Just like the ongoing political debates have made for good theater the current downturn in the global oil and gas markets have all the markings of a Greek tragedy. Ten dollars a barrel ago or as recent as last November Trent Latshaw, CEO and Founder of Latshaw Drilling, shared in his presentation at the IADC Annual Meeting in San Antonio that the volatility in the global energy market will never go away and provides a cyclic backdrop to the real business of developing and providing for the hydrocarbon thirst in the world. The need for a bottom of this down-cycle and the stubborn refusal of the markets to declare one is unsettling for investors, unhelpful for planners and devastating to thousands of our colleagues who support this industry with their careers and work.
When it will turn the corner is certainly unclear at this time. However the amount of things yet to happen is certainly a much shorter list than 6-12 months ago. The Iranian sanctions are off and their oil is psychologically already in the market, the China syndrome is not the bottom of a nuclear reactor falling out but certainly their economic engine has sputtered and the world has taken note, and the exploitation of the North American shales is in rapid retrenchment, plus many other events all leading to a view that a bottom must be near.
How it will recover becomes very interesting to reflect on as it pertains to North America. Not that we are removed from the rest of the world but given that we were on the verge of achieving a supply/demand balance prior to the recent crash, our recovery is the one to watch. We expect the Drilled but not Completed (DUC) inventory will work off in the next 6-12 months and existing well refracing will simultaneously compete to fill any demand gaps prior to any material upswing in new drills. Because of this the historic tight relationship between new permits and the rig count may be marginally disrupted.
RigData’s US Land Five Year Forecast published last September called for bottoming out in 2016 with a 20 % recovery in rig count in 2017 and another 30 % in 2018. Forecasts are exactly that and actuals will be quite different but given that with the ‘yet to happen ‘list depleting I believe this recovery curve is a good base line to plan around. So finally Trent Latshaw’ s advice to industry newbies remains very true that the energy business is highly volatile but recovery follows collapse and this current adventure will most likely end in this calendar year.