West Texas Oil Drilling Is Booming — No Surprise

We just returned from four days of hiking in Big Bend National Park, and today we drove 500 miles in Texas along I-10. A number of oil wells were pumping vigorously along the highway. When we took the same road 6 years ago, the wells were there, but they were not pumping.

This is no surprise: in 2002 the price of crude oil was below $30 per barrel, and today it is over $100 per barrel. The 2002 price of $30 exceeded the marginal cost of pumping oil out of these wells, which probably are not among the most efficient. At today’s price, every barrel pumped yields a profit, so profit-maximizing rig owners have reactivated these old wells. This is a standard response in a competitive industry – as the product price rises, suppliers move up the short-run supply curve.


Johnny E

The Times published a line chart a couple of months ago:

"Oil Production Drops Even As Drilling Increases"

People seem to assume that The Law of Supply and Demand will just cause people to increase the supply. What if the supply runs out? There's not always a product that can easily or cheaply replace it, especially when you're talking about non-renewable natural resources. Demand will accelerate so greatly that what is left will be squandered by booleggers and poachers till it disappears. People are breaking into houses and stealing the plumbing because the price of copper is so high. Sturgeon are disappearing because the price of caviar is so high. Elephants were being slaughtered for their ivory. Do you think somebody will really care if you can't afford to fill up your Humvee as long as they can afford it?

We got out of the 70s oil crisis by opening up domestic drilling but some analysts think that this time we may have reached peak oil already so we can't do that again. Supply and Demand is just an excuse for not preparing for the future by developing alternative energies before it gets too costly. We'll lose the royalties, patents, and manufacturing jobs because we weren't the ones who developed the technologies (same thing happened when Reagan stopped research on pollution technology, now we have to pay the Germans for the equipment. Texas is building windfarms manufactured and installed by Europeans).

Big Bend is beautiful but the scenic view has deteriorated because of smog from China! Also in Texas we have drilling rigs in the sand dunes of Padre Island National Seashore. Is that where we want our economy to take us? What value do economists put on the quality of life? Would you enjoy a day at the beach with oil production equipment all around you? Should we have strip mines adjacent to National Parks?

Have you seen that photo in National Geographic 3 years ago of all the new gas rigs that just scar the rangeland in Wyoming? We can't even protect the cows there whose water supply has been contaminated, forget the wildlife in Alaska.

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Davey

Having driven 500 miles in West Texas, I feel for you.

Gomez

Yes, markets are increasing supply to help cope with demand...

...this does *not* mean it's possible to meet demand...

...if you want to see what the world in general is physically capable of, supply wise...

...check out http://www.theoildrum.com/node/3052

and after the cold hard reality of that has sunk in, try http://www.lifeaftertheoilcrash.net

mike

Hope you enjoyed Big Bend, I have been there 3 times and actually camped out in the desert in August.

Dale Hanks

Oil is more expensive to pull out of the ground in the U.S. because of the large amount of tax that is charged. Propety tax, severance tax, sales tax on tangible items, all contribute to a higher cost of pulling oil out of the ground.

William Cross

"$30 exceeded the marginal cost of pumping"

Don't you mean, "did not exceed?"

Matt

To be clear, and maybe this is what hamermesh means by "move up," but I think the wells are pumping again because the Demand curve is moving out--pushing up price--and the suppliers with the highest marginal cost of production are extending the Supply curve to find the equilibrium.

Regardless, this makes me remember that the idea of "reducing our dependence on foreign oil" is a straw man argument because of this very phenomenon. Domestic crude is, on average, much more expensive to produce than that from many overseas locales. So as long as world demand for oil stays high, the only way the US will be able to keep a reasonable price for petroleum products is if we are able to import it from suppliers whose production cost is low. Furthermore, isn't it correct that even if we develop the "perfect" alternative energy source, that will bring down Demand for oil, and the West TX pumps will again fall silent?

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http://joseelretardo.com

Oh well. If the scientists would get up off their lazy butts and discover the anti-gravity paint we've all been waiting for, there wouldn't be a problem.

Davis Tucker

if we had anything but marginal production increases in the US, the extra drilling would matter.

http://theoildrum.com

Frank Briseno

I live here in West Texas and work for an oil company. I've noticed that drilling is only being done where drilling was already done. It's the same patch of oil just more holes going to the same supply. Seems to reason we're reaching the end of some supplies. But, there was no pumping going on. So, there's probably still a lot of oil down there. In addition, those pump jacks are being reworked in a hurry to make them more productive. Which in turn means more jobs lots more jobs. There are more old pump jacks that need to be reworked than there are pulling units to rework them. It's a matter of getting the people to come back to work and believing they'll have a job in ten years.

