Insiders say $50 Oil May Cause a Floodgate of Activity

More rigs and better cash flow will be the outcome of higher prices.

More drilling and improved cash flow will occur when, according to BP Plc, Nabors Industries Ltd., and Pioneer Natural Resources Co., oil reaches or rises above $50 per barrel.

Based on Ship & Bunker data, $50 Brent would put the Global Average Bunker Price at $260 per metric tonne (pmt), up from Wednesday's $230.50 pmt.

Bloomberg notes that the $50 mark has been mentioned by all three firms within a 24 hour period this week: Nabors, which owns the world's largest fleet of onshore drilling rigs, said it has been talking with several large customers about plans to boost work in the second half of this year if prices rise "comfortably" above $50.

London-based BP said it will balance cash flow with shareholder payouts and capital spending next year if oil hits between $50 and $55 per barrel – instead of the $60 it had previously cited as the necessary threshold.

In an earnings statement released this week, explorer Pioneer says it will add up to 10 horizontal drilling rigs when oil reaches the magic $50 mark – as long as the outlook for crude supply and demand is positive too.

But these aren't the only companies waiting for oil to reach $50 per barrel: last month Jack Stark, chief operating officer for Continental Resources Inc., said upon that threshold being achieved he too would consider adding more rigs, explaining that for every $5 that oil rises above a $37 baseline, his company adds about another $200 million in revenue.

Still, the spokespeople of these companies said they would move forward cautiously rather than react to price spikes, and this sentiment was echoed by Fraser McKay, vice president of corporate analysis at Wood Mackenzie, who told Bloomberg "It's not just about touching $50, it's about touching, maintaining, and having the perception of future prices above $50 a barrel before you start sanctioning projects that are economic at $50 a barrel."

Oil at $50 has become a mantra in analytical circles: in March, Gary Ross, founder and executive chairman of PIRA, cited the figure as something that would be achieved by the end of this year, and the International Energy Agency believes it will be the norm through to 2020, when the price will escalate to $80 per barrel.