Chris B

Does Precision Drilling Belong in Your Portfolio? (Part II)

Why is it that this website spends hours examining the most hopeless, speculative companies, while overlooking the better investments? I mean, I gawk at car wrecks too, but this is ridiculous. How many articles do you see about longshot cases such as C, BAC, WFC, GS, JPM, GM, F, etc?

Why aren't we analyzing BNS, USB, RIG, VLO, HMC, TTM, TMB, AMX, EWY, EWZ, EWA, NFLX, RHT, ORCL, etc? Why spend hours examining the companies that won't survive this recession? Are we investors, or gawking bystanders?

Seven Ways to Play Both Oil Scenarios

"Well, they are not doing that. Production is still at 99.6% of what was pumped at June’s record highs. The question is why."

The difference between fixed and variable costs is the reason. If you've already built an oil well or rig, you have to pay the fixed costs of interest, depreciation, insurance, etc. even if you shut the pump down. Your variable costs can drop if you shut down production, but this is a minor part of your expenses.

Suppose your rig can produce oil at $60/bl and your fixed costs are $50/bl and your variable costs are $10/bl. With oil selling for $30/bl, you lose less money by pumping oil (30-50-10= -30) than you would if you shut down (fixed costs only = -50). When everyone does this, supply stays inelastic despite violent price swings.

New exploration & development has almost completely shut down, so global production totals through 2009, minus actual OPEC cuts, would be an accurate and interesting measure of deplection. I hope someone is studying this.