Leading energy banker Matt Simmons is warning upstream oil&gas against knee-jerk reactions, especially cutting back on investment and jobs – battening down the hatches.
He told Energy that, while there is likely to be a slowdown in investment, this is unwarranted given the fact that the pressure to find new oil&gas resources has never been greater.
And, given the ageing workforce and endemic people shortages, there was no sense in firing staff.
Simmons agreed that, with the slump from near $150 oil to $60 oil in just a few weeks, exploration and production companies were right to be nervous. But getting rid of people?
“BP has just announced that it is cutting 5,000 jobs, with more to go,” Simmons said.
“Remind me, didn’t BP just report record earnings?
“And hasn’t BP been one of the companies that has publicly voiced concern about how it is going to replace its ageing workforce.
“Then why on Earth would BP announce that it’s cutting 5,000 workers to keep its costs under control. OK, next set of quarterlies will see a huge fall, but they won’t lose money … they just won’t be producing record earnings.
“The problem with the E&P business is that the current leadership has grown up in an environment where they’ve been there, done that, when it comes to a downturn. That means that, as soon as things start to get shaky, they apparently know that around the corner is another violent price collapse.
“And so, rather than be as dumb as their predecessors, who took it on the chin, they react ahead of time and cut costs.
“If we had a world energy tsar, you might find he would say that the current energy situation is so serious that it should be made illegal for anyone to fire people until they demonstrate good reason. What I’m saying to the companies is, hold on to your people.”
Simmons did acknowledge that the price slide had a positive side in that it appeared to be taking some of the pressure out of oilfield services price inflation.
“There’s a sort of glee in oil company boardrooms. I also see a sense of we’re going to be prudent and pull in our belts. Not too much, of course. But then you start pulling in your belt; it feels so good, especially if you start believing that, if you pull a little tighter, you’ve got the drilling contractors on the run.”
However, he acknowledged that the drilling sector was in a class of its own and would be a tough nut to crack, given that so much of its offshore business was now secured via long-term contracts.
Despite the financial crisis, Simmons said he felt that the petroleum industry was in for a rough, but short, ride rather than prolonged misery.
He hedged his bets too: “We are in uncharted waters, so I might be proven wrong.”
He said it was vital for everyone – not just the oil industry – to realise that the world is facing an energy crisis of enormous scale, only the tsunami remained unnoticed by many. Moreover, there was enormous ignorance of the real situation with regard to oil resources and widespread failure to realise that supply cannot keep up with demand.
Simmons added that the next World Energy Outlook report from the International Energy Agency – due out on November 12, but leaked to the FT a few days ago – would be fundamental to driving home just how tight oil resources are.
“We have no spare capacity in the global system,” he said.
Recommended for you
