Pipeline companies follow producers’ lead in oil downturn
Pipeline and energy transportation companies are learning to adjust on the fly in the oil-slump environment just like upstream exploration and production companies, speakers told a Houston audience Wednesday.
“The world’s changed. As much as it’s changed for the upstream industry, it’s changed just as much for the midstream industry,” said Bryan Neskora, chief operating officer of Houston-based Navitas Midstream, who spoke during the KPMG Global Energy Conference at the Royal Sonesta Houston Galleria.
Because midstream companies’ profits come from fee-based transportation contracts, they’re somewhat less linked to commodity prices than the earnings of oil and gas producers.
But Neskora said pipeline companies are finding that the oil downturn is requiring them to think and act like the upstream sector — focusing their projects in core plays that are still profitable when oil brings $60 a barrel instead of $100.
Pipeline companies, he said, “are laser-focused on the plays that work today.”
“There’s a lot of producers that are continuing to make money at below $60,” Neskora said. “Drilling is starting to ramp up, and we still see $60 oil. I think we’re going to continue to see low prices into the end of the year.”
Heath Deneke, president of the natural gas business for Crestwood Midstream Partners, said there are more opportunities in regional pipelines bringing oil and natural gas to communities and ports, as opposed to major pipeline projects that face greater regulatory hurdles.
The midstream executives predicted oil prices may stay near $60 a barrel or even lower for the foreseeable future.
Keynote speaker Jack Welch, former CEO of General Electric, warned energy companies to think long-term during the oil slump to avoid losing their best employees.
Welch said low oil prices are teaching energy companies to become more efficient and potentially more profitable in the long run.
“I think they’re a lot smarter than they were two years ago about costs,” Welch said.
Cost-cutting has included tens of thousands of oil company layoffs since the downturn started last summer, but Welch urged judiciousness in workforce reductions.
“This is the time to pay your best people more than you ever paid them,” he said. “You need your best people. You don’t need them feeling insecure.”
Welch himself cut layers of management and thousands of jobs as he streamlined GE, which he ran from 1981 to 2001 as the company grew from $14 billion to $400 billion in market capitalization.
Welch was named the “Manager of the Century” by Fortune magazine but also has been called the world’s toughest boss for the job cuts.
He said at the conference Wednesday that the best CEOs surround themselves with the best people. He compared business with sports and argued that the team with the best players wins.
“Finding talent is the toughest job you’ll ever do,” he said. jordan.blum@chron.com twitter.com/Jdblum23