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IHS CERAWeek arrives at an uncertain point in O&G history

Could the debris from an abysmal year for the oil and gas industry be close to settling? Not likely, CNBC reports. With soaring highs in U.S. oil production partnered with OPEC and Saudi Arabian reluctance to curtail production, IHS Inc. vice chairman Daniel Yergin forecast continued price volatility:

“This is a market that’s far from settled down, and it’s a market that’s going to be a lot more volatile. What kind of prices do you need to keep it going? What does it mean when you say the U.S. is the new swing producer? It’s much easier to swing up than down.”

The global oil glut and slump nearly halved oil prices since June—rig counts followed suit. Despite operating with half its arsenal of oil and gas rigs, the U.S. still manages to churn out about 9.3 million barrels per day—just one million less from the Saudi average of 10.3 million barrels.

‘It’s very slushy’

As industrialists stream into Houston this week for the 2015 IHS CERAWeek conference, there’s likely to be a stark contrast in conversation compared to last years’ event, when pricey oil inflated U.S. production.

Though low oil prices drove some companies to cut jobs and budgets, Oppenheimer & Co. energy analyst Fadel Gheit said some companies might be able to maintain profit. ExxonMobile, for example, could see an increase in acquisition options with low prices, and Royal Dutch Shell plans to team with BG Group in a $70 billion LNG deal.

Gheit expects the prices to recover to about $70 per barrel, but doubts they’ll meet their standards from last June:

“Oil prices will recover, but they are unlikely to go where they were before the collapse. Near term, it’s very slushy… but the dust has not settled yet, because the fracking industry is young. It has not gone through a crisis before. Out of the crisis, it will be more grown up, more efficient, more responsible. Lower oil prices will force more discipline. They need $65 oil to survive, not to make money or break even.”

Push to Export

Sen. Lisa Murkowski, R-Alaska and ConocoPhillips CEO Ryan Lance will lead a panel discussion today to initiate the conference. Both have advocated for legalizing U.S. crude oil exports, which currently barred except for certain transactions between Alaska and Canada.

“Repealing the crude-oil export ban is vital to the health of the domestic E&P business and will incentivize ongoing investment by industry,” Land reportedly told the Senate energy panel. “By removing obstacles to investment, we can help protect jobs in this current low-price environment and create significant numbers of new jobs in the future.”

Prepare yourselves: The New North American energy axis

Among the hot topics discussed at this week’s conference, Mexican energy investments will likely turn up in conversation. Canada and the United States already dominate a significant of the North American fuel market, but some analysts believe the addition of Mexico would solidify the trio’s oil independence.

Mexico announced months ago that federally-controlled Pemex would open some of its fields to private buyers. Oil prices, however, have since sullied these propositions. This hasn’t stopped some companies from proceeding with investments.

Black Rock and First Reserve announced plans for Mexican projects in March, citing the market’s promising potential.

“The broad story is Mexico is unfolding, and we have been looking at it for a while,” said Anne Valentine Andrews, CEO for Black Rock Infrastructure. “They’re very interested in doing it with international best practices. They’re very interested in doing it the right way.”

 

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