Despite a slow, steady increase in the price of natural gas over the past four months, the fuel is still selling well below levels comfortable for both larger companies and state coffers.
But for smaller operators with little overhead and even less debt, today's natural gas price environment presents great opportunities.
“When the prices go up, so do the costs of drilling,” oil and natural gas producer Pete Brown said. “High prices don't necessarily help us. You can make money at lower prices because service company costs come down.”
Brown is a co-owner in both Oklahoma City-based Cimarron Production Co. and Kingfisher-based operator Brown and Borelli Inc.
“When we drill in a low-price environment, we generally come out OK because our costs are lower,” he said. “If you drill when prices are down, they will inevitably go up later, and you can take advantage of that.”
One reason Brown and his companies have been able to survive and grow with lower natural gas prices is that they do not operate with debt.
“In 1982 when the price collapsed all of a sudden and Penn Square Bank collapsed, we didn't owe any money,” Brown said. “So we bought a lot of properties from those bankrupt companies.”
His philosophy hasn't changed over the past 30 years.
“We're in a very good cash position,” he said. “I don't wish bad things to happen to anybody, but if things like that happen again, I'm going to be standing as a buyer. It's important to be in this position in a downturn.”
Brown also has relatively low costs.
Besides himself and two co-owners, Brown's companies employ only seven clerical and accounting staff members. Everyone else is contracted.
Brown also benefits from a balanced portfolio, with wells that produce natural gas, natural gas liquids and oil.
For much of the past decade, most of Brown's profits came from natural gas. Over the past year, however, oil and natural gas liquids have outpaced dry natural gas.
“Gas is an integral part of our economics and always will be. We don't shy away from that because we always know we're going to be able to sell it,” he said. “Over the years we've seen booms and busts. We've seen gas over $12 and lower than $1. If you're in this business for long, you have to understand that and know you will have to ride them out.”
Despite the opportunities, low prices still present challenges.
“Most independents like myself have to seek partners,” he said. “In downturns, some of those partners are not as interested in investing. It makes it more difficult to come up with the money to drill a well.
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When the prices go up, so do the costs of drilling. High prices don't necessarily help us. You can make money at lower prices because service company costs come down.”