The world's largest oil driller just gave a very bearish presentation on the future of the industry
Andrew Burton/Getty Images
Schlumberger CEO Paal Kibsgaard gave a presentation at an industry conference Monday, and much of his outlook was very bearish.
He started with the fact that the oil industry is in "the deepest financial crisis on record" that is making it impossible for most oil and gas operators to stay profitable.
And Kibsgaard sees no meaningful improvement in drilling activity until 2017.
Oil prices, even after a rebound in recent weeks, are still down 61% from the pre-crash peak in June 2014.
Here's a highlight of what he said about the future of the industry (emphasis added):
This 'hold-your-breath and-hope-for better-times-soon' playbook has in the past allowed the industry to live through shorter-term demand downturns while waiting for business to return to normal. The major difference in the current industry situation is that we are unlikely to see oil prices returning to the $100 level because this downturn is not driven by lower demand or by external factors. It is instead an immediate result of OPEC's decision to protect market share rather than oil price which clearly demonstrates that they still have a firm grip on the global E&P industry.
This shift is likely to have deep and long-term consequences for the industry similar to how limited access to reserves in the 1990s drove international and independent oil companies to pursue unconventional and deepwater resources.
Kibsgaard said the industry is now in the third and worst phase of this crisis:
The current downturn has now persisted for 17 months since the US land rig count peaked in October of 2014. Using this rig count as a proxy, we have seen three distinct phases as the downturn has deepened. The third and most severe phase is taking place within this current quarter with the global activity impact and rate of disruption reaching unprecedented levels, showing an industry in a full-scale cash crisis.
And he thinks that when drilling picks up again, these cost-saving benefits will be reversed.
Kibsgaard said if non-OPEC production continues to fall, and demand rises - as the International Energy Agency is projecting for this year - oil prices should continue to rally.
Schlumberger now expects first-quarter sales to total $6.5 billion, missing analysts' forecast for $7 billion. Its shares were little changed in early trading.
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- Colon cancer rates are rising in young people. If you have two symptoms you should get a colonoscopy, a GI oncologist says.
- Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
- Catan adds climate change to the latest edition of the world-famous board game
- Tired of blatant misinformation in the media? This video game can help you and your family fight fake news!
- Tired of blatant misinformation in the media? This video game can help you and your family fight fake news!
- JNK India IPO allotment – How to check allotment, GMP, listing date and more
- Indian Army unveils selfie point at Hombotingla Pass ahead of 25th anniversary of Kargil Vijay Diwas