How oil price volatil­ity af­fects us all

Mizzima Business Weekly - - BUSINESS // NEWS -

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.

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