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Energy & Environment

Saudis Cut Oil Price Just As Texas Drillers Added Rigs

Over the weekend, Saudi Aramco cut the price of oil for September delivery by $1.10 a barrel. Meanwhile, in the Texas oil patch, new signs of life.



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Drilling rigs have been heading back to the Texas oil fields for the past several months, up about 41 since June to 214 rigs (as compared with 900 rigs back in 2014). It's a response to oil prices that had been rebounding though they've now fallen to around $40 a barrel.

To hear some oil executives tell it, having crude at $50 or so a barrel — less than half what the price was two years ago — is just fine.

"Obviously we get asked all the time do we have any plans to reduce our rig activity and the answer is no,” said Scott Sheffield on a conference call with financial analysts last week.

Sheffield is CEO of Pioneer Natural Resources, an oil company in Irving, Texas. He said his company is forecasting it'll grow for the next several years even with oil prices no higher than $55 a barrel.

Companies like Pioneer have surprised the experts by continuing in some parts of Texas to produce oil despite lower prices.

"Production has held in there and that's largely because our U.S. operators have gotten smarter and they've also sharpened their pencils with the contracts with the oil service providers," said Greg Haas is an industry analyst with Stratas Advisors in Houston.

Those oil service companies have had to drastically cut the fees they charge production companies to help drill wells. But Haas says that's not to say there haven't been casualties: some 80 service and production companies have gone bankrupt since last year. That's exactly what Saudi Arabia and other OPEC countries were trying to do by continuing to pump oil despite low prices.

"If OPEC and the Saudis were looking for some pelts to hang on the wall they certainly have them," said Haas.

But the Saudi strategy may not have been as damaging as some had feared and some Texas oil companies may still thrive even if oil prices don't rise to what they were a few years ago.

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