The World According to Wayne: The Future of Drilling - the Good, The Bad and the Ugly
The condition of the economy has a lot of people
wondering what possibly could happen next. Many industries and market sectors
are on the skids, but one industry that has a pretty rosy future is the
drilling industry. Of course, there is an upside and a downside to all of this,
and so many factors drive and affect our business that I think a little
examination of the cause and effects might help.
Everybody who doesn’t ride a bicycle to work knows that the price of gasoline has gone up. A lot. I’ve received emails and comments from friends saying that we should boycott this station or that oil company. Let me tell you something: The stations – or, for that matter, the oil companies – don’t set the price. First, oil is a world-wide fungible commodity. What the heck does that mean? It means that oil is sold auction-style. If you boycott the auction, there still will be other bidders. Such as the Chinese or the Indians; they need it for their growing economies, and are willing to bid a lot to get it. If you want some, you have to bid.
Second, the price never will permanently fall below the costs of production, plus taxes. We already have drilled up and sold all the cheap oil. The oil we have left is harder (read: more expensive) to produce, and is found in increasingly hostile places. The third major factor affecting oil prices is inflation. Simply put, since the value of the dollar is being driven down to hide our government’s inability to lead, and with the high costs of vote-buying, it takes more and more dollars, worth less and less, to fill your tank.
The last time we saw this was during the Carter administration. Per-barrel prices were high, the rig count was high, and business was a-booming. A lot of us made some pretty good money back then. Then inflation caught up with us, same as it will do again soon. To understand real prices, look at how many hours of work you have to do to fill your tank. Then think back to most any historical time period, and you will find that it is not much different. Sure, there are peaks and valleys, but the overall trend is the same. Consider this: In 1913 (the year the Federal Reserve System was formed), a $20 gold piece would buy a hand-tailored, three-piece suit of the finest materials. Believe it or not, it still will. The problem is, as of this morning, it takes $1,419.50 worth of paper dollars to buy that $20 gold piece. The value of the suit hasn’t gone up, nor the value of the gold piece. The value of the dollars has gone down. And will continue to do so.
Another factor influencing the drilling industry is the environmental movement. In the past, the energy industry has used some procedures that weren’t our proudest moments, but that has changed. Drillers now are some of the leading stewards of the environment. And they do it with common sense, instead of hysteria. Our cutting-edge technological advances have made it possible to cleanly and safely drill in places unreachable before. For example:
The advances in hydraulic fracturing have made production possible in formations that used to be looked at as nothing more than an unproductive nuisance. In spite of propaganda movies like Gas Land and others, not one water well has been proven to be damaged by hydraulic fracturing. Don’t believe me; this is according to the state regulatory agencies that watch that sort of thing. And in places where there are complaints, drillers have gone out of their way to be good neighbors, and provide replacement wells, water lines or treatment equipment for perceived problems.
There are places where environmental (emphasis on “mental”) issues have pretty well stopped drilling. Look up a map of the Marcellus Shale. This huge natural-gas play is spread over several eastern states, i.e., Ohio, West Virginia, Pennsylvania and New York. Now look up a rig locator map. You will find that rigs are active throughout the region, right up to the New York state line. This is not because the Marcellus stops at the line. It is because New Yorkers have pulled their collective dress over their heads, and screeched, “The sky is falling!” It has nothing to do with reality.
Sometimes, events outside our industry drive costs and prices. For example, the disaster in Japan caused a price jump that probably will be permanent. Why? Because just when people finally realized that no one died at Three Mile Island, another unforeseen event happened. Final results yet to be seen.
One thing is sure: People in general don’t like what they don’t understand, and the amount they don’t understand about the nuclear industry would fill the Library of Congress. But they vote, based on so-called facts they get from people like Michael Moore and Al Gore; ah, the wonders of democracy. These are the same people who will look down their nose at you while plugging their electric cars into coal-fired power plants. Check the safety record of the coal industry vs. the nuclear industry. What about wind power, you say? According to OSHA, 135 people have died in the last 30 years in the clean, green wind industry; none have died in the nuclear industry. Don’t bother to throw Chernobyl into the mix either. Cardboard Russian reactors with no containment buildings are not what we are talking about. If we had won the Cold War sooner, they wouldn’t have been allowed to build it in the first place.
Other driving forces are international events. For some reason, a lot of oil is located in often-hostile places where the cultural rules are significantly unlike ours. Problem is, we give them money. If we drilled here at home, the price probably wouldn’t go down, but the money would stay here at home, supporting drillers and their families, and going into our economy instead of supporting people overseas. This would reduce the balance of trade deficit, and help our bottom line.
A further determining factor is government interference with the free market. When prices and profits go up, so does the windfall-profits tax; when the cycle reverses, there’s no sympathy and certainly no “windfall losses” subsidy. Sure, the industry gets some tax deductions and some subsidies, but according to Lawrence McQuillan, director of the Pacific Research Institute, renewable industries such as wind and solar industries get 22 times as much, and the money-losing, environmentally unfriendly ethanol boondoggle gets 190 times as much.
Petroleum contributes approximately 80 percent of our energy, and that won’t change for a while. Sure, we can use up all our ground water, turn our food into fuel, and
build a couple more wind farms, but that ain’t gonna do it. We need our oil and gas. And we need drillers to produce it.
