Monthly Archives: April 2020

The Worst Crash Since 1987 & Long Term Implications

With oil prices for Oklahoma Sour posting $7.07 and $20.20 for Oklahoma Sweet as of 4/7/2020, could it be worse? Well, Cushing is also charging $4 plus deduction for any oil. And if you have Bakken oil, the cost by train to move this oil exceeds the market value. In other words, production is about to freeze up. Not that it is needed. Driving is down from 20 to 40% due to the various Shelter in Place orders.

This hurts but the oil business was hit with the really big whammy when the Saudis and Russia decided to put the hurt on the Shale drillers. And well they should. We are over-producing, wasting natural gas, and the states refuse to act to put a stop to it. Prorationing was legal and should have been imposed. It isn’t viable under the pressure of New York hedge funds who are now in the drivers seat in regards to running these zombie oil companies. Yes, it is the bankers who backed this nonsense who are running the show. The old oil men backed off years ago.  The new generation of “oil men” don’t know come here from sic’cum. And they look at you like you are a liar when you tell them that in 1980s Midland, Texas was a ghost town and houses sold for $10,000 if you could find a buyer.

The service companies, all of them big and small, are hurting.  Halliburton will be lucky to survive. Schlumberger will be seriously hurt and the drillers are toast. This has real serious implications down the road. The industry will not be able to lobby to keep the greenies from cramming more useless environmental restrictions upon them.  The states are trying to figure out how to screw the oil business even more because they need the money.

Colorado is the poster child for such. Recently letters were sent out by the state tax commission to industry experts trying to estimate what percentage of minerals are privately held and what are owned by the oil companies themselves.  Really? Why would you do that except to jack up the severance tax (which they claim is too low) upon oil companies but somehow hide that increase from the non-industry mineral owners?  Many individuals have small LLCs or family partnerships for their minerals but they are not “industry”.  The oil patch is under siege and it is partly their own fault. Allowing hedge funds to run oil companies is like allowing Bernie Madoff to manage your money…it’s ripe for fraud.