Did We Get it Right this Time?
Mar 4th, 15
From a Publication: GEOLOGIC News A Message from the President: Hal Miller 1st Edition 2015
Anyone who works in or follows the oil and gas industry knows that our business is cyclical and high price environments do not last indefinitely. Despite the surprisingly precipitous price drop over the past several months, those of us who have been around for a few decades recognize the symptoms that accompany a price slump: restricted budgets, falling rig counts and staff reductions for example. This will come as a rude shock to those who have only recently joined the industry, but it is in fact commonplace in our business.
Remember the bumper sticker asking for one more boom and promising we will get it right this time? I think we can argue that the industry did not squander the past five years of strong prices. The vast improvements in expensive drilling and completion technologies that have opened the unconventional reservoir opportunities and deepwater environments around the world would not have happened, or at least not progressed as quickly, if 2009 prices had prevailed over the intervening years. Now the resulting dramatic increases in supply, even in the face of many potentially destabilizing geopolitical risks, are impacting the price to the detriment of the industry but to the benefit of the world’s many struggling economies.
As we have seen before, the dropping price environment began while the lagging cost cycle for oilfield services was still on the upswing. High demand for rigs and services results in equipment and manpower shortages, rising costs, and inevitably project delays and cost overruns. There is no countering the law of supply and demand, and there are voices in the industry suggesting that this correction is not just inevitable but necessary to bring costs back into line.
From the people perspective, the industry has been a significantly positive factor in offsetting unemployment in the US and around the world. Interestingly, the expansion of the industry was not the only driver this time, with the looming demographic factor known as the “Great Crew Change” forcing the industry to bring in new talent before the vast reservoir of knowledge residing in the “Baby Boomer” generation retires. Fifteen years ago it was primarily the majors, large independents and large service providers doing most of the hiring on campus. Today the hiring, driven by the Crew Change, spans companies of all sizes. Hopefully the industry will maintain steady hiring practices and continue to support the departments that are turning out high quality recruits.
The consulting business is often the “canary in the coal mine” during industry contractions. Companies release contractors as one of the first steps towards cost reductions. Staff reductions have now followed, adding to the “natural” attrition that occurred during 2014 through retirement of the baby boomers. Some companies are offering enhanced retirement packages to reduce staff from the top of the experience (and cost) ladder. Any acceleration of this drain on experience will be especially painful as the industry desperately needs mentors for the expanded ranks of millennials.
Consulting has in times past experienced a rebound effect when companies reduced staff but needed to backfill the ranks to get the work done without hiring new employees. Highly experienced and recently retired consultants are a great interim solution to making sure projects stay on track, not to mention continued mentoring of new professionals who will be desperately needed when the price inevitably cycles back up again.
Oil is the New Gold
Aug 25th, 11
Since OPEC has set $85/bbl on oil as the new benchmark they use to price their oil, investors should pay attention to owning oil as a commodity in the ground and ride the ever-spiking upward trend of pricing over the next 10 years. The new post-meltdown of the global economy has given rise to crude oil as "the new gold". Since 1859 oil has enabled and defined our economic, social and political landscape. Throughout this time, abundant supply ensured low, stable prices and the inner working of the oil industry remained relatively obscure. Following a century and a half of relative calm, oil prices have become much more volatile as the sustainability and growth of reliable supply sources have been brought into question. Prices are no longer determined by supply and demand, but rather by daily global wholesale oil markets. Oil prices cannot stabilize without the dramatic action on the part of both government and business. Changes have taken place in the oil markets during the past twenty years, and particularly the last five, as investment banks, energy hedge funds, and managed futures funds have come to dominate energy trading and wreak havoc on global oil prices. The world has moved towards an oil environment defined by volatility. Traditional pricing mechanisms will no longer govern the oil market. The new international oil environment of increasing consolidation and decreasing competition allows investors to navigate price volatility and accept the market price of crude is only headed in one direction---upwards.
Larry Milnes, Eno Petroleum Corporation
Comfortable With High Oil Prices ... by Sam Fletcher
Jun 14th, 11
A savvy investor in today’s market finds little solace in researching where to place hard earned investment capital, and even less direction relative to balancing a portfolio. Traditional considerations and applications run rampant across the board while very few targets provide multiple advantages worthy of catching one’s attention. This article suggests a long awaited line of resistance definition for those seeking prudent insight as to the “new benchmark” OPEC is using for its budget, or in short --- “the bottom line OPEC is willing to accept for crude oil”. This is good news for all concerns as it stabilizes the market. Only the much higher range of pricing, say above $115.00/BO, will awaken the high volatility. This opinion when added to the tax advantages for direct oil and gas drilling investments somewhat “close the loop”, at least for now, and solidly bolsters oil and gas investment opportunities as the number one investment and tax shelter in these troubled times. Crude oil as the global currency is here to stay.
Larry Milnes, Eno Petroleum Corporation
KPMG: Most oil execs expect 2011 oil prices to exceed $121/bbl
Jun 1st, 11
A majority of oil executives are predicting that oil prices will exceed $121/bbl for the rest of this year. They cite regulation, geopolitical concerns, and supply disruptions as well as escalating energy demand as the drivers of this price issue. These executives also see an increase in capital spending and hiring as positive indicators for the energy industry and economy as a whole.