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“Boom town” costs decreasing with drilling slowdown

As drilling rigs are stacked and companies cut budgets, “boom town costs” such as company housing and travel expenses are also beginning to decrease, according to Halliburton President Jeff Miller.

As reported by FuelFix, the executive’s comments are the latest indicator that small towns which saw sudden population growth when oil was priced over $100 per barrel may be in for a downturn as well. Service costs such as providing housing, food and transportation for employees in far removed locations such as the Bakken in North Dakota and the Permian basin in West Texas generally inflate during the boom cycle, Miller said.

During an investor presentation at Credit Suisse’s 2015 Energy Summit in Colorado, Miller stated, “This is something that’s maybe harder to put a pencil on, but it drives a lot of costs when we say, ‘We want to do something right now.’ As the return to normalcy starts to occur, there’s a lot of room to remove costs just from that operating environment.” He added that the natural cutting of the oilfield work force will begin to subside as companies begin to rely on long-term employees that live near the oil producing regions.

Explaining the usual delay between the slowing of drilling activity and the rate at which service companies can trim costs, Miller said, “I’m quite confident there are a lot of opportunities to take out cost, the only issue being they don’t happen instantaneously.” One of Halliburton’s latest strategies is the reduction of spending on the costs associated with boom towns. Also on the agenda is the cutting of up to 6,400 jobs in the first quarter. Due to the dramatic decline in drilling activity, cost cutting has become imperative for a company’s survival. He added, “We believe such a sharp activity correction is a result of the capital discipline that’s become the mantra of the industry and is in the long-term somewhat encouraging.”

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