Dear friends, welcome to the December/January double issue of BIC Magazine. We work in a very complicated industry that is very competitive globally. We have to compete with the Saudis and Chinese for every major industrial construction project, and most every commodity market is no longer regional but truly global. However, America and the Gulf Coast in particular are positioned like no place else in the world. We have many advantages, such as abundant capital, great education, a motivated workforce, existing infrastructure, a diverse economy, free markets, etc.
No doubt the unprecedented expansion in the chemical and refining markets, as well as the increase in the midstream pipeline and storage projects of the last several years, are due to the most important blessing: We are “shale-enabled.”
However, despite all this success, those closest to the shale have been in tough times. We are coming out of the biggest oilfield recession in a generation. I don’t have to tell you, dear reader, since the downturn of oil prices, U.S. production and rig count are down. We live in a cyclical industry, and we aren’t going to turn it around overnight. There will be hard times ahead for many of the service firms in the E&P sector as the operators seek to establish a new norm in pricing from key suppliers, but I believe we have hit bottom and are turning things around. Technology, leadership, ingenuity and free enterprise will drive success in the future, as they have in the past.
The recent $50-per-barrel mark has brought some optimism after plummeting to $26 a barrel early in 2016. As a reflection, the rig count in the U.S. has risen steadily since May, when only 404 rigs were active compared to 570 in November. U.S. E&P companies are expected to hike spending in 2017 by 25-45 percent if crude prices hold at $50 a barrel. This kind of resurgence is what these major service firms are expecting and would be a key turning point.
Witness recent news from the three largest oilfield service firms: Schlumberger, the world’s largest, has announced it is expanding in the U.S., bringing what it calls the “Rig of the Future.” It is always a large investment and a risk to introduce new technology in any market, especially a soft one, but as Schlumberger CEO Paal Kibsgaard proclaimed, “The period of oversupply is over and market sentiment should soon change, paving the way for an increase in oil prices.”
The second-largest oilfield services firm, Halliburton, recently reported a relatively small profit for the first time in a year. The third largest, Baker Hughes, announced a merger with GE Oil and Gas. Analysts seem to universally laud the move.
Crude prices could stabilize even higher if Saudi Arabia and other major oil-producing nations resume their role of market management. They have a tentative deal to reduce production by as much as 750,000 barrels a day, but I doubt they have the trust and discipline to implement the plan.
One thing is for certain: The OPEC’s (and specifically Saudi’s) recent strategy of protecting market share by producing low-cost oil has hurt OPEC nations more than it has hurt the U.S. The old paradigm under “peak oil” theory was the cheapest oil was produced first, and extraction costs only rose as the remaining oil was harder to find and get out of the ground. U.S. shale producers, however, have learned to produce more and more oil and gas from smaller and smaller investments, busting the previous norm. Furthermore, U.S. oil and natural gas companies have drilled thousands of wells that are ready to produce but are merely “on hold.” The industry calls them “drilled but uncompleted” wells, or DUCs. There are more than 5,000 DUCs in the U.S. that could be brought into production as soon as companies that own them decide oil prices are to their liking.
Another factor in the success of U.S. energy is the recent lift of the ban on crude exports. It is too early to see resulting trends as there is a long lead time to setting up these contracts and logistics, but the U.S. Energy Information Administration has reported an increase of 9 percent in exports of U.S. crude in the first five months of 2016, which is the most recent data available. U.S. shippers found customers in 16 countries in the short year since the ban was lifted. This increase I find remarkable as it occurred during a period of decreased production and relatively small price spreads between domestic and international oils. This demonstration of ingenuity, technology and free enterprise shows our energy markets will thrive over the long run, notwithstanding bumps along the way.
In this issue of BIC, we share with you many examples of ingenuity, technology and free enterprise through articles focusing on advanced work packaging, meeting global LNG demands, petrochemical opportunities, procurement best practices and business continuity plans in disaster scenarios. As always, we also feature insight on increasing safety, productivity, and turnaround knowledge.
Be sure to look for our interview with Arkema Inc. Clear Lake Plant Manager Brian Wilson and a special pullout wall map of Texas industrial facilities.
We want to take this opportunity to again thank our readers and BIC Alliance members for your continued support as we reach the end of 2016. We look forward to a prosperous 2017 for all! Let’s begin by sharing the good news contained in this issue of BIC Magazine and others with our colleagues, friends and family.