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Prices Stabilized

Executives and Key Officials Agree Oil Prices Have Stabilized.

            A recent wave of comments by oilfield services executives and high ranking officials seem to point to stabilization and a beginning of an oil price recovery.

            Speaking at the West Coast Energy conference two weeks ago, executives for Schlumberger and Halliburton detailed their views of current market conditions.

            Schlumberger’s Patrick Schorn, President of Operations, stated he view that 2Q is the “final approach” to the bottom of the market. He further stated that: (1) drilling revenue is expected to decline 20% and (2) production is expected to decrease 10%. He believes Cameron’s revenues are expected to be down slightly in 2Q. While Schlumberger sees pricing pressure because a significant excess of service equipment will continue to limit earnings until 2017, they also believe rig counts in North America have stabilized at a level 80% below their peak of October 2014.

            Halliburton largely concurs with Schlumberger. Mark McCollum, Chief Financial Officer, addressed current market conditions. Specifically, Mr. McCollum stated, “We think at this point in time in the cycle the market itself will be – we're coming off of the bottom and we feel like we [are] kind of the bottom at least in North America and approaching a bottom internationally. But that the recovery itself is going to be a lower slope recovery than maybe some others have been.”

            Speaking further about the recovery, Mr. McCollum noted, “And in that regard, it's probably not to going to be a straight line for the fact that this was a supply based downturn that you have a relatively low demand growth overall and the fact that North America is also now the swing producer in the world with relatively little energy policy and a free market and a lot of access to capital that the recovery itself may be somewhat choppy, because you have shorter cycles here, that as your best foot comes in prices modulate around the supply/demand equation.” Mr. McCollum noted that the result is that unconventionals in North America become the first movers and the swing barrels. Notably, he further indicated that such a structure emphasizes already developed fields while Deepwater exploration and production continues to suffer from a disadvantage over the coming years.

           

            It does appear that Halliburton maintains a conservative view of the price needed to encourage a significant increase in activity.   Specifically, while Halliburton believes $50 to $55 a barrel will coax some people back into the market, a significant recovery will not occur until we see $60 a barrel or higher, an event they forecast for 2017. However, Halliburton did note that while we will see some uptick in the US market, the international market tends to lag the US 6-9 months in recovery and they expect to see nothing different in this downturn.

            Shortly after these comments, on June 23, 2016, Saudi oil minister Khalid Al-Falih said he believed the oil glut is over. He further stated that over the long-term, he expects the oil market to grow, not decline, and that even if overall demand as a percentage decreases, the total demand will increase thereby growing the market.

            Al-Falih further signaled that Saudi Arabia would like to see the current balance maintained, and therefore it is unlikely that they will raise production to cause a further decline in prices. According to comments carried by Saudi state news agency SPA on July 4, 2016, the newly appointed Secretary general of OPEC Mohammed Barkindo shares similar views, believing that global oil markets are heading towards balance and prices are starting to stabilize.

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