By Duane Donner
In recent weeks, domestic oil and gas producers released their preliminary 2015 financial and operational reports and provided color on 2016 expectations. In 2015, oil and gas producers were forced to divest non-core assets and reduce corporate costs to maintain the liquidity necessary to meet debt covenants and/or dividends. These reports illustrate the pressure that equipment and service providers faced as oil and gas producers relied on their vendors to assist in lowering drilling and production costs while also increasing efficiencies.
With the recent decision by Saudi Arabia to rule out coordinated production cuts by OPEC as a way to rescue the industry from low prices, U.S. oil and gas producers continue to tighten capital expenditure (CapEx) budgets in order to combat low crude prices which have resulted from a global supply glut and demand concerns with China and Europe. The projected decline in CapEx forewarns of a continued contraction in the overall market size in 2016.
In February’s Oil & Gas Newsletter, we examined the 2015 performance of some notable U.S. shale producers and discuss their outlook in 2016. Though the pain is expected to continue in the year ahead, it will not catch producers or equipment and service companies by surprise. For those who hold on and adjust activity levels and corresponding budgets to ride out the storm, a history of cyclicality in the oil & gas industry offers assurance of the better days ahead. Follow the link below to read the full February Oil & Gas Newsletter: 2016 Capital Expenditure Outlook.