The oil industry has taken it on the chin over the last few months.
Prices have fallen along with revenues, and the renaissance in US oil production has turned into a nightmare.
According to Diamond Offshore Drilling CEO Marc Edwards, the bad dream for the oil industry isn’t going to end anytime soon.
“For a little over a year, I have expressed view, we are facing a severe and prolonged down cycle,” he said during his company’s quarterly earnings call Monday. “And today it seems clear that the oversupply of drilling capacity may persist well into 2017 and possibly beyond.”
Diamond is one of the largest offshore drilling providers in the US. The issue for the company is that offshore drilling is much costlier than land drilling, and as companies cut back on costs, it makes sense to start with more capital-intensive projects.
Diamond reported a loss of $245 million in the fourth quarter of 2015, and a loss of $274 million for all of 2015. Additionally, the company eliminated its quarterly dividend, which it had paid since 1997.
Edwards also reiterated that not every oil company will make it out of the downturn.
“There will be winners and losers in offshore drilling as we progress through what is frankly a super cycle,” he said.
“Deepwater drilling will recover, of that I have no doubt. What I can’t tell you is when.”
To make it through, Edwards said, his company is not only eliminating their dividend, but also considering mergers and/or acquisitions, buying distressed assets, and other crisis measures to stem to tide.
On the cheerier side, Edwards said that eventually basic economics will kick in and the downturn will end (emphasis ours):
“Eventually however, the price of oil should stabilise at a much higher price than where we are today and deepwater production should again be a growing component of total global energy supply. We are in a cyclical business and eventually our clients’ priorities will shift from reducing spending to growing deepwater production and reserve replacement. The industry may look different in the future, but supply and demand will eventually comeback into balance.”
Based on Edwards’ comments he feels that yes, it looks terrible now but there will be a comeback. When it comes, however, and who makes it until then are still up in the air.
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