The oil and gas industry is experiencing signs of a slowdown with reduced drilling rigs, E&P financial distress, reduced headcount and a pull back from investors. Industry experts agree that this is part of a normal cycle in the course of oil and gas business. However, the overall theme is that business activity in the industry will slow down in Q4 and as we head into 2020.
Let’s unpack some of this gloom. From a recent Baker Hughes rig report, the U.S. rig count fell for 7 weeks in a row from 898 down to 855 as of this writing. A handful of exploration and production companies filed for chapter 11 bankruptcies during Q3. Some notable independent E&P companies filing bankruptcy include Sanchez, Halcon and Alta Mesa. It has been reported that a few could lead to liquidation and not recapitalization with creditors. The U.S. unemployment rate fell to 3.5 percent in September and employers continued to add jobs. Although, in the oil and gas sector, the industry shed about 5,000 jobs in Texas alone over the past three months. Finally, numerous reports indicate that investors are nervous about investing more into shale properties and would rather see operators control capital expenditures, produce more product and increase cash flow.
There are positive signs out there. Overall the Permian Basin is doing well, in fact New Mexico added five drilling rigs in October. Much needed pipelines to drive product to market have come online and several are due to start next year. There are also several LNG terminals in development and refinery expansions in the Gulf Coast region.