Energy industry suffers from double whammy
By Lynsi Musselman
Albany has several local energy companies that employ residents and help keep the area economy healthy.
Even before the coronavirus, there was a decline in oil prices only made worse by a price war between Russia and Saudi Arabia.
H.R. Stasney & Sons manager Lance Thomas said the current conditions are not good for small west Texas towns.
“West Texas Intermediate daily price dropped below $20 a barrel last month,” he said. “And oil prices have not been this low in over 20 years.”
Thomas explained that crude oil transport companies currently charge over $3 a barrel to haul oil. Texas severance tax on oil and gas combined is another $1.30 a barrel, and this does not include property taxes.
“Therefore, at $20 a barrel, the effective price the operator receives before deducting any lifting or overhead cost is $16 a barrel,” Thomas said. “I am not aware of any marginal well operator in this area with lifting and overhead costs that do not exceed $16 a barrel.”
He said the same goes for farming, ranching, or any other business.
“If the cost of goods sold remains higher than the market price received, the business is in trouble,” he said.
Members of the Organization of the Petroleum Exporting Countries, also know as OPEC, and their allies reached an agreement on Sunday to cut production by 9.7 million barrels of oil a day in May and June. After that, production will steadily increase until the expiration of the deal in April 2022.
Momentum Operating co-owner Mike Parsons said he is pessimistic that the recent OPEC cut will have any effect on prices moving out of the mid $20s in the near future.
“I think the cure for lower prices is continued lower prices,” Parsons said. “The OPEC deal is not enough to move the price up substantially and as long as crude oil remains in a low price band of $20 to $25, worldwide production will decline.”
He said the only positive effect on the price of oil is for demand to move up, and “that will depend on how fast we are able to defeat COVID-19 and put the country back together again.”
Parsons believes it could be well into the fourth quarter of 2020 before the virus is under control.
“That might even be optimistic, but I have a lot of faith in American ingenuity finding a path back to normalcy,” said Parsons.
Van Operating chief geologist Jeff Jones said domestic oil and gas companies of all sizes have been impacted by present circumstances.
There is a rare over-supply from the Saudi-Russia price war and a demand destruction from COVID-19, creating a “perfect storm” that has crushed global oil prices, according to Jones.
“My prediction is this will be a long year for U.S. oil companies,” Jones said. “Shackelford County oil and gas companies who have no debt are a hardy lot and will make it to the other side. We have seen this boom bust cycle play out before and know that better days are ahead. We just don’t know how many.”
