Waves of Austerity: A Review of the U.S. Oil & Gas Industry in 2015

This post is also available at my LinkedIn page.

Now that it is November and we’ve arrived at the home stretch of 2015, it seems apropos to reflect on what has happened in the industry this year.

Obviously the spot pricing for WTI crude oil plummeted off of a proverbial cliff at the beginning of the year, a process which began in earnest about a year ago. As we all know OPEC flipped their script and, rather than their customary line of decisions to restrict oil production to prop up prices, they recently chose instead to preserve their market share and not curtail production in any way. The high times my industry cohorts with more experience fondly recall for the several years prior to this year came to a sudden and shocking conclusion. U.S. shale producers have proved their resilience in cutting costs in an effort to maintain profitability (largely through pricing reductions borne by various production and service companies); regardless of recent technological advancements and ingenuities, thousands upon thousands of jobs in our industry have been cut.

To be certain, not all of the jobs cut belonged to Americans, but many have. This will invariably result in a profound lack of experience in the sector when things begin to improve – many of those being laid off (especially in the land/legal industry subsections that I am particularly familiar with) are either at/near retirement age and will phase themselves out, or are just not in a position to eke their way through an industry downturn. Those of us who survive will be in a unique and advantageous position, as those in their 20s, 30s and 40s step up to take the place of those who have exited the industry.

In terms of market dynamics, it would seem that it will take much of 2016 for the slack in the oil markets to tighten and result in a meaningful rise in pricing. Production cuts in the United States (as well as in other countries) are beginning to put a floor of support under WTI and Brent prices, but it will take more cuts in conjunction with increasing demand to cause improvement. References are continually made to rig counts, which I believe to be mistaken reliance based on the assumption that all rigs/wells produce identical amounts of oil (but I’ll sidestep a full dissertation on the topic). Even in a worse situation seemingly are the natural gas markets – though the incomprehensible stockpile in the Northeastern United States via the Marcellus and Utica shales shines favorably in terms of American energy independence, it’s extremely tough sledding for natural gas producers trying to extract it and still make a profit.

Late 2014 and early 2015 were akin to crashing through several floors of a building and ending up in the basement – the drop-off was scary and tumultuous for those of us in the industry. But now the dust has settled, and we find ourselves having to be more austere and cost-conscious than any time in recent memory. For some time it was “go go go;” alternatively, now is the time to reinforce your networks and take the time to learn additional skills. The efficiencies and expertise being cemented and created now will have a cathartic but necessary effect on the American energy industry going forward.