August 2015, Vol. 242, No. 8

Editor's Notebook

Getting Older Should Also Mean Getting Wiser

Jeff Share, Editor

I remember the last time I saw my late father-in-law, Rex Brassfield, who lived the quiet life with his lovely wife Verna in the southwestern Colorado town of Montrose. Rex was in his 80s, wracked by the painful arthritis that crippled his hands and left him in constant discomfort.

But Rex never lost his integrity, his interest in world events or his sense of humor. That day he looked at his hands, now shriveled into the shape of unbending claws, shook his head, smiled at me and said, “Jeff, getting old sure isn’t for the weak of heart.” Rex passed away last September and Janet and I miss him terribly. I remember his comment because I’ve been thinking along the same lines: living in Texas isn’t for the weak of heart either.

A couple of columns ago I mentioned how the military exercise called Jade Helm 15 was coming to Texas and some nearby states. Of course, this has raised the hackles of some paranoid Texans who are dead certain it’s really the start of a federal attempt to take over the state. Paranoia is not new to Texans, even to those in the oil industry.

If you don’t believe me, read Bryan Burroughs’ excellent book, The Big Rich, which focuses on the ultra-conservative record of the state’s first billionaire oilmen: H.L. Hunt, Roy Cullen, Clint Murchison and Sid Richardson. How much that’s changed since their heyday is anyone’s guess, but it hasn’t disappeared. Even Gov. Abbott has gone along with the insanity, ordering the State Guard to monitor Jade Helm 15.

I can imagine what Rex would have said about all this. Like me, he would point to the oil price crisis as the real story in Texas with tens of thousands of jobs being lost in our industry and no end in sight. The price crisis, brought on by the glut of U.S. shale production that far exceeds global demand, is now a year old. Record stockpiles of crude and petroleum products are so large that Cushing is running out of storage.

The price of WTI is barely above $50 a barrel with some observers forecasting that gasoline prices will again fall to $2 a gallon this fall. With OPEC’s war against shale producers, Iran’s crude – 40 million barrels stored in tankers – Canadian crude returning to U.S refineries after the wildfires in Alberta, and a weaker Chinese economy, we are experiencing not the traditional boom-or-bust cycle, but a monumental retrenching of the energy industry.

A strong indicator comes from industry bellwether Schlumberger Ltd, the largest oilfield services provider. CEO Paal Kibsgaard told analysts July 17 that he expects little improvement in pricing levels in the near future as customers retain a tight lid on budgets. Schlumberger expects E&P investment in North America to fall over 35% vs. an April forecast of 30%.

“The dramatic reduction in activity in the U.S. has created a massive capacity oversupply in the service industry with pricing quickly plummeting to unsustainable levels…There’s going to be a further impact of pricing in the second half of the year. We haven’t seen the full impact of that. There will be little to no improvement in pricing levels in North America and hence the market will still remain very challenging for the foreseeable future,” he said.

“On the supply side, the global market share battle between OPEC and the high-cost producers is still playing out with the first signs of flattening North America production starting to show.”

Anxiety among the producers is also affecting the pipeline business as more projects are being put on hold or shelved because of their reluctance to commit to long-term contracts. That’s why we’re seeing a burst of M&A activity in the midstream sector. Companies built on master limited partnerships have to constantly show growth in order to pay their unitholders the dividends needed to encourage their investments. With construction lagging, they turn to increasing their holdings via strategic M&As, which is why Energy Transfer is desperate to acquire Williams Cos., why Marathon bought Mark West, to name a few.

And that brings us back to Jade Helm 15. As ol’ Rex might have advised us Texans, shouldn’t you be more worried about where that next paycheck is coming from? With so many Texans losing their jobs and forced to collect unemployment, do you really want to bite off the hand that feeds you?


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