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Houston..we have a problem....

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The Original AG 76
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6:58a, 9/26/14
AG
Having been a veteran of the mid 80's oil bust and one of the few still in the same bidness I am afraid I'm seeing a lot of signs that we are heading into another oil bust. I seriously doubt it will be anywhere near as severe as the "BUST" but its still the first one sine some mini busts in 91 and early 2000's. There is a huge glut of crude and a sliding demand. There is a glut of drilling capacity suddenly developing and we ( a MAJOR oilfield equip manufacturing company) are starting to see a very telling slow down in requestst for proposals and some " yall slow down deliveries" type messages from our customers. Of course the public info out there , huge backlogs, huge margins, record sales numbers yada yada yada are still published..JUST LIKE 1982. I remember like it was yesterday the " high level " management meeting in 82 when we were told by the VP of something that " if we dont take another order at all we have work until 1986!!! " By late 83 we were laying off and closing facilities as fast as we could.
This BOOM has been going on too damn long and has to end at some time. ALL of my fellow old timers are saying the same thing and , sadly, virtually 100% of the younger guys are completely in denial. Our corp genii are in the same mode as they were in 82 ( those 82 guys are al dead or long retired ). We have been there before and can smell it on the horizon.
This will be the last hurrah for most of us vets of the "BUST" , its still gonna take a couple of years to develop but in 2-3 years we will be right at retirement age and will be the first to go. I hope I'm wrong and the boom lasts another decade like all the corp prognosticators say BUT.....
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rjamizon
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8:14a, 9/26/14
I would be one of the young guys that was just a baby when the bust happened in the 80s, so correct me if I'm wrong here...but wasn't the bust then caused when OPEC flooded the market? Are we to the point of complete over saturation similar to then? If we are then why am I still paying $3.50 a gallon, haha.

I will say that Houston's saving grace may be that this time around, at least now Energy only employs like 25% of the workforce, versus 110% in the 80s.
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MaysAggie2015
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8:15a, 9/26/14
Sold off all my energy holdings except CQP over the last 3 months & have moved into more defensive & interest rate sensitive companies like life insurance. WM, MMM, PG, MET, PM, BMY, & PFE.
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The Original AG 76
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8:28a, 9/26/14
AG
OPEC was part of the problem but it still boils down to a glut of crude , dropping demand and massive industry overcapacity based on unicorn fart nirvana the world is ours projections.
And... Look at the pump, prices are dropping. I did not say that we are in collapse TODAY. It's likely a few years out.
In 82 it was an absolute guarantee by our genii of $50 barrel oil by 85 or something like that . I think it hit $8....today it's $100-200 bbl whatever. Drill drill , build build buy buy .... Just like 80-82.
It really makes no difference if was opec or the Illuminati a glut is a glut
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MaysAggie2015
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8:37a, 9/26/14
Houston's economy still revolves around energy -- HEAVILY. Residential & commercial real estate prices are correlated highly with energy prices. The commercial banking industry is knee deep in O&G lending and lending to service corporations. SO, IMO, the overall employment % in O&G as a % of Houston's workforce is less, but O&G is still the driver behind most of those "other" workforce positions. They might not look correlated on the surface, but if you look at the mathematics, the correlation between WTI, real estate, manufacturing, transportation, and even services like consulting, acct, restaurants, etc in Houston are affected when the big O&G companies start closing their wallets. Diversification of the workforce is only beneficial when its truly "diversified" meaning different correlations that alter the efficient frontier. I think of it as modeling the optimal complete portfolio. You can have higher correlations of a more risky assets with a lower return, but because of the correlation between them and the other asset classes (workforce sectors), you can still optimize your Sharpe ratio (unit return per unit risk). Houston's underlying asset/industry correlations are what are concerning. On the surface, they appear diversified until you examine the books.
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The Collective
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8:58a, 9/26/14
Natasha Romanoff
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9:10a, 9/26/14
My gas prices haven't been dropping, they've been rising. Maybe once current oil prices hit in the coming months it'll be lower but I have yet to see dropping prices at the pump where I am.

