Growing production? Why not? I beat my children, too.
I have had a busy two weeks. 4 speeches. 1 book club and a whole bunch of F bombs (sorry-but-not-sorry about that).
As I do, I read all the quarterly releases and to almost a company, they say “Great news!! Capital is down, and we are growing production next year.” I’m exasperated. 15 months of posting and I feel like the only people that are learning are the people that work for these idiots. Seriously. What. The. F (see, no swearing!)
I know I wrote a book that was number 1 in economics for a short period of time so I feel like I’m uniquely qualified to say this: Supply and demand is a real thing. When supply goes up. Price goes down. The end.
As someone who has worked in this industry for 20 years, and done every job you can imagine, I feel uniquely qualified to say this as well. At less than $2/mcf you can’t make money. At less than $55/bbl, at best you are burning inventory to delay chapter 11.
I’m happy to hold a podcast special to discuss this. Seriously. I accept I don’t know everything. But if you are growing production, come on the podcast and explain yourself.
Otherwise, please…pretty please… Stop growing production. I promise I won’t write a note about your company if that helps… ok. I don’t actually promise that, but, you aren’t going to stop growing production either, are you?
#hottakeoftheday
It’s a broken record and it keeps playing over and over again. I think the audience is wising up though. The romance is over. The worst part of it is – what was a great industry to be in 20 years ago is now just another widget factory. It’s a beancounter’s world. Rest in peace Ramey, Gringarten, Argawal, Earlougher, Cinco and Samiengo.
I feel that is what the investors want to hear. Because when explained in elementary terms as you did, I can’t wrap my head around what drives those decisions. Been in the industry too and am amazed standing on the outside looking in. Lots of opportunities
The thing is that no one E&P entity looks at their role in the supply side of things. And maybe they shouldn’t. If any one company quits drilling it doesn’t help pricing. You need everyone to quit drilling. Doesn’t the exact same thing apply to all the OPEC countries. Why produce 100% at X price when you can produce 90% at 1.1X price? Because you think that someone else will just fill the void and leave you with 90% at X price and you got mouths to feed. So hey screw it. As folks have pointed out, prisoner’s dilemma. Good luck getting the optimal result.
The root problem IMO is that every US E&P thinks drilling more is better than it really is for their specific company, they have overstated well quality and understated CAPEX to everyone for so long that they believe it themselves and/or are too detached from the reality to understand that there are really no benefits to drilling wells at these prices. Their model says these are >40% ROR projects at $55 oil or $2/mcf or whatever, so they should drill as many as they can since price is out of their control. But they aren’t that great. So instead of drilling their way to victory they just get more and more stuck in the tar pit.
Lord knows. I worked for a company that borrows money to pay a dividend each quarter. Try explaining that in basic elementary terms. My suggestion to E&P management and employees is to just loot as much as you can and drink all the tiny bottles of alcohol before this sumbitch augers in.
The reason nobody stops drilling is very easy to understand. If the management teams (especially public companies) are not drilling, then they start getting questions of why they are needed and being paid…it’s that simple – they have to drill and have continuous operations to justify their existence…
But you need to drill to keep production flat, just not as much.
I agree with drilling less to keep production flat… haven’t seen a lot of companies announcing that strategy…