Weathering Downturns - Survival Strategies for Tough Markets
- Bernard J. Duroc-Danner (Weatherford Intl. Inc.)
- Document ID
- Society of Petroleum Engineers
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- Document Type
- 1999. Society of Petroleum Engineers
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- 149 since 2007
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Published in Oil & Gas Executive, Volume 2, Number 2, 1999, pages26-27.
Few industries have experienced the profound economic swings that havesaddled the world petroleum industry since the mid-1980's. In fact, few othercommodities have experienced the unusual roller-coaster ride of crude oil.
As the 1980's opened, economists were predicting that crude oil prices wouldsurge to U.S. $30/bbl and higher over the rest of the century. Instead, theopposite happened. Today, when inflation is taken into account, crude oil ispriced below 1956 levels.The phenomenon of oil prices staying well belowoverall inflation levels began in January 1986. Even in nominal terms, orwithout the effects of inflation, today's yearly average price of a barrel ofthe benchmark West Texas intermediate crude is lower than at any time since1978.
In 1986, the industry began one of its most severe and extended downturnsever as world crude oil prices plummeted overnight into the single digits anddecreased year to year more than 40% (in nominal, or noninflation-adjusted,terms). Except for a brief hiatus during the 1990 Persian Gulf war, prices wereon a downtrend for the better part of 10 years. Then followed 3 good years,1994 to 1997, when per-barrel prices seemed to steady in the high teens to thelow twenties. The industry was beginning to enjoy a rebound. A combination oftechnological advances and more tight-fisted management helped companies profitat oil prices of U.S. $15/bbl and higher. Most companies enjoyed risingprofitability.
Last year, just as the industry was feeling cautiously optimistic aboutstronger prices and healthy drilling, prices dropped again, falling more than30%—by far, the largest year-to-year decline since 1986. The crash turned outto be real and lasting. Nearly 1 year later, the industry is battening downanew to weather another extended economic storm.
It's a story nobody in this industry wanted to hear again, but here we are.What happens now? What did we learn, collectively, from previous downturns?There is a silver lining in the proverbial dark cloud. But before discussingthis, let's survey the damage to date in the current downturn.
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