How oil price volatility affects us all
This is the fourth or fifth attempt at writing this article as the current market situation is not only volatile but also fluid. On a daily basis one gets bombarded with information that not only conflicts with trends, but also seems to look for green shoots business opportunities to address the declining market sentiment.
Whether one monitors Oil Pros, Splash, Houston Energy Insider, Rig Zone or other reputable oil sector monitors, it is clear that the current situation with regard oil price and associated reduced capex/E&P spend is here for a while and will not be abating anytime soon. Headlines have been interesting with a number of fund managers and investment houses claiming that the likes of Transocean have turned the corner with better than expected forecasts – ignoring the simple fact that they beat a forecast based on poor market conditions and very conservative assumptions, so much so, that it could be argued that if they had not done so, the sector would be in even worse shape.
Despite claims by some in the offshore market, that they are immune from the fall out, I am now finding that fund managers are questioning the validity of these claims that some businesses / sector are immune from the current fallout created by the volatile and low oil price. In particular, there have been claims by those involved in the provision of marine services to offshore shallow water plays as well as those active in the liftboat market. These are arguments used as companies scramble to raise funds in a market that is increasingly finding itself under cash pressures.
In my response, I refer to a recent article that I wrote in which I warn that that one needs to look at the basic underlying fundamentals of a business / sector to test whether the claims given by commentators stood up to scrutiny. This piece will extend this notion and test the claims made in the recent statements made by the likes of the CEO of Triyards (Liftboats) and MEO (Mycelin Express Offshore), both based in Southeast Asia. In essence both suggest that their particular sectors provide services to shallow water fields and this sector will remain robust as these services target the operational / maintenance part of the oilfield cycle. This suggests that operators / owners of this class of oilfield asset, will be largely immune from the current market malaise. Whilst they may be spared from a full frontal assault, I do not believe that they are immune from the fallout. Furthermore, I am of the belief that the liftboat market is on course to create the same market conditions that has led to the despair currently being experienced by the jack up rig market.