By James A. Gibbs

Clearly, these are boom times in the oil and natural gas business. Individuals and companies are scrambling to glean as many dollars as possible before the party is over. As a lawyer friend is fond of saying, “When it’s raining oatmeal, get out your bowls.”

By almost any measure, activity throughout the country is barreling along at a frenzied pace. According to the Baker Hughes rig count of January 20, 2012, the number of drilling rigs exploring for oil and gas in the United States was 2008, up 296 from this time last year, and up 1520 from the all-time low of 488 in April of 1999. Construction and deployment of new rigs is constrained only by the lack of skilled men and women to operate them. Operators drilling horizontal wells in the new resource plays are finding they often must wait months before equipment is available while prices of fracing crews and other services are increasing as much as 30% each year.

Universities that have traditionally provided the industry with graduates educated in geology, geophysics and petroleum engineering report that classes in these courses are now filled to overflowing, some with waiting lists. New graduates are receiving multiple job offers with starting salaries that seem astoundingly high to us oldsters.

As discussed in previous articles in The Producer, the confluence of new drilling and completion technologies has opened vast areas of the world to the development of petroleum reserves that before were either not known or not recognized as profitably exploitable. In a world whose population strives for improved living standards, hydrocarbons are seen as efficient and reliable contributors to total energy supply.

The combined factors of growing energy demands, declining world oil production, robust current prices, U.S. dollar weakness, anemic investment alternatives and significant cash reserves being held by institutions and investors make investment commitments to energy appealing at this time. As a result, the boom is on.

Since its earliest beginnings, the oil industry has witnessed periods of active expansion generally followed by declines or actual busts. There have been three major ones during my professional life spanning more than a half-century.

Looking forward, we can only surmise what the future will bring. Barring the possibility of a worldwide industrial collapse, nuclear war, or some other natural or man-made catastrophe, it appears that sufficient quantities of hydrocarbons exist and can be produced throughout the world to solve many of humanity’s major problems. Here in the U.S., it is reasonable to assume that the current level of activity in the oil patch can continue for years to come.

Nevertheless, we at Five States are acutely aware that when the music stops, we need to be seated. We spend much boardroom time attempting to look ahead, discussing protective strategies for preserving our gains while at the same time evaluating developing opportunities. For that reason, we have removed much of the risk of future price declines by selling forward much of our future production and locking in attractive prices near current highs, submitting funding proposals to reputable and successful sources, and financing only those projects backed by high-quality collateral.

For the first time in our history, the greatest threat to the industry may not be lack of customers, limited resource base, technological knowledge, equipment shortages, technical difficulties, or capital limitations, but simply governmental policies that are so stridently anti-development, anti-business, and anti-competitive that they impede the ability of businesses to succeed. What a shame it would be for the U.S. to have all the ingredients necessary to produce but lack the will of lawmakers to let it happen.

Here’s wishing you a very happy, healthy and prosperous 2012!