Continued low oil prices through winter 2015-2016 will bring continued financial difficulty – and with it more mergers and acquisitions – to the U.S. oil patch before price recovery begins by the third quarter of 2016, longtime industry analyst Kent Moors said.
Moors said it’s a mistake to look at the market as a surplus meeting demand collapse, when it’s really a window into a future where other emerging suppliers will continue to challenge the old order where petro-states dominated.
“Traditional analysis does not do much for us any more…For the first time in 40 years, you take the normal supply-demand, and throw it out the window,” said Moors, a retired Duquesne University professor and president of ASIDA, Inc., an international oil and gas consulting firm. Moors was the keynote speaker Wednesday at the International WorkBoat Show.
The surge of American production from shale and other “tight oil” formations has major OPEC producers – led by Saudi Arabia – sticking to a position of not cutting production, in an attempt to wait out the higher-cost U.S. producers struggling with prices that fell below $42 bbl. last week.
“The Saudis decided they weren’t going to cut any more,” Moors said. Intent on maintaining their global market share, such “rentier nations” that depend on hard foreign currency sales of oil are not just in a fight with U.S. competitors, but ultimately others that will use the new drilling technology, he said.
“The Saudis need this as a test run,” Moors said. They are taking some risk in doing it too, Moors added. He told of seeing a new satellite field in Saudi Arabia with 22 freshly drilled wells – 18 of them injection wells to enhance production.
“What that does to a reservoir can’t be good,” he said. “Their battle is not with you, it’s going to be with producers everywhere else in the world.” That’s because fundamental changes like shale gas, liquefied natural gas (LNG) and rapidly falling prices for solar and wind energy are changing the basic energy mix worldwide faster than anticipated, Moors said.
“There’s no nation on earth that will turn down an opportunity to produce more fuel for domestic use,” Moors said. For American companies, that means a future in nations with rich, underexplored reserves like Argentina and China.
“We’re going to provide the expertise and technology. That’s the next big market,” he said.
Of course, Moors acknowledged, the Mideast conflicts as always have potential to trump everything else, should the civil war in Syria expand: “Then we could be talking about $110 a barrel.”