Wednesday, March 30, 2005

Windshield Survey ...

Recently, I had occasion to sit and visit over the phone with Mella McEwen, the Oil & Gas Editor for the Midland Reporter-Telegram. We talked about how each other was doing, families, jobs, health,etc. ... and the state of the energy business in the Permian Basin.

Ms. McEwen was upbeat about that state ... and that means something to me, because I believe her to be our most astute observer/reporter of the industry and its impact, not just on West Texas and southeast New Mexico, but upon the nation as a whole.

Those of who have been around the 'Patch for more than a few years will remember the late, great John Paul Pitts - who was not only a reporter and editor of great repute, but also a singer/songwriter/musician, and a connoisseur of menudo. Pitts' untimely passing was a loss not only for the oil and gas industry for which he was a tireless reporter and advocate ... it was also a loss for the craft of journalism in the Permian Basin.

It was those formidable shoes that McEwen was expected to fill ... and in my opinion, she's not only done that, but she's also taken her own steps, made her own advances, and the MRT's Sunday Oil & Gas Section remains a publication without peer. How she feels about menudo, I don't know.

But I digress ...

Our discussion of the state of the industry was not fueled much - if at all - by government reports, but by our own observations of what was going on around us ... what people were saying, what companies were doing, what assets were moving, what yields were recording.

My own windshield survey - looking at what's going on around me as I drive to and from work, and to and from surrounding communities - has been encouraging.

The area where I work is near Midland International Airport, well outside the civilized environs of either Odessa or Midland. Land here is cheaper, and the businesses one finds are those that need some place to sprawl ... like equipment yards, fleet operations and field offices. Existing yards are being improved and expanded, and new yards are being built.

A five-mile stretch of FM 1788, connecting I-20, US 80 and US 191, is one of the busiest in the area. Rigs and crews are on the move. So are service vehicles, survey trucks, tankers and company cars. The amount of work traffic on local roads is the greatest I have seen in a looooong time.

There are moments where it's hard for restaurants and convenience stores in close proximity to this traffic, to keep up with the flow of customers ... while trucks are filling their tanks in the fuel bays, crews of roughnecks are loading up on burritos, bags of chips, coffee and very large travel cups of Dr. Pepper for the start of the day. It's much the same at the end of the day, though one sees less coffee and Dr. Pepper, and more beer. Those that can time it right, will hot a restaurant for lunch, filling up two or three tables, eating well and tipping well.

Listening to the conversation over morning coffee, I'm hearing that old wells are being pulled out of early retirement, and new wells are being developed. People are going back to work, and royalty owners are realizing renewed income. There are stops along the highway where you can see two or three rigs at work. Plenty of traffic on the highway, too. Pound for pound, a steel rig is more valuable than gold right now. And if it isn't working a site, it's on the back of a truck hurrying to the next site.

The view through my windshield is a good one, at least for now. The view through others' may vary. I'd be interested in hearing what others have to say. At least two of the big guns in West Texas' blog arsenal, Eric at Fire Ant Gazette, and Wallace at Streams, bring more than a little first-hand experience of the industry to their observations.


Pancho said...

two of the big guns in West Texas' blog arsenal, Eric at Fire Ant Gazette, and Wallace at Streams

Thanks for the compliment and I'll develop my thoughts on the subject...but I'm afraid it'll only be about a BB guns worth!

Eric said...

I'm only good for a rubber band pistol, myself!

I'm out of the loop now, having moved on to other things, but I still keep up with things through friends and, of course, my wife. I can tell you that there's one segment of the bidness who isn't loving these high prices and that's the smaller independents whose strategy is to buy production rather than drill it. Nobody has the nerve to run economics based on $50 oil, even though everybody's best guess is that it's here to stay for quite some time. But the sellers of said production don't want to part with it for too much of a discount from that it's hard to get deals done.

It's not much a dark cloud above that silver lining, but it's all I can come up with! ;-)

(And Wallace is being much too humble.)

Jeff said...

Eric, the point about the independents is well taken. One thing that came up when Mella and I were talking the other day is the landscape is diffrent from what it was 20+ years ago. The majors' presence is not what it was ... even among those that are still in existence ... which I don't have to tell an Arco Oil & Gas alumnus.

And while they may not have the moxie to pick up all the drilling slack, the independents ... Williams, Samson, Fasken Ranch,a dn a host of others ... are growing their staffs and making hole.

Eric said...

Actually, you'd expect the independents to be able to do more drilling and quicker than the majors, to the extent they have access to the cash.

The majors have (had?) a huge inventory of drillable prospects, generally more than their budget allows in a given year. Those in the Permian Basin always had to compete on a global basis for budget allocations at the corporate level. A hundred barrel a day well in Midland county vs. a 20,000 barrel a day well in the Gulf of Mexico didn't stack up very well, so the local guys picked up only a lip service amount of corporate budget for their operations.

Independents whose major focus is the Permian Basin are limited only by access to cash (and rigs AND personnel...but, then, so are the majors), and have every incentive to drill NOW rather than later. There may well be independents around who spend time developing 20 year plans, but they're the exception. With $57 oil (as of yesterday) and $7 gas, you drill now and ask questions later.