Oil-and-Gas Industry Faces a Long Recovery From Pandemic Lows

On its face, this article seems discouraging to American oil and gas producers. But, as most of us in the industry know, the oil and gas industry is not one monolithic industry. It has many moving parts. The larger, more aggressive oil and gas companies depend greatly on capital raised from the markets. While the small independent oil and gas business sector raises capital from the markets as well, they also raise a large portion of their drilling capital from individual investors. Rates of return for the small business producer are much more attractive than the large, high cost horizontal drilling companies. So, while difficult, the low cost, small business oil and gas sector is still drilling wells and is in much better shape. None of us take delight in this contraction, and, in some cases, the outright demise of the American horizontal shale drilling industry. But, the American "shale boom" and the 3 million barrels a day they added to the world oil supply, is a major reason oil prices have been depressed for the last seven years. The slowing down of the shale producers activity has already had a positive impact on prices. They simply cannot resume full scale drilling with $50 oil prices. The small business producer can survive, and even replace, diminishing reserves at that level. So, to quote Mark Twain, "The report of my death was an exaggeration."