the first quarter but is already showing signs of a rebound and the North Dakota Department of Commerce boasts that the ND economy is still booming.

Dropping Rig Counts: The national and regional rig counts took a big hit this year as producers pulled rigs offline to save money. Many report that these wells are waiting in the wings and are ready to be put back into production later this year.

Record Production: Even in light of the price drop, production over the last 12 months has been at record levels. The EIA data published this month shows that global petroleum oversupply has more than doubled to 2.6 million bpd since the end of the second quarter last year and they expect the oversupply to last at least until 2017.

Effects on Mineral Owners: Bloomberg reported that “Royalty payouts from bankrupt operations have shrunk to a fraction of the rates paid before the crash, sometimes more than can be explained by the drop in oil price. In the worst cases, landowners can be left with no one to take responsibility for abandoned waste, spills and other hazards, say industry experts who have past experience with oil busts.”

Read accounts from real mineral owners about how the low prices are affecting them.

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