HOUSTON (Reuters) - 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 that 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 that 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 on Tuesday.
John Hess, chief executive of Hess Corp (HES.N), one of the independent U.S. 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 (OXY.N), agreed, but warned that 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 that global oil demand will continue to rise and eventually eliminate global oversupply, in part created by the U.S. shale drilling boom of the past decade.
However, with the International Energy Agency now predicting such rebalancing to start next year and continue in 2018, the chilling message is that many oil companies, primarily among the U.S. shale producers, may not live to see that recovery.
Mark Papa, former chief executive officer of EOG Resources (EOG.N) 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." (Graphic: tmsnrt.rs/1mT1RpC)
“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 Papa, who is now a partner at private equity firm Riverstone Holdings.
On Tuesday, Silver Run Acquisition Corp SRAQU.O an investment vehicle sponsored by Riverstone, raised $450 million in an initial public offering to fund acquisitions of energy companies seen as available at discounted prices.
More than 40 U.S. energy companies have declared bankruptcy since the start of 2015, with more expected to come.
Saudi Oil Minister Ali Al-Naimi, industry veteran of seven decades, who came to Houston with assurances that it was not the Kingdom’s intention to drive U.S. shale rivals to extinction, struck a philosophical note.
“I’ve seen oil at under $2 a barrel and at $147, and much volatility in between. I’ve witnessed gluts and scarcity. I’ve seen multiple booms and busts,” he told the annual gathering of some 2,800 energy executives and professionals.
“These experiences have taught me that this business, and this commodity, like all commodities, is inevitably cyclical. Demand rises and falls. Supply rises and falls. Prices rise and fall.”
That could not ring more true at a conference where just two years ago Chevron CEO John Watson declared that $100 a barrel oil was there to stay. “$100 a barrel is becoming the new $20,” he said back then.
But whereas executives of big players such a Britain’s BP (BP.L) or Canada’s Suncor Energy (SU.TO) voiced confidence that they’ll make it through this slump like many others, that sense of historical perspective is a luxury many U.S. shale drillers can ill afford.
“There seems to be a preocupation with ‘When is it going to turn? How long is it going to last?,’” said Mark Berg, executive vice president for corporate operations at Pioneer Natural Resources (PXD.N), a large Permian Basin operator. “That is understandable because there are a lot of companies facing stress and trying to plan for a very uncertain future.”
Reporting by Ernest Scheyder, Anna Driver, and Ron Bousso at IHS CERAWeek in Houston; Writing by Tomasz Janowski; Editing by Terry Wade, Bernard Orr