Oil bosses would love to skip horrible 2016

The world’s top oil executives gathered in Houston this week seem to agree on one thing: This year is set to be so horrible many skip right to 2017 and beyond to talk about hopes for market rebalancing that so far has eluded the battered industry.

In April 2015, the energy sector’s biggest annual conference was abuzz with speculation when oil prices might bottom and the idea prices could hover below $60 for years after tumbling from over $100 seven months earlier was considered a sobering one.

This time, with prices near $30 and last year’s “lower for longer” catch phrase replaced by “even lower for even longer,” oil executives attending the IHS CERAWeek conference are more solemn and guarded in their predictions.

“This year we are in a survival mode,” Juan Carlos Echeverry, chief executive of Colombia’s national oil company Ecopetrol told the conference. John Hess, chief executive of Hess Corp, one of the independent US shale producers, said the industry appeared to be only halfway through its downturn.

“It’s probably a three-year process and we’re in the middle of that rebalancing now,” he said. Stephen Chazen, CEO of Occidental Petroleum, agreed, but warned hopes to see the market rebound can make people too optimistic.

“Usually you get a false bottom, or two or three or four,” Oxy’s CEO said.

The industry experienced one such false dawn last year when oil prices rallied in the second quarter only to give up gains in the second half of the year before tumbling further to fresh lows at the beginning of this year.

Now, executives are pinning their hopes on forecasts global oil demand will continue to rise. However, with the International Energy Agency now predicting such rebalancing to start next year and continue in 2018, the chilling message is many oil companies, primarily among the US shale producers, may not live to see that recovery.

Mark Papa, former head of EOG Resources who pioneered drilling in shale for crude oil, said this was the worst downturn he has seen since 1986 and one that would “leave bodies and companies all over the place.”

“I think you will see a much more stable and more balance-sheet focussed industry emerge from the ashes, but it’s going to be really, really ugly to get through this valley,” said Mr Papa, who is now a partner at private equity firm Riverstone Holdings. On Tuesday, Silver Run Acquisition, an investment vehicle sponsored by Riverstone, raised $450m (€408m) in an initial public offering to fund acquisitions of energy companies seen as available at discounted prices. More than 40 US energy companies have declared bankruptcy since the start of 2015, with more expected to come.

* Reuters