The continuing ructions and volatility within and surrounding the world’s oil and gas industries provide endless opportunity for pontificating about “The Saudis vs. Shale,” or speculating upon when and if the Russian kleptocracy will be forced to distract a restive population from the economic consequences of the regime’s crippled tax and revenue bases, and contracting GDP, by pursuing further foreign adventurism against its serried ranks of “enemies” – sightings of little green men will rise and spetsnaz camouflage will be so “in.” No doubt the next great Existential Oil Novel is already being written – unfortunately “There Will Be Blood” has already been thought of! Perhaps: “The Lost Rigs of the Bakken,” or “How Far Is It From Spindletop to Marcellus?” And as for visual entertainment, “Dallas” will have nothing on “Wild in Williston.”
Of course, it is easy to mock the commentariat’s output, or the doom-mongering prevalent in some quarters. But consider this: oil still matters. The Saudis may already have indicated that they are planning for a post-hydrocarbon world (a nuclear Saudi Arabia, anyone? Reactors in Riyadh…), but oil (or natural gas) still makes the wheels on most buses go round and round; and will almost certainly have to continue to do so for decades to come. Hydrocarbons are not going to become stranded assets just yet, in spite of the hopes of the renewable energy advocates (and we are not in any way disparaging the latter.)
There may be over-supply globally (currently estimated at up to 3MM BOE/day by the IEA), causing a potentially sustained imbalance, with weakening demand in the short term. Over-leveraged or inefficient operators will default- they already are- and hundreds of billions of dollars worth of projects are being and will continue to be cancelled; but both oil and natural gas E&P remain huge, capital- and operationally-intensive industries, with multiple components, each of which has its own risk factors and particular needs. And bear in mind that there are many other significant industries that exist to serve the E&P core- service providers, pipelines, refineries, shipping companies, construction specialists, let alone all the others that only exist because of our hydrocarbon-based economy.
At Awbury, we try to spend at least some of our time in identifying themes and trends that will have a material impact in our E-CAT (Economic and Financial Catastrophe) risk arena, and provide opportunities for us and our partners to underwrite profitable risk-adjusted business in areas whence many, if not all, the “sane” people- and by “sane” we mean those who have mental “framing” issues, because perceived wisdom deems “x” to be a Bad Idea- have fled.
Therefore, to us, the current dislocations, risk aversion and declines in capacity that a truly essential, far from monolithic or homogeneous, industry faces represent an opportunity to analyze the various industry sub-sectors and the financial products they find essential (such as P&A bonds), but in increasingly limited, or rather more expensive supply; and to structure programmes that will enable those participants that have a sustainable business model to continue to thrive, prosper and absorb their weaker competitors.
Perhaps you should call us?
– The Awbury Team