Eagle Ford Shale and Permian Basin in Texas
Jim Noe, executive vice president at Hercules Offshore Inc., a Houston-based drilling-services company with rigs in the Gulf of Mexico, the Mideast, India and West Africa, said companies such as his are monitoring weak oil prices closely. Hercules said its business was affected by a slowdown in drilling activity in the second quarter. Hercules’s stock fell 6.3%.
The fundamental problem is that the world is awash with oil, but demand for energy is growing more slowly amid tepid economic growth around the globe, especially in China.
Companies are always reluctant to be the first to cut their energy output, hoping that others flinch first. And hedging can help companies weather temporary drops.
The overall U.S. economy, and especially industries such as refining and air travel, would benefit from lower oil prices.
Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices. An analysis by Robert W. Baird & Co. said prices could drop to $53 a barrel in certain parts of the Eagle Ford and still be profitable to drill.
It would take a sustained decline in prices to make companies cut back, some experts say. Earlier this week, Houston energy investment bank Tudor, Pickering, Holt & Co. said that while falling commodity prices would cause its clients to question their plans for next year, it was “too early to hit the panic button.”