Remember the end of 2014 when the oil crisis started? Barrels of oil were priced at over $100, and the word on the street was, “E&P companies can break even with oil at $60 per barrel; hopefully oil will not go under that level.” Of course nothing worked out as we had hoped, and oil crashed down to the low to mid $30 range for most of the remaining two years. In order to survive, the industry reacted by laying off a massive amount of people and started thinking outside of the box about ways to be more efficient. In a way, it is similar to wars: It is when we are under the worst pressure to survive that we come up with the greatest ideas.
I have always believed in something a very good mentor of mine used to say: “When you have a lemon, make lemonade.” So two years later, we now see most E&P companies coming to the consensus that, thanks to their efforts, they can break even at around $40 a barrel. And with oil prices steadily increasing above $50, it is not surprising to see these same companies investing again and planning to steadily start drilling more wells. However, are they going to have a short memory and give up the “outside of the box” solutions they had adopted that allowed them to increase their profitability per capita employed? Companies have been so efficient at managing their cash flows, are they going to change their strategies now and go back to the old ways?