Joy To The Oil & Gas World

This holiday season is the most jolly in years for the oil and gas business. It finally feels like the tide is turning on many fronts.

One Year Ago, We Predicted Everything Would Bottom In 2016

Exactly one year ago, we wrote the following outlook for another shop:

As realists, we have every reason to believe that 2016 will be just as difficult as 2015, if not more so. But in the oil business, the one sure thing is change. Change in 2016 means conditions will stop deteriorating. Virtually every economic metric used to measure O&G should trough in 2016, for declines cannot be infinite. Oil prices have fallen by $72 since the 2014 peak. That fall magnitude is double the current price of $35, which is below break-even for many new projects. On an absolute basis, little downside remains. Likewise, the 1,135 US land rigs that have gone idle are nearly double the 684 still working. No major US drilling collapse has lasted more than 2 years in O&G, including during the 1980s. A recovery is not in the cards for 2016… but things will stop getting worse soon.

In the same 2016 prediction piece one year ago, we also said that uncertainty would fade, all upstream markets would tighten, and doors would open for innovators.

Cheer Returns As 2016 Fades

As we sit here a year later, our “everything will bottom in 2016” prediction played out almost exactly as expected. To be sure, the industry is still in pain. But the oilfield segments still in decline are starting to be outnumbered by segments entering recovery mode.

We hit the bottom this year, across all upstream facets. Dragging along the bottom as we are now sure feels a lot better than sinking. And finally, for the first time in two years, incremental datapoints are increasingly positive. 2017 will be a year where pockets of the industry start to grow again and others start to see the light at the end of the tunnel.

From Washington to Houston to the field, positive headlines are filling industry news pages in December. With the US holiday season getting underway, we are taking a minute to recap some of the larger gifts the industry has received as 2016 draws to a close. So break out the egg nog and enjoy some good news for a change!

1. The new US Secretary of State understands our business better than any Secretary in US history.
2. The US rig count is bucking seasonal norms, drill baby drill.
3. This industry has a hard time with change, but innovation is en vogue now. Nabors sounds like a Silicon Valley firm, and Tenaris is reinventing their OCTG business model.
4. Distressed oilfield equipment valuations are staging a recovery.
5. Frac IPOs are back (Keane filed this week and Smart Sand priced last month). Hard to believe when you think about the pain in this sector over the past few 24 months.
6. An industrial giant sees an O&G future bright enough to justify billions in new investments in the service sector.
7. We are more worried about bottlenecks now than further contraction. High class problem.
8. Renewables stand to lose share to fossil fuels as the US Energy Department appears headed for an about face.
9. US producers have revolted against low oil prices. They are figuring out how to survive in a lower-for-longer scenario.
10. The industry as a whole may not enjoy a V-shaped recovery this time, but the Permian will. It’s white hot.

There’s a lot more to this story…

Login to see the full update…