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Permian Basin Oil and Gas Magazine

PBOG is the Official Publication of the Permian Basin Petroleum Association and is published monthly by Zachry Publications, LP.

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From the Chairman of the Board

August 3, 2012 by PBOG

Must the “boom-to-bust cycle” always play out true to form? It might depend on whether the “boom” is itself really a boom, or something else.

When is a boom not a boom? The usual answer is that a boom becomes a bust Doug Robisonwhen crude oil prices fall out from underneath us. We have all lived through them. When my wife and I moved to Midland in mid-1982 we were in a boom. There were only three houses for sale in our price range and apartment rentals had a six-month waiting list. Midland was in a boom. A few months later the bust hit. We suddenly found that our former “price range” was not limited to three houses but rather held 300, and the house that we had managed to buy had meanwhile devalued to half of what we had paid for it. Instead of a waiting list for apartments there were now free move-in offers and free vacations to New Orleans if a tenant would sign a one-year lease.

Boom—Bust. We have all experienced that cycle and some of us more than once. However, given what appears to be a fact of life or law of nature I would argue that the level of activity we have seen for the past several years in the Permian Basin is not a boom, but is the result of an industry that is fundamentally different from the oil and gas industry of ten years ago. The dramatic increase in rig activity and all of the goods and services that result from increasing drilling is a combination of higher crude oil prices and—perhaps much more importantly—the emergence of what is sometimes called the resource play.

The resource play phenomenon, which is seen not only here in the Permian Basin but also in other regions of the state such as the Barnett and the Eagle Ford, as well as in other regions of the country, has demonstrated that markedly higher levels of oil and gas exploration and development investments result as the risk of dry holes or uneconomic wells are reduced.

Once the traditional risk of geologic failure has been either greatly reduced or completely removed, the restraints of financial investment disappear. While commodity prices will always greatly impact activity levels it seems that the economic future of our companies and industry is no longer solely at the mercy of crude oil prices.

The change in technology that has resulted in the resource play is an “increase in technology” that will not go away or diminish from time to time. In fact as new technologies have been formulated and implemented industry has found that the technology curve continues to increase and over time we become more advanced in our drilling and completion techniques. And a good thing about new technology is that, unlike a high crude oil price, it won’t someday disappear.

So when is a boom not a boom? When it is a resource play.

Filed Under: From the Chairman Tagged With: Chairman of the Board, Doug Robison

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