Can we really complain with $70/bbl oil?
I’m sitting at the Galaxy Bar at Schiphol Airport in Amsterdam waiting to board a plane back to Houston. I’ve been here all week attending the European Association of Geoscientists and Engineers (EAGE) annual meeting, and the more people I talk to, the more I feel like whatever weird “doldrums” this industry has entered are soon to end.
Let’s face it — $40 oil is better than $10 oil, and $70 oil is better than $40 oil. And as John Gibson of Paradigm announced during a press conference Tuesday, oil has now pushed through that $70 barrier.
Other companies are similarly “cautiously optimistic.” A contractor that supplies electromagnetic surveys suddenly has a huge backlog of work after going through a very rough patch earlier this year. The seismic industry could potentially be facing another overcapacity issue like it experienced in the late 1990s, but John Greenway from PGS said that the newbuilds coming on the market are so technically superior to older vessels that retiring those antiques will not be a tough decision for the major contractors.
Outgoing EAGE President Phil Christie, scientific advisor for Schlumberger Cambridge Research, said the show had attracted about 5,000 attendees, down about 800 from 2008. Considering that oil prices were probably $50/bbl higher last June than they are now, this does not seem like a significant drop. It could also partially be explained by the fact that the American Association of Petroleum Geologists had its annual meeting at the same time, forcing many of us to choose which show to attend. (If anyone managed to make it to both, I’d like to hear about it!)
Generally speaking, I’d say the mood at the show was quite upbeat. Booths were busy, and technical sessions were often standing room only. Yes, there were the usual murmurs and lousy booth locations, etc. But generally speaking the exhibitors’ take was that attendance may have been a bit lower than last year, but the quality of the visitors to their booths was high.
I would like to invite commentary about a couple of things:
1. Why, when oil dropped to $40/bbl, did everyone act as if the sky was falling?
2. Why, when oil dropped to $40/bbl, did oil companies completely pull back on their exploration spending?
3. Why do the contractors blame the oil companies for not spending any money while the oil companies can’t understand why the contractors are so upset?
To me at least part of a recession is based on human perception and reaction. People get scared and stop spending money. This in turn causes the overall economy to tank. A few pundits out there have been preaching the gospel of going against the grain – spending more money in a lower-priced environment, firming up contracts when the contractors are desperate for business, etc. Overall, though, I think this kind of attitude is in the minority. I hope that shows like EAGE will get people talking to each other, thinking more positive thoughts – and spending more money.
And if you think the oil industry is hurting, look at the publishing industry. Maybe that will cheer you up.
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June 13th, 2009 at 9:23 pm
Nice post, Rhonda.
We (OpenSpirit) showed at the EAGE, but not the AAPG (we are more geophysically focused, anyway). We were prepared for a slow show in A-dam, but our low expectations were exceeded.
Often when attendance is low in meetings like this, the organizers will say that what you lose in quantity you make up in quality. Generally I think that is just foolishness, but this time I think it was true. We were packed all day Thursday, until we had to leave the show floor. And the people coming by were folks who had a mission, and were trying to make decisions. That was nice.
Regarding prices, I believe that what we really need is stability. Sure, $145 oil was nice, but not when you had no idea what the price range would be over the next six months. $70 for a half a year would be great. But even that won’t do much for the North American market, which is still heavily gas dependent.
I guess you can take solace in the fact that while you may be in publishing, at least you are in publishing covering the oil industry.
Good luck…
June 15th, 2009 at 9:53 am
My two pennies worth - personal opinion
1. Why, when oil dropped to $40/bbl, did everyone act as if the sky was falling? - because it appeared to be at the time - after the Lehman Brothers collapse people envisaged a worst case scenario like the 1930’s great depression with mass unemployment and a collapse in demand for all goods and services including energy - the fall from $140 to $ 40 was the largest fall recorded in a very short time - The current situation shows that we are in a nasty recession but not a calamitous depression hence the rise in oil price towards what many commentators believe to be “fair value”
2. Why, when oil dropped to $40/bbl, did oil companies completely pull back on their exploration spending?
- probably for sevral reasons:
- A. see above a fear of something far worse
- B. Some companies mainly independents were dependent on credit to finance their growth when credit crunched so did their spending
- C. larger companies saw their cashflow going down the lavatory hence a knee jerk cut
3. Why do the contractors blame the oil companies for not spending any money while the oil companies can’t understand why the contractors are so upset?
