Basin operators address return of $50 oil
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Crude futures settled above the $50 level for the first time since July, perhaps offering a little breathing room for producers battered by prices that fell into the $20s in February.
The price of West Texas Intermediate has climbed about 90 percent since falling to $26.21 on the New York Mercantile Exchange in February, bringing a posted price of $22.75 a barrel.
“$50 a barrel is more than twice as good as $25 a barrel,” said Tim Dunn, chief executive officer of CrownQuest Operating.
Taylor said his company is looking at increasing activity in South Texas a little, “but we’re really looking at 2017” to increase activity in both the Permian Basin and South Texas.
“We’re really focused on next year, assuming prices stay firm,” he said.
“I certainly think $50 will help a lot of companies sustain some activity, and a lot of companies are talking about picking up their activity in the back part of the year,” Dunn said. “But I doubt many, if any, companies are ready to make any commitments that don’t allow them the flexibility to adjust if prices slump again.”
Denzil West, president of Reliance Energy, said the higher prices are encouraging but he and other executives at his company remain skeptical prices will continue above $50 a barrel. Still, he said, “long-term, we’re on a good trend.”
West said his company is looking at putting a drilling rig back to work “pretty quick” and the higher prices allow for some hedging opportunities.
“We’ll remain very nimble in case there s a pullback,” he said. “But this is very encouraging.”
There are a few ifs as to whether or not oil prices remain firm, Taylor said, listing oil inventories that continue to remain high and supply disruptions that could be short-lived.
And the rebound in prices may be too little too late for some, he said. “We’re still seeing companies file bankruptcy, so $50 oil probably won’t help them,” he said.
On the other hand, Taylor said domestic oil production is beginning to decline, offering support to price levels.
Bloomberg reported Tuesday that crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, probably declined by 700,000 barrels last week, according to the median estimate in a Bloomberg survey. Nationwide inventories dropped by 1.37 million barrels to 535.7 million through May 27, according to the EIA.
“I knew the production decline was coming, but it took longer than I thought it would,” Taylor said.
The current correction has also taken longer than he expected, or the industry hoped, he said. There were those who hoped for a quick recovery, as was seen in 2009-2010, rather than a prolonged downturn like the one that began in 1986.
“Who would have expected 405 rigs nationwide?” Taylor said.
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