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Is the sun Setting on the Oil Industry?

The oil industry is in a state of flux. Uncertain oil markets and infighting within OPEC, unable to agree amongst themselves how much they will each extract and produce, have ensured the price of Oil has and will remain lower for longer. Political pressures have suppressed the price of oil below the line at which governments require it to be in order to balance their budgets which have led to the significant job losses we are currently experiencing in the North Sea.
As this continues Middle Eastern nations will be forced to consider taking brutal austerity measures in order to balance their national budgets if the oil price remains below 80-90 USD / bbl for a prolonged period of time. Most, if not all, oil producers cannot afford oil prices of 40 USD/bbl for more than a year, but the question is: who will succumb to the pressure first? What we are experiencing currently is an economic variant of the game of chicken with North American Shale producers on one side and OPEC on the other. Who blinks first, loses.
OPEC had banked on lines of credit to the shale producers being withdrawn obliterating the prospects of Shale producers in the US. Instead, they have encountered an unexpected resistance and realised the resiliency of the Shale market which does not bode well for a return to high prices quickly. As the price increases shale wells which were economically infeasible at the lowest Oil prices will come back online and flood the market with yet more Oil/Gas ensuring the price does not rise quickly. In short the Saudis gamble appears to have failed and it seems they are all out of chips. OPEC’s reliance on high oil prices to balance fiscal budgets has been there undoing as has their ability to remain a cohesive cartel which corroborated prices. For what is a simple prisoner’s dilemma where everyone would benefit if collaboration could be assured has seen everyone lose because they can’t trust one another and agree to a level of production which is fair to everyone. Ultimately greed has presided over sensibility.
How then does this bode for the North Sea in the coming year? From a personal perspective, our outlook is relatively strong having restructured our strategy early to compete in a suppressed market. Expansions of our activities through strategic partnerships out with our typical markets and internationally, diversifying the business during an increasingly uncertain period in the Oil & Gas market also proved to be prudent and occurred at a fortuitous time. Some of our competitors have not been so lucky. It would be easy to assume that seeing your competitors struggling or going out of business is a good thing but that couldn’t be further from the truth. Speaking more holistically about the industry as a whole it is never a good thing to see businesses, companies and individuals going out of business on compassionate grounds but from the perspective that if entities which are good at their jobs aren’t able to balance their books it does not bode well for everyone else looking ahead. A thriving market flooded with opportunities fosters competition but at least, it conveys a sense that projects will be forthcoming.