Table of Contents Show
Why Wyoming’s Oil And Gas Industry Isn’t Yet “Drill Baby Drilling”
Lindsey Miner has been “doing more with less” at her Casper, Wyoming, oil service business, Industrial Screen and Maintenance, as of late. But with President Donald Trump’s promises to “drill baby drill” she’s among many Wyoming oil and gas service business owners hopeful that an energy boom is waiting around the corner.
“Our sweet spot is really 50 employees,” she said. “So, I’d like to see some growth. We’ll see how this year goes, but I’d like to be hiring.”
For now, though, it’s been a game of hurry up and wait.
“Completely. We’re in limbo,” she said. “We’re like, OK, what’s going to happen? We realize where bottom is, but where are we going to go from here?”
Some activity has picked up with optimism riding high, Miner said. And things are OK for now.
“We’ve got some great, talented machinists, welders, fabricators, just sitting here ready for the boom,” she added. “There’s all kinds of excitement, but with a little bit of hesitation.”
That hesitation is something Michael Pollard with Precision Drilling understands.
As he sees it, things are in the “Just OK” category right now.
“It could be better,” he said. “But we’re hoping things will pick up here, later on in the year.”
From his vantage point, operators are still having a hard time getting permits, something Pollard figures will just take time to unstick.
“We’re a month into (Trump’s) administration,” he said. “Nothing’s going to happen in a month. It’s the federal government.”
Why It Takes Higher Prices To Spur Drilling
One big thing that has to happen for more drilling to occur, according to Pollard and other representatives of oil and gas service companies, are higher oil and gas prices.
Prices have always been inextricably linked to production of oil and gas.
Since wells typically drop off in production relatively quickly, oil and gas companies generally have to keep drilling new wells to keep that production going at the desired level. They can sometimes refresh wells with enhanced oil recovery, too, but that only goes so far for so long.
That means new wells on a regular basis, which cost millions to drill. That cost, along with a well’s expected production curves, help determine a per barrel price of oil that’s the “break-even” for a given well.
If the price oil companies can get for a barrel of oil starts dropping below that break-even, new wells stop coming online, and, eventually, production will start tapering off.
It’s only when the per barrel price rises above the break-even price for a new well that drilling starts to make economic sense again.
The Precision Drilling team was among oil and gas service companies at the recent Central Wyoming Chapter of the API chili. They’re keeping busy enough for now, they said. But permits are still hard to get, and they it’s going to take higher prices to spur drilling. (Renee Jean, Cowboy State Daily)
Lindsey Robinson, right, smiles as she hands out spoons at the Industrial Screen and Maintenance booth during the API chili in Casper. Robinson is among oil and gas companies hoping an energy boom is around the corner, but says it is still wait and see. (Renee Jean, Cowboy State Daily)
A Cyclone Drilling crew working Rig 38 hit 6,000 feet in 24 hours, a new record at the time in July 2017. (Courtesy Cyclone Drilling)
Arrow leftArrow right
Beating The Teeter-Totter Dynamic
The dynamic is a little like a teeter totter, in that what is done to one side of the production equation is inextricably linked to what happens on the other side.
And the dynamic itself is a bit at odds with the whole “drill baby drill” mantra, because more production means more supply, which lowers price. Lower price ultimately lowers production because oil companies start holding off on new wells.
Complicating things further is Trump’s concurrent pledge to also lower energy prices for consumers to tame inflation. That’s another pressure that would tend to keep production lower rather than higher.
Trump is right in that energy is a bedrock to the economy and contributes greatly to inflation. But for oil and gas drilling to take off in a “drill baby drill” way, it is higher prices that usually lead the way.
“It’s going to take a higher oil price for this basin,” Blueprint Energy Partner’s Rod Nissen told Cowboy State Daily. “I mean, right now, the price is steady, where oil companies are making money and service companies are making money because we’re getting hired out to do their services. But if prices go down, to where it costs them a little too much to operate, then they’ll start peeling back a little bit, cutting rigs. So, we need to keep that price up.”
