The New York Mercantile Exchange (NYMEX) predicts that WTI crude oil will remain below $80 bbl. through 2022. The U.S. Energy Information Administration says it may break the $80 mark a year earlier. Either date is a long time for an industry in disarray.
Walker Moody, chief operating officer for asset management at Houston’s Tudor, Pickering and Holt Co., put it succinctly at Rice University’s Baker Institute in late September. “It’s ugly out there, and the duration of the downturn is causing more distress within the industry, and more angst within the investment community, than we have seen in a very long time.” The distress and angst was detailed by Chris Tomlinson in the Houston Chronicle. He noted that during the second quarter, “77 percent of energy companies in the S&P 500 cut capital expenditures, spending 23.8 percent less than they did during the same period in 2014.” More deep cuts are expected next year.
The implications for the oil and gas industry are devastating. Many companies are now showing negative balance sheets, paying more in debt service than the revenue they generate. Access to credit has, more or less, dried up. If the oil and gas industry remains in the current low price scenario longer, a third to a quarter of the industry could go bankrupt, said Moody.
The bottom line is bleak. A comparison of WorkBoat’s August 2014 and August 2015 day rates show that rates have dropped 15% for OSVs over 5,000 dwt, 25% for OSVs from 3,000 to 3,999 dwt, and 37% for OSVs below 2,000 dwt. With another 10% drop in spending predicted for next year, it will only get worse.