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| Sun, 26th Apr 2020 18:06:00 |
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Op-ed: For Big Oil, this crisis will be different, and it may be irreversible |
The price of oil has gone negative after weeks of oil sands output selling for less than a pint of beer per barrel. Banks are preparing for a wave of oil bankruptcies by setting up their own oil companies to operate seized assets. Regulators in Texas are considering setting limits on the state's production, an approach more reminiscent of Soviet-style central planning than a Republican-controlled regulatory body. An oil company executive just admitted, "No one wants to give us capital because we have all destroyed capital and created economic waste."
And the energy sector's valuation is shrinking to such a degree that it has become the second smallest segment in the entire S&P index, with its weighting down 80% from a decade ago.
All of these developments would have been unthinkable just a few months ago, and yet all are headlines from just the past week in the oil patch. This remarkable shift has implications that go well beyond any near-term damage to the industry's finances. The change in narrative — from a focus on the industry's resilience to its fragility — threatens to reframe how the financial community thinks about the future of the oil and gas industry, and even its very investability in a world beset by geopolitical infighting and looming demand destruction from the low-carbon transition. Long after some semblance of stability is restored to the world economy, the industry's downgrade in investability threatens to be the longest-lasting and most consequential impact of the COVID-19 crisis on the oil and gas sector.
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