Horizontal drilling and multistage fracs has redefined our business. High cost and high risk deep water exploration and drilling will fade away for the next few decades. as horizontal drilling and multistage fraccing is applied to tight low perm formations in the Middle East and Russia abundant oil will be here to stay. This is not to say this is a bad development for our business but will decrease the profit margins and require companies to become much more efficient. High decline rates will require more drilling and fraccing and more plugging and abandonment. Coal will be phased out of our power plants as they are switched over to natural gas. We can compete and still make a reasonable profit. We have several big advantages here in the United States, the resources we are developing and producing are located near refineries and consumers, and we have tremendous drilling and fraccing resources available. OPEC can not compete in our market. If prices continue to remain low many of the OPEC countries will not be able to support their dependent populations and will become destabilized resulting in lost or falling production. This is just another cycle that our industry has seen many times in the past.
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If companies are going to continue to play the book and borrow game with reserves using horizontal drilling they have to keep a constant drilling program going to keep up with the steep initial decline. This is a great method when the oil price is high. However what do you do after the first year when you have a massive reserve write down because of lower prices and a reserve base that has dropped 80%?
Gone are the days of drilling wells that will produce for 50 years. We traded our soul for horizontal drilling rigs. Sure there has been horizontal wells drilled for years. We were in several Snyder wells that were drilled in the early 90's. Kicker is that these wells are still producing where we have 2 year old Chesapeake and Apache wells that are barely limping along with high cost gas lift.
This "technology" is about to run everyone out of business. Quit being lazy and go back to exploring for oil and gas production. Drill a well, evaluate it, then drill the next. Build long lasting reserves that can be produced at levels that allows you to have a level stream of cash flow when you have to take a break in drilling during times that prices are low.
Oh, and kick out the private equity money. People get stupid when they are handed $500 million (or more) and are turned loose in the industry.