How then to defeat the teeter totter effect and produce more oil, while at the same time lowering costs for consumers?
Nissen believes that can happen by opening up more global markets to American oil and gas.
“If we’re able to ship natural gas (and oil) off, and become the world leader in producing, then we’re OK,” he said.
Opening up more global markets is something that Trump has also talked about in his public remarks.
“We will bring prices down, fill our strategic reserves up again right to the top, and export American energy all over the world,” he said.
Following on the heels of that, some countries have already signed on the dotted line to buy more American oil and gas.
India for one signed a joint statement on Feb. 14 that “reaffirmed” the United States will be a “leading” supplier of oil and gas to their country. Japan and South Korea, meanwhile, have signaled a similar intention, according to national news media reports.
Prices Are Key In Wyoming’s Powder River Basin
Nissen is spot-on in his analysis of what it will take to boost Wyoming’s oil and gas industry. Price is key.
For example, break-evens for wells in Wyoming’s Powder River Basin, where energy analyst Enverus reports 12 of the state’s 14 oil and gas rigs work, now sit around $60 a barrel for the Mowry and Niobrara formations.
Those formations do well for Wyoming, but in the bigger, national picture, they are still considered a “side car” compared to plays like North Dakota’s Bakken and Three Forks formations or the Eagle Ford play or Permian Basin in Texas.
There are several reasons the Powder River is lagging other oil and gas plays, Enverus analyst Ryan Hill told Cowboy State Daily.
Part of it is just logistics. With fewer operators, the Powder River Basin lacks pipeline infrastructure to economically take more oil and gas to market.
Part of it is also science. Cracking the code for production from the Mowry and Niobrara formations is something both industry and oil and gas researchers in Wyoming are working on, something that will just take time.
In the meantime, Powder River break-evens are too high compared to what other basins offer to really attract more capital than they have right now, unless the price of oil goes up.
“When you’re able to execute on, $50 per barrel break-even wells in the major basins, then you just don’t get the same kind of capital allocation (in Wyoming),” Hill said.
Cracking OPEC And Going Global
Hill agreed that one potential way around all the inherent difficulties of raising production, while simultaneously lowering energy prices to cool inflation, could be to reach global markets.
“It is an interesting concept,” Hill said. “Because at the end of the day, it’s a global market. And I know from the macro side of things, our expectation for 2025 is $80 Brent. And so, we are still shy of that.”
Enverus remains bullish on oil, however, Hill said, seeing a general rise in demand that bodes well for the industry. Getting more American oil out into that world of demand, though, has its challenges.
“You can ship out your oil and make it to the global market, but there’s a lot of other players in that space,” he said. “And where they sit on that, we’ll call it a cost curve, or how economic those barrels are, does vary.”
Still, America has already begun taking a key step, Hill said, with the LNG buildout that’s taking place on the Gulf Coast. That will substantially increase America’s export capacity by around 5.7 billion cubic feet per day.
That additional export capacity will be consequential in many markets, including Wyoming, particularly for the Mowry.
“The Niobrara is quite oily,” Hill said. “And the Mowry has a fair bit of oil, but it has a lot more of that gas component, too. So, if we do see sustained, stronger gas prices, we may end up seeing a little bit more optimism around whether there’s further potential in the Mowry, rather than just exclusively focusing in the Nio.”
The caveat to that, Hill added, is that other costs don’t ramp up for the industry amid the nation’s struggles with inflation. A ramp up in costs would add to Wyoming’s already high break-evens.
“It’s going to be a tough balance,” Hill said. “You have a government that wants to keep costs low for consumers, and an industry that wants to maintain returns and capital discipline. In a lot of ways, they are at odds with one another.”
Renée Jean can be reached at renee@cowboystatedaily.com.
