5 October 2010
In March I wrote about curvy roads and barely hanging on around the corners. I have some scary moments, but somehow still seem to be alive and kicking. However, I'm still on that curvy road, and there is a lot of it left to go. The battle of today is trying to keep the production up while I figure out what to do next to increase production. And somewhere in between all of that I need to pay loan payments and keep the governments happy. Oil prices seem to be hanging in there so that is helping. But I have to put my mind to work and get a plan that will work to get out of this corner I have been backed into.
I am always glad to get the accounting done at least for last year and do this report. I hope to keep more current on the accounting this year and have the numbers a sooner. I learn a lot about the companies by doing these reports. What can I say 09-10 was a lousy year. I logged in record losses and debt just kept going up. The numbers say if something can't be fixed this venture isn't going to make it. The only way I know how to fix it is to get some more production coming in and to slow down the outgoing funds.
Wish I could say for sure we are going to get past these hurdles, but I can't. But I'll do my best to get over these problems and hopefully have a better story to tell in 9 months or so.
26 March 2010
I think to best describe the last year and a half is imagine a drive we made down the Dragon's Tail in North Carolina. We made that 11 mile drive with some 360 curves. Many a traveler has met their end on that road, five had died just the month before we were there. Like our car, every turn has had peril and shear naked fear. I hang on and lean into the curve and wonder how I even made it to the other side of that turn. But there is not time to rest as another turn waits just ahead. Sometimes it is almost fun having your neck thrown from side to side, but other times you wonder if the next curve is it and you will plummet to your death or smash into a tree or a rock..
The stock market and oil and gas price collapse of 2008-2009 continued to play havoc with our cash flow. Then due to government obligations we were thrown into a project from hell, the cleaning out and casing of the Khan F-2 well. This project alone nearly sunk the company, without any other help from low oil and gas prices. Early in 2009 I had to lay off everyone and Heidi and I ran the show for the first half of 2009. By June I was able to hire some part time help, and since then we have slowly been getting back on our feet. The banking crisis came home to roost later in 2009 as our sources of credit dried up, banks started changing their terms and demanding more payments. We have lost several key credit lines we had had for over a decade, of which we have never missed a payment or never been late on, but because of general market conditions we have had our credit pulled. The only lifting force for the company has been the steady recovery in oil prices that started in January and has slowly increased oil prices from the $30 range to the current $77 range.
I think there has been a dozen times this past year that I really thought we were finished. To have worked nearly 20 years on building this company to have it wiped out in the financial crush of 2008-2009. Even still I am looking over my shoulder and am still not quite sure if we are really going to make it. And so I have been in a race the past few months. Can I economically get our production and cash flow up, with what limited sources of capital I have, faster than the increased demands of the banks who seem only to want their capital back NOW!
We have a lot of potential, the kind that could double our production, if I can just get enough time to work on it and enough money to buy the parts. That is what this is a race for: time. My activity has been reduced to the lowest common denominator, of produce oil, sell it, and try to use that money to make more money. No time for other distractions. The seismic equipment sits collecting dust, the geology sits in the files, and I wonder if it will get to be used again. If oil prices are kind to me, if natural gas prices will make a comeback, if I can somehow get the backlog of repair projects caught up and if I have the chance to finish the projects I am working on, then I can predict that the company could see a good recovery and the seismic and well drilling can begin again and I can resume the plan I came to Oklahoma to achieve nearly 20 years ago. All I know is that if I can make it through the next 2 years things are going to get a lot better.
7 November 2008
In a little over six weeks I watched oil prices fall another $38.50 to $59.25 (our Oklahoma prices). The stunning 58% drop from $141.75 on July 14 to 59.25 on October 28th took my breath away. In our corporate history there has never been anything like this free fall. The price collapse of 1998 was long and drawn out but took almost 2 years to bottom out in December of 1998. 09-11-01 also brought a price collapse but was short lived and shallow in comparison to 1998. Of course what we really don't know is the question of how far down will it go and how long will it last. I know comments have been made about the concept that $60 oil is still a good price in comparison to the $8 in 1998. First I was going broke in 1998 and long term prices of less than $10 would have been fatal. Secondly the cost of our supplies and services have tripled or quadrupled. Suppliers of goods and services to the oil industry were more than willing to quickly stick it to oil and gas producers during the "boom" and are very reluctant to reduce prices now that oil is down 58%. Electricity costs are up and labor costs are up as well. We all became used to having more money and unfortunately are not always able to reverse the expenses.
The fact that OPEC seems to also be feeling some pain at $60 oil also tells me that they will be more likely to defend a floor price. If I have been spending tens of thousands improving my company, they have been spending billions improving theirs. And like me, I am sure they have the debt to match the expenses. What a curious memory of hearing the soothsayers of the oil industry talking of $200-500/BBL oil just three months ago, and after all we were running out of it! What a joke! I knew the pull back in prices was coming. I just didn't know how much, how fast or that the crash in the stock market would be the root cause of the oil price collapse. Ironically we have just began gas flow from two wells that were plugged in 1933, the heart of the last great depression. The owner of the wells had ended his life by shooting himself in the stomach due to his financial demise.
But now I am faced with a greater challenge, and that is to restore profitability after a 58% price drop in the value of our product. I really don't think this is a short term situation and has to be dealt with accordingly. And there is no guarantee this is the bottom either. If a production overhang is created due to faltering world economies, prices could collapse even further. Painfully, I do not want to accept the end of the story for the company: Yes and how did you finally fail? Well after 19 years of fighting it out through insurmountable challenges, the stock market crash of 2008 dealt the final blow, and there was nothing I could do to stop it. Yes, the company has been body slammed by the oncoming truck. Hopefully we have not been cast in the path of the oncoming train. Okay well enough of the doom and gloom. Either I make it through this or I don't. But I plan on doing all I can to make it through the problems created by the current situation.
14 Sept 2008
This past year has been non-stop for our field activities. Gladly the oil and gas prices elevated to the point to where it could support the level of field repair and construction projects that were required. Our activities varied from rebuilding tank batteries and tanks, to laying new poly lines and electric to establish new production. At this progress report I feel the story is incomplete as we are right in the middle of several key projects. However the recent plummet of oil prices from their high of $141 in July to the current level of $98 in September has cast a shadow over our ability to keep up with the activity required to finish the projects. What we just don't know is how far the prices will fall. That is the uncertainty! It seems the market bears are dominating and the usual impact of hurricanes and inventory declines have not stopped the price collapse.
If the prices can stay at workable levels and I can finish the projects currently underway, our production in both oil and gas are going to increase and raise us to a more secure level of cash flow and stability. But that is the question. Meanwhile here are the reports and charts for the past year.