All facets of the oil and gas industry have suffered declines amid the COVID-19 pandemic unseen in previous downturns.
But Shannon Slocum, senior vice president of global business development and marketing and member of the executive committee at Halliburton, believes the lessons learned in previous downturns, specifically the 2015-2016 downturn, have helped companies weather the storm.
“After the second quarter, we believe the rig count is stabilizing and we’re optimistic and believe we’re seeing the beginnings of a recovery,” he said during the Texas Independent Producers and Royalty Owners Association’s 2020 Summer Conference, held virtually last week.
“Nothing dramatic, but a positive start,” he said. “Our industry is not out of the woods yet – far from it. In fact, the energy sector accounts for only 2.63 percent of the Standard & Poor’s 1500, an all-time low. Something needs to change before capital comes back into our space.”
Slocum said that in the past, investors have focused on growth, but “growth-focused investors have left the building.”
Instead, investors are focusing on sectors such as technology and health care that have the ability to grow value.
“To make oil and gas investment cool again, operators and service companies need to work together to meet Wall Street expectations. We must collaborate. Halliburton thinks about collaboration a lot. The deal for growth at any cost is over and not likely to come back anytime soon. Cost discipline is the first step in meeting investor expectations for cash flow and return on investment,” he said.
The twin blows of the pandemic and the oil market crash have accelerated the industry’s digital transition that was already underway, Slocum said. Technology and innovation in digitalization will unlock the potential to structurally lower costs, shorten the time to first oil production, increase optionality in exploration and production and enhance values across the entire value chain, he said.
In the future, technology to extract fossil fuels with the lowest carbon footprint will be in demand, and that will require retooling, training and rethinking processes as well as a diversity of thought and the strength to take the necessary action “to thrive and prepare for eventual market recovery,” Slocum said.
He said Halliburton views smaller customers as a resilient base that is also incredibly innovative and were key to unlocking the nation’s unconventional resources and launching the shale revolution.
“It gives me a lot of comfort knowing that, in today’s market, it’s not all about growth; it’s about returns, capital discipline. It gives me comfort that this base will be able to maneuver through a completely different market.”
Slocum predicted that the service market will always have competition, that service companies that are efficient, work safely and effectively will be competitive. He said he doesn’t expect the current downturn to result in such consolidation that only a few large companies like Halliburton will be left standing.