Big picture concepts have filled my mind lately – I am trying to take a step back and see the whole picture instead of getting too deep in the weeds and isolated details. It made me curious – what is the 30,000 foot view of the state of the oil patch right now?
In sum, overall this year I have seen rising confidence with a healthy degree of skepticism and conservative enthusiasm when it comes to the energy sector. Let’s break down the components from a 30,000 foot view:
After the oil price collapse in late 2014, it seems that the volatility in prices may have reduced somewhat. Oil prices seem to have experienced a “sort of” stable recovery, despite the bumpy ride we saw earlier this spring. By that, I mean we are all counting our lucky stars that we haven’t woken up to $30 oil lately and prices have stayed in the same general range and haven’t caused us too many anxiety attacks so far in 2017.
Indeed, the New York Times published an article by Clifford Krauss this week entitled, “Oil Prices: What to Make of the Volatility” which provides a great primer of current issues and succinctly states, “[t]o be sure, the oil markets could be poised for another wild ride, with Wall Street and academic analysts predicting a price of anywhere between $40 and $70 by the end of the year.” However, the New York Times article notes that we are not out of the woods yet when it comes to volatility: “Wide swings are possible, if not probable. Political and economic upheaval in a major oil-producing country like Venezuela could cause a price spike.”
In Denver, we have seen a visible uptick in land-related work, but many worry that the layoffs experienced in the downturn got rid of many experienced workers, who had to move on to other careers and industries in order to find work. Bloomberg published an article this week entitled, “Fracking Crews Shortage May Push Oil’s Biggest Bubble to 2018” which discusses how oil companies “are struggling to find enough fracking crews after thousands of workers were dismissed during the crude rout.” From this article, it sounds like demand for workers is back up and headed to where it was during the boom.
The number of oil company bankruptcy filings seem to be going down…According to Haynes and Boone LLP’s Oil Patch Bankruptcy Monitor, the most recent version of which as of April 27, 2017 can be found here, as of this time last year, approximately 40 companies had filed for bankruptcy from January 2016 to mid-May 2016. The good news is that according to the Oil Patch Bankruptcy Monitor’s tracking, less than 10 companies have filed for bankruptcy so far in 2017. Similarly, according to Haynes and Boone LLP’s Oilfield Services Bankruptcy Tracker, the most recent version of which as of April 27, 2017 can be found here, the number of oilfield service companies that have filed for bankruptcy so far in 2017 also is down from the same time last year.
From a 30,000 foot view, things appear to be encouraging in the oil and gas sector.