Posted by News Express | 21 October 2015 | 3,234 times
The clock is ticking for oil companies.
The precipitous decline in the price of oil has crushed profits across the industry, and many drilling projects are expected to hemorrhage money until prices and costs can reach some equilibrium.
Dave Lesar, CEO of the oil-services giant Halliburton, believes that a "day of reckoning" for these companies is quickly approaching.
Fluctuations in production activity continue to create volatility in the oil markets. Lesar, however, thinks it's only delaying a period of big changes for the business.
“I think we just got to wait,” he said in Halliburton’s quarterly earnings call Monday. “These redeterminations are going on. And it looks, generally to me, like it’s a sort of kick-the-can-down-a-road approach that's being taken at this point. But that really just pushes the day of reckoning into sort of the first quarter of next year.”
Lesar sees three types of firms revealing themselves when that time comes: those that are getting ready to get back to drilling; those that need to wait for prices to go up a little more; and those whose luck has run out and who could be acquisition targets for stronger firms.
Here’s Lesar’s breakdown. Keep in mind the customers for Halliburton’s products and services are the drillers themselves:
The idea is predicated on the notion that most drillers are pausing or slowing down production — as shown in the multiweek decline in the Baker Hughes rig count — and waiting for this to cause a supply shortage and improve the price.
The number of active oil rigs in the US has collapsed amid low prices.
Some firms, especially those called “unconventional” drillers such as independent frackers, have loans out from banks that are reconsidering their lines of credit to oil companies. Lesar says many of these firms will be forced to drill before the prices rebound, losing out on possible profits.
“So if you go a year without drilling a well, and your production starts to turnover, you are going to have to start drilling or you are going to have to take your infrastructure apart that you've built up as a company,” Lesar said. “So I think that as we get to the end of the year, if these guys have money, they are going to drill it up, and that's just the fact that it is.”
In the end, more drilling regardless of price is good for Halliburton, which makes money from a variety of oil-related products such as drill bits and oil consulting.
•Sourcd from Business Insider. Photo shows Halliburton CEO, Dave Lesar.
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