Energy Market Commentary · November 21, 2017
Thanksgiving. A time to share with family and friends, reflect on the year that has passed, and eat like there won’t be any food tomorrow. As I pondered what an appropriate topic would be in this 4th installment of the much-anticipated Turkey blog, my mind couldn’t help but move towards the obvious correlation between the size of turkeys readily available at your local grocery store and the size of wells that operators regularly report and bring online. Yes, I intend to prove that increased efficiencies, improved techniques, and technological improvements in the upstream space directly correlate to the size of bird you put on your table, and the number of birds available to purchase in late November.
First, a note to our readers. This piece is what we could consider ‘loose analysis’. I took liberty in choosing data that both fit my storyline, and made pretty charts. Now that we all know that this is for fun, let’s get started. If you like real analysis, check out our third annual “What Lies Ahead” conference this coming February.
Exhibit A: Average Gas IPs and Average Weight of a Harvested Turkey
It’s hard to find anyone in the O&G industry that doesn’t point to technological improvements when asked about how we continue to produce natural gas at such levels despite the recent prices at Henry Hub. Better techniques equal higher initial production rates which leads to a shorter pay-back period. While you may get a longer pause, the answer is very similar when looking at the average weight of our once-gobbling friend that is now the most honored thanksgiving guest. Better techniques and better technology have also led to bigger birds as shown in the chart below. If we were to extend this chart back to 1960, when the dataset that I pulled from the USDA started, we would see that the average harvested bird in that year was a mere 18.67 pounds.
Exhibit B: Number of Wells Drilled and Number of Turkeys Harvested
There are quite a few variables that operators must consider when choosing how many wells to drill in any given year. But, all else considered, the US E&P space attempts to supply as much gas or oil as is demanded, albeit at an acceptable price-point. Back to Exhibit A, if we have consistently increased the quantity of both gas and turkey that is harvested, do we need fewer producing units or is the demand strong enough to justify an up-and-to-the-right trend in both wells drilled and turkeys raised? I decided to choose the period of rampant growth in both turkey weight and IPs to zero-in on recent history. See below…not exactly what I was hoping for.
As it turns out, Americans like huge turkeys no matter how O&G commodity prices behave. In fact, the worse the price gets, the bigger our feathered friends grow, and the more of them there are. Does a cheap gas price allow farms to run heaters longer, resulting in bigger birds and fewer fatalities? Does abundant, North American sourced oil encourage more grain to be loaded on trucks bound for the nation’s largest farms? Answers to these questions are certainly known, but, unfortunately, are beyond the scope of this ‘analysis’.
Finally, as you consider that second or third helping this Thursday, remember that turkeys are big, turkeys are plentiful and that self-loathing and a couple of extra pounds shouldn’t hold you back from enjoying them. So bend at the knees when removing Mr. Gobbles from his brine, make sure you get that monster to 165° F, and then enjoy your well-earned, tryptophan induced nap.
Happy Thanksgiving from BTU Analytics!