The OPEC v. Shale Oil “Staring Contest:” Did OPEC Just Blink?

This post is also available at my LinkedIn page.

So here we are – yesterday news leaked that OPEC is finally going to cut their combined production and install a 32.5 million barrels/day ceiling. As most readers likely know, oil prices have largely languished in the sub-$50 range for nearly two years aside from a few instances of coming up for air. The pain has been real for all oil and gas companies both foreign and domestic – Houston is a shell of itself, whereas Riyadh has had to dramatically reduce its heretofore extravagant funding of various social programs. While it might potentially be a milestone moment in retrospect a few years from now, I would caution against any industry-wide metaphorical spiking of the football – at least for a little bit.

First, there’s an age-old axiom that “the devil is in the details.” Although the OPEC principals have agreed on a cut, the details as to how the cut will be borne appears not to have been agreed upon yet. This is obviously noteworthy given Iran’s petulance and refusal to agree to shouldering any part of a cut in light of getting its own production going again following lifting of U.S. sanctions.

Second, we saw what happened in mid-2015 when we as an industry thought the bottom was in and the recovery was in full swing – producers opened their spigots and met the demand increase so quickly that it deflated the commodity’s price in global trading from then on to present. There’s no reason to think that U.S. shale firms will not take this as a mandate to double-down on their drilling efforts. Even before this announcement, many companies have been starting to get more active in preparation for a perceived recovery. Where I am in the Permian Basin, activity was on a slow uptick for several months; in the past month or two, though, the uptick is more pronounced and will likely continue in earnest.

Third, demand is still just as crucial a part of the overall equation as supply. At the risk of coming off as a faux analyst, it seems to me that the most important variable is China. It seems that every quarter the numbers and predictions on forecast Chinese demand oscillates back and forth. Strong demand in China would soak up what I perceive as additional U.S. oil hitting the market in the coming months and years, and weak demand would lay the foundation for prolonged pricing around $50/barrel. For now it is a variable that nobody can predict with certainty, and we’ll have to see what happens.

Finally, last year I got up on my bully pulpit (i.e., my blog and LinkedIn page) and said that 2016 would see a flurry of M&A and §363 bankruptcy sales given the over-levered status of many companies in our industry. While there have been plenty of bankruptcies, mergers, and acquisitions, it seems that financial institutions and lenders did not come down as hard on mortgagors who were substantially drawn on the revolving credit facilities – sure, plenty of borrowing bases were reduced, as any CEO or CFO would be quick to tell you. It’s said that the ashes from the fires of bankruptcies sow the seeds for the next boom, and I don’t feel like those fires burned nearly hot or long enough – this is not to say I am at all rooting for more companies to bail out, be forced to sell assets, and layoff their workers, but it is not certain that the industry as a whole has gone through the requisite catharsis necessary to have sown those seeds. In the end, many companies were able to get by – some at an amble, some with a limp.

It’s better news than no news, or bad news – let’s all be reasonably optimistic with a dash of healthy skepticism.

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Talking About Helping Young Professionals Seeking Growth ≠ Actually Helping Young Professionals Seeking Growth

Also available at my LinkedIn page.

Although my time has been preoccupied since early Spring due to studying for my attempt to pass the NYS bar exam for the “fun” of it, I am now back to thinking about the oil and gas industry and writing about my observations (for whatever they may be worth). I have seen a good number of people leaving the industry in the recent months and past year, especially those in my “young energy professional” demographic. What follows are three general observations upon which I wanted to expound.

I. Sowing the Seeds for Major Future Skills Gaps by Near-Wholesale Reliance on Retirement-Age Personnel

First, there currently is an unwillingness to spend on young talent who would merely require a little bit of investment and teaching upfront to allow them to operate at their full potential going forward – this unwillingness to train and develop the young workforce in favor of retirement-age personnel that are at the precipice of leaving the industry for good will lead to issues down the road. Companies that kick the can now will be forced to overpay for young talent when oil pricing begins to increase and the demand for the younger heavy hitters rises correspondingly. It should be stated that this is a classic collective action problem with which the industry has had to grapple with during commodity pricing volatility, but I suspect that a company that decided to wisely invest in a good core of young talent during a slower period would outperform those who had to haphazardly pluck anyone it could get its hands on after the hiring had already picked up and the heavy hitters had been snatched up.

With the current pricing downturn, I imagine many young professionals who had joined the industry and the AAPL – but who ultimately ran out of work and were forced to take work in other fields – could have become valuable members of our greater industry with only a modicum of instruction and refinement. But such is probably the natural and probable progression of our industry, which had arguably become filled beyond a reasonable capacity over the past 5-7 years.

