Daily news reports continue to announce cuts, layoffs and mergers from big producers, but it is the smaller companies who may be the most vulnerable during the current oil crisis.
Related: Small Oil Companies Express Optimism
Today, I am featuring an interview with independent geologist, Walter Light, to get his perspective on the current downturn.
Thanks for taking a few minutes to give me your perspective on what is happening in your sector. Tell me a little about yourself.
I am an independent geologist and formed Thunder Exploration, Inc. in 1981. We like to see ourselves as a prospect-generating shop with a desire to follow our prospects all the way to production in the terms of moving forward and helping operators. That is what our focus has been for the last 30 years; generate oil and gas drilling projects, market them to the industry and then stay involved with details such as well planning, execution, evaluation and recommendation on completing a successful well.
How have low crude prices affected your work as a geologist?
Well, probably the same as in the rest of the industry. Having been in the business a long time we have the benefit of general stability in our specific business world. But in general, we do see a reduced cash flow into the business.
If you want to continue to drill wells in this environment, you have to get a feel that the cost to do so is commensurate with the price of the commodity. In the free fall pricing environment that we have experienced, nobody’s really been willing to reach up and grab that “falling knife”, as it’s been described-whether it is buying equities in the oil and gas industry or putting deals together or hiring third party services.
Everyone is still trying to correct and to understand if we are at the bottom or not. So generally I think it has slowed the business down and those companies that don’t have debt service and adequate cash flow behind what is required to run their business, they can get into a slower mode of doing business. That’s kinda where we are; kind of a breathing room.
There is time to take a breath, stand back and look at what you have done over the last several years. And if you want to drill new wells, those wells have to be commensurate with the current price. So we are focusing on taking working interest in other people’s deals but also in our generating mode looking at conventional wells, vertical wells and/or horizontal wells that don’t require hydraulic fracturing, because that is a major expense. Or vertical wells that don’t require big completion costs like occur when you hydraulically crack a well. So there are a lot of plays in the $40-50 range where we can play.
It does cause a re-step back and a slow down and a re-think. We are probably just going to try to continue doing business just as we have with those modifications until we get a feel for where the bottom is and then the service companies will have to adjust their pricing, particularly all of the services that are required for fracking. Halliburton, Baker Hughes, Schlumberger, all these companies that provide a lot of services on the completion side, will have to correct pricing if they wanna keep busy. And that takes a little while for them to adjust, but they will.
“Pretty much business as usual at a slower pace and a slight alteration in the targets. But in the short term, we will probably hold off where we’ve been involved for awhile and that is Eagle Ford, that require fracking. Now we may participate in some wells that get drilled and hold off on the fracking part until the wells are completed, that is stable, with pipe in the ground but not producing until fracking companies adjust their price to the current market.”
You said you have been through this before? Historically, are there any good things that come out of these downturns?
Lots of them. For one thing, it does help everyone to adjust; it forces the service companies to adjust their prices and forces operators to become more efficient in their drilling and recovery methods. So horizontal drilling and fracking are an efficient way to recover light carbons that are more difficult, but even with that spectrum there are things you can do to increase the efficiency of recovering and lower the cost and recover hydrocarbons.
Also, we have been in a frenzy in the Eagle Ford since about 2009. First it was land grab and then it was the intensity of the activity which drove the service company prices up. We’ll get an adjustment downward in pricing, it will give people and operators and geologists like me time to sit back and think about what they have done over the last few years and if they can improve their methods and monitor their existing production. During the frenzy of hitting wells, getting the first wells drilled on a lot of these leases.
That is a fantastic question because it flips it around from a negative to what are the positive things that will come out of this. It will force us as an industry to become more efficient in everything that we do and try to think of new ways. There will be new technology that will come out of this downturn because people want to think of how to do it cheaper, quicker, better and less costly.
For more information about Thunder Exploration, email wthunderx at aol.com