Everyone has heard the expression we have to get back to the basics…football comes to mind, block, tackle, throw the ball, catch the ball, and score touchdowns…and do so while you keep your opponent from scoring…simple, right? Why don’t we do this all of the time in business? A good friend of mind, and a Scotsman with an IQ of 186 tells me, “You don’t want to be too smart by half.” We’ve also heard the one, “If it ain’t broke, don’t fix it”. More appropriately in the oil & gas business would be the saying, if you are digging a hole, and not finding anything, Stop Digging!

So, how does this relate to the title of this update? Simple, what’s our biggest problem in the US today? Most would say the economy. We borrow & spend more than we make! Our government spends more than it can tax, borrow, or and bring-in, and soon more than our printing presses can print paper money to pay an increasing national debt.

In a ‘successful’ private company oil business it has become necessary, and mandatory to go back to basics. We’re operating on a ‘cash basis’ and not betting on ‘future earnings’ like public companies when valuing their price earning ratios (PE’s). We must drastically cut our overhead, while developing leases, get required work done with fewer employees, use our own equipment, service our own wells, and maintain our own leases to save money. We have to do this while we lower the break-even point, and lifting costs, and production costs, so we can make profits for our investors. Prices are high for oil, and likely going higher…but so are rates for work, and costs for vendors, and sub-contractors.

Using new technology can be great, but if it is too complex, and unproven, you can spend a lot of money while you test to find-out it if it works. Sometimes, the old pumps, and older methods of operating leases can be much cheaper, and still get the job done at a fraction of the cost needed for high tech applications…so, a step by step and more cautious, or conservative approach while looking for oil can work better in the long term. The economics of some types of drilling, fracing, and development require big money, and acceptable returns are directly tied to getting a return of capital quickly. This can take many years though if the costs are too high going-in to a deal. Besides, the reserves can appreciate while the price of oil continues to increase…and this buys time to discover and use the best plan to be successful in the oil fields you select.

Dennis