Oil price crash

[Tortuga]

Are there any other AFF's that work in the oil and gas industry? My company seems to be on its last legs and I'm starting to look around and thinking about other industries since this downturn seems like it will drag on for a while.. News and 'projections' by the EIA etc keep getting worse (even though they all failed to predict the crash).

Would love to hear from others in the industry.

 

[UP4014]

Are there any other AFF's that work in the oil and gas industry? My company seems to be on its last legs and I'm starting to look around and thinking about other industries since this downturn seems like it will drag on for a while.. News and 'projections' by the EIA etc keep getting worse (even though they all failed to predict the crash).

Would love to hear from others in the industry.

I'm not in the industry now, but 30 years ago was. All about the cycles, if your company can't hang in there then obviously it's not going ot work for you. I'd guess the price won't bounce back until 2017 and I think 2016 is going to be a rough year for resources while demand flattens.

US companies are better suited to riding the waves as their cycles come around more often than in Aus, so if you're with a American company you might be in a better position.

I'm sure there are others here are are closer to the action than I am now.

Matt

 

[clazman]

What are you chasing?

 

[amaroo]

FWIW, just came back from Norway ... the main topic of conversation with the locals was the mass layoffs in the oil game.

 

[UP4014]

FWIW, just came back from Norway ... the main topic of conversation with the locals was the mass layoffs in the oil game.

Not only is the price depressed but north sea oil is on the decline as well.

 

[get me outta here]

Luckily for Norway, they have a sovereign wealth fund which although also not doing too well at the moment is better than the non existent one that we have.

 

[UP4014]

Luckily for Norway, they have a sovereign wealth fund which although also not doing too well at the moment is better than the non existent one that we have.

They do indeed lead the world in that.

 

[amaroo]

Luckily for Norway, they have a sovereign wealth fund which although also not doing too well at the moment is better than the non existent one that we have.

Future Fund ... better than nothing.

http://www.futurefund.gov.au/

 

[Caversham04]

Are there any other AFF's that work in the oil and gas industry? My company seems to be on its last legs and I'm starting to look around and thinking about other industries since this downturn seems like it will drag on for a while.. News and 'projections' by the EIA etc keep getting worse (even though they all failed to predict the crash).

Would love to hear from others in the industry.

To mis-quote someone, oil price forecasting was invented in order to make astrology look respectable

I work for an oil company - currently having to commute inter-state, and with the ongoing takeovers and mergers in the industry, I'm not optimistic about my role being required for too long.

A lot depends on the level of strategic thinking by management. Some companies have knee-jerked and are laying off indiscriminately, often without even a handover process to capture the knowledge that's being pushed out the door. Others (with more sense) are at least trying to play a longer game - I was told about one small company that apparently asked all of the staff to switch to a 4-day week; in the current environment, that's as close to a win-win result as you could hope for - you keep your job and get an extra day off while the company gets a 20% reduction in salary-costs and retains all of the hard-won expertise and knowledge. Sadly, though, this kind of enlightened longer-term planning is very much the exception to the rule.

I saw an article recently about a recent survey in (I think) Norway. Two key points were:

1. The survey of almost 1000 executives found that reducing the size of the labour force as a cost-control strategy….. [is] a top priority in managing costs.

2. A majority of executives also said they believed the industry was repeating many of the same mistakes made in previous price downturns. The respondents said the industry’s biggest mistake had been failing to consider the impact of losing experienced people when responding to the fall in the oil price.

These lead me to ask the question - is there some kind of course that you have to go on in order to be a senior manager, that makes you incapable of learning from history and / or trains you to be able to believe and do mutually contradictory things without your head exploding????

 

[lovetravellingoz]

They do indeed lead the world in that.

A number of the Arab States have "Sovereign Wealth Funds " too.....though they take a more literal approach to them

 

[kelvedon]

I'm sure there's a few Scots relieved that the independence referendum was defeated in 2014. The politicians are having a field day at the the SNP Governments pre referendum statistical analysis which predicted oil revenues for an independent Scotland would be 6.9 billion GBP

Danny Alexander, the Chief Secretary of the Treasury said in December 2014

"If the oil price stays at $60 a barrel into 2016/17, the revenues for an independent Scotland would not have been £6.9bn but £0.5bn, a £6.4bn fall; black hole barely covers it, it's a sort of gaping chasm. Six and a half billion pounds is equivalent to the total education budget in Scotland,"

The current price for North Sea Brent Crude is close to $30 a barrel.

 

[dajop]

These lead me to ask the question - is there some kind of course that you have to go on in order to be a senior manager, that makes you incapable of learning from history and / or trains you to be able to believe and do mutually contradictory things without your head exploding????

All about achieving short term (quarterly) financial targets, for fear of being punished by investors even more than the punishment already doled out (in terms of stock price). No need to worry about what may happen in 2-3 years time, it's the next 2-3 months that are important.

