Spring is Nigh?

The long road to recovery
This article appeared in February, 2017


There seems to be a distinct air of optimism developing in the oil and gas industry since we turned the corner into the new year. Faint buds of hope and indicators of new growth are beginning to show, the oil price has stabilized, albeit around $55 rather than the over $100 it was a few years back, and the US rig count rose by 17 in the first week of February, 27% higher than it was in 2016*. Even exploration in the highly expensive Arctic has had some boosts. Some, though not all, oil company results for the last quarter of 2016, while not rebounding strongly, showed promising indications that the slump may have bottomed out. 

There are also indications that oil companies of all sizes are beginning to raise their heads above the parapet and think about exploring again, realizing that, with the 2016 replacement ratio for liquid hydrocarbons falling below 10%, they have to start finding more reserves. To help them do it, we now have a much leaner industry, with a strong emphasis on cost efficiency, the application of integrated new technologies and ‘doing more with less’. This means that in places like the US Permian Basin, exploring for oil should now be profitable even at today’s crude prices. 

But have we learnt any lessons, or will we keep on following the boom and bust cycles? The jury is out: if we scurry to increase the pace of production too quickly, we risk increasing the supply glut which was at the root of this downturn. OPEC members appear to have stuck to their self-imposed reduction in output so far, but in December 2016 Russia is reported to have had its highest monthly production for 30 years. Already, into just the second month of 2017, the oil price has taken a couple of knocks on hearing that crude stockpiles continued to build up in the US. 

We still have a long road ahead of us.

* Baker Hughes


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