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United States Natural Gas Message Board

  • leper_colonist leper_colonist Dec 8, 2008 7:31 PM Flag

    Lower NG prices does NOT necessarily mean drillers will cease productions...

    In fact it often brings on MUCH MORE drilling in the shorterm...think about it, drilling companies have current fixed costs they MUST pay or risk going out of business,,,even at $4.00 these companies will keep drilling just so they can get cash to pay for CURRENT liabilities even though it means they are losing money in the longterm...so production does not necessarily shut down with the price drop...it ACTUALLY INCREASES!!! (in the shortterm)...in the longterm companies will go bust/taken over.

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    • Money set aside for drilling budgets have been cut dramatically by many oil and gas companies. If gas stays this low or goes lower probably some gas gets shut in. Winter has just started and the lower demand from slow industrial demand might not have as much impact as the weather. lets see what happens. This next few inventory reports should be interesting. Does anyone know what % of gas goes to industry and what % goes to heating?

    • Sorry, that's some of the worst analysis I've ever read.

      <even at $4.00 these companies will keep drilling just so they can get cash to pay for CURRENT liabilities >

      So they're going to spend cash to drill, so they can get less cash back to pay their liabilities? Your statement makes zero sense.

      <think about it, drilling companies have current fixed costs they MUST pay or risk going out of business>

      That's exactly why they need to conserve cash, not spend more on exploration.

      I'm not sure you understand the difference between cutting back on drilling and shutting in producing wells. It's true that NG companies won't shut in producing wells - because the cost of drilling the well is a sunk cost. The current price of NG is enough to cover the variable costs of running most existing wells. However companies most definately will curtail new exploration. In fact this is already happening. The NG rig count is falling fast and is already below year-ago levels.

      • 1 Reply to o_bixo_do_mato
      • I worked in the Gulf in the early 80's during the last big boom/bust and there were hundreds of NG wells shut-in or capped when the price collapsed.

        Oil was still peaking and any wells drilled that hit NG were simply capped and they moved to the next site looking for oil.

        Unless they are desperate for cash (which some may be with the recent price dump) they aren't going to sell cheap today what can be sold dear tomorrow. Producers aren't dumb and know that prices will recover eventually-the more they can shut in now the sooner the price goes up.

 
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