April 1, 2016 – The Oklahoman
U.S. producers adjust to new role in global oil market
By: Adam Wilmoth
Shale oil production has led the United States to replace Saudi Arabia as the world’s swing producer, a position that is good for much of the country, but not necessary for Oklahoma or its oil companies, speakers said Thursday at the University of Oklahoma Energy Symposium.
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The ups and downs of a swing oil economy will require companies to change their operational focus, said Rusty Braziel, president of Houston-based RBN Energy and author of “The Domino Effect.”
“Companies have to build flexibility into their economics,” he said.
Braziel said he expects more companies to use futures markets strategically.
“If a producer sees that prices are at $60 and he believes he can drill wells and make money, he can calculate how much oil the project will produce and sell forward that much production as far as he can go. Then when prices fall, he’ll be OK,” Braziel said.
“Hedging strategies are going to be a huge part of what it will take to be successful.”
Relatively low corporate debt levels also are critical, he said.
“There’s a huge difference between the winners and losers in this marketplace,” Braziel said. “Those companies that have weak balance sheets and are operating in locations that can’t be profitable are in deep trouble. Companies with strong balance sheets in the best areas are in good shape to be able to buy cheap assets from other companies.”
