Progress Report

Progress Report

When oil prices rise, the temptation to spend like there’s no tomorrow can severely stress oil service companies when prices fall. Some do not survive. During this recent period of rising oil prices, Geo. N. Mitchell Drlg. Co., Inc. (GMD) chose to grow cautiously while continuing to progress competitively…because low oil prices are like winter. Nobody likes it, but sooner or later it’s going to come.

And the winter came in 2015.

Rampant drilling and leasing activity in the Illinois Basin over the past few years stimulated investments in exploration and production. Shale players were fueled by investors because the return on investment was the best thing going.  Although not the boom that was expected, oil prices made up the difference averaging $100 per barrel which encouraged new business opportunities. GMD drilled 266 new wells in the period between 2013 and 2014. According to Scout Check, a total of 1294 wells in 2013 and 1564 in 2014 were completed in the Basin.

To continue to offer our clients the best in the Basin, GMD fourth generation Ryan Mitchell (ME 2009) spearheaded the capital investment of a new (not refurbished) rotary rig in 2014. Rig #21 is a “new tool in our shed” with advanced technologies and additional capabilities. It is the most advanced, high-tech rotary rig in the Basin.

Customized to GMD’s specifications and with safety at the top of our list, Rig #21 has a spacious drilling floor which means a safer work environment for our crews. The substructure raises and lowers hydraulically decreasing the time for rigging up and rigging down.  Rig #21 can be transported in only 15 loads which is a decrease in mobilization costs. Our newest rotary moves GMD to new depths, 13,000 to 14,000 feet, and in new orbits for horizontal drilling. Rig # 21 is our fifth rig in the GMD fleet.

We also increased our service rigs to seven with the addition of two new spudders. These additions helped to meet the increased demand for well services and completions. GMD is the only local drilling company adding new work-over rigs in the last three years. A new Mack Titan was also purchased and added to our fleet. It will accommodate longer and heavier loads.

GMD is fortunate to have Carl Julian leading our drilling managers and crews. He is one of the most respected and experienced superintendents in the Basin. On a sad note, we are heart-broken to see one of our longest and most loyal employees, Ron Murdach, struggle with lung cancer. Ron never missed a day of work in his long career with GMD. Sadly Ron passed away February 1, 2015.

The winter of 2015 began with oil prices diving 60% from $100 to $41 a barrel. Drilling and investment activity came to a screeching halt. Having been through four oil price dips in my 45+ year career, we knew the freeze would come, but no one expected prices to fall so fast in such a short amount of time.

Like any commodity, there was a surplus of oil world-wide – and what goes up, must come down. It’s possible that by the middle of this year, the surplus of oil may tighten again because the world is consuming more oil than it ever has.

Under the financial acumen of our CFO, Ron Wooten, winter will turn to spring, and Geo. N. Mitchell Drlg. Co., Inc. will survive and move forward as we have since 1939.

Chris Mitchell
President
George N. Mitchell Drilling