I'm curious to see if there will be a similar bust as the early 2000s (I throw out 2008 since all of the economy busted) and what operators do with their huge numbers of young and old engineers. Go with experience or youth? 30-40 year old engineers will be highly, highly valued if they go the young route. I think the industry has seen when they stop hiring/get rid of a generation of employees and they're in a bind today because of it.

And to be fair, stuff seems to slow down in the fall and winter for energy the few years I've been paying attention (I know, who cares about a young'un's opinion). I know our lease operators were nervous last year when a large operator shut down operations last winter, but it was because they ran out of corporate money, not so much the state of the industry.

Anyway, we will see. I'm not so naive to think I'll never see a bust in my time, but I think there are many more powerful people invested in keeping the price per bbl high than there was in the 80s that there is a little more insulation. How much? Well I guess that's the question
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moses1084ever
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10:48a, 9/26/14
AG
I was working for an EPC in Houston in 2008-2009 before I shipped off to Singapore, that went from 5000+ people, down to 2500. Luckily, my particular discipline (I&C, automation) seems to weather the storms a little better than others. We get balanced out between upstream and downstream work.

I've got a lot of respect for my elders. I worked a trade starting at 16 (30 now) and put myself through college doing so. I loathe the fact that I get lumped in with "millennials" ..but I do have my own anecdotal observations from the places I've worked.

The older boomers have been clogging up companies/job market for at least 5-10 years... understandably so. A housing bubble and 2 stock market collapses made it impossible for a lot of guys to retire. In the EPC I was working for at the time, the only way to get a promotion was when someone died (usually of old age) or retired.

I know a lot of very talented guys caught in a career holding pattern because the company is so overloaded with guys who cant afford to retire.







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Harkrider 93
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12:55p, 9/26/14
AG
This is interesting to me. History shows that there are peaks and valleys in everything. Supply and demand will control most of the price movement, so I wonder how that compares to the previous busts.

Is supply up 10% and demand down 5% versus supply up 20% and demand down 20% during the first bust?

If the world economy is slowly growing, it seems hard to predict much of a drop on demand.

Orig Ag, do you have any of this data?

Thanks for the warning. I think all should strongly consider what you are saying.
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The Wonderer
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12:58p, 9/26/14
AG
Gas has really started falling in my area. I filled up with 87 for $2.95 last Friday and with 93 for $3.40 on Monday. The down ticks are becoming more pronounced and my dad told me that his offshore RFQs have slowed a little bit for offshore valves and pipes. I don't think the bust is imminent, but it is coming in the next couple of years imho.

quote:
If the world economy is slowly growing, it seems hard to predict much of a drop on demand.
Many countries have adopted our oil and gas recovery methods and tools and can now exploit reserves that were once unattainable.
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canadianAg
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1:45p, 9/26/14
AG
So hearing this information, what would be your advice for someone who has just entered the industry after graduating?

I would also be interested in hearing more personal experiences from previous busts. How long before recovery, how unexpected etc...
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pocketrockets06
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1:51p, 9/26/14
AG
So if the price of oil and gas collapses, who benefits? Does downstream petrochemical benefit? Refiners?
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The Wonderer
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1:54p, 9/26/14
AG
My advice for any recent grad is to live below your means and don't go crazy. Plan and budget your money smart and you should be able to survive just about anything. Pay off debts quickly and then start putting as much as you comfortably can into 401k, IRAs, etc. Try to maintain about 6 months liquidity to cover your basic bills.


