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| US oil boom: Can the industry survive falling prices? | US oil boom: Can the industry survive falling prices? |
| (1 day later) | |
| Oil production is everywhere in Carter County, Oklahoma. | Oil production is everywhere in Carter County, Oklahoma. |
| On the surface, the area is mostly empty, populated by lazily grazing cattle, with a few silos here and there. | On the surface, the area is mostly empty, populated by lazily grazing cattle, with a few silos here and there. |
| But underneath the ground, it is a congested highway, where dozens of oil and gas firms are busy drilling horizontal wells. | But underneath the ground, it is a congested highway, where dozens of oil and gas firms are busy drilling horizontal wells. |
| "Everybody is running as fast as they can, trying to drill and take advantage of those high prices," says John Gibbs, the owner of TriPower Resources, a small oil and gas firm who has been operating in the area for over two decades. | "Everybody is running as fast as they can, trying to drill and take advantage of those high prices," says John Gibbs, the owner of TriPower Resources, a small oil and gas firm who has been operating in the area for over two decades. |
| And that has led to a boom in nearby Ardmore - the biggest town for miles, which owes much of its existence to oil, which was first discovered nearby in 1913. | And that has led to a boom in nearby Ardmore - the biggest town for miles, which owes much of its existence to oil, which was first discovered nearby in 1913. |
| Here, that underground congestion has finally broken above ground. | Here, that underground congestion has finally broken above ground. |
| "We used to laugh - I came up from Houston and talking about traffic in Ardmore was a joke," says Mr Gibbs. | "We used to laugh - I came up from Houston and talking about traffic in Ardmore was a joke," says Mr Gibbs. |
| "Now, there's traffic in the mornings and evenings and the hotels are full." | "Now, there's traffic in the mornings and evenings and the hotels are full." |
| A global glut? | A global glut? |
| Nationwide, from North Dakota to Texas, technological improvements in the horizontal drilling used for fracking have led to an oil boom across the country, pushing US oil production to a 31-year high. | |
| In Oklahoma, the discovery of oil resources contained within the Woodford-Cana shale has led some to speculate that the state could once again become the nation's leading oil producer, a position it last held at the turn of the 20th Century. | In Oklahoma, the discovery of oil resources contained within the Woodford-Cana shale has led some to speculate that the state could once again become the nation's leading oil producer, a position it last held at the turn of the 20th Century. |
| But all of this production is dependent on high prices, which have been plummeting over the summer. | But all of this production is dependent on high prices, which have been plummeting over the summer. |
| The price per barrel of the benchmark Brent Crude index recently hit a four-year low, and that has some wondering about the economics of continued production if there is in fact a global supply war. | The price per barrel of the benchmark Brent Crude index recently hit a four-year low, and that has some wondering about the economics of continued production if there is in fact a global supply war. |
| However, Fadel Gheit, a senior analyst covering oil at Oppenheimer and Company, says that prices would have to fall significantly to really force any producer in the US out of business. | However, Fadel Gheit, a senior analyst covering oil at Oppenheimer and Company, says that prices would have to fall significantly to really force any producer in the US out of business. |
| What is the break-even price? | What is the break-even price? |
| The break-even price is when the cost of per barrel oil production is equal to (or ideally less than) the price per barrel of oil. | The break-even price is when the cost of per barrel oil production is equal to (or ideally less than) the price per barrel of oil. |
| This is a moving target, and the break-even price for one rig or area of oil development is not necessarily the same elsewhere. | This is a moving target, and the break-even price for one rig or area of oil development is not necessarily the same elsewhere. |
| Also, the break-even price often changes, as the cost of production fluctuates. | Also, the break-even price often changes, as the cost of production fluctuates. |
| But, as Mr Gheit notes, oil production companies are not just looking to break even - they're looking to make a profit. | But, as Mr Gheit notes, oil production companies are not just looking to break even - they're looking to make a profit. |
| "Five years ago the industry required about $90+ per barrel of oil to invest in new projects, but today this number is close to $60 or $65 per barrel," he says, mostly due to increased efficiency brought about by improving technology. | "Five years ago the industry required about $90+ per barrel of oil to invest in new projects, but today this number is close to $60 or $65 per barrel," he says, mostly due to increased efficiency brought about by improving technology. |
| For instance, whereas it used to take two weeks to drill a new fracking well, now it takes five days. | For instance, whereas it used to take two weeks to drill a new fracking well, now it takes five days. |
| Mr Gheit says what will probably happen - and, in some parts of the world has already begun to happen - is that companies will delay starting new projects. | Mr Gheit says what will probably happen - and, in some parts of the world has already begun to happen - is that companies will delay starting new projects. |
| "New projects will be deferred because companies will be hoping that a new technology will reduce the cost so they don't want to rush," he says. | "New projects will be deferred because companies will be hoping that a new technology will reduce the cost so they don't want to rush," he says. |
