RE:Pay debt or drillIf every producer drilled more the oil price would not be as high. The cost to produce more is also more expensive than ever. Supply constraints also limit them producing more. And most importantly shareholders want a return that is secure and longlasting, not a short run on high cash payout only to enter into another bear market once supply and demand balance out again, the war ends and ESG kills financing. Preserving inventories with moderate growth allows overleveraged companies to strenghthen the BS and protect longer term value in the equity. Drilling is a short term return... discipline promotes longer term industry health in a world that is trying to kill.
dllscwbysfn wrote: It looks like a fair bit of debate as to whether it is better to pay off debt or drill for more oil. For me and my calculator it is very clear that at these prices companies are way better off drilling than paying off debt. Lets take a look at the math. I will try to use conservative numbers and please correct me if I am wrong.
Scenario 1 Pay off 3million in debt, over a full 1 year period you would save 240, 000 in interest assuming an 8% interest rate.. So after 1 full year debt is down by 3,240, 000, the following full years you would save another 240,000/year/
Scenario 2 Drill a well that cost 3million and takes 3 months to complete. If this well were to produce on average 300/ b/day and they netted $40/ barrel over the next 9 months they would receive 3,240,000. So after 1 full year comparing these 2 scenarios the company would be even. So what happens the following year(s). Lets say oil prices crash and they only make $10/barrel. That works out to be about 1 million/year. So under a pretty conservative scenario it looks like they would make 4 time more money drilling than paying off debt.