What’s Coming Down the Pipe in 2016?
The New Year is off to a strange start as much of the country is just now starting to feel like winter is finally here. Some parts of the northeast experienced record warm temperatures in December which have not helped to reverse the year-long downward trend for oil and gas prices. Natural gas is currently at lows not seen in decades as inventories continue to grow. 2015 was a year inundated with bankruptcies and layoffs in the energy sector. The Wall Street Journal reported that 36 North American producers filed for Chapter 11 bankruptcy this past year. Along with the bankruptcies came hundreds of thousands of layoffs across the oil and gas industry. Texas and Oklahoma were two of the states hit the hardest as much of the workforce relies on the energy industry for good paying jobs.
So what is coming down the pipe in 2016? From the current vantage point, it appears this year might look a lot like last. Both oil and natural gas remain in oversupply domestically and abroad. The largest producer, Saudi Arabia, has chosen to put market share ahead of profits, refusing to make production cuts and adding to the stockpiles. Slowed growth in some of the largest economies such as China have further curbed demand for petroleum products across the globe. As the glut continues to grow, more North American companies are expected to file for bankruptcy this year, and perhaps at an even higher number than seen in 2015.
One interesting thing to note for 2016 is that the ban on exporting crude oil, put into place in the 1970’s, was recently lifted and the first shipment of U.S. oil has departed from the Gulf Coast. The ban was put in place at a time when it was thought the U.S. was running out of oil. Large reserves discovered in areas such as North Dakota’s Bakken, coupled with advances in technology which have made production more efficient and more economical have debunked the idea that the U.S. would run out of oil in the near future. U.S. News & World Report quoted Jack Gerard, president and CEO of the American Petroleum Institute, saying, “The geopolitics of energy will never be the same,” making the case that tensions in the Middle East will no longer impact oil prices the way they have in the past.
As for Legacy Royalties, we are looking forward to a new year and new opportunities to value oil and gas properties for sale and acquisition or other needs where an oil and gas royalty valuation is required.