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The BarrelThe BarrelThe BarrelThe BarrelThe Barrel

NEW IN 2016

OPINIONOPINION

Down, but not out rom an oil industry perspective it’s matters and less on winning new busi- covenant breach. Once the bank spe-

F dif? cult to ? nd anything positive ness. At worst, the company goes into a cialist lending teams get involved the to say about 2015 other than I’m glad it’s death spiral. decisions pass out of the hands of the

The mantra for oil service compa- ended. business owner.

I certainly didn’t see US$35 Brent nies in 2016 must be to do everything

As a glass half full person, I’d like to crude coming, nor did I envisage possible to stay in business. This end with a couple of positive observa- such low prices looking like they will goes beyond cutting costs. It’s about tions for the year ahead.

endure through 2016. The impact on rethinking business processes and

The longer term outlook for the oil service companies has been brutal strategies. E&P companies are more industry isn’t as bleak as most people with revenue declines in the 30% to open than ever before to new ideas if it forecast. The oil price will recover, 50% range devastating but it will take time. pro? tability and caus-

Those companies “The mantra for oil service ing tens of thou- that navigate the companies in 2016 must be sands of employees downturn to their to lose their jobs.

advantage will to do everything possible to

The best companies be spectacularly arly cut costs hard e well placed. The stay in business. This goes and cut again and restructuring that beyond cutting costs. It’s about again in an attempt is required in 2016 to bolster the bot- must be seen in this rethinking business processes tom line. Those context and as an and strategies.” slower to react opportunity. paid a heavy price We might also see in terms of profit- a surprise uptick in ability, particularly crude prices in the

Colin Welsh, CEO those with high lev- back half of 2016 as

Simmons & Company els of debt.

production declines

The full force International Limited in key US shale areas of the downdraft move into focus. And will be felt in 2016 as bank covenants means that they can reduce costs. given the extent to which the brakes are breached and equity values are It’s also time to consider combining have been put on drilling activity compressed or obliterated. Banks will businesses in order to remove overhead, you have to expect that production pass problem children on to specialist enhance capability and build scale so declines from conventional wells lending groups whose sole motivation is that the business becomes more robust globally will be much higher than to recover as much of the bank debt as and can withstand a lower for longer usual. Dial in the potential for the possible. At best, this results in com- downturn. The time to explore merger

Middle East powder keg to impact panies spending more time on internal possibilities is de? nitely before a bank production there and anything is possible.

Brent vs. WTI prices, year-to-date 7000

Colin Welsh joined Simmons & Co. in 1999 to establish the ? rm’s Eastern 6000

Hemisphere business. Prior to joining 5000

Simmons, in 1987, Welsh established the

Aberdeen of? ce of RMD, a newly formed 4000 accountancy and corporate ? nance 30 ? rm. Previously, he worked in both the

US Dollars

London and Aberdeen of? ces of Touche 20

Brent crude

Ross. Welsh graduated from Aberdeen 10

University having studied econom-

WTI ics, accountancy and law. He went 0 8 Dec 8 Jan 8 Feb8 Mar 8 Apr 8 May 8 Jun 8 Jul8 Aug8 Sep 8 Oct8 Nov7 Dec on to qualify as a Scottish Chartered 2014 2015

Accountant while working at Ernst &

Data acquired from Quandl on 15 December 2015.

Whinney (now Ernst & Young).

January 2016 | OE oedigital.com 10 010_OE0116_Oil Price Column.indd 10 12/28/15 10:56 AM