June 10, 2022

Why No New Oil Exploration?

Once again today, we will see what I consider the strangest of all economic reports that cross my desk each week. It's the Oil Rig Count. The number of actively drilling oil rigs in the country.

Now, with the high price of oil, West Texas Intermediate, the benchmark US Oil, is trading around $120 per barrel as we speak. And I don't have to tell you that's the highest price in years. And a sure incentive for any oil company to spud one in.

Why not give it a go? With modern earth sciences, and a good team of geologists you have a good chance of hitting. And at these prices, the payoff could be huge.

So, in looking at the Oil Rig Count, I'd expect to see it climbing and climbing. As the oil industry cranks up exploration.

But we're not seeing that at all.

Instead, we've been stuck for the last month or so, with the same number of rigs. Somewhere just north of 570 active drilling rigs. The number fluctuates some as rigs are put into service, while others come off in need of refitting or repair.

Now 500 drilling oil rigs might seem like a lot. Until you realize that in 2016, just 6 years ago, we had over 1,500 oil rigs actively drilling for oil.

Or until you see the current economic projections by the industry, which forecast that next year we will see the number of active oil rigs DECLINE by about 5%.

Yes, that's right by all industry projections, we can expect fewer rigs exploring for oil next year, in spite of the high price of oil currently.

It sounds to me, like something, is holding back our oil companies from exploring for new oil. And it can't be price. This is about as much price incentive to drill as I can possibly think of.

So I decided to start looking for what could possibly cause this lack of new exploration by the oil companies? Exploration would go a long way in relieving this inflation problem that we are currently stuck in.

I naturally turned to the number one US Integrated Oil company: Exxon Mobile. Just a couple of weeks ago, their Chairman and CEO Darren Woods spoke about Exxon's current business line, during his presentation to shareholders. Part of their First Quarter's Earnings Report.

Now the modern oil company executive has to be part diplomat, part poker player. He has opponents on all sides of the political spectrum after his scalp. One misstatement and everyone from Green Peace to Elizabeth Warren will ask for his or her resignation.

So in looking at Chairman Woods' quarterly statement, it's what he doesn't say that's at least as important as what he does say.

When addressing all the new projects coming on line, Woods quickly turns to, wait for it, those new oil wells down in Guyana. Guyana? Didn't he mean out in Oklahoma, or up in Alaska? This is the number one US Oil Company, and Chairman Woods wants to tell you about Guyana?

That's fishy.

Next, comes all those wonderful new prospects... in Mozambique?

Oh, and let me tell you about the brand new hydrogen plant or the CO2 capture that we're introducing.

Finally a two-sentence mention of increased production from the Permian Basin, that's Texas. Oklahoma and New Mexico. And that's not new, just improved capture on essentially existing properties.

But to put “new exploration”, and the “United States” together in a sentence. Isn't going to happen. Not now. Not with this current administration in Washington.

And that's the answer to the question of why we are not seeing any additional oil exploration in this country.

Admittedly you have to read between the lines. But if you're familiar with CEO speaking in formal presentations, this is as loud and clear as it gets.

We have a President who has canceled all federal land leases that have come before him, canceled major oil pipelines, and believes the way to increase energy in the country is to put up solar panels.

That's about as anti-oil as it gets.


Economic News


There is an interesting historical analog to what is occurring in the price of oil today. Just 15 years ago, oil went through exactly the same sort of parabolic price rise as we're seeing now.

In 2007 oil began its great march higher in price. Culminating, less than a year later an all-time record high of $133 dollars a barrel.  And thus began the worst recession of the 21stcentury.

An event that Wall street refers to as the Great Financial Crisis. From their way of thinking a crisis centered on the major banking institutions in the country. Hence the name: Great Financial Crisis.

But I can't help but think that it was oil, equally with real estate that was a precipitating event.

Now what makes this so timely: A little later this morning we will get the latest report on the Consumer Price Index, the most widely watched measure of inflation.

Wall Street is predicting that we will see a tick down in the CPI this morning. The first such decline since we started our inflation spiral. And the talk all over the Street is that we've reached “Peak Inflation.”

Ordinarily, that would be very good news indeed.

However, the last time we were at this very point, it was because we were starting a major recession.

So coming up the latest reading on the Consumer Price Index, when last reported the CPI stood at 8.3%.


Then later in the day the University of Michigan's Survey of Consumer Sentiment. Expected to continue its slide lower. As most surveys of the consumer's mood have been taking a decided gloomy tone recently.


And then later this afternoon, we will get that all-important Baker Hughes Count on the number of actively drilling oil wells in the country.


There are no earnings reports on the calendar


Have a great day!