• August 19, 2019

Oil production growth dropping rapidly - Odessa American: Local News

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Oil production growth dropping rapidly

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Posted: Tuesday, August 6, 2019 5:13 pm

There still is growth, it’s just much smaller. Production increases peaked around August 2018 at more than 1.1 million barrels per day, and dropped to about .6 million barrels per day as of this month.

So is it time to start worrying? Is there another bust on the way? Steve Castle, president of Cowboys Resources Corp., said he isn’t concerned.

“I think it’s a temporary thing,” Castle said. “There’s still a lot of rigs running out there.”

Castle said one of the issues is related to drilled uncompleted wells that have yet to become active, and also some takeaway issues due to a lack of pipelines. But several pipelines are scheduled to become active around the end of the year and many of these drilled uncompleted wells will come online.

“We can’t get oil and gas to market, that’s the big problem right now,” Castle said.

As long as the price of oil stays between $50 and $70 per barrel, Castle said the industry should be fine, but there would be problems if that price got too low or too high. The reason it would be a problem if it was over $70 per barrel is due to a windfall profit tax, Castle said, which is a tax on profits stemming from sudden windfall gains to a particular industry or company.

Odessa Chamber of Commerce Economic Development Director Wes Burnett said he thinks the slowdown in production growth also has to do with capacity issues, getting oil out of the basin and refined.

“We haven’t heard, seen, felt anything that’s been really concerning,” Burnett said. “It may just be kind of a leveling. You can’t keep those production levels going forever.”

Burnett said he wasn’t trying to make light of losses, but that last year was a record year for growth, and being less than last year’s is still pretty good. He also pointed out oil prices were down last fall but eventually came back up.

Castle said the one issue he was concerned about related to China, and the possibility of Trump placing more tariffs on the country and devaluing their currency, which could raise the price of goods.

“Of course the world is a dangerous place, but the place to be is in West Texas. That’s my opinion,” Castle said.

China is also a concern for Dennis Elam, an economist at Texas A&M San Antonio who watches the oil and gas market. While additional pipelines could help with slowing production growth, Elam said a situation like the U.S. imposing a 10% tariff on Chinese goods, which Trump announced plans for last week, could hurt the U.S.’s position in the oil market.

“What if China starts buying oil from Iran?” Elam asked. “If they get tired of Trump making all these threats and trying to embarrass the President, I wouldn’t be surprised if they did that.”

If that happens, Elam said, it means less market overseas for U.S. oil.

There are also energy market prices to consider. Elam said the stock price for XES, representing oil and gas equipment and services, has fallen below the lowest price it hit during the financial crisis, and is currently trading under $8 a share.

Something else to look at, Elam said, is that the 10 year treasury note is yielding about 30 times less than the overnight yield.

“That’s called an inverted yield curve,” Elam said. “Every time we’ve had one, it eventually leads to a recession.”

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