The Best of Times, A Scenario on Oil

James W. Cammack, Sr.

Domestic oil industry economics for 1989 are superior to any time during the 30-year period studied from 1959 to 1988. Annualized oil prices and drilling and completion costs are equated to the barrels of oil required to pay out an oil well on a per-foot basis.

The historical study shows today's payout rate is 46% better than when the prices were regulated by the Texas Railroad Commission, and also 11% better than the boom years of 1980 to 1985. The Producer Price Index adjusted oil price, corrected for inflation, is 35% less today than during the boom, whereas costs are 43% lower. The barrels of oil required to pay out an oil well are the lowest in 30 years. Conversely, total footage drilled for oil is at a depressive 30-year low even though OPEC has regained its world market quota.

Both the explorationist and the investor must realize how favorable economics are before the domestic oil industry can again prosper.

AAPG Search and Discovery Article #91025©1989 AAPG Midcontinent, Sept. 24-26, 1989, Oklahoma City, Oklahoma.