With all of the talk of “lower for longer” and “this time it’s different” – not to mention the truth that fear is finally starting to sink in among forever-optimist Albertans – one has to wonder if oil prices have finally found a bottom.
As I wrote a week ago, oil market recoveries and downturns will never be linear anyway but rather sharp and quick and happen whenever you least expect them. And do not kid yourself: Each and every time the price of oil has collapsed, it has been followed by some sizable recoveries.
In our view, this downturn isn’t unlike others in the past, while offering a tremendous opportunity for those prepared to hold their nose and tuck away several oil company stocks into their safety deposit boxes.
This does not mean there won’t be further carnage within the near-term as numerous companies won’t pull through another 6 months of $30 oil. For instance, during a similar oil supply shock in 1986 roughly 25 per cent of U.S. exploration and production companies went bankrupt.
Last year there were 42 bankruptcies among U.S. shale producers representing more than $17 billion indebted, and the pace is picking up early into 2016. Within Canada there’ve recently been numerous junior producers call it quits, with lots of more on the brink.
To help navigate between your winners and losers and ensure participation within the eventual recovery, here are five key parameters to consider when choosing an exploration and production company to purchase.