Slide in Kansas oil industry continues to stress producers

WICHITA, Kan. (AP) — The Kansas oil industry continues to face pressure because of falling prices, which are approaching producers’ costs for pumping the oil out of wells, industry experts said.

The cash price of Kansas Common crude oil fell below $30 a barrel this week at the NCRA refinery in McPherson for the first time since the recession. And the 13 oil rigs running in Kansas last week was less than half the number a year ago, The Wichita Eagle reported.

Industry experts say the oil price is getting close to the cost of pumping, which is called the lifting cost. That cost is between $20 and $30 a barrel in Kansas, depending on the well.

Nick Powell owns Colt Energy of Mission, which has low-volume wells in eastern Kansas. His revenues have dropped 60 percent from last year and he has laid off 15 to 20 percent of his workforce. The focus now is operating as efficiently as possible, he said.

“Everybody is holding on and hoping the price will turn around,” said Powell, who is chairman of the Kansas Independent Oil and Gas Association.

When prices approach the lifting cost owners have to manage their costs well, said Jon Callen, president of Edmiston Oil in Wichita.

“You don’t do any work you don’t have to do,” he said. “You put off as much as you can. If you have some work on a well come up, you see if you can postpone it until the prices come back.”

Jim Williams, owner of WTRG Economics, an oil industry consultant, said it’s too early for most producers to pull out of Kansas.

“At 30 bucks a barrel you keep pumping,” Williams said, “because in most cases that is above lifting costs, which is just the cost of bringing up a barrel of oil – it’s not enough to cover administration – but it gets you some more money and helps with cash flow.”

But Williams said some American producers are already feeling financial distress. One example is Kansas’ largest driller, Oklahoma City-based SandRidge Energy, which is barely surviving after a stock price drop of 45 cents and a debt of $4.4 billion.

“It’s been long enough for it to start taking a toll,” he said. “October is when their bankers will look at things again.

“In this environment, the third and fourth quarters, if prices don’t recover, it’s going to be bad. Some of the more aggressive drillers will see bankruptcy.”

 

Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 

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