As another year comes to a close, our experts revisit their predictions on 2019 including the Permian Basin performance to the frac holidays that were heavily discussed in early 2019. Then, they'll play a quick game of "Would You Rather" to make their 2020 upstream oil and gas predictions. Reed Olmstead from our North America Plays & Basins team, and David Vaucher, one of our on-shore services and materials experts join the latest episode of Upstream in Perspective. Listen to the full podcast.

Hill Vaden:

Transitioning from Disney princesses to oil field sector, going into 2020, who is going to have the better year in North America - oil field services or onshore operators?

David Vaucher:

We had been given a little bit of a sneak preview of some of these questions. I think the difficulty for a lot of these is you have to lay out a set of conditions. I think if we're just going a quick answer between service companies and operators, it's hard to see how the operators don't have the upper hand here. I mean service companies are oversupplied. The capital market is dried up. Debt markets have dried up. The operators have the upper hands. So, for me on that one, I'm going operators.

Reed Olmstead:

I will too because the operators are judged on metrics that they can achieve. They're proving they can achieve that. They've got visions and lines of sight to achieving those goals. Part of that is at the expense of the already downtrodden and beaten service sector. That's not to say that operators are going to just flourish in 2020, but if I had to pick, I would much rather be in an operator office than a service sector office.

Hill Vaden:

There's been a lot of headlines from both sectors coming out of the third quarter earnings on strategic alternatives and Chapter 11s and even Chapter 22s for those companies who have filed Chapter 11 twice. Do we think there's going to be more bankruptcies from one side or the other?

Reed Olmstead:

I would expect of the names that you would track, I'm going to guess we'll probably see more operator bankruptcies only because it's a larger pool.

Hill Vaden:

Because there's more of them.

Reed Olmstead:

Yeah. So, it's just a numbers game. There aren't enough. The service sector, in my opinion, has already bled as much as it can almost, hopefully. I think we'll probably see more bankruptcies and M&A and that type of thing, strategic alternatives, you might say, whatever those may be, on the operator side.

Hill Vaden:

Well, then looking at potential upside from commodity, upside surprise in terms of price looking at oil or gas? Where do you think there's more upside price risk?

Reed Olmstead:

Wow, I haven't been asked about upside risk in a while.

Hill Vaden:

This is a positive show. We've got to keep the kids listening.

Reed Olmstead:

I mean it's tough, and I'll ramble here for a minute. I think markets improved. I said this three years ago. We were on a call internally, and I said I struggle to make a case where oil gets above $55 sustained in the next five years. Yeah, we had the blip in 2018 up to $75, so I'll eat a little crow on that, but for the most part we've been kind of stuck at a $58 and below level. The US has proven it can respond at that price. So, when you're looking at our price outlooks, which are based on our demand outlooks and couple that with our global supply growth from various other countries, it's tough to come up with upsides short of the geopolitical situation or something like we had in September with the physical outage that nobody saw coming. So, I struggle to come up with an easy way to foretell, okay, we missed oil price on this way.

Reed Olmstead:

Gas, our outlook for gas is so dismal that I've got to hope there's only upside risk. I can't see operators surviving in a sub $2.00 gas price long-term. I would say on that sense we're already at the floor on gas price. I can't come up with what it is, but there is no downside risk to the gas price in my mind, in our gas price outlook, so it's got to have upside risk.

David Vaucher:

If you're just asking me quickly either/or, what's got the most upside, it's oil.

Hill Vaden:

Oil? All right.

David Vaucher:

For sure. I think of the two, if you said, "Okay, which one would you choose?" it's oil for the upside.

Listen to the full episode including more 2020 upstream oil and gas market predictions.

In the episode, we also talk about our April Fool's Day video competition. See how Reed faired in the competition on our LinkedIn post.

Ready to explore our upstream insight services? See more about our plays and basins research and onshore materials outlooks.

This article includes information from an audio conversation and has been professionally transcribed as accurately as possible. Some words or phrases may have been unintentionally excluded.

Posted 27 December 2019

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.