- Contractors cashflow is due to il company spend - it is understanble for them to be angry - The oil companies do understand contractors feelings but are a little miffed at havig to pay what they see as excorbitant prices (market forces guys!) in the last few years - the situation will balance out but unfortunately some contractors may be damaged or even destroyed in the process
I agree that people got scared and stopped spending money - particularly younger members of the public who would not even remember the 1990′2 recession. I would not really blame them. I was personnaly not happy to see Robert peston on British TV night after night
And other industries are hurting far worse then us - retail, motoring, finance etc. - and no schadenfreude does not cheer me up
June 16th, 2009 at 12:34 pm
Hi Rhonda ….
Great article about the do’s and dont’s of Tiger Mike! I was lucky enough to have to track down Dorothy Maguire of the Maguire Sisters doing landwork in late ’70s in the Williston Basin where Mike Davis had conveyed mineral rights to her in the early fifties. Her heirs must be pretty thankful now as there were lots of mineral rights owned in Montrail County ND.
As far as Roger Parker …. well Kirk has now the majority of stock and he bounced him out recently. Looks like he is bringing in his own team. I have a spread sheet of what he owns as far as Delta stock and what he paid for it. There was a running battle whether the spouse of John Wallace (Delta) or Roger Parker would get the most money in a bitter divorce last year. Both had to sell the stock! Delta is about to spud the second well along the Columbia River in the state of Washington. Luckily they were able to get Husky of Calgary to foot most of the bill for the next two wells there.
Thanks again it brought back memories of people I knew who worked for Tiger Mike and got a really good laugh out of the comments in the latest article (June) in E&P. Bill’s was great too I can only imagine all those “not to mention” things we can not say. Keep up the good work!
June 18th, 2009 at 6:56 am
Since the mid 80’s, oil companies economists and CEO thinking became like stock brokers way of conducting buisness, short time profit. That is the reason for the oil industry is behaving like a YoYO.
June 18th, 2009 at 10:44 am
Oil is a resource that is in short supply overall. The oil market I believe is the world’s largest commodity market is crude oil.
The price needs to be sufficient to maintain the world supply of a commodity that is critical to the world.
In the past the world has had a surplus of commodities.
I believe the production of conventional low viscosity oil has peaked. Tar sands, heavy oils, tertiary oils are not conventional free flowing oils.
June 18th, 2009 at 11:53 am
If I were President,,,,,
I would revert the DOE to its original purpose, that is ‘to lessen our dependance on foreign oil’. This means exploring for petroleum, both onshore and offshore, until the US ‘easily’ produces 70+% of our needs, so that we only buy from the international commodities market when we want to and at our price.
I would expose Congressional creation of petroleum recessions every 8-9 years to increase the price of petroleum (1973, 1982, 1990, 2001, 2008), in order to justify alternate forms of energy. Alternate forms of energy are not cost effective, thus justifiable, for general energy production.
I would expose Congressional efforts to limit gasoline refining (30 years since US refinery built), to drive up the price of fuel in order to justify alternate forms of energy. We now import a million gallons of gasoline per day.
I would expose Congressional efforts to develop the all encompassing cap-and-trade tax, with which to tax everything that lives and breathes. Carbon dioxide cannot, thus does not, create global (Northern hemisphere) warming. China, India and Russia are too smart to ‘truly practice’ a cap-and-trade tax, such as Kyoto Accord, and thus, will run circles around us.
I would determine which Congressional members caused the sub-prime mortgage crisis and indict them with this crime against the USA. I would bundle the resulting mortages into a special system and dispose of them, ONLY because Congress caused the collapse. This would free the banks of this Congressional burden.
Finally, I would stimulate the US economy by eliminating the payroll tax (except for SS) for one year, and remove Congress from any form of business ownership or stewardship. Auto companies should eliminate the Union Retirement burdens with Bankruptcy, and address the world market for 300 million new autos by 2015 in China and India.
I would I, if only I could,,,we simply need leadership, not bureacracy,,Buddy