II. Industry Recalcitrance in Meaningfully Developing Young Energy Professionals

For those of us who are dead-set on breaking into the industry, we’re going to endeavor to make an impact and will eventually break the right doors down that stand in our way. For the average young energy professional, however, there seems to be a chasm separating what the industry purports to do for the young professional and what it does in actuality. Speaking only for the general Midland/Odessa area, I can personally attest to the phenomenon that trying to get anything in the arena of education or networking off the ground for young energy professionals – and being able to sustain any momentum – is a mammoth task. As I have told many people in conversations prior, I am discouraged by the seemingly lost opportunity our industry has neglected to pursue by not trying to pass the proverbial baton from those at the top of oil and gas to my generation. The networking and education that I get requires spending quite a sum between conference fees, travel, missed work, etc., and not all young professionals are able to financially jump through the flaming hoops that I have managed to get through for the sake of professional development.

Over the next several years, a large swath of those at the top of the industry will retire, taking their knowledge and experience with them. How great it would be if we could occasionally put the experienced industry veterans in front of a group of earnest and eager-to-learn young professionals to impart their knowledge and wisdom! Although I suspect that such discussions and events do take place, in this author’s humble opinion it does not happen nearly enough.

III. My Professional Generation Will Be Defined By A Willingness to Outcompete and Outperform, and a Lack Thereof

So if you’re unsatisfied with where you are at in an industry or field that you enjoy and would like to remain in, what is one to do?

Everything and anything. 

Those who are doing the extra work – writing articles, shaking hands, talking shop, etc. – will win the long-term battle. Hone your craft. Do free spec work if possible. Invest in professional development. Lastly, appreciate that “currency” is why most people work – we all have bills to pay, things to buy, a retirement for which to save. But most people I know don’t appreciate the following concept:

“Experience is currency.” 

Speaking only for myself, I know that I am willing to work for free for a period of time under somebody who has more experience than me in the interest of improving my skills and competencies under someone who has wisdom and guidance to impart (and am willing to put my money where my mouth is – feel free to call my bluff). Many people think of currency in its truest, literal form: dollars and cents. Isn’t it better to be looked upon in your field as someone who has talent or something interesting to say because of the time and effort you’ve invested in trying to make yourself the best in your field?

Young Professionals of all industries, we are in a new and great age of professional development. The tools and knowledge are in front of you, and information is more readily available and at our fingertips now than at any time prior. The logical conclusion to all of this is that the complacent, satisfied young professional risks missing opportunities to grow their networks and increase their industry knowledge – though they would claim that missing such opportunities would not constitute detriment or harm to their careers, I would take the opposite stance.

Don’t Overlook the “Basics,” Whether You’re A Rookie or a Seasoned Pro

This post is also available at my LinkedIn page.

As soon as I walked out of the NRG Center in Houston after the last portion of my July ’13 bar exam, those in the immediate vicinity might have heard a “whoosh” noise – that was the sound of my immediately ejecting 95% of bar study material out from my head, presumably never to be needed again. It’s interesting to look back in hindsight at what I was good at, bad at, and laugh at tested material I never anticipated seeing in practice. Case in point, I remember doing my one day of bar review on something called “oil and gas law;” having gone to law school in New York, this topic was not regularly debated over water cooler discussion in the law review office (full disclosure, I am pretty sure I did not bomb by oil and gas law essay on the exam – I think?). As an alternative example, Civil Procedure was anathema to me – no matter how hard I tried, its myriad rules just did not want to stick in my mind. Obviously the basics I still remember, but the nuances and subtleties might as well have been in Swahili in my review materials. On the whole, though, I think I retained most of the broad frameworks surrounding these areas of law, which has helped me at different times subsequently.

My efforts to keep myself solid on “legal basics” in areas I don’t really deal with regularly came in handy last week, though, and reminded me of the value of having the fundamentals in your craft down even if they don’t necessarily apply to your specialty. In reviewing some courthouse records to solidify title for a particular assignment in Upton County, I saw that the materials including a case commenced about a decade ago yet still unresolved – this case was a lease royalty language dispute, and of course the file was pretty huge. Anticipating myriad exhibits and other explanatory materials, I instead found the file to be 95% pleadings and procedural motions – the “Civ Pro” part of my brain awoke and cried out, as if millions of my brain cells cried out in terror and were suddenly silenced. There were impleader and intervention motions galore, which I was able to deftly navigate, more or less; my advantage in having some clue about these Civ Pro filings worked and what they meant allowed me to dispatch with the case certainly much faster than a regular title abstractor would have been able to.

