Message from the President
The year 2016 marks the 30th year that Texas Royalty has been in business exploring for and producing tomorrow’s energy needs. Our industry has seen significant changes through this period of time, and like everyone else who has survived, Texas Royalty has been able to take advantage of both the drilling booms and busts. Our founding year, 1986, was three years into what would now be 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 could not have started Texas Royalty at a better time because there was little room for the industry to decline further. Our situation today mirrors those early years for Texas Royalty, where supply was suddenly over-abundant and geopolitical tensions were beginning to cause problems in the Middle-East.
Today, the world uses approximately 94 million barrels of oil a day and the US is the world’s biggest consumer, gobbling up nearly 19 million barrels or 20% of the world’s supply. Over the past five years, with the emergence of the new drilling technologies in the unconventional domestic shale plays, the United States has gone from producing about 5+ million barrels per day to just shy of 10 million barrels per day. This is one of the main reasons for the price collapse from $100 oil. Saudi Arabia has typically been a swing producer for the world, pinching back their production whenever prices seemed to sag. Through this recent period, Saudi Arabia has stayed on the sidelines continuing to produce nearly 10 million barrels of oil per day leaving the world with about one million barrels of excess supply each day. Once the market felt this oversupply and no one budged to slow down their production, oil prices came under severe pressure. Until we can iron out this oversupply problem, our prices are going to remain below averages found in the past five years.
So here we are today in a depressed domestic energy market where nearly 1,400 out of 2,000 US drilling rigs have gone idle in only 12 months. Every service company is scrambling to find business and that has resulted in significant reductions in the price of nearly every service available in the oilfield. All oil companies have experienced significant reductions in revenues which has opened up negotiations on nearly every oil and gas property out there. There are significant opportunities available and we are positioning ourselves to take advantage of this market. Whether Texas Royalty Corp is buying production, exploring recompletion opportunities or acquiring/leasing acreage, there are deals to be made in today’s market if the investment dollars are there.
The best reason for doing business at today’s bottom, while the world is brimming with abundant supply, is the fact that today’s supply is much more fragile than at any time in our history. Most of the new domestic production from the shale plays experience a 70% decline in the first year of production. If the rig count stays low, we could see a quick decline in domestic production eliminating the one million barrel per day oversupply. Also consider the largest oil producing area of the world, the Middle-East, is in a state of unrest and many of the members of OPEC are at each other’s throats with terrorist threats and geopolitical conflict. I don’t see this condition improving any time soon and any escalation in tension in this area will put upward pressure on oil prices and could even cause disruptions in the supply of oil to the United States. Anything like this would be catastrophic for the US as a nation but it would quickly convert oil into one of the world’s most valuable commodities again.
Although current times are challenging with reduced cash flow, Texas Royalty is optimistic that today’s depressed market is an opportunity for investment that will far outgain returns made while oil was $100. This is an exciting time in our business and we are once again growing to take advantage of the opportunities in the oil patch. If you are interested in learning more about Texas Royalty, please take some time to look through our website. If you have further questions or interest, please get in touch with us. We would be happy to hear from you.