Enverus: Welcome to the Dark Side of the Boom

By AIT News Desk On Apr 16, 2020

New, dismal supply and demand outlook could contain overlooked bright spots

Enverus, the leading oil & gas SaaS and data analytics company, has released its latest FundamentalEdge report, The Dark Side of the Boom.

In one of its largest releases of the year, this report focuses on the new global supply and demand outlook since the failure of OPEC+ to reach an agreement on temporary production cuts. That failure resulted in a full-blown market share war between Saudi Arabia and Russia, coinciding with a massive crude oil supply increase from the United States. Efforts to limit the worldwide spread of the coronavirus have dramatically worsened that situation and sent the global economy into reverse gear, hammering demand for oil, natural gas, and natural gas liquids.

“Many U.S. wells were only marginally economic before the Saudi-Russian price spat, and things are only getting worse as demand for crude oil drops due to the spread of the coronavirus,” said Bernadette Johnson, vice president of strategic analytics at Enverus. “We’ve never seen demand destruction occur this much and this fast. A continued, significant reduction in drilling activity is still well on its way as the industry realizes this won’t be a quick recovery. Rigs will get laid down, the backlog of uncompleted wells will grow, and people will get let go.”

“There have certainly been historical booms and busts to draw from, but the oil and gas industry is finding itself in unknown territory right now and it’s turning into a bit of game theory in terms of next moves. Operators who pull the trigger too soon on certain responses are going to be at a disadvantage relative to some of their competitors. It’s definitely an expensive game of chicken,” continued Johnson.

“But the cure for low prices is low prices,” Johnson added. “The industry won’t see the beginning of a longer-term price recovery until the end of next year at the earliest, and it will likely be drawn out longer than that. An investment cycle or two definitely will be missed, and this year, and next year, will be tough. However, prices should look a lot better by 2022-2023. Shale is far from dead.”

Johnson offered some hope along with the release of the report.

“There could be bright spots to these recent events, too. Despite a lack of capital in energy and a willingness of parties to come together on asset transactions in recent years, this ultra-low price environment could generate bids and offers that move things further into the correct alignment, luring in reluctant investors who have been waiting on the sidelines,” she said. “We may not like it, but the market has been responding in a rational manner. We’ll see lower prices before we see recovery, but the market is working, and we can see a path to recovery.”

The Dark Side of the Boom covers:

Crude oil price drivers and global supply demand outlook
Potential basin shut-ins in the lower 48 states
Rig count changes
Natural gas breakeven sensitivities
Anticipated production changes related to power and electricity demand
LNG exports
Rig count
Capex reductions
Hedging volumes