It has been slow of late while I was away on the other side of the world with my bad internet connection. I am back in the US now.
First order of business is if you have held your minerals this far, I believe we have seen the worst that is likely to happen. Take heart.
The cost to drill complete and produce a well has come down drastically. I always knew the oil companies were overpaying for services by at least 30% and it appears that that was conservative. Top of the line Bakken wells that go according to plan cost 7-7.5 million dollars. I had one well that the operator, KOG claimed cost 14.5 million dollars when the paperwork claimed the cost overrun was about $60k. I am looking into that. Paying too much for services was why almost everyone said that Bakken production required at least $70 per barrel. This is no longer true. It is true that we won’t be making money hand over fist at these prices but they won’t be down forever.
A large part of why the price of oil is down is the fact that since the price of oil has fallen that US oil imports have INCREASED. There is a very simple reason for this. The BIGGS can still make a decent profit on imported oil so that is what they are doing. Foreign countries signed horrible oil leases because they needed the money, some repudiated those leases but many did not. It may cost as little as $20 per barrel to get that oil to the US, to many different points in the US since it is coming on a ship, and probably not going to a hub but more directly to a buyer so it cost less to move. It is also heavy oil which is better for plastics and lubricants which Bakken crude is not. Exxon reported making just under 1 billion dollars, down from about 4 billion the year previous. In their shoes would you rather earn 1 billion or would you rather take a loss? I don’t own their stock but if I did, I would want them to do exactly what they did and possibly more of it! As it is, I don’t like it but I understand it.
I won’t go deep into the geopolitical equation but we could have war in the middle east at any time. If it should happen, which I don’t want a war, who does? Would we ever be in a better position for a Mideast war than to be brimming with fuel?
About a week ago the US exported it’s first tanker of natural gas. It is an incredible pity that it happens now and not a few years ago when the price was 300% as high(Remember right after Fukushima in Japan?), but it is a start. From small things large things grow. We may even supplant Russia as the supplier of natural gas for western Europe. That would be a handful of years away if it happens but it would be a logical step from our prospective and Europe’s.
I am glad to be back and I look forward to weighing in on a few subjects.