After a painful two-year price war with The Organization of the Petroleum Exporting Countries (OPEC), the worst may finally be over for the American oil and gas industry. 2016 was one of the most difficult years for the U.S. domestic oil and natural gas industry, but 2017 seems to be taking a positive turn as the industry starts to pick itself up after years of low prices and massive layoffs—plus, surviving companies are now more sophisticated.
Companies that Survived the Down Turn are Doing More with Less
Low oil prices forced companies to figure out how to do more with less, relying on sophisticated technology and lower cost options for personnel and equipment. These companies have cut their operating expenses in half, paid off debt and increased cash flow. If they continue boosting savings and modestly increasing production, oil companies could be on track to make money this year. In addition, corporate mergers and acquisitions are more attractive as lean and highly productive companies are valuable.
Drilling Rigs are Ramping Up
The excessive amount of oil available on the international market has gradually dissipated, leading the number of drilling rigs in the U.S. to ramp back up. Compared to other states, Colorado producers have weathered the downturn with almost double the drilling rigs currently operating from the low last May.
New Factors Affect Natural Gas Prices
Natural gas prices in the U.S. used to be determined by the seasons, with winter seeing the highest prices. Now that demand is coming from a number of new sources, the weather is no longer the determining factor.
One factor is that a transition from coal to natural gas for electricity generation has begun, driving demand up. The current surplus is above the five-year average, which will slowly strengthen price. However, the real improvement in the natural gas picture lies in the hands of the producing companies. If field efficiency and new technology continue to improve, operators will need to keep a balance between their revenue needs and long-term market trends.
Demand is also picking up through the transition from gasoline to liquid natural gas (LNG) and compressed natural gas (CNG) for vehicle fuel in both normal and hybrid engines. City buses and taxis are starting to use LNG and CNG along with large-end trucks.
Overall, companies that have weathered the downturn with increased efficiency and financial strength, are able to start operating drilling rigs that have been quiet for two years. Along with expanded uses for natural gas, 2017 is shaping up to be a stable and productive year for oil and gas companies.
RK Energy specializes in custom manufactured and skidded equipment for the upstream, midstream and downstream sectors in the oil and gas industry as well as renewable energy. We use advanced engineering, preconstruction and CAD modeling to fabricate skidded equipment for easy installation and maintenance in the field. If you’re looking to join the oil and gas industry revival, contact Mike Malloy at email@example.com to discuss what RK Energy can do for you.