Has oil industry hit its mid-life crisis?

By Lydia Depillis

The oil and gas bust has been going on long enough to inspire many metaphors among journalists and analysts — and now, it’s been likened to a midlife crisis.

It’s like hitting age 45 and realizing your pants fit tighter than you remember, explained Bob Fryklund, chief upstream strategist for the Denver-based consulting firm IHS.

 Or going out for a morning run and finding you can’t keep up with your younger neighbor like you used to.

Fryklund was among the speakers this week at a Houston  sponsored by the  Association of International Petroleum Negotiators, a trade association for people who advise businesses on cross-border energy deals. The annual conference focused on industry trends like the changing strategies of host countries and new oil supply from Iran. 

Since 2008,  when oil prices topped, $100 a barrel, the industry has had to pay much closer attention to how much it costs to take oil from the ground.along the way, Fryklund said.

“Iraq? Fantastic place. You can get 3 billion barrels there,” he said. “But how much profit are you getting per barrel?”

Whoever’s left standing after this round of bankruptcies and layoffs shakes out, Fryklund said, they’ll have to operate differently. No more taking seven years to start pumping oil out of deepwater projects, which is now the industry average.There will be fewer megaprojects,  75 percent of which are now over budget. Meanwhile, foreign governments are demanding a bigger cut of the proceeds from exploration on their lands. Capital efficiency and cost reduction are now the name of the game — both of which are easier to pull off domestically than overseas.

“This is why folks came running home,” Fryklund says.

Smaller players might not make it through their midlife crises, Fryklund said, but the majors probably will. Longer term, even with mounting regulation of carbon emissions, they’re counting on technology improvements and continued demand to justify extracting all the fossil fuel reserves they’re sitting on — and more.

“We looked long and hard at the policy framework that’s likely to be in place over the next few decades,” said Todd Onderdonk, senior energy advisor in ExxonMobil’s Corporate Strategic Planning department. “Essentially in any scenario that you look at, we see an increase in requirements for new oil investments.”

Even if it requires the industry equivalent of elastic waistband pants.

 

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