Sunday, April 22, 2007
“Send Roughnecks, Rigs and Money…”
I went home with the waitress
The way I always do.
How was I to know
She was with the Russians, too?
I was gambling in Havana
I took a little risk
Send lawyers, guns and money
Dad, get me out of this—ha!
—Warren Zevon, "Lawyers, Guns and Money"
Ah, conference call season is upon us once more.
And once more it provides Wall Street’s Finest, and anybody with a telephone or a web connection, the chance to assess the world’s economic health from the ground up via the results, both good and bad, of the companies which, to paraphrase Jimmy Stewart’s “It’s a Wonderful Life” character, do most of the working and paying and growing and shrinking in the U.S. and abroad.
So far, generally speaking, so good—despite the fondest hopes of the bond market, which continues to expect the Federal Reserve to slash interest rates any day now, despite the presence of gold, oil, zinc, copper, aluminum, gasoline and labor rates at or near all-time highs.
(Just last week, New York City announced the lowest unemployment rate in its recorded history—i.e. since the high-inflation days of 1976.)
And, as usual, one of the most interesting perspectives thus far has come from perhaps the most truly international of companies—Schlumberger, the oil service giant that began operating in Africa in 1923 and what was then the Soviet Union in 1929.
As the Schlumberger CEO said in his opening remarks,
We continue to believe the most fragile element of current supply projections is the age of the existing production base and the consequent failure of current activity levels to slow decline rates. This environment, when coupled with delays in the increasingly complex projects that our operators are undertaking means the supply response to create adequate levels of spare production will take longer than we originally anticipated.
—Andrew Gould, Schlumberger