The US oil and gas industry will emerge from its doldrums structurally changed and perhaps relocated, according to a scenario that took shape at the RMI Oilfield Breakfast Forum in Houston July 28.
“This isn’t an exploration and production industry any more,” declared Jim Wicklund, principal and energy portfolio manager of Carlson Capital LLC, Dallas.
With natural gas abundant and prices low in comparison with oil, publicly owned independent producers have shifted from drilling mainly for gas toward a new emphasis on oil.
Furthermore, Wicklund said, “Gas exploration in the US has ceased” because of the growing domination of shale plays and the consequent reorientation to development and related technologies.
Wicklund called on oil and gas company executives to focus on long-term objectives, saying they “must not let short-term investors dictate strategic direction.”
During questions, Wicklund agreed with a fear expressed in a presentation by Larry Dickerson, president and chief executive officer of Diamond Offshore Drilling Inc., of a migration of operating and service companies away from the US.
Dickerson said drilling rigs generally are leaving the Gulf of Mexico because of hurricanes, aging infrastructure, and the availability of more-appealing contracts elsewhere.
“We’re losing the base of operations that runs this industry,” he said.
And tax proposals of the administration of President Barack Obama and others under consideration by Congress threaten to impose burdens that would push companies—or at least their headquarters—away from the US and possibly diminish Houston’s role as a global center of industry technical innovation.
“Why drive that out of the country?” Dickerson asked. “I don’t know.”
Wicklund agreed that the industry is “poised to leave the US if it [the tax regime] gets too onerous.”
Wicklund, Dickerson, and Joseph Ash, Devon Energy Corp. vice-president of offshore exploration, all cited politics as the industry’s biggest challenge of the next 12 months.
Ash said uncertainty about future taxation represents a stronger impediment now than it usually does to planning.
A fourth speaker, Munawar Hidayatallah, chief executive of Allis-Chalmers Energy Inc., pointed to a different challenge: the continuing banking and liquidity crisis.