I wasn't around for the early 80s bust, but my dad has been in the o&g world for the vast majority of his life. The only time he has not been in energy to my knowledge was the three years he spent running a fiberglass shop following the massive layoffs in 1990-1991. He was unemployed for nearly a year before finding work. My parents didn't make much back then, but saved a lot when they were flush and were able to survive a year without missing a payment on bills, losing utilities, or the house (we were within 1 month of entering foreclosure though). He's ridden the highs and lows of oil for the better part of 35 years and has told me that the next bust will be his last as he'll just retire.
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The Original AG 76
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2:57p, 9/26/14
AG
Not sure what advise to give other than Dave and be prepared but that advise is golden regardless.
It's more psychological than anything. Never ever ever think you are immune, no one is immune. Worst part of the 80's bust ( besides getting eventually zapped) was the 3 years of not knowing if this week was your last. You developed a civilian version of battlefield hopelessness. Every time a managers door closed the world stopped! Was this another layoff or was he talking to his wife? Friday late was a relief as you knew you probably had another week of employment. It was unreal stress. Again it ain't gonna happen in 14 or hopefully 15 but who knows. Like you said about your dad, If it happens it over for me. I will not go it again. It's back porch and the drool cup for me
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Dirt 05
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4:47p, 9/26/14
AG
Review of recent investor presentations noted the following:
EOG's gross crude production has increased from ~60 mbd in 2010 to almost 350 mbd today
Pioneer expects to double their 2013 production rate by 2018, to 300 MBOED
Concho plans to double their 2013 production rate by 2016 to +180 MBOED
Cimarex has doubled their Permian production since 2011
Devon has seen 175% growth in crude since 2009
Energen sees up to 30% growth from 2014 to 2015
There are many companies that didn't even exist until 2009 that now produce 10 - 30 MBOED.

No one, other than LINN, is really tapping the breaks in the Permian just yet. Most are planning on adding horizontal rigs, while dropping vertical rig lines or using them for SWD and continuous drilling requirements. Capital budgets and production are growing / have grown to the point that they have outpaced midstream processing, pipeline, and even utility availability. EOG has gone so far as to put in writing that they have 75+ years of drilling opportunities in the Delaware Basin/Wolfcamp! Chevron and Pioneer are building new offices in Midland and their is also a spec build on 2 "Energy Towers" in Midland.

I see crude prices, and as a result drilling falling off, but not quite to the extent of natural gas because of geopolitics. If there weren't half a dozen or so wars going on in the Middle East we may have already seen WTI trading more towards the Midland spot price instead of Cushing.
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pfo
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1:26a, 9/27/14
AG
I am class of "78" petroleum engineer and third generation oil and gas independent. My granddad and dad told me about the every 20 year boom bust cycle before I got in the business and told me you could set your watch by it. You are right that this boom has lasted longer than normal thanks to China and India and I am concerned now too. But the dollar strengthening over the last 12 weeks has all commodities priced in dollars falling. At some point the dollar will resume its normal slow decline as it has since the Fed was created. If China and India's growth falters then oil really falls. However I bet it doesn't fall and stay down for any more than 3 to 4 years below the price it takes to drill and complete new horizontal wells. The wells our forefathers drilled produced prolifically for about 20 years but today's horizontal wells produce prolifically for about 3 to 4 years so that may alter the cycle to an every 4 year boom/bust. This is just my theory but personally I am playing my cards closer to my vest than I did the past 10 years. Also someone mentioned Linn Energy slowing down. Mark Ellis, petroleum engineering class of "79", is its president and I thought he was the smartest guy in that class!
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redag06
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9:32a, 9/27/14
The two energy towers in midland were scrapped.
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techno-ag
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12:02p, 9/27/14
AG
I wonder if a disruption in supply from war, hurricane in the Gulf of Mexico, etc. will have such a profound effect on prices now that we have so much capacity.
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tamutaylor12
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12:18p, 9/27/14
What is China's demand looking like these days? Slower growth or actual decline?
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pfo
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In reply to tamutaylor12 • 12:47p, 9/27/14
AG
quote:
What is China's demand looking like these days? Slower growth or actual decline?


Slower than previously but it's still very high. China and India's need for energy is and will continue to be extrordinary.

