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Well Completion Opportunities at $40-50 Oil

 

In the North American oil and gas industry, falling oil prices routinely trigger panic amongst oil and gas operators, their shareholders and in many cases the lenders that make their ambitious projects possible. Where many see this behavior as a signal to pull back and wait until oil prices recover, some view it as an opportunity.

The cost to complete a well in a down market can be substantially less depending on the state of the frac companies and their suppliers. With fewer wells to compete for, frac companies are often willing to lower their prices to keep operations going even at a breakeven level or at a loss. The same can be true for their suppliers who often have an additional motivation of cleaning out inventory. Although these opportunities are worth taking advantage of they will generally be short-term as frac companies will only want to operate at breakeven for so long and supplies will eventually burn through their inventories.

There are however more long-term cost saving strategies oil and gas operators can employ to continue completing excellent wells without sacrificing quality. One strategy is to take advantage of the fact that certain countries are highly dependent on high commodity prices and in a bearish oil market, US Dollars, Canadian Dollars or Mexican Pesos are worth considerably more to certain countries due to exchange rate fluctuations.

For Example, the Russian Ruble was trading at roughly 30 Rubles to the US Dollar six months ago and today it is over 60 Rubles to the US Dollar. As a result, the cost of quality ceramic proppant from Russian based Fores is less expensive than it has ever been and this pricing is sustainable as long as oil prices remain depressed.

Most investors believe oil will remain low throughout 2015 and have differing opinions of when it will recover. What almost all investors agree on is that it will recover. With this in mind and considering the fact that many wells completed today with high quality ceramics will have economically viable production levels many years; it makes sense to take advantage of a low cost/high quality completion strategy with companies like Fores.