We’ve been hearing a lot about crashing oil prices lately.
The price drop is great news for consumers and terrible for oil companies. But not all oil companies -- or oil fields -- are created equal. As Inside Energy’s Emily Guerin reports from North Dakota, when oil prices drop, size and location matters.
GUERIN: (MUSIC) Picture an American oil company. MUSIC UP HERE Remember the 1980s TV show Dallas? Swaggering Texas wildcatters turned billionaire tycoons. Now get that image out of your head. (MUSIC fade out) The companies we’re going to hear from are nothing like that.
MCANDREW RUDISILL: I started Emerald Oil about four years ago and we really built the company from scratch.
GUERIN: McAndrew Rudisill is Emerald’s CEO. He’s a young clean-cut executive, who used to work as a private investor in New York City. Then North Dakota’s Bakken oil boom began to take off around 2010...
RUDISILL: Just saw the incredible opportunity that we have in unconventional resources in the US and decided to get out on the ground and start drilling wells myself.
GUERIN: He left New York and moved to Denver to start Emerald. That’s where many oil companies who work the Bakken are headquartered. The company now has 50 wells, all in the Bakken. It’s an entirely different animal than, say, Continental Resources, with over 1000 wells in the Bakken alone and more in places like Colorado and Oklahoma. And that makes a big difference.
NILES HUSHKA: Decreasing oil prices will impact small operators faster because they do not have rapid access to capital.
GUERIN: That’s Niles Hushka. He’s the CEO of KLJ, an engineering firm in Bismarck. You need a lot of money to drill a well in the Bakken - like ten million dollars. Hushka says smaller companies have a harder time getting loans to finance that. And with fewer wells, they have less money coming in to ride out tough times. Another factor is where you are drilling….
HUSHKA: A large operator will have resources that are spread throughout a number of oil plays and therefore they’re much better protected than a small operator who at times will only have resources for instance only in the Bakken.
GUERIN: North Dakota oil companies have to pay much higher transportation costs than companies in Texas. So when you hear that oil has dropped to $50 barrel, companies in North Dakota are only getting about $37. Geography within the Bakken matters too.
HUSHKA: If you’re a small operator and you’re only in North Dakota and you’re in one of North Dakota’s hot spots, you’ve got a great big smile on your face.
GUERIN: If you’re in a hot spot like McKenzie County, you’re still making money at $30/barrel. In fact, that’s where most of the drilling rigs have moved in recent months. But if you’re in one of the more marginal areas...
HUSHKA: You’re finding your wells aren’t producing enough cash flow to keep you going today b/c of the price of crude.
GUERIN: Emerald is experiencing all those things. And there’s not much CEO Rudisill can do to except joke about the way oil cartels are forcing prices down….
RUDISILL: I wish I had some influence on the decision making of OPEC, but I don’t think that they’d listen to me.
GUERIN: Next year, Emerald’s going to drill fewer wells. Some other small companies are stopping entirely. Butch Butler is president of a Colorado-based oil company called Resource Drilling that is even smaller than Emerald.
BUTCH BUTLER: I’m the geologist, the geophysicist, the landman,.... tB.. (fade under)
GUERIN: Butler has just one well in North Dakota.
BUTLER: (fade up)..the accounting manager, the drilling engineer, operations engineer.... regulatory manager, let’s see what else has to be done?
GUERIN: A few months ago, the plan was to drill another two.... But that plan went out the window when prices kept dropping.
BUTLER: It’s been a very challenging last 30 days, boy that’s for sure.
GUERIN: In fact, both times I talked to Butler about low prices in the past two months, he joked that things were bad, but he wasn’t quote “slitting his wrists” yet. He says he’s trying to take the price crash in stride.
BUTLER: Well, you know, as I’ve told you, I’ve been in this business 38 years and truly most of that time has been not so good.
GUERIN: Butler is not your typical oil man. He says he’s not in it for the money -- which is a good thing, since there’s suddenly a lot less of it.
For Inside Energy, I’m Emily Guerin.
