Our Speaker Tim Thompson

Posted by David Holden
 
What does the Oil and Gas Future Hold?
 
Tim Thompson is a Principal in Oliver Wyman’s Upstream Energy Practice, based out of the Calgary office, with over 28 years combined industry and consulting experience.  He has assisted developing various elements of the strategic agenda for clients spanning the entire energy value chain.  His primary focus is Canadian Upstream producers.
 
Notes:
 
  • Tim advised that he had invited the visiting Prime Minister to attend as he may learn something about the Energy business
  • History:  Where we are today, everyone is fussed
  • People seem to be worried, however, we are above the average oil price
  • $40 oil should be fine but at $50 people are lamenting
  • Why:  bubble for last couple of years, profits for oil companies and service companies are both way down (this is not normal)
  • Oil Field Service Firms earnings down 96%, Upstream Operators earning down 80%
  • History of the bubble: OPEC traditionally drives swings in production output to control pricing and have been working on keeping oil in the $80-$100 range
  • These high prices enabled unprecedented growth of NA shale production (in range of almost 10 MM BOE/d increase)    * millions of  barrels of oil equivalent per day
  • This increase in production drove shale oil exploration activity and discoveries of viable shale basins all over the world
  • OPEC attempting to create price stability has enabled potentially prolific competition
  • Today: we (Canada and Alberta) are in a turf war over market share between 2 other suppliers (Middle east on one side and NA Shale on the other side)
  • The initial operational response has been reduce costs and function at a loss, however, despite of these valiant efforts, operators are still short of closing the gap on cash costs
  • The initial financial response has been to increase debt while earnings dropped to near zero
  • Next is the potential for a supply rebalance … a (potential) turn in inventories would suggest we are short production
  • NA Upstream Equilibrium has been achieved as NA producers have stabilized production in a sub $50 USD WTI environment    * WTI is West Texas Intermediate, the benchmark NA oil price
  • The 2020 Supply curve is instructive – but has it got the Shale correctly positioned?  In any event, Oil Sands oil is the most expensive oil to extract
  • Oil prices are not expected to recover for some period of time (forward curve has $55 as the middle of the predictions with 95% confidence range of $118 to $23 for 2019 pricing
  • Crude inventories are a record level of excess 7.8 days of inventory above historical levels (representing over 13%) which will dampen any upward price moves until it is used up
  • Implications for Canada:  Canada lags the USA on ‘rocks” and market access which will likely lead to return of profitability but no employee growth (limited hiring, retirements, further optimization)
  • Oil price increase likely will be based on inventories only and its rise will be soft and choppy at best
  • Speculators could take a beating and failure of 1 or 2 name brand firms
  • Collision underway between Operators and OFS – core behaviours need to change
George Brookman thanked our speaker with a certificate about our CAWST donation and a RCC Centennial book.