On another note, I've got a lot of family working in the oil field and the pay per hour has just now reached decent levels. I mean where the risk vs the reward equals one another. I don't mind the higher gas prices. It provides a better life them and me.

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Sheila Cunha

So... We want to discourage already existing (albeit dormant) oil production in Texas because of the cost, and yet at the same time want to establish even more expensive deep ocean drilling?

Right.....

ken

Money. It needs to be spread around for the US to have peace. US needs to work together on all levels of government from local to White House. On the other hand the gas prices broke the economy and now we will all pay ourselves back with unemployment. Gas prices are ficticious. You cannot inject enough money back into the market to fix this. The gas prices stayed too high too long to recover. Back to the first hand- it will all turn out fine around 2011. How long were the gas prices jacked? It will take that long to bring back to norm. If it took all of this to keep us safe from terrorism, then we should at least be reminded to be happy that we are free and somewhat safe from Al-Quida but not from the local city thugs.

robert messenger

some questions:
1. Is there a positive correlation b/w regions w/ oil&gas economies and right-wing republican/christian demographics? I live near Farmington, NM and although there's work, folks (like me) who are liberal and non-religious find the local politics very one-sided.

2. Is there a positive correlation b/w regions w/ oil&gas economies and the lack of transportation alternatives (i.e. biking, walking, and public transit)? It seems that the local politicians are against anything but automotive-dominated transportation. Transportation modes less reliant on fossil fuels may be seen as threatening the dominant oily, gassy way of life.

LOUIS MENDICELLI

IS THERE ANY WAY YOU COULD HELP ME LOCATE IN TEXAS WHERE THEY RECENTLY ANNOUNCED THAT THEY WOULD BE DRILLING OVER 600 WELLS. THANKS MUCH LOUIS-

KC

Ft. Worth's Barnett shale play, more than likely; they have drilled more than 2,000 in the past few years

Jim Vance

With all this new drilling in west Texas I am sure somebody has figured out a way to scam people out of their money by offering high returns on investing in oil wells that will never get drilled. Which probably hurts the real drillers when they look for investors. How can you tell the difference between an oil drilling scam and a real opportunity?

Steve Williamson

we have not developed anti-gravity paint, however, we are interested in finding old oil/gas wells to re-work and return to producers. if anyone has information on wells available we would appreciate the lead.

adam Grimaldo

Is there a site that will update you whenever oil rigs, regardless what company, are hiring

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I need help. After my mom died several years ago, I wrote a letter to the company that had the drilling rights on land somewhere in West Texas. The last name of the land owner was O'Brien. I cannot remember the name of the company. I never got a reply back. A few years after that my family moved to a new location. I kept a copy of the letter but in all the moving, I've never been able to locate it.

My mom's husband was Hubert Obrien. The oil was on land his relatives owned and he was part of the group of family members that would receive a portion of the proceeds. He was my step father (and a great one!). My mom was widowed when I was 2 years old. Hubert died a few years before my mom and willed his portion to her and she willed her portion to me. None of the payments were large. My name is Charles Edward Sweet. If anyone could help me identify the name of the company, I'd appreciate it. My family wants to be able to increase our giving to mission causes such as orphans in Sudan and other places. Plus we want to continue to help with causes in our community but our retirement funds are running extremely low. Thanks for reading my message.

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Charles Edward Sweet

I need help locating the name of a company that drills oil. My mom was widowed when I was 2 years old. She married Hubert O'Brien a few years later and he was a fantastic step father. He had his part of a family inheritance for oil rights on land in West Texas. There were several O'Brien family members who inherited a portion of the oil proceeds received from the drilling of oil on the land. The amounts were not large but the checks came in on a regular basis. Hubert O'Brien died several years ago. His portion was willed to his wife. She received checks on a regular basis.
She died a few years after that and her will gave her portion to me, Charles Edward Sweet. I wrote a letter to the company but did not get a reply over a fairly long period, then I moved my family to a new location. In the moving process, somehow my copy of that letter got misplaced, and I cannot find out who to contact about this matter. At this point my family would like very much to increase our giving to causes like the orphans in Sudan and in Haiti. Plus we want to increase our support for mission projects in our own community. We live on retirement funds and they just aren't enough to make the kind of increases we'd like to make. Resolving this matter soon would be very beneficial in many ways.

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