| Feast to famine | Feast to famine |
| But worries still persist. | But worries still persist. |
| Daniel Romo, the owner of a Mexican restaurant on Ardmore's main street, says his business has benefited from the influx of workers to the area. | Daniel Romo, the owner of a Mexican restaurant on Ardmore's main street, says his business has benefited from the influx of workers to the area. |
| He recently tripled the seating in his restaurant, and laughs as he discusses the problems that come with oil nearby - a common tale being that of the delivery workers who often phone the restaurant, lost en route to remote rigs that have ordered his signature guacamole tacos and enchiladas. | He recently tripled the seating in his restaurant, and laughs as he discusses the problems that come with oil nearby - a common tale being that of the delivery workers who often phone the restaurant, lost en route to remote rigs that have ordered his signature guacamole tacos and enchiladas. |
| He says that although the boom times seem to be continuing for the moment, he worries about the future. | He says that although the boom times seem to be continuing for the moment, he worries about the future. |
| "It would definitely hurt our bottom line if the [price of] oil kept falling and falling and falling, basically to where it dried up in the area and it wasn't feasible for them to drill any more," he says. | "It would definitely hurt our bottom line if the [price of] oil kept falling and falling and falling, basically to where it dried up in the area and it wasn't feasible for them to drill any more," he says. |
| A silver lining | A silver lining |
| For now, however, oil producers here say they have no plans to slow down. | For now, however, oil producers here say they have no plans to slow down. |
| Down a dusty stretch of road, BNK Petroleum's 11th oil rig in the area is being constructed, poking out above the scrubby trees. | Down a dusty stretch of road, BNK Petroleum's 11th oil rig in the area is being constructed, poking out above the scrubby trees. |
| Miles of metal pipe are being inserted into the ground, with a fancy, million-dollar GPS tool at the front to ensure that they are drilling towards where the oil is deep underground. | Miles of metal pipe are being inserted into the ground, with a fancy, million-dollar GPS tool at the front to ensure that they are drilling towards where the oil is deep underground. |
| "It costs $8m to drill a well like this - and [hopefully] over its life over 300,000 barrels of oil," says Ray Payne, the vice-president of operations. | "It costs $8m to drill a well like this - and [hopefully] over its life over 300,000 barrels of oil," says Ray Payne, the vice-president of operations. |
| He says that while the falling price of oil is certainly a concern, for BNK at least, it is still high enough to make constructing a big rig like this feasible. | He says that while the falling price of oil is certainly a concern, for BNK at least, it is still high enough to make constructing a big rig like this feasible. |
| "Our margins are really strong here, so we will continue our development programme at the current pace, even at prices much lower than $80 a barrel," says Mr Payne. | "Our margins are really strong here, so we will continue our development programme at the current pace, even at prices much lower than $80 a barrel," says Mr Payne. |
| He adds that falling prices could also be a good thing for BNK. | He adds that falling prices could also be a good thing for BNK. |
| That's because as the price falls and some producers slow down or perhaps shut down, the amount he has to pay to suppliers could decrease as demand slows - which would make the cost of producing oil here in Carter County even less expensive than before. | That's because as the price falls and some producers slow down or perhaps shut down, the amount he has to pay to suppliers could decrease as demand slows - which would make the cost of producing oil here in Carter County even less expensive than before. |
| Sock it away | Sock it away |
| Yet despite industry assurances, most people in Ardmore seem keen to ensure that the town does not fall prey to yet another boom and bust period. | Yet despite industry assurances, most people in Ardmore seem keen to ensure that the town does not fall prey to yet another boom and bust period. |
| David Potts is an oil and gas lease broker who has been operating in the area since 1984. | David Potts is an oil and gas lease broker who has been operating in the area since 1984. |
| "Our business is booming as far as buying leases for clients that want to drill horizontal wells," he says. | "Our business is booming as far as buying leases for clients that want to drill horizontal wells," he says. |
| But despite the new influx of wealth, there are no expensive cars on Ardmore's main street, or multi-million dollar McMansions being built on the outskirts of town. | But despite the new influx of wealth, there are no expensive cars on Ardmore's main street, or multi-million dollar McMansions being built on the outskirts of town. |
| The glitziest symbols of the boom have been the arrival of a Chili's restaurant and a Lowe's home improvement store to the area. | The glitziest symbols of the boom have been the arrival of a Chili's restaurant and a Lowe's home improvement store to the area. |
| That's because this is an area that has been scarred many times before - as evidenced by the still mostly empty Main Street, a casualty of bust in the 1980s. | That's because this is an area that has been scarred many times before - as evidenced by the still mostly empty Main Street, a casualty of bust in the 1980s. |
| "I think a lot of people are socking it away because they can't imagine it ever being this way again," say Mr Potts. | "I think a lot of people are socking it away because they can't imagine it ever being this way again," say Mr Potts. |
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