Oil prices dip into the $20s as the Permian Basin juggles coronavirus fears, price war
Around the country, restaurants, bars, gyms are all shutting down in response to the Coronavirus pandemic.
Energy companies are also beginning to shutdown, but not just because of the COVID-19.
“We’re getting a double whammy right now, because we got the pandemic working against us and then the Saudis flooding the market with oil — dropping it to $20 dollars yesterday,“ Latigo Energy CEO Kirk Edwards said.
He predicts, over the next month, the Permian Basin will see massive layoffs, because the number of drilling rigs running will plummet.
“We’ve got 400 rigs running right now. Every one of those rigs generates 10 million dollars a piece -- you’ll see that count drop probably in half in the next couple of months. Then after that, probably the rest of them, because nobody can drill at $20 oil and make any profit from that.“
Parlsey Energy COO David Dell’Osso said his company was one of the earlier ones to pull back on capital activity.
“The reality in my opinion is I don't think many companies have gone far enough yet. I'd expect to see more updates and more adjustments --downwards for some of those companies that made smaller adjustments.“
And even though it sounds like a good deal for industry, Edwards isn't so optimistic about the Energy Department’s plan to buy millions of dollars in oil to fill the U.S. Strategic Petroleum Reserve.
“Putting oil in the reserve makes no sense. I mean they're putting $20 barrels in there," Edwards explained. "Trump needs to do something with the Saudis -- and tell them that they're killing their nation's energy industry, which they're doing.“
Although, it’ll be a climb before the Permian Basin can get back on track, Dell’Osso has seen this region do it before.
“The good news is the industry, particularly the Permian Basin, has a history of resiliency and innovation through these cycles. We’re going to have to lean very heavily on those attributes to get through these market changes," Dell'Osso explained.
Edwards said the pandemic will have to subside and Saudi Arabia will have to stop flooding the markets before the industry can be healthy again.
Dell’Osso expects it to take awhile.