President of local oil, gas producer optimistic in price turnaround sooner than expected
A day after oil markets crashed with the need for production down, the economy at a standstill and companies with nowhere to store their unused oil, Eyewitness News spoke with the president of Bear Petroleum for further perspective on what the historic price drop means for Kansas.
Bear Petroleum President Dick Schremmer says no one could've predicted a drop in oil prices like what happened Monday. In Kansas, he says, you need to make $40 to $50 a barrel, just to break even. Now, he says, it's not worth pumping the wells.
"The markets were just upheaved yesterday," Schremmer says.
He says Russia and Saudi Arabia started dumping oil into the market, which does not help the U.S. and the economy we're in. But Schremmer says he's an optimist and thinks the prices will turn around sooner than people think.
"So, with all the futures, contracts and everything that's kind of what came due in May, and people worried about storage, because now they own that oil on paper, no place to go with it. So I think that will shake out here in May, and at least you'll see positive numbers in June, July," he says.
Schremmer says in Kansas, the majority of the oilfield is pumped with stripper wells. He says these wells pump about 15 or less barrels of oil per day.
"It's a big chunk of the market," he says. "And the operators have to be very efficient to make it work on stripper-well basis. And that's a challenge we have in Kansas, but we're used to that challenge here."
Schremmer says for local companies to get through this, they're going to need bank loans. This may be a tricky situation.
"The banks are treating this a little bit like lepers," he says. "Nobody wants anything to do with oil, gas right now because they just don't know where the bottom's at. You can't blame them. I mean, they've got to justify their loans, sot it's going to be... Everybody's gonna be looking for capital. Even if you shut your wells down, well then, you don't have any income coming in. So (when it) comes time to start wells back up, you don't have any money to start them. So it's going to be a tricky situation."
Schremmer says oilfield workers are going to have to come up with something to keep their businesses going and to get their wells back running again when this is over. He says he tells his workers they will have to take this one week at a time.
U.S. oil prices Monday fell to a record low, selling for below $0 for the first time in history. With a majority of the country sheltering in place, the demand for oil is not there, and producers currently have nowhere to store their supply.
A majority of Kansans staying home plays a part in why gas prices are so low. While consumers enjoy saving money now, in the long run this could mean thousands of layoffs across the state, even bankruptcies.
The plunge in crude oil prices could devastate the oil industry in Kansas, some industry experts warn.
"Lots of wells have been shut down, (and) a massive number of layoffs, not only in the producing company, but the service industry that we hire to do work for us," says Kenneth White, president of White Exploration, Inc.
The impact, some predict, could have long-term consequences.
"I definitely think you could possible see some bankruptcies. I think you could also see a lot of consolidations, a lot of the larger companies coming in and buying out some of the smaller mom and pops," says Nicole Koelsh, oil and gas specialist with Adams, Brown, Beran & Ball, Chtd.
The price drops will directly impact those working in the oil industry with some companies already issuing layoffs and furloughs.
But the impact is deeper than that as several Kansas counties depend on the oil industry for tax revenue.
There are counties in the state that rely on oil and gas taxes for 50 percent or more of their revenue in some places in Western Kansas," White says. "It's going to be a real hardship."
For consumers at the pump, gas prices in Kansas are not reflecting the price drop quite yet. Experts predict already lower-than-normal gas prices will fall even farther in the state in the next few weeks.
However, this price drop will continue at a cost for those working in the industry.