If you want to know how the oil industry is faring after the crash in petroleum prices, one of the best place to go for answers is the quarterly conference call fromNational Oilwell Varco. The drilling equipment manufacturerrecently offered four important insights into the state of the industry and how it is dealing with the oil crash.
The quotes below are all from President and CEO Clay Williams.
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Oil crash havingunprecedentedeffect on North American rig counts
The unprecedented collapse in rig count -- down 52% in the past year -- is likely to continue for a few more months.
There is some cause for optimism that the worst might soon be over, as low-cost producers such as EOG Resources have said they will consider restarting drilling when the price of oil hits $65 per barrel -- as of May 13, West Texas Intermediate crude was around $61 per barrel -- and Pioneer Natural Resourcesmight resume drilling as early as July.
Then again, oil prices -- which have rallied 42% since late March -- are notoriously volatile and may yet collapse again.
Can't predict the oil recovery
Oil producers in the United States have proved to be an unstoppable, yet uncontrollable, force in world oil markets. That's because, unlike in major OPEC nations such as Saudi Arabia -- where there is just one state-owned oil company with its hand on the production taps -- U.S. shale oil production is derived from hundreds of companies. Each one makes its own decision on whether to drill, guided only by the invisible hand of the market and its own cash flow requirements.
U.S. production will fall off rapidly
Because shale-oil wells suffer such severe first-year declines in production it shouldn't take long for the large drop in rig counts and new well completions to affect U.S. production. In fact, according to the International Energy Agency, domestic oil production peaked in February and is now in decline.
However, before you break out the party hats and declare the oil crash over, be aware that global crude supplies in April hit a record 95.7 million barrels per day -- an increase of 3.2 million barrels per day compared to April of 2014.The increase occurred because everyone from OPEC nations to Russia is racing to increase production in order to capture market share from U.S. shale producers.
Services providers must act now despite uncertainty
Specifically, the company will focus on early retirement, along with reducing contracted labor, overtime, and the number of shifts, as immediate cost-saving measures.
The takeaway: Oil prices are unpredictable, but oil services companies will pull throughThe oil industry has been around for 150 years and endureddozens of price crashes. Despite the severity of this downturn on the oil services industry, companies such as National Oilwell Varco are well prepared to survive and come out the other side more profitable then ever. Long-term investors would do well to load up on cheap shares now and patiently wait for the inevitable oil recovery.
The article Oil Stocks: 4 Important Insights National Oilwell Varco is Giving Energy Investors originally appeared on Fool.com.
Adam Galasholds no position in the stocks mentioned here but does leadThe Grand Adventuredividend project, which owns National Oilwell Varco in several portfolios.The Motley Fool recommends National Oilwell Varco. The Motley Fool owns shares of National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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