If you have been to the gas station recently, then you have probably noticed that the price of gasoline has dropped. This has been caused by drops in the price of oil itself. According to reports, they have fallen by as much as fifty percent. Meanwhile, oil and gas companies have reportedly gotten together in Houston looking for a deal, that can be made challenging by an uncertain oil price.
So, is all of this good or bad for the economy at large? Specifically, it depends on who you are; a lower price is definitely good if you are a consumer at the pump. This is not that good if you are an investor, where your return is tied to the industry’s profit. As stated earlier, many of the industry’s companies, as well as bankers or investors, are in Houston looking for a deal, which would help them through the challenging oil price drop. So what are oil and gas companies trying to accomplish by doing this?
According to National Public Radio, the oil and gas companies are negotiating with the bankers for access to certain areas. These might be like “the Bakken in North Dakota or offshore in the Gulf of Mexico.” They have also noted that this meeting is out in the open with booths, instead of a board room, where oil and gas companies show investors what lands they would like. Reportedly another option is for companies to sell off undesirable or possibly obsolete assets. In other words, the companies are looking to make up for lower prices either with more of the product or by selling something else, (depending on what it is, this choice may lower future costs).
So, what is it that attracts oil and gas companies to particular areas? One of the oil companies, Tuzo Energy, represented by Don Mortimer reportedly wants “partners to develop wells in Alberta.” When asked by a National Public Radio representative, Don Mortimer said that he is attracted to Alberta’s “natural fracturing.” This is something in the ground that makes oil easier to reach without using costly hydraulic fracking.
However, what really matters is if the deal(s) are actually done. So far, there appears to be no consensus on any of them, but there was interest with the Tuzo Energy booth. The National Public Radio representative also spoke to Kenny Dubose, who is a former independent operator, and now an investor in wells. Kenny Dubose had said that “he was looking to consolidate his interest in the wells, many of which have many different investors. And he has been lucky today.”
Dubose has also been reported as saying that people that want to buy something on the cheap are going to be disappointed. According to him, sellers do not want to sell at prices that reflect the current status. Despite the current levels, it is expected that oil prices will rise back up rather quickly. Tuzo Energy’s Don Mortimer has reportedly been philosophical about the whole thing. He says, “It is very exciting on the way up and you weather the down periods and move on.”
Earlier it was stated that lower prices were good for consumers, but not so good for the investors. But, the question of if it is good for the economy at large was less clear. However, aside from the immediate benefit, lower oil prices also present an opportunity for these consumers. With more money after getting gas, they can spend it on other things, in other industries. This in turn will bolster other businesses in other industries, and more wealth can be created there. In conclusion, what is good for the consumers, in general, is good for the economy at large.