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The Original AG 76
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2:05p, 9/27/14
AG
There is a HUGE real estste bubble in China that WILL burst. Matter of fact it already has but the communists are keeping a lid on it and are pumping in yuan in a manner that makes our INSANE QE lunacy look tame. Reality WILL catch up and then ALL HELL will break lose. India is struggling to continue to modernize in the face of increased social unrest and a moribund barely functioning market economy.
There is also a behind the scenes drama happening in the offshore " paradise " called Brazil. The HIUGE VAST unimagineable corrupt diseased monstrosity called Petrobras is no longer paying their bills nor accepting already built and invoiced equipment orders as a new director and ( possibly) a new President have discovered the massive stockpiles of unused equipment sitting in fields and warehouses all over that 3rd world dump that was unnecessarily bought by filthy corrupt Petrobras managers looking ONLY at personal kickbacks and graft. All of us ( manufacturers) were severly hurt by a similar meltdown by Pemex in the 70's and 80's and now its Brazils turn.
Lots of things falling into place that us old need to retire " useless" in-the-way fossils have seen before !
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pfo
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8:59p, 9/27/14
AG
Original Ag 76, thanks for starting this thread! You equipment manufacturers and suppliers and the drillers always know what's going on before we independents and I greatly appreciate your comments! About the last class before graduation, the head of our Petro eng dept Douglas Von Goten, told us Pemex was the most corrupt company on the face of the plant. Also an old saying in Asia is "The only thing straight about the Chinese is their hair"! I didn't know Petrobras was so corrupt but I should have guessed it. Thanks again
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Ragoo
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9:23p, 9/27/14
AG
I was in "small town" China back in 2011 and it was nothing but unfinished concrete skyscrapers.
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Ragoo
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9:25p, 9/27/14
AG
OA76 who do you work for?
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The Original AG 76
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8:39a, 9/28/14
AG
Ragoo,
Lets just say I've been in oilfield manufacturing since 78. Been thru toooo damn many booms and busts to count. If I knew then what I knew now....well you know the rest. Manufacturing is the lowest on the food chain. We get the least during the boom and get the hardest hit during the bust. I would advise ALL Ags to AVOID manufacturing companies if possible. The wealth, what there is, is NOT spread like it is in the rest of the industry. We always see and feel any hiccup early and right now I see a pretty full waiting room.
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Ragoo
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9:51a, 9/28/14
AG
I too am in the same field
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claym711
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10:45a, 9/28/14
AG
I guess you guys got tired of posting on the 5 year old "the market is about to collapse" thread?
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GarlandAg2012
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11:19a, 9/28/14
AG
Watch listed to read later.
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aggie028
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2:16p, 9/28/14
Definitely appears to be a glut of oil at the moment. Price is pretty close to a support and keeps bouncing. If we see 89, I could see 80 not too long after. How low it goes - who knows but it would slow drilling if we dipped below 80. Seems the speculators have moved out for the most part - recent war signs haven't impacted prices the way they were the last couple of years - my perception at least.
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tamutaylor12
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2:45p, 9/28/14
If drilling slows at 80, wouldn't the lowered supply cause a level off or increase of prices barring a major economic slowdown?
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Dr. Doctor
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9:21a, 9/29/14
AG
What does Mexico opening up their fields do to the supplier's needs?

I work for an EPC and while work is slow (especially in the design phase of refineries), wouldn't Mexico coming "online" boost the US ability? I know their output has dropped off dramatically due to lack of investments. Would other S. American countries (not Brazil) help out, with increased drilling?

~egon
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The Original AG 76
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9:59a, 9/29/14
AG
Re: Mexico. It eventually could prove to be a player but it will be years and years down the road. That 3rd world dump is still completely corrupt and is a cesspool of graft, lazy inefficient workers and massive payola. It won't be a factor in any of our horizons.
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TxAg20
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10:24a, 9/29/14
AG
I'm a 4th generation oil and gas professional. For the past 3 years, every couple of months I hear someone making a "good" case that the next bust is on the horizon.

I agree that the supply trajectory is outpacing demand. Especially if demand falls. However, the decline rates on all this new domestic supply is much greater than we have seen in the past. As long as we're not ignoring vast amounts of production in pricing (like the Arab oil embargo), I think busts will be shorter lived because production will fall off so quickly after price declines. We went from $140 to $40 per barrel in 2008 and 2009 and rebounded to our current range.
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tx4guns
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10:24a, 9/29/14
AG
Based on production and infrastructure built in South Texas, it's gonna be BOOM for decades. As long as the instability exists in the middle east, and we're dropping bombs, oil prices will stay high. I'm gonna go out on a limb and say your prediction is wrong.
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MaysAggie2015
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11:06a, 9/29/14
All of this "production and infrastructure are booming so prices must stay in a bound range because of instability elsewhere)" talk doesn't follow historical O&G patterns. People forget that increased production across Texas alone in the Gusher Age (you could almost consider the current age an equivalent) resulted in the TRRC having to intervene in the market and took until the 1940's to help prop up and stablize prices by instituting regional production quotas.
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