February 2016

First oil

Adjusting to the new upstream realities
Kurt Abraham / World Oil

As you may have noticed, either by looking at this page or “The Last Barrel” column on page 94, we’ve made a few changes around World Oil since the January issue hit you a month ago. But not to worry—more than ever, we remain committed to delivering what we believe to be the industry’s highest-quality publication, devoted to upstream technology and related management issues.

In addition to yours truly taking over this column, the final page of this magazine is now in the capable hands of our associate editor, Roger Jordan. And, just out of the starting gate, he already has been faithful to the spirt of that page’s robust, but authoritative editorials. So, please go to the inside-back cover and give him a proper read, as he discusses the latest U.S. governmental foolishness that could cost the E&P industry dearly.

A new era. It is an honor and privilege to now be captain of this ship—World Oil—particularly in this, the 100th anniversary year of the magazine, as well as of the company. And it’s certainly an eventful year for the industry. As our 90th Annual Forecast in this issue indicates, it is going to be a very difficult year for the E&P industry, with many new realities to which it must adjust. Indeed, we are in the middle of what will be a historically low drilling year in the U.S and Canada. By comparison, Saudi Arabia is one of the few places, globally, where rig count is on the rise.

We have seen the futures price for WTI and Brent crudes dip below $30/bbl several times since mid-January 2016. And, as this issue finally goes to press, it doesn’t look like any relief from severely depressed oil prices is in sight. From this editor’s vantage point, there seem to be only two remedies to low prices, other than waiting for supply and demand to somehow, magically, go back into balance. Either the Saudis and Russians are going to wake up one morning and realize that they’re doing as much damage to themselves as they are to everyone else, and thus cease their over-production, or one of several regional confrontations around the world is going to expand into a larger war, which will put a floor underneath oil prices.

Innovation awaits. Meanwhile, the equipment/service sector has been pummeled with firms shedding workers, while scrambling to meet customers’ needs and still maintain some form of margin. The one shred of good news is that slowly but surely, just as happened in the 1986-1987 downturn, necessity will jump-start a new, global wave of technical innovation, often with service companies and operators working together to bring about new technologies. Already, we are getting indications that among the new wave of enablers will be artificial intelligence, “Big Data,” and predictive analytics. In turn, technologies using these enablers will drive automation and cost reduction. 

Finally, due to us being a bit late in finishing this most difficult of forecast issues, the U.S. presidential season already has passed through Iowa and New Hampshire. Thus, we know that Hillary Clinton and Bernie Sanders remain in at least a temporary dogfight. And on the Republican side, at least five main survivors—Donald Trump, John Kasich, Ted Cruz, Marco Rubio and Jeb Bush—have soldiered on to South Carolina and Nevada.

Meanwhile, continuing to work on the final year of his anti-oil-and-gas agenda behind the cover of a presidential campaign, Barack Obama made one of the more incredibly stupid moves by a sitting President, when he issued a proposed budget that would levy a $10.25/bbl tax on oil, that would transfer $32 billion/year to the federal Treasury. This editor need not go into all the reasons why this is an incredibly bad idea—all of you, our very knowledgeable readers, can already recite them, ad nauseam. Yet, this proposal is so bad, that it prompted billionaire T. Boone Pickens to label it “the dumbest idea ever.”

Fortunately, Obama’s proposed budget and tax are likely “dead on arrival” in the Republican-controlled Congress. And for that, we should all breathe a sigh of relief. wo-box_blue.gif 

About the Authors
Kurt Abraham
World Oil
Kurt Abraham kurt.abraham@worldoil.com
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