Oil Executives Are Confident That the Future Is Bright

BP CEO Robert Dudley. Photo by Christophe Morin/Bloomberg News

Oil prices are down nearly 10% over the past month, leading some to wonder if we're set for a resumption of the plunge seen between 2014 and early 2016. Executives at oil companies, however, are optimistic.

A new note from Goldman Sachs Group Inc. dives into fourth-quarter earnings calls to get a sense of how these CEOs were dealing with the downturn that has been dragging on for nearly three years. The team of strategists, led by Peter Hackworth, came away with good news for oil bulls.

"There is one clear message from the 1,000-plus pages of fourth-quarter transcripts: that most CEOs believe that the worst is over, and the time for growth is now," the team wrote. "While some management teams expressed more caution than others, the industry as a whole is retooling," they said, adding that they estimate 85% of the companies that they cover are planning to increase capital expenditures in 2017, a sign that they believe they'll need to increase production soon.

Another helpful bit for the industry is that throughout the sustained downturn, many firms have learned to "do less with more," so that when prices do turnaround, they get an even bigger benefit than before.

Here are some of the highlights:

Schlumberger Ltd. CEO Paal Kibsgaard was most definitive in saying we've hit the bottom. "Recovery is on its way in all markets,'' he said.

Halliburton Co. CEO David Lesar was bullish on M&A for the industry:

"In 2Q ... customer animal spirits were back in North America. Last quarter ... these animal spirits were alive but somewhat caged up. Now these animal spirits have broken free, and they are running."

Ecopetrol SA CEO Juan Echeverry spoke directly to Goldman's point on companies increasing capex.

"Investing in exploration will be more than doubled ... from $250 million last year to $650 million. [This] will get reflected in a total of 17 exploratory wells to be drilled vs. seven last year."

BP CEO Robert Dudley also spoke to new spending in the firm's latest analyst meeting.

"2017 is one of the largest years for commissioning new major projects in our history."

BP also noted that cost savings is going to be extremely helpful.

"40% of our savings to date from our supply chain have come from efficiency as opposed to rate. ... Around 75% are then sustainable in any environment."

Suncor Energy Inc. CFO Alister Cowan also pointed toward the ability to continue to save.

"We estimate that approximately two-thirds of the savings we've achieved are structural ones that are not expected to come back ... as crude prices rise."


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