NEW YORK (Real Money) -- Sometimes it's gut-wrenching to watch and read the coverage of the oil patch now that oil's coming down. It's frustrating, because the pundits commenting on it are new to the game and seem to have no idea of the gradations, the shales, the budgets, and the way these companies are run.
First, these companies all have different strategies. The majors, companies like Exxon Mobil (XOM) and Chevron (CVX) , have drilling budgets that can't switch on a dime, or a quarter or a dollar even. They need to be thinking of production growth in 2019, at least a five-year plan.
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Maybe they won't bid on some expensive projects, particularly in volatile areas where investments can be expropriated by punitive governments, but they don't really want to cut long-term investments. They have to continue to at least try to reach production growth in the out years because, in the end, they won't sustain their businesses without it.
In other words, the price of oil day-to-day isn't all that important to them. They may have to trim the fat because things aren't as robust, but the long-term drilling program itself isn't all that impacted.
On the other hand the major independents, the really lean, well-run companies that we know as EOG (EOG) , Concho (CXO) , Anadarko (APC) , Apache (APA) and Noble (NE) , are fabulously run by very smart people who really have their pulse on the huge shales in this country. They are nimble and they, for the most part, do not have worldwide ambitions. Indeed, many have scaled back their foreign operations, making their companies more predictable. Witness the reduction in risk that Apache has put into place since Egypt became so volatile.
These companies tend to be the most forward-looking in the embracing of technological advantages that the current drilling and servicing companies offer. They have been much more savvy for what they paid for their acreage. They know the territories and know where to drill and not to drill, so the dry hole issues of the past are not a factor.
That's why, by the way, it is so hard to pin down the actual cost per well. If every well's a home run and you don't have a lot of exploratory disappointments, a la EOG, you have a company where a plunge from $100 to $75 means much less than you think.
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