RE:Oil actionThis dynamic reminds me of the Wei-1 deepwater well offshore Guyana that CGX recently drilled. The MDT tool got stuck and they had to drill a sidetrack. Total cost of doing so, with daily spreadsheet costs of over $1 million per day, were probably in the order of $30 million in extra well costs. Imvestors went nuts. I argued that if they find a 300 million barrel of recoverable reserves then the added costs amount to an increase of 10 cents per barrel in E&P costs. Nothing.
In bte's case they can actually decrease the per barrel break even cost by spending more money on E&P. If they spend more money but increase production by 200% then break even costs per barrel decrease. Netback = selling price - break even cost. They could conceivably realize higher netbacks even if wti and wcp decrease in price if they can decrease break even costs per barrel in an amount greater than the decrease in wti and wcp.
And even if netbacks do start to decrease they can still maintain the same income levels by boosting production since income = (daily volume of bbls sold) × (netback per barrel). If netbacks decrease then increase production.
But here's the conundrum: If everybody boosts production in order to maintain the same net income then this will put downward pressure on oil prices as more supply comes online. But what happens in a world where scarcity of hydrocarbons is getting worse? The Saudis and the Russians won't sell increasingly valuable reserves at a discount. They'll leave them in the ground and only produce them at premium prices. Same with bte etc.
So I expect persistently high oil prices, persistent inflation and rising interest rates. As certain sectors in the economy start to contract then investors will start looking for safe havens for their money. I think that oil&gas will become a safe haven simply because our standard of living is energy intensive so in order to sustain it then energy demand will increase. People will put off going on vacation, eating out etc just to be able to fuel up vehicles and supply their homes with energy. Basic thermodynamics tells me that per Joule of useful energy delivered, nothing except for maybe nuclear is cheaper and less polluting than hydrocarbons.