The year 2010 will mark the 25th year that Texas Royalty has been in business exploring and producing to meet tomorrow’s energy needs. Our industry has seen significant changes over these years and like everyone else who has survived, Texas Royalty has been able to adapt to and take advantage of these differing conditions. Our founding year, 1986, was three years into what to date has been considered the most prolonged downturn any global business sector has experienced. The Energy Sector was full of failing companies, falling prices and qualified workers fleeing for more stable employment. In retrospect, I couldn’t have started Texas Royalty at a better time because there was little room for the industry to decline further.
Those first years were exciting and challenging. The first substantial well Texas Royalty completed sold oil for $12 and natural gas for $1.25. The only way to make money at those prices was to diligently study proposed expenditures and watch every penny. Those conditions lasted for nearly fifteen years before our industry began to recover in spite of itself. Our industry’s collective lack of drilling caused supply shortages at a time when the world economy was expanding and boom, there we were in a classic supply squeeze that forced energy prices to spike. No one in our industry knew WHEN this was going to happen but most everyone knew it WAS going to happen. Now with today’s economic downturn, we see the same thing happening. Texas Royalty sees this as a potential opportunity.
There were two groups of investors in the oil business the last time the oil and gas prices spiked: 1) Those who thrived because their inventory of properties were acquired during the lean times and 2) those who competed with the large independents who drove up the basic cost structure of everything from lease costs to drilling costs. We believe today is an opportunity for accumulating properties and establishing valuable PUD leasehold. This will involve looking at each project with an eye to the future and waiting for that day WE ALL KNOW will come again. As a friend said, “I want to be loaded up the next time that whale surfaces.”
To prove that the oil and gas prices are going to cycle upward again, I offer you a few facts:
- Demand for oil and gas drops only nominally when we go into an economic decline similar to today.
- Today’s oil and gas discoveries have first-year decline rates that are far greater (up to 80%) than those found in the 1980’s (approximately 10%), so any sustained drop in the rig rate will result in a rapid drop in domestic daily production.
- In six months, the rig count dropped nearly 50% from October 2008.
- Natural gas is essentially a domestic or North American commodity which is the cleanest and greenest burning fuel for electric cogeneration and its expanding use in transportation.
- The majority of new gas discoveries in the United States are tight, unconventional gas reservoirs with very high decline rates. This combined with the low rig count will result in a supply squeeze before you know it.
There will always be a real need to find new sources of domestic energy and Texas Royalty is using its resources, investors and employees to explore and drill for these reserves. It may not seem like it now, but this is an opportune time in our business and we plan to take advantage of it.
If you are interested in learning more about Texas Royalty, please take some time to look through our website. If you would like to talk with us about opportunities we have, please get in touch with us. We would be happy to hear from you.
Tom Schoonover
President