The Sky is Falling - Again: Oil Price: Biggest Factor Affecting the Industry

Abstract

Forum The slumping oil price is the talk of the industry. From field hands and technical teams getting laid off to slowing down of projects until 2016 or later, the oil price is affecting many in the industry. The Way Ahead Forum section editors sat down with stakeholders from different sections of the industry to get a better picture of what the recent oil price changes mean to business. What would you define as “low” in oil prices? Euan Mearns (EM): This is a good question. The best answer I can suggest is that the price is low when it falls below the level where companies can make a profit. The corollary would be that the price is high when companies make large windfall profits. Since different companies and states have different operating costs and these operating costs vary with time, there is no unique definition. But I believe at USD 50/bbl few, if any, companies are making a profit, hence we may safely assume that USD 50/bbl is low. Jared Wynveen (JW): Generally speaking, I think a low oil price is one in which we can no longer sustain continued development and expansion of our resources. Depending on the play, low pricing might be anywhere from USD 40/bbl (WTI) to USD 80/bbl, but ultimately it all depends on the specifics of the operator, the reservoir, and the product quality. James Fann (JF): Energy prices have always historically moved in cycles. Instead of thinking of a low oil price as an absolute number, for Canadian energy producers, I would suggest a low oil price would be one such as to slow down and potentially stop the development of new projects or expansions that would increase the oil supply. This price would cause supply to either decrease or remain flat.