It isn’t often you see the death of a major worldwide industry. Last week I saw the death of the “Big Oil” economic model. It just died at the hands of Texas oil frackers who have developed a new “disruptive technology” that has made obsolete all the pillars of technology underpinning large, vertically integrated oil companies. More importantly, the same is true of all the petro-states that nationalized Big Oil’s assets in the 1960s to make all the state oil companies around the world today.
I found this out doing my day job last week as a Defense Department quality auditor visiting a mid-sized oil service company diversifying into federal contracts. The meeting was about issues with the contract they won and touched on others they have bid on. As a side bar at lunch the following points about their main business came up:
- Oil field spending has died. Rig count in the USA is the lowest it has been since 1940.
- One oil rig controller company these folks worked with saw a year over year drop of 72% in its business.
- Another company they supplied had their “Cap-X” budget drop from ~$400 million for 2015-2016 to little over $30 million for 2016-2017.
- One drilling company they supplied went from 120(+) new wells last year to _12_ this year.
- This supplier sold a lot of copper tubing for “frack-log” drilling. That is the drilling of holes in good oil-bearing rock without fracking rock for oil immediately — and here is the new part — to take advantage of a new long-flow fracking technique.