Transitions: Preparing for the Next Business Cycle, Crew Change

For the first time since the oil price collapse in November of 2014 and the difficult restructuring of our industry that followed, there are some signs of life returning to the oil patch.

Some analysts suggest that 2016 will prove to be the low point of the investment cycle. The Baker Hughes North American rig count is up 87 percent from its nadir only one year ago. Capital spending surveys forecast increasing investment in 2017, led by U.S. independents emboldened by a change in the presidency to an administration committed to domestic resource development. The first quarter financial reports for many oil and gas companies show improvements year on year, and some analysts forecast that the industry will deliver positive free cash flow in 2017 if oil and gas prices hold firm.

Most investor presentations are notable for their representations of how companies are improving efficiencies and driving down break-even prices in order to be profitable in a “Lower for Longer” world. Some companies that went into Chapter 11 have successfully restructured their businesses and have emerged from the bankruptcy process as more competitive and sustainable enterprises. Strengthening profitability and economic resilience will remain the top priority for most management teams, but there are also signs that positioning portfolios for the long term is also starting to gain traction.

Deal flow in hot plays such as the Delaware Basin – where approximately $25 billion in transactions have taken place over the past 12 months – stands out in particular and signals that companies have enough confidence in the long term to pay top dollar for top acreage. While I think that it is too early to say with certainty that we are in the early stages of the next industry upcycle, I do believe that industry is moving toward investment and activity levels that are more suitable for growing long term shareholder value than simply surviving.

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For the first time since the oil price collapse in November of 2014 and the difficult restructuring of our industry that followed, there are some signs of life returning to the oil patch.

Some analysts suggest that 2016 will prove to be the low point of the investment cycle. The Baker Hughes North American rig count is up 87 percent from its nadir only one year ago. Capital spending surveys forecast increasing investment in 2017, led by U.S. independents emboldened by a change in the presidency to an administration committed to domestic resource development. The first quarter financial reports for many oil and gas companies show improvements year on year, and some analysts forecast that the industry will deliver positive free cash flow in 2017 if oil and gas prices hold firm.

Most investor presentations are notable for their representations of how companies are improving efficiencies and driving down break-even prices in order to be profitable in a “Lower for Longer” world. Some companies that went into Chapter 11 have successfully restructured their businesses and have emerged from the bankruptcy process as more competitive and sustainable enterprises. Strengthening profitability and economic resilience will remain the top priority for most management teams, but there are also signs that positioning portfolios for the long term is also starting to gain traction.

Deal flow in hot plays such as the Delaware Basin – where approximately $25 billion in transactions have taken place over the past 12 months – stands out in particular and signals that companies have enough confidence in the long term to pay top dollar for top acreage. While I think that it is too early to say with certainty that we are in the early stages of the next industry upcycle, I do believe that industry is moving toward investment and activity levels that are more suitable for growing long term shareholder value than simply surviving.

DPA Programs

The Division of Professional Affairs is working to prepare for this and future business cycles through its mission to help geoscientists become future leaders by delivering programs and services that advance their professional development goals and business networks.

We have had some notable successes in fiscal year 2017. The February Delaware Basin Playmaker’s Forum saw more than 300 geoscientists in attendance, and the program did not disappoint. A dozen presentations were given by companies including majors, mid-sized independents, small independents and service companies, and showed the dynamism of this basin that continually reinvents itself through the application of new technology and development of new geological insights.

Hats off to the Forum organizers Mike Party and David Entzminger for their hard work to coordinate this event.

Next in the queue is the Mid-Continent Playmaker’s Forum, which will be held in Oklahoma City on May 11 and will focus on the many emerging plays within the Anadarko basin. It promises to be a fascinating and lively conference.

My thanks to Forum organizers Rick Fritz and Jason Hamilton for their efforts.

Registration details can be found on the DPA website at http://aapg.to/mcplaymaker2017.

I encourage all AAPG members who have an interest in emerging Unconventional plays in general and the Mid-Continent in particular to attend this event.

Great Crew Change

The next upcycle will require skilled, motivated, and dedicated geoscience professionals. But the “Great Crew Change” that has been written about for so many years may be coming to an end, as this latest downturn has been the catalyst for many of the remaining senior technical professionals in our industry to retire. Many of those with whom I talk are happily retired, and there is no certainty that their skills and experience will be available for the next upcycle. Increasingly, the future will be in the hands of the next generation of professionals, particularly the so-called millennials, that large demographic wave born between 1980 and 1995. By the end of this decade, they will occupy about 50 percent of the total U.S. workforce, and probably a larger percentage of our profession. They are well educated, socially concerned and incredibly adept at using information technology and social media. If Facebook were a country it would be the world’s largest, and they are native to it. They are impatient with bureaucracy and desire responsibility. What they may lack in experience they more than make up for in capacity to learn and desire to make a difference.

Despite the downturn, DPA membership has been relatively stable, which is a testament to the dedication of DPA members to the division and its mission. But the DPA will need to evolve to provide a compelling value proposition to this next generation of geoscience professionals. This could include new content platforms to augment the current platform of programs and services such as Playmakers, convention short courses and Discovery Thinking forums, as well as potentially new membership categories to attract Young Professionals.

For some current DPA members, the ongoing generational transition may offer exciting new opportunities for service to our profession through mentoring and geoscience education, as well as new tangible business opportunities such as consulting, new E&P startups, and nontraditional options such as private equity.

Geoscientists love what they do, and not all will want to retire. We have made careers out of spotting opportunities in a changing and uncertain landscape. The future ahead will inevitably continue to be uncertain, but it will present opportunities for geoscientists of all generations. You can count on the DPA to help geoscientists to enhance their career development and support their leadership aspirations through its platform of programs and services. If you are a DPA member I thank you for your continued service to our profession. If you are not yet a DPA member, I encourage you to join as soon as you meet the minimum qualifications. The application can be found on the DPA website at www.aapg.org/divisions/dpa/join.

Good hunting to you in the next upcycle, regardless of your generation, technical specialty, geographic location, or career goals.

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