Come learn why the oil and gas industry is just fine, even with these low crude prices.
To learn about the difference between upstream, midstream and downstream click here
To see our predictions for the oil & gas industry in 2015 click here
Hey, folks. Let’s learn something new about the oil and gas industry.
Okay, people chill. I’m getting e-mails and phone calls about this low crude oil prices and how this affects the oil and gas industry. And there’s just so much bad and misinformation out there that people are freaking out over nothing. Right?
So, we predicted this low crude prices over a year ago. We knew there’s going to be a glut in the market and the industry as a whole is fine. What everybody should be thinking about is the parts of the industry that are being affected by these low crude prices, but it’s a very small part of the industry.
So, it’s only the upstream side of the house and the part of the service companies that service that upstream side of the house. And, if you’re not sure the difference between the upstream, midstream, downstream, and service, we’ll stick a link to one of our first videos, we’ll explain how that works.
But basically the only people in trouble right now are the oil sands people because they need oil around $84 a barrel and it’s not there. That’s a very small part of upstream. Some of the frackers will get in trouble because they built bad financial models. Once again, we predicted this could be a great year for mergers and acquisitions in the oil and gas industry.
Some of the service companies that serve either oil sands or some of the fracking or deepwater or ultra deepwater which is also a part of upstream once impacted by this are also get hurt a little bit. But these deepwater and ultra deepwater projects aren’t going to be cancelled, these are thirty, forty, fifty-year projects. They’re just pushed out a little bit.
So, some of the service companies like let’s say FMC Technologies, they would get a bit of bang. Their subsea division which is their biggest money maker is going to have to hunker down and weather the storm. And their surface which handles the frack fields is probably get pegged a little bit, but the rest of FMC is going to be fine.
You may have heard that Schlumberger laid off nine thousand people. No big deal, right? It’s less than 7% of their workforce and they’re laying off people that touched those very expensive projects; oil sands, the deepwater, ultra deepwater. They’re still hiring like crazy for all their work over business units; coiled-tubing, thru-tubing, well stimulation because that’s going to be huge this year.
It’s cheaper to go to an existing well and re-stimulate it than it is to drill a new well, so that’s going to be more business it’s going to be an upstream this year and it’s based on the crude oil prices being lower than normal.
Now, think about this. This about if you were clothing manufacturer and somebody cut the cost of your raw material by 40%, think how what that would do to your business? Your business would boom.
Well, that’s what’s going on right now in downstream in petrochemical refining. Their raw feed stock is crude oil and that’s been cut by 40%, so downstream is on a roll right now and petrochemicals are too. They’re spending billions and billions of dollars they weren’t plan on spending because they know they’re going to make a lot of money right now.
And then, think about midstream. You still got to pay the same price to move that crude no matter what it cost. These midstream guys; supertankers, pipelines that sources are fine. And like I said the upstream guys only a part of upstream is being hurt. The guys that are doing conventional reservoir drilling and the guys that are drilling like on the Shelf in the Gulf of Mexico are fine at $50 a barrel.
So, people, quit freaking out about all this stuff. Everything is fine. It’s actually good for the U.S. and it’s good for the world economy and we talk about that in our predictions for 2015 which we’ll also throw a link up on the show notes.
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So, folks, I hope this helped. We will see you next time.