History Repeats Itself – Investing in Oil Today
In the oil industry, over the last forty plus years, the one thing that has not been in short supply in the oil patch is the boom and the bust. In October of 1970 oil was as low as $19.92. Ten years later, in May of 1980 it was $114.51. Ten years after that, in June of 1990, it had dropped to $30.79. By December of 1998 it was $16.28. Ten years after that, in June of 2008, oil traded as high as $145.18. By January of 2016, oil was trading below $30.00 a barrel with a general consensus that the age of oil was, once again, over. Not a very pretty picture, to the average observer. We strenuously disagree.
Let us point out that a great deal of oil was produced during the boom times and the net incomes were outstanding. What the average observer does not perceive is that the oil produced during the boom periods was purchased, in ground, by some very educated oil producers during the bust times. They purchased existing production (and the acreage that comes with it) and drillable acreage in proven fields at deeply discounted prices from oil and gas companies that could not endure the valleys that followed the peaks in oil prices. That includes prime drillable acreage that could not be explored because the lower prices had exhausted the funding of those that bought leases during boom times. Quite often, the companies that don’t plan well lose the acreage and the money spent to purchase the mineral leases by not meeting the demands of their “hold by drilling” mineral leases.
Our company has been drilling for oil and gas in Texas since the 1980’s and our philosophy has always been to acquire the best leases possible in the best fields available. We feel that the pendulum, once again, has swung to the buy side. We believe that the projects formed now will be the projects in production when the pendulum swings again. Instead of chasing a rising market, we intend to be in production and have the opportunity to reap the higher oil price benefits with projects formed and purchased during this depressed market.
History has a wonderful way of repeating itself. If you read the signs correctly and have a good sense of logic, you can capitalize on the repetitive nature of the oil and gas industry. We feel the best years of this industry are ahead of us.