The above story is not really important, but it does give a bit of color to my overall point that, whether you are starting out or rather experienced in a certain field, having the knowledge and ability to handle the tasks/info that falls into the “basics” category will distinguish you as someone who can get the job done. For the rookie, having the basics down will demonstrate a desire to improve professionally and commit to providing good work-product; for the vet, having the basics down demonstrates a lack of complacency and a desire to make sure his or her foundation is solid enough to support the added weight and height of greater skills and development. It seems simple, and it is – but imagine a limo driver who didn’t know the local layout of streets, a carpenter who didn’t know what types of wood are better for certain work, or a quarterback who didn’t understand the core tenets of his coach’s offense. All of the “extras” that you bring to the party don’t mean nearly as much if it’s without a sound foundation consisting of the basics.

The Fifty Dollar Question: How Stable is the Current Foundation Underlying $50 Oil?

This post is also available at my LinkedIn page, available here.

Like most of my oil industry readership, I see WTI crude oil prices as a proxy for its overall health and robustness; lower prices = less “healthy,” higher prices = more “healthy.” We have all watched oil prices crater to an unsustainably low ~$26/bbl and have been urging it higher ever since. Like you, there was a sense of significance (at least to me) when oil futures contracts broke the $50 barrier. It’s been an impressive run, to effectively have doubled in price from the lows only several months ago. In fact, it’s impressive enough to warrant further analysis.

The biggest takeaway that I would impress on anyone is that the current foundation underlying recent bullishness in oil prices is, shall we say, akin to a well-developed game of Jenga. Demand forecasts have been OK, but the real strength has come from supply disruptions (Nigeria and Fort Stockton, mainly, and potentially Venezuela in the near future). Supply disruptions are generally not long-term prospects, and if/when some or all of them are ameliorated – or when other countries step in to fill those missing marginal barrels – the storyline of burgeoning supply will probably take hold once again. In addition to this, there has been industry chatter and statements (see, e.g., Scott Sheffield’s recent comments regarding their view of $50/bbl oil) that shale oil will up production once $50 seems like it will hold. I imagine that most producers will exercise due prudence in letting the market “tell” us, so to speak, if it is ready for production increases; however, any that jump that gun in a meaningful way could upset market upside.

Ultimately, I think that watching how oil pricing reacts to certain market events will be an accurate temperature of what the market really thinks, in terms of overall bullishness and bearishness. Whenever some bad news hits the market, if oil prices can hold against the downward pressure that would go a long way towards demonstrating that the oil markets are more optimistic than the overall narrative currently indicates.

Seeking Serendipity: The Benefits of Putting Yourself in Position to Grow Professionally

This post is also available at my LinkedIn page.

Several weeks ago, I made the drive from Midland up to Norman, Oklahoma to attend the Institute for Energy Law’s Hartrick Symposium, designed to show law students and young attorneys career paths in oil, gas, and energy law (shameless plug: please check out the IEL website as they put on great programming in oil, gas, and energy law). Though I am a few years into my career I still have a lot to learn about the industry, and I’m still at a point where multiple pathways are open to me – or will be, once oil prices exit the $40s. Though there were several panels constructed pertaining to various career paths, ostensibly the theme underpinning the whole event was “how to get the job you want.” There was one word that I heard invoked enough to stick out in my mind afterward:

serendipity.

I recall at the time thinking to myself, “serendipity is how you get a job?” Serendipity is defined by Merriam-Webster thusly: luck that takes the form of finding valuable or pleasant things that are not looked for. This was a dissatisfying answer to me – I’m not really one to ascribe much credit to the forces of luck and/or fate. However, in revisiting this line of thinking recently I have gotten on board with the idea that there is serendipity involved in the process, but with certain modifications.

First, even if you are not necessarily on the prowl for that ideal job opportunity, you can put yourself in the best position to “find valuable or pleasant things (i.e., that job you would like) that are not looked for.” Being a known quantity in your field has value; it has been said before but any methods that you can use to get your name and persona out there are worth pursuing. Networking, professional organizations, conferences, et cetera.

Second (and most difficult for me personally), being motivated to make your next move is important but it shouldn’t dominate your thinking. This is certainly a difficult proposition, especially for those who are as impatient as I tend to be; balance is needed, though. I have talked with some people, however, who seem to be dissatisfied with where they are at but not at all interested in doing anything about it. Far be it for me to pontificate about how anybody operates, but it’s not that hard now to keep your eyes open and your ear to the ground using job aggregators (i.e., Indeed, Monster), industry forums, and most importantly, your connections. It pays to look. I doubt most of us are so unbelievably wonderful at our jobs that potential suitors will helicopter to our homes, knock on our doors, and demand that we fill their job vacancy (though I am not opposed to this if anyone out there can make this happen). Strike a balance and keep an eye out.