It's the same in many industries. I'm in the agricultural industry and it's also cyclical, and the same things happen - seen it in 02, 09, and now - always the same, lots of layoffs, then gradual build up again with less experienced staff, then layoffs etc etc as the cycle continues. It's all about quarterly reporting!

 

[Tortuga]

I work in the exploration sector and we have had a few rivals go belly up.. The problem is most work is deep offshore which usually requires higher oil prices. The only exploration work being done is that which has already been committed to under the licensing block agreements. The shale industry seems to be holding on like a pitbull - now days you keep reading articles about break evens in the $25-30 range for some Shale plays. That may be correct for the top operators but it doesn't cover transportation and exploration costs etc.. It also doesn't include future capex for replacing produced barrels. There must be a point sometime soon when production begins to dip at a meaningful level. I feel like the mainstream media loves to offer Armageddon predictions because of the attention it draws.

They say short term oil prices are dictated by politics and long term by the fundamentals.

 

[Caversham04]

...... All about achieving short term (quarterly) financial targets, for fear of being punished by investors even more than the punishment already doled out (in terms of stock price). No need to worry about what may happen in 2-3 years time, it's the next 2-3 months that are important........ It's all about quarterly reporting!

In an industry with cycle-times measured in years or even decades, I accept the need for reasonable levels of financial prudence when the oil price is low but savage knee-jerk cuts every time the oil price falls (simply to please a bunch of wide boys in the city who have a 3-month time-horizon) have the knock-on effect of limiting your opportunities for growth when the upturn starts because you have stopped pushing opportunities onto the conveyor belt - a counter-cyclical approach would be ideal, drilling wells etc. while contractor costs are a fraction of what they were two years ago.

Hats off to people like the CEO of Total, who has apparently stated publicly that he is refusing to make compulsory redundancies as the company will need their highly-experienced technical staff when the next upswing inevitably starts!

As mentioned in my previous post, a survey indicated that "A majority of executives also said they believed the industry was repeating many of the same mistakes made in previous price downturns". The continuation of this argument is that they also repeat the errors made in previous UPTURNS, failing to keep a tight rein on costs and allowing optimistic future oil price assumptions to be used for investment decisions, which then leads to projects rapidly becoming uneconomic when the oil price drops.......

 

[UP4014]

As stated, any business which needs to spend millions and billions needs to make every decision for the long haul. But that is very difficult if you are a listed company.

Matt

 

[Caversham04]

As stated, any business which needs to spend millions and billions needs to make every decision for the long haul. But that is very difficult if you are a listed company.

Agreed, Matt - the fact that the general public and the majority of city investors don't fully (or even vaguely??) understand the timeframes, costs and risks inherent in the oil and gas industry is a major part of the problem. Plus, as mentioned, the fact that management don't seem to learn the lessons of history doesn't help either

 

[Abdul_A350]

It is tough out there at the moment. I sometimes do not understand the hostility towards Gulf states who have been through similar demand-supply fluctuations, and set themselves up for the longer term. Australia has a more diversified economy, too.

 

[UP4014]

It is tough out there at the moment. I sometimes do not understand the hostility towards Gulf states who have been through similar demand-supply fluctuations, and set themselves up for the longer term. Australia has a more diversified economy, too.

I think you'll find hostility to some gulf states is not related to finance, but to equality, democracy and human rights.

Matt

 

[Abdul_A350]

I think you'll find hostility to some gulf states is not related to finance, but to equality, democracy and human rights.

Matt

Nobody is more aware of the problems than we who live there. I do not equate the average Australian to Tony Abbott.

Abdul

 

[vetrade]

Surprised there's been no comment about why prices are down - it's deliberate oversupply by the Saudis etc - they know that as comparatively low cost producers they can force the oil price down to levels that are below the costs of production of most of the US producers. They want to drive those producers out of business and they can easily go to around $27 to do it. It's especially a reaction to the US becoming much more self-sufficient in oil in recent years as a result of techniques for shale oil extraction. Because a lot of the shale producers are relatively new many have significant borrowings they need to service which puts more pressure on the margins they need to maintain.

An interesting fact is also that since around 1900 there have been significant stock market downturns every 7 - 7.5 years. In all bar 2 of those falls the price of oil has dropped by 30% or more in the lead-up. Everyone remembers the 1987 crash and then in '94 we had a bond market crash. The last crash was 2008 so it's no surprise that for 2015/16 oil prices have fallen and our stock market hit it's lowest level since mid 2013 today. Futures markets are at a near maximum discount to the "cash" price and there's rumblings that Deutsche Bank might have big problems. Then there's talk that Lloyds could be exposed to the heavy shorting of Macquarie who's share price since the start of January has dropped around 30%.

I think the bottom line is that emerging financial sector problems could impact the oil industry secondarily. If things don't stabilise in the next 2 - 4 weeks watch out.