Christopher B Strong
Vinson & Elkins LLP
2017 has been a transitional period for the international oil and gas industry.
With the industry enduring a third straight year of low oil prices, and with no prospects for a significant increase in sight, participants in the industry have been forced to adapt. Oil companies must continue to be disciplined, allocating scarce capital only to their best prospects, and shelving less promising projects for future years. Some in the industry have already started to worry that by reducing capital expenditures the seeds of a future price shock are being sown.
Oil-producing countries have been in a similar pinch. Having become accustomed to triple-digit oil prices, the ‘new normal’ of US$50 oil has produced a grim budgetary reality. Producing countries that had only recently tightened fiscal terms in response to high oil prices must now considering loosening them again in order to attract investment. In Saudi Arabia, the world’s largest producer, plans are afoot to sell a minority stake in the company to foreign investors in order to raise cash to diversify the country’s economy, a move that would have been unthinkable a few years ago.
The international oil and gas industry has always been cyclical. Although the last three years have been eventful, they are by no means the first downturn the industry has faced, nor the last.