Lastly, seeking out self-improvement professionally will make you better at your job; this will make you a more attractive candidate. That much is clear to most of us, but “self-improvement” is not “years of experience.” This has more to do with reading new cases, staying current on industry news, and going to seminars/conferences. Every single person who has a job currently is improving in the “years of experience” department – this isn’t a unique criterion.

There will oftentimes be events outside of your control that may loom large in getting your ideal job, but by making a few modifications you can put yourself in a better position to get it. Those willing to put in the time and effort should reap the rewards in the long-term.

Doha Catharsis: More Short-Term Discomfort Should Lead to Proper Recovery

This post also available at my LinkedIn page.

If you totally unplug from energy industry news on the weekend, you’re probably just reading this Monday morning that the Doha foreign oil producers’ meeting ended without a deal. This shouldn’t really have been a surprise, given the manner in which Iran and Saudi Arabia have been throwing geopolitical shade at each other in a commodity-based game of chicken. In fact, there is a pretty reliable pattern of OPEC and foreign non-OPEC participants talking up markets into meetings only to seemingly let oil bulls down when they ostensibly leave without an agreement in place (cue ‘The Price is Right” tuba sounder). We all want energy prices to rise into what I’ve often referred to as a “happy zone” – where producers can profit and jobs are created, but where drivers, shippers and the economy at large isn’t punished with excessive fuel prices.

However, I think that in order to have a better recovery longer term, it’s crucial to go through a proper bottoming process. Had a Doha deal been struck and WTI prices marched up into the $45-50/bbl range, some producers would have been preparing to ramp up production (e.g., Pioneer Natural Resources is expected to start up rigs again at $50/bbl). Allowing shale producers to ramp up said production would benefit those who are financially distressed whose ejection from the industry and energy market is vital for future growth.

Through the ashes of bankrupt and financially-wracked energy companies the seeds are sown for the energy industry to emerge upward like a phoenix (and WTI prices, to boot). If this production kicks back up in earnest before the supply and demand lines on the WTI graphs begin to cross one another (demand preparing to outpace supply), prices are doomed to this $35-45/bbl zombie price range for several years.

The industry seems to be through the worst of it. Just a little bit further.

Double-Down: Using the Energy Downturn to One’s Advantage

We’re over a year into a WTI price crash; hundreds of thousands of positions have been eliminated, rigs have been stacked, and M&A activity has not yet ramped up as typically happens after a price shock (though it should later this year). Many people have left the industry: most involuntarily, but some voluntarily. To be totally candid, I am one of probably many who are really frustrated with the lack of movement in their careers thus far. I happened to join the industry in early 2014, which was not great timing in retrospect, obviously. I came in with no experience – more than two years later, I know now more than ever that I have the skills, abilities and aptitude to succeed in the industry. The only question is trusting the process and believing in the rebound to come.

As I have told many with whom I talk about the energy industry, I truly believe that slow periods are opportunities to bolster one’s repertoire in preparation for the next market upswing. Throughout this downturn, I’ve:

  • Increased immensely my presence on professional social media and at conferences and networking events, as well as becoming more involved with the PBLA and the Institute for Energy Law
  • Acquired more than forty hours of oil, gas, and energy law continuing legal education
  • Written a twenty-five page legal article about the New York fracking ban, a piece to be published about impending reserve-base credit determinations for major energy companies, and a profile piece for Shale Magazine about the Port of Victoria’s role in the Eagle Ford’s rise
  • Maintained a blog (augmented by my posts on LinkedIn) discussing energy and legal issues
  • Written mock title opinions (in lieu of having yet had the opportunity to prepare one for a client due to this current downturn)

This is not meant to be self-aggrandizing; the idea here is to demonstrate that I am doubling-down on the energy industry at a time that others may be questioning their future in it. Although I am personally frustrated with still abstracting title and preparing ownership reports at this point in my career, I realize that title is the backbone to oil and gas law and that honing those skills will serve as an important foundation in my skill set going forward. At the end of the day, my will to demonstrate my work ethic, skills and acumen exceeds my current career-related frustration. I want to continue to be challenged intellectually, grow professionally, and continue meeting and working with the great, hard-working people in our industry.

I encourage anyone reading this who may be questioning their decision to remain in oil and gas to look inside his- or herself for the answer to whether they want to stay; if the answer is a resounding “yes,” then keep chipping away, get to networking events, and work hard to get to where you want to be. The cream will rise to the top once we emerge from these doldrums in which we find ourselves, and the work done during these darker times will reap reward in the times to come.

“Chop that wood.”

This post is also available at my LinkedIn page.