How does all this affect the house well driller, you might ask. These rigs need water, so there is gonna be a water well at most locations. They also need rat-holes and mouse-holes drilled – work for smaller rigs. Beyond that, many operators use smaller rigs to set surface casing. These all are opportunities for guys with smaller rigs. Even if you don’t directly participate, those roughnecks are making enough money to start building houses. You still do drill house wells, don’t you? At least they can’t export our jobs to China. ND
Everybody who doesn’t ride a bicycle to work knows that the price of gasoline has gone up. A lot. I’ve received emails and comments from friends saying that we should boycott this station or that oil company. Let me tell you something: The stations – or, for that matter, the oil companies – don’t set the price. First, oil is a world-wide fungible commodity. What the heck does that mean? It means that oil is sold auction-style. If you boycott the auction, there still will be other bidders. Such as the Chinese or the Indians; they need it for their growing economies, and are willing to bid a lot to get it. If you want some, you have to bid.
Second, the price never will permanently fall below the costs of production, plus taxes. We already have drilled up and sold all the cheap oil. The oil we have left is harder (read: more expensive) to produce, and is found in increasingly hostile places. The third major factor affecting oil prices is inflation. Simply put, since the value of the dollar is being driven down to hide our government’s inability to lead, and with the high costs of vote-buying, it takes more and more dollars, worth less and less, to fill your tank.
The last time we saw this was during the Carter administration. Per-barrel prices were high, the rig count was high, and business was a-booming. A lot of us made some pretty good money back then. Then inflation caught up with us, same as it will do again soon. To understand real prices, look at how many hours of work you have to do to fill your tank. Then think back to most any historical time period, and you will find that it is not much different. Sure, there are peaks and valleys, but the overall trend is the same. Consider this: In 1913 (the year the Federal Reserve System was formed), a $20 gold piece would buy a hand-tailored, three-piece suit of the finest materials. Believe it or not, it still will. The problem is, as of this morning, it takes $1,419.50 worth of paper dollars to buy that $20 gold piece. The value of the suit hasn’t gone up, nor the value of the gold piece. The value of the dollars has gone down. And will continue to do so.
Another factor influencing the drilling industry is the environmental movement. In the past, the energy industry has used some procedures that weren’t our proudest moments, but that has changed. Drillers now are some of the leading stewards of the environment. And they do it with common sense, instead of hysteria. Our cutting-edge technological advances have made it possible to cleanly and safely drill in places unreachable before. For example:
The advances in hydraulic fracturing have made production possible in formations that used to be looked at as nothing more than an unproductive nuisance. In spite of propaganda movies like Gas Land and others, not one water well has been proven to be damaged by hydraulic fracturing. Don’t believe me; this is according to the state regulatory agencies that watch that sort of thing. And in places where there are complaints, drillers have gone out of their way to be good neighbors, and provide replacement wells, water lines or treatment equipment for perceived problems.
There are places where environmental (emphasis on “mental”) issues have pretty well stopped drilling. Look up a map of the Marcellus Shale. This huge natural-gas play is spread over several eastern states, i.e., Ohio, West Virginia, Pennsylvania and New York. Now look up a rig locator map. You will find that rigs are active throughout the region, right up to the New York state line. This is not because the Marcellus stops at the line. It is because New Yorkers have pulled their collective dress over their heads, and screeched, “The sky is falling!” It has nothing to do with reality.
Sometimes, events outside our industry drive costs and prices. For example, the disaster in Japan caused a price jump that probably will be permanent. Why? Because just when people finally realized that no one died at Three Mile Island, another unforeseen event happened. Final results yet to be seen.
One thing is sure: People in general don’t like what they don’t understand, and the amount they don’t understand about the nuclear industry would fill the Library of Congress. But they vote, based on so-called facts they get from people like Michael Moore and Al Gore; ah, the wonders of democracy. These are the same people who will look down their nose at you while plugging their electric cars into coal-fired power plants. Check the safety record of the coal industry vs. the nuclear industry. What about wind power, you say? According to OSHA, 135 people have died in the last 30 years in the clean, green wind industry; none have died in the nuclear industry. Don’t bother to throw Chernobyl into the mix either. Cardboard Russian reactors with no containment buildings are not what we are talking about. If we had won the Cold War sooner, they wouldn’t have been allowed to build it in the first place.
Other driving forces are international events. For some reason, a lot of oil is located in often-hostile places where the cultural rules are significantly unlike ours. Problem is, we give them money. If we drilled here at home, the price probably wouldn’t go down, but the money would stay here at home, supporting drillers and their families, and going into our economy instead of supporting people overseas. This would reduce the balance of trade deficit, and help our bottom line.
A further determining factor is government interference with the free market. When prices and profits go up, so does the windfall-profits tax; when the cycle reverses, there’s no sympathy and certainly no “windfall losses” subsidy. Sure, the industry gets some tax deductions and some subsidies, but according to Lawrence McQuillan, director of the Pacific Research Institute, renewable industries such as wind and solar industries get 22 times as much, and the money-losing, environmentally unfriendly ethanol boondoggle gets 190 times as much.
Petroleum contributes approximately 80 percent of our energy, and that won’t change for a while. Sure, we can use up all our ground water, turn our food into fuel, and
build a couple more wind farms, but that ain’t gonna do it. We need our oil and gas. And we need drillers to produce it.
How does all this affect the house well driller, you might ask. These rigs need water, so there is gonna be a water well at most locations. They also need rat-holes and mouse-holes drilled – work for smaller rigs. Beyond that, many operators use smaller rigs to set surface casing. These all are opportunities for guys with smaller rigs. Even if you don’t directly participate, those roughnecks are making enough money to start building houses. You still do drill house wells, don’t you? At least they can’t export our jobs to China. ND
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