ROCK, We're not talking about the 1980's, we're talking about now, i.e. current news.
Pops, If felt strongly enough that this thread should have been moved, why didn't you move it? The article was about about credit ratings not why there is a current decline in oil prices or it's consequences. Actually, ROCK raised an interesting point because we can compare what happened in the past with what is happening now. I found a reference that does just that:
Oil Price History and AnalysisThe recent downturn in crude oil prices will as usual have the greatest immediate impact on the exploration segment of the industry. Coincident with that will be a decline in sales and manufacture of oil and gas equipment. The next segment of the industry to feel the pressure of the price decline will be the oil and gas services. This page will address the causes for the precipitous drop in prices in an historical context. If you find it of interest you might want to bookmark the page and check back often. We will be adding to this analysis on a regular basis. Of course, if you need help determining the impact on your company please contact WTRG Economics.
Impact of Prices on Industry Segments
Drilling and Exploration
Boom and Bust
The Rotary Rig Count is the average number of drilling rigs actively exploring for oil and gas. Drilling an oil or gas well is a capital investment in the expectation of returns from the production of crude oil or natural gas. Rig count is one of the primary measures of the health of the exploration segment of the oil and gas industry. In a very real sense it is a measure of the oil and gas industry's confidence in its own future.
At the end of the Arab Oil Embargo in 1974 rig count was below 1500. It rose steadily with regulated crude oil prices to over 2000 in 1979. From 1978 to the beginning of 1981 domestic crude oil prices exploded from a combination of the the rapid growth in world energy prices and deregulation of domestic prices. Forecasts of crude oil prices in excess of $100 per barrel fueled a drilling frenzy. By 1982 the number of rotary rigs running had more than doubled.
It is important to note that the peak in drilling occurred over a year after oil prices had entered a steep decline which continued until the 1986 price collapse. The one year lag between crude prices and rig count disappeared in the 1986 price collapse. For the next few years the towns in the oil patch were characterized by bankruptcy, bank failures and high unemployment.
After the Collapse
Several trends established were established in the wake of the collapse in crude prices. The lag of over a year for drilling to respond to crude prices is now reduced to a matter of months. (Note that the graph on the right is limited to rigs involved in exploration for crude oil as compared to the previous graph which also included rigs involved in gas exploration.) Like any other industry that goes through hard times the oil business emerged smarter and much leaner. Industry participants, bankers and investors were far more aware of the risk of price movements. Companies long familiar with accessing geologic risk added price risk to their decision criteria.
Technological improvements were incorporated:
Increased use of 3-D seismic data reduced drilling risk.
Directional and horizontal drilling led to improved production in many reservoirs.
Financial instruments were used to limit exposure to price movements.
Increased use of CO2 floods to improve production in existing wells.
In spite of all of these efforts the percentage of rigs employed in drilling for crude oil decreased from over 60 percent of total rigs at the beginning of 1988 to under 40 percent currently.
wtrg
Human history becomes more and more a race between education and catastrophe. H. G. Wells.
Fatih Birol's motto: leave oil before it leaves us.