Do we still have a business to operate?

Summary:

Vortex Tools, LLC is a technology company whose key business segment is oil and gas. At the time of this writing, oil futures prices are currently trading at zero or below, which does not mean oil has no value, but reflects the soft demand (virus related in large part), over-supply and lack of storage capacity. 

Six months ago, we saw negative natural gas prices at the Waha Hub. This was again reflective of excess supply and lack of pipeline capacity as Permian Basin shale wells continued to produce more and more associated gas with the prolific oil production. Spot gas prices have inched higher – not because the market is moving towards natural gas from coal; but due to the disruption of supply (associated gas from oil wells) as oil wells are shut-in and production curtailed.

Pending sales orders from our customers which were sensitive to oil prices have been “delayed” and this week, we got confirmation that pending orders in the Marcellus gas play are also on hold. Potential projects in other US Basins and overseas markets will likely be delayed as well.

In the face of these "head-winds" including the Wuhan virus - a fundamental question to ask is this – do we still have a business to operate?

Pivot and adapt:

Volatile prices in the oil and gas business are a way of life. I remember hearing an oil & gas guy who had retired wealthy say – it was only because “he had made one more fortune than he had lost”. 

We have offered specific comment on oil and gas prices, together with some graphical data we sourced from www.macrotrends.net at the end of this article. There are some fundamentals in the oil & gas market that need to be resolved before prices will stabilize and the purpose of this article is about adapting. As my late partner Richard Haas often said “they give you lemons, you make lemonade”. Richard lived life to the full and never complained about his lot. He just made the best of it – and what a life he led!

Our patented technology has applications in industries that we have sadly neglected - such as water and waste-water; recycling markets (including crumb rubber and plastics); industrial and municipal sludges, including biosolids. Proven benefits such as mechanical dewatering; separation of components by mass, reduction in pressure drop and removal of biofilms. Conceptual markets including cogeneration; water curtains (protecting buildings) and even medical applications are all in the technology toolbox – just waiting on sunlight.

President Ronald Reagan said in a speech in August 1986 "The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help. " 

Now we small business owners are wondering if the government can help or not. The PPP loan program can be nothing more than a band-aid and injecting trillions of dollars is not a zero sum gain.  Inflation or currency devaluation is most likely the price we will pay for this "medicine", before long.

At least a part of the solution is in the hands of the entrepreneur and the prize for those who are prepared to risk it all is significant. 

I don’t know about you, but I think it is time to go make some lemonade.

Oil and Gas Price History:

The oil market has seen peaks and troughs for decades.   As a commodity, its price volatility is impacted by geo-political and market forces. In 2008, then again in 2013-14 we saw precipitous drops in the oil price which in absolute dollar/barrel are more impactful than current market swings ($100/barrel decline in 2008 and $70 /barrel decline in 2014-15). The $50 to $20, then to $0 slide in April  2020 is economic (Coronavirus); geo-political (Russia/Saudi price spats) and over-supply. At $20/barrel, most US operators are drowning in red-ink, even if their lifting costs are only $15. Transportation costs are a significant factor (up to $15/barrel in some markets) and now the absence of storage and tanker capacity, there is no choice but to shut-in producing wells.

Source: https://www.macrotrends.net/1369/crude-oil-price-history-chart

Natural gas prices went from $15.50 to $2.90 in 2008-2009, hit another low in 2012 ($2.25); and even lower ($1.75) in 2016. In the past 4 years, gas prices have traded in a narrower range between $1.75 and $4.25 as gas supply and demand has grown significantly.

Source: https://www.macrotrends.net/2478/natural-gas-prices-historical-chart

In recent years, the liquids content in natural gas (NGLs and condensate) has been a volatile factor in the pricing spread between oil and gas. With oil prices around $100 and gas prices at $2 in 2012, the GPM (gallons of NGLs) and condensate content as a BOE (barrel of oil equivalent) began to create significant opportunities for recoverable liquids in natural gas with a price differential between oil and gas of 48 times and a significant differential in the equivalent energy value of oil and gas. By 2016, the price differential in favor of oil was down to 16 times and lighter NGLs (ethane) in some cases carrying a negative value, dependent on transportation costs. 

At the end of March 2020, oil prices at $28.50 and gas prices at $1.50 – returned the price equivalence (oil/gas spread) to 19 times.

Source: https://www.macrotrends.net/2500/crude-oil-vs-natural-gas-chart

Vortex technology has been used to mechanically recover higher value liquids from lower value gas. For more information on this – visit our website at www.vortextools.com.