These days, you can’t swing a dead cat without hitting someone babbling on about the recession (come on folks, it is a depression), its likely severity, and the chances of an early recovery in oil and gas prices. The noise is getting louder and louder, not that it is doing any good. It’s one of those situations wherein “if you can’t beat them, join them.” However, rather than indulge in rank speculation (which I assure you I am capable of) I will pass on a more learned assessment courtesy of Ernst & Young. In a recent news release, the company reported its thoughts on recovery of oil and gas prices based on an analysis of past economic trends.

The report notes that oil and gas prices have fallen 75% from their high in mid-2008. That is the steepest decline in history. Granted that the price of oil was far higher than it had ever been, exacerbating the precipitous decline. The severity of the fall, and of our current economic crisis, can be attributed, according to the report, to the cascading effect of the economic melt down. Here is how it shakes out.

Point noted, you say, but where the heck are we in terms of recovery? The report points out that previous oil and gas price downturns have lasted an average of 73 weeks. We are now 35 weeks into the current downturn or, if this analysis is correct, about halfway through the crisis.

While we await the recovery, the report suggests several things that the industry might do to prepare for the pending upturn, primarily sustaining activity, carefully managing cash, and investing in alternative energy. That is, of course, if you have the cash to sustain activity and make investments. That seems to be a bit of a problem for some folks, including the Venezuelans.

You may have noticed that Venezuelan President Hugo Chavez won a vote to abolish term limits overwhelmingly in mid-February. A number of pundits have speculated that the run up to this vote may have distracted the folks at PdVSA to the extent that they did not arrange to make overdue payments to Schlumberger, Halliburton, and several other service companies. While it is true that PdVSA workers were given time off to distribute literature and march in support of the abolition of term limits, it hardly seems plausible that this is the case given that PdVSA revenues have also fallen dramatically. Much more likely is that PdVSA just does not have the money to make the payments.

With 38 weeks to go, if Ernst & Young have got their sums right, they will have company before this is all over.

But there is some brightness in all this. You will note from the table above that we have not responded as we did previously. Thus far, we have not laid down as many rigs(in the US), indicating we have not abandoned activity as fast as we have previously. We are leaner and meaner. It appears we might have learned a few things after all. Ernst & Young agrees.

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