ECC: ‘Quite Healthy’ Oil Price For Long Term

DALLAS—“Don’t get too depressed,” Paul Sankey advised attendees at Oil and Gas Investor’s Energy Capital Conference on March 2. “The oil price looks quite healthy long term.”

The managing director of Mizuho Americas LLC added that the potential for capital discipline among U.S.-based E&Ps is helping to achieve a more balanced market this year.

That said, 2020 will be another tough year for the oil market regardless of what OPEC does when the cartel’s members meet on March 5. “My expectation is that the meeting will be a disaster,” Sankey said, adding that “essentially, they’re all cheating.”

How tough are times? The title of Sankey’s presentation was “Nothing to see here—Only explosions, assassinations, fire, plague, Greta and dividend growth.”

The industry’s issues originated with companies’ strategies of pursuing growth over returns, Sankey said.

“The assumption was that the price of oil price would be higher in the future,” he said. “The problem is that equity markets don’t believe that” and instead believe that prices will be lower in the future.

During his opening keynote at ECC, Sankey also addressed the energy transition.

“As the conversation on climate improves—thanks to Greta [Thunberg, the Swedish teen activist]—they will start to realize that they will need to continue to use oil and gas” due to a lack of alternatives. Simply shifting to wind and solar is just nonsense, he said.

‘Brutal’ Equity Market

Neal Dingmann, managing director of energy research at SunTrust Robinson Humphrey Inc., said he had yet to see signs of life in the public E&P equity market.

“Things have been brutal so far,” he said during a capital markets roundtable.

He added that investors not only want to see free cash flow but sustainable free cash flow, noting that “free cash flow is irrelevant if leverage isn’t in check.”

Also on the panel was Bill Lambert, managing director with the Goldman Sachs Group Inc., who pointed out that some companies were able to issue debt earlier this year. However, he added, those are trading pretty terribly now, he added.

“The markets are in a state of panic,” Lambert said, adding that a lot of that panic is unfounded.

“Broadly speaking, when we look at it we still see a pretty active market backdrop,” he said. “But from a broader macro backdrop, we see growth.”

‘Debt Wall’

The global oil and gas supply picture has changed dramatically over the past several years, said Tom Petrie, chairman of Petrie Partners, during a special address at ECC. He also called the coronavirus a “black swan event that will come and go.”

What concerns Petrie most is debt.

“We have a real debt wall of worry in the next decade,” he said, noting that $110 billion will be coming due.