C8 wrote:AdamB wrote:
Not necessarily. The little guys are perfectly capable of bootstrapping production, using the existing high price environment. .
Given todays high prices, I would think that the little guys would be drilling a lot more new wells than they are.
Drilling requires CapX early, with the amount of payout uncertain based on the wells future performance. Cash up front please. Additionally, little guys can't cut a 8 well pad contract with the service companies for the same kind of volume discount the big boys can.
C8 wrote:How exactly do you "bootstrap" production?
Company Net Revenue = $100
Company Net Expenses= $70
Drilling a new Well = $50.
So you save for 2 months, have $60 on hand, and spend $50 on drilling the well. ONE new well in this case, as little guys are just that...little.
C8 wrote:Don't you have to borrow somewhere along the way?
You can. Drake did it with the first well in the US, and it is easier that way. But the companies that made it through the mid 80's crash right on through to the new century were the ones who knew this game inside and out. I worked for one of those.
Prudent cash management comes in handy when running a lean, mean oil operating machine. The place I worked knew how to run this kind of machine and could do 7 to low 8 figure deals from cash, promoting and completing tax credit programs for operating and working interests with others, the partners in the company would occasionally cough up some cash if the case could be made for the investment. A nice fat lawsuit settlement on occasion from bigger companies going bankrupt didn't always hurt either.
C8 wrote:Are profits just being plowed right back into new drilling? Why aren't there a ton more of new wells?
See original example. I save for a month or two, and can drill one. You did mention how small guys (usually the privates) do this, not the boomers who go bankrupt as often as I change socks, the instant the worm turns. A bunch of privates drilling here and there didn't make the US the world's greatest oil and gas turnaround example in the history of the species, folks borrowing a BUNCH of money to get their production to the next level did. And at current prices, all of them will be fine. But just as on the way up in a low price environment, the cure for high oil prices will ultimately off more than a few of them.