Implications of the Drop in Crude Prices


Sub-$70/barrel oil is rapidly changing the operational climate for US oil and gas production. As highlighted in the December 4th Houston Business Journal article, “Oil price drops means businesses need to mitigate risk now,” a reevaluation of financial risk and mitigation measures is necessary to remain viable and profitable in this new environment. The article focuses at the CFO level of financial evaluation and posed the following hypothesis:

“The survivors will be those producers that are well capitalized and not over leveraged, provided they adhere to good cost control, working capital management, and risk mitigation strategies.”

At Butchko, Inc. we believe that proactive management of Operational and Security Risk is equally important to companies facing this new financial environment. Minimizing security risks and reducing fraud and theft in the oilfield, all have direct benefits to the bottom line. As losses are reduced, margins increase. As the margins get tighter, it is even more important to recognize the threats to your operations and implement protection measures that complement operations and reduce losses.

There are few oilfield locations where this is as true as it is in the Eagle Ford Shale. The region has been a win-win for many stakeholders, including local criminals and international cartels that thrive from product and equipment theft. Cartels and other criminals are not concerned with or impacted by collapsing crude prices. They will continue with business-as-usual to the detriment of industry, landowners, and state coffers. Industry executives are wise to implement a sound security strategy that relies on information sharing and collaboration with law enforcement, landowners, and other communities of interest as well as a thorough review and examination of risk.

A skilled security consultant can assess threats to operations as part of an overall security risk assessment and craft effective and specific countermeasures to mitigate the risks and augment the company’s overall business risk mitigation strategies. Butchko, Inc.’s security assessments are designed to provide specific ROI to business planners, providing a clear “before and after” snapshot of cost savings and value added when risk mitigation measures are implemented in oilfield operations security planning. Industry executives who take these proactive steps as part of their overall risk mitigation strategies will be well positioned to weather the storm of dropping crude prices and come out profitable on the other side.


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