I had been in talks with a landman about my property in Reeves County. Once I was ready to review a contract, the leasing company decided not to move forward with the lease. They stated that this had to do with the 2019 budget being nearly tapped out, and cited concerns over the 2020 election.
My question is, do new budgets typically open up in the New Year? Additionally, if companies are concerned about the 2020 election, can we expect a general slowdown in leasing offers? Does anyone have any ideas or insights into this?
I cannot speak to Reeves County in particular, but my experience in a major oil company over the years is yes, things do tend to slow down at the end of the year as the end of the budget cycle is looming and no one wants to overspend. Our budget usually opened up in the near year as money became available again.
A man answered the same type question for me. He said Capitol has dried up because oil and gas has is not considered a profitable investment at the moment…They can’t borrow the money they need for well production.
My company must’ve been one of those that was not as healthy. Several that made Huge acquisitions this year have subsequently had trouble raising capital.
The general consensus right now is that operators have to stay within their cash flow to drill new wells. The ones that already had a good line of credit, are cutting costs and staying within or close to within cash flow from production have a better chance at getting new credit since they have proved themselves.