Oil Executives: We Will Survive

BP Deputy Chief Executive Lamar McKay, above, said the energy industry will adapt to this “brutal” period of low oil prices. ENLARGE
BP Deputy Chief Executive Lamar McKay, above, said the energy industry will adapt to this “brutal” period of low oil prices. Photo: Bloomberg News

HOUSTON—-Beleaguered oil and gas executives sounded a common message here at this week’s annual IHS IHS -0.27 % CERAWeek energy conference: Blood may be in the water, but it isn’t ours.

Forced to reckon with a prolonged period of low energy prices, oil chiefs sought to portray themselves as steely survivors in an industry grappling with spending cuts and asset sales.

Many executives counted how many previous crashes they had weathered. Some took solace in the musings of philosophers from the 19th century.

Company executives nonetheless were emphatic on two points: Their company will pull through. And whenever the price rebound comes, they will be ready to take advantage of it.

“Times are tough, you’d almost call them brutal right now,” said Lamar McKay, BP BP -1.59 % PLC’s deputy chief executive officer. “But we will adapt. We will make it.”

The dour mood reflects the realization that no cavalry is coming. Energy companies are likely to stay mired—for months if not years—in a global oil glut that has sent crude prices to $ 30 a barrel.

That became clearer Tuesday when Saudi oil minister Ali al-Naimi told a packed ballroom here that the kingdom had no plans to cut its output to boost prices. Instead, the world’s largest oil exporter is banking on market forces to drive out companies saddled with higher production costs. That, in turn, would reduce global supplies.

Mr. Naimi said his country was prepared to withstand $ 20 crude if needed to thin the herd.

Oil prices, which had rallied last week on news of a tentative agreement by Saudi Arabia, Russia, Venezuela and Qatar to freeze oil output, fell 4.5% Tuesday. Recently, the benchmark U.S. price was 0.9% higher at $ 32.15 a barrel.

Energy companies have cut more than 300,000 jobs world-wide since mid-2014, when crude-oil prices began their tumble from $ 100 a barrel, according to Houston consulting firm Graves & Co. Globally, nearly $ 1.5 trillion of spending will be canceled from 2015 to 2019, according to IHS, a consulting and analytics firm. The spending cuts will push U.S. shale output down by 600,000 barrels a day this year and by 200,000 barrels a day in 2017, according to a forecast unveiled here on Monday by the International Energy Agency.

Troubled energy companies also can’t count on well-financed white knights to save them by writing fat checks for oil and gas acreage—at least not until oil prices show signs of stabilizing, said Bobby Tudor, CEO of energy-focused investment bank Tudor, Pickering, Holt & Co.

“There’s just no money coming into the system,” Mr. Tudor said.

At least 48 North American oil and gas producers have filed for bankruptcy protection since 2015, imperiling more than $ 17 billion in debt, according to law firm Haynes and Boone. More are soon to follow, shale pioneer Mark Papa, the former CEO of EOG Resources Inc. EOG 2.21 % and now a partner at energy-focused private-equity firm Riverstone Holdings LLC, told attendees here.

There will be “a lot of bodies, a lot of bankruptcies,” said Mr. Papa. “The management teams that survive are going to come out of it and be a lot more conservative.”

The mood this week was certainly a departure from the swagger of previous years, when executives emboldened by high prices and the heady promise of shale oil touted multibillion-dollar expansion plans or “moonshot” drilling programs. Still, some executives sought to convey confidence that, while the industry may suffer, their companies were well positioned to ride out the storm.

Steve Williams, CEO of Canadian oil producer Suncor Energy Inc., SU 1.39 % vowed to increase output even if prices weaken further. Although costs for producing in Canada’s oil sands are among the highest in the industry, Suncor can turn a profit at $ 20 a barrel from ongoing operations that already have been funded, he said.

“We will be one of the last guys standing,” Mr. Williams said.

Top executives at dozens of other companies, including BP, Total SA TOT 0.30 % and Eni E -0.79 % SpA, made similar pronouncements about their ability to outlast the bust.

Hess Corp. HES -0.52 % CEO John Hess said the company would survive because its costs are lower than its peers’ and it doesn’t have much debt. Hess reported a loss of more than $ 3 billion in 2015, its first in more than a decade.

“Our company has some of the best acreage,” Mr. Hess said. “We can be more resilient as prices recover.”

While many speakers acknowledged the current hardship, they also took comfort in the idea of an eventual rebound, asserting that the era of low prices has chastened them.

Night is darkest before dawn, said Joe Kaeser, CEO of Siemens AG. His remarks captured the Darwinian mood. To survive a bear attack, one needn’t outrun the bear, just out-sprint another person running for his life, Mr. Kaeser joked.

Former BP CEO John Browne, now executive chairman of L1 Energy, quoted German philosopher Georg Wilhelm Friedrich Hegel in expressing hope that the industry will be better prepared compared with past crashes once prices rebound.

“Hegel says if there’s one thing history teaches you, it’s that history doesn’t teach you anything,” Mr. Browne said. He added: “I hope that we will actually do the things that we can do properly and just don’t get carried away as we did during the high prices.”

Write to Bradley Olson at [email protected]


WSJ.com: US Business

About The Author