PESA Energy Connection Magazine, Issue 2

Page 10

MARKET OUTLOOK/

That Escalated Quickly THE RECENTLY (HEAVILY) REVISED 2020+ ENERGY OUTLOOK By George O’Leary, Managing Director, Oil Service Research Tudor, Pickering, Holt & Co.

I

t seems that there’s never a dull moment in the oil patch, and 2020 has certainly hammered that reality home. Just as upstream companies appeared to come to terms with the new paradigm that was created by a seemingly interminable ~$50-60/bbl WTI crude oil price world, COVID-19 fears and the OPEC+ train-wreck coalesced to form the perfect storm, thereby sending WTI crude oil price careening down <$30/bbl. At these price levels, full-cycle economics simply don’t work for most global reservoirs. So, what will or should oil companies do now? Our crystal ball is admittedly murky today, but that’s nothing new as our prognostications on the future of oilfield activity, pricing and earnings have felt a bit like the famous “Mr. Toad’s Wild Ride” for much of the last six years. However, we do believe sunnier days sit on the horizon as supply/demand dynamics eventually improve. However, before we peel back the onion with respect to how 2020 and 2021 may unfold, let’s a take a little trip down memory lane.

share of issues through time, but a lack of ingenuity and technological prowess isn’t one of them. Energy companies deployed early learnings from places like the Barnett and Haynesville in oil plays like the Bakken and the Eagle Ford. During most of the 2008-2014 timeframe, times were good in the oil patch as OPEC supported $80-100/bbl+ crude oil prices. As such, capital flooded into the space and companies were generally rewarded for growth above almost all else. But that wouldn’t last forever.

“ We firmly believe

In late 2014 and in a fashion somewhat similar to the recent turmoil, the world got flip-turned upside down as OPEC decided they’d ceded more than enough crude oil production market share and opened up the production taps. We entered a painful multi-year downturn, but most energy players and investors assumed that we’d eventually see a traditional, powerful oil and gas upcycle as global decline curves kicked in. Given these optimistic views, capital markets were accommodating, and investors generally supported the space, which limited the impact on upstream industry participants.

we’re positioned for notably better days in the energy patch over the long term.”

U.S. onshore shale emerged onto the scene as a true potential driver of hydrocarbon production growth in the mid2000s, as oil and gas companies proved that these tight reservoirs could be economically exploited by horizontal drilling coupled with hydraulic fracturing. Our beloved industry certainly has encountered its fair 10

Energy Connection/Q2 2020

We’ve been head-faked multiple times since late 2014, thinking that crude oil prices were set to recover and the energy industry might rebound over a multi-year period, only to have those hopes dashed as oil supply growth exceeding expectations tended to drive lackluster crude price and energy equity performance. By late 2018, investors truly and loudly began to bang the capital discipline,


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PESA Energy Connection Magazine, Issue 2 by PESA - Issuu