West Texas Oilfields Gearing Up

[Updates below.]

West Texas oil producers striking it rich

Oil prices have slipped a little since their 21 year high last week at more than $41 a barrel.

While the steep prices are hurting motorists at the pumps, it's a boon for oil producers in West Texas.

The gambling spirit is thriving again in the West Texas oil fields. In the Midland/Odessa area, oil field consultant John Bell is trying to bring two oil wells back to life for his boss.

"If I can fix it, then I can start making him another 50 to 100 barrels a day, then he'll be happy!" Bell said.

These wells haven't pumped oil in more than five years. But high oil prices have inspired oil producers to upgrade equipment and get old pumps running again.

This is an example of the harmony of capitalist interests at work.

As the price of oil increases, producers who might have otherwise stayed on the sidelines and devoted resources to other economic endeavors become more and more attracted to the higher revenues possible with higher fuel prices. As more and more production ramps up, this tends to drive down the price at the pump. The profit motive, despite the ravings of lefties and moderates across the country, helps drive the prices back down.

Then there's the consumer side. No one likes high gas prices. So consumers will adjust their behavior to either buy less fuel or consume it more efficiently. As consumer behavior changes from a low-price/higher demand force to high-price/lower demand force, the reduced demand increases downward pressure on pump prices. This promotes greater competition among sellers, adding further downward pressure to prices. Provided the market is left to it's own devices, "equilibrium" will be restored and a new price trend (both for crude oil and consumer gas prices) will establish itself.

And not once does the government need to get involved.

Bell has spent $200,000 on his wells in the last three weeks.

"With low prices I wouldn't be on this project. We wouldn't be out here. We wouldn't be talking about this," he said.

The true sign of a booming oil industry is how many drilling rigs are running. In West Texas, more than 60 rigs have started spinning into the earth in the last 18 months.

Don Sparks is drilling two wells a month, spending more than $1 million. But it's getting tougher to get the equipment he needs. He had to buy steel casings from a vendor in Eastern Europe.

"Our casing is supposedly on the ocean right now on the way to the U.S," Sparks said.

"When we've got over 200 rigs running that means we've got full employment, we don't have people sitting around wondering 'am I'm going to do anything today?'" Morris Burns of Permian Basin Oil Association said.

It'd be great to see a real revival in domestic oil production as the local benefits are obvious to observe. Unfortunately, through a combination of state interference in global oil markets and the distribution of oil around the world, it's cheaper to drill elsewhere and ship it back home.

But history has a way of tempering today's excitement. The last time oil sold for $40 a barrel was during the oil boom of the early 80s.

But what people around here remember most is what happened a few years after, when prices plummeted. The oil fields shut down and as one producer put it, "Small West Texas oil towns fell off the face of the earth."

Copyright ©2004TWEAN News Channel of Austin, L.P. d.b.a. News 8 Austin

The problem with basing an entire town around a single industry is illustrated above. Booms and busts affect everyone rather than just a segment of the population. Hopefully, they've learned their lesson and will diversify.

UPDATED 4/11/2005 5:26pm
Given the continual rise in energy prices, even more growth is happening across the US in the energy industry.

Christian Science Monitor: Gas bonanza shakes dust from Western towns

Landscape painter Alfred Jacob Miller set up his easel on the shore of Fremont Lake 168 years ago and rendered one of the most famous romantic portraits ever made of the wild American West. Today, in the small ranching and tourist community that grew up around the venerated lake, motel rooms in Pinedale are sold out, but not from traditional tourists exploring the haunting Wind River range.

The influx stems from an unprecedented invasion of oil-patch "roughnecks" creating a round-the-clock beehive of drilling rig crews, pipe layers, roadbuilders, and truck fleets.

Indeed, tiny Pinedale represents ground zero in one of the biggest natural-gas booms in the postwar era. Driven by high energy prices and looser government regulations, it is transforming many of the small towns here along the rumpled spine of the Rockies - creating thousands of lucrative jobs, pouring money into local treasuries, and, as always happens with sudden growth, producing new problems ranging from traffic to drug use.

"The US national energy policy is being played out on an epic scale in our backyard," says Ward Wise, the city manager whose folksy municipal attire is a pair of jeans, denim jacket, hiking boots, and a leather cowboy hat. "All of a sudden, our little rural town has come face to face with the hurricane force of the global energy market."

n many ways, the continuous drilling of new wells outside Pinedale is just one example of an energy boom being played out across the American West. Oil and gas prices at record highs (until adjusted for inflation) and the opening of more public lands to development have brought small wildcatters out of retirement and attracted the usual assortment of Big Oil interests.

In just the past year alone, the Bureau of Land Management (BLM) has approved 5,700 new drilling permits in Wyoming, New Mexico, Utah, Colorado, and Montana - an increase of about 62 percent over the previous year.

[...]

As billions of dollars worth of gas is being extracted annually, output is expected to grow exponentially. At the current going rate of $5.75 per thousand cubic feet of gas, the spoils are the equivalent of oil companies planning to exploit a large untapped reserve of crude and counting on profitability at $30 a barrel yet to yield $90 a barrel.

www.csmonitor.com | Copyright © 2005 The Christian Science Monitor. All rights reserved.

The Market Will Correct Itself.

Posted by Drizzten at May 28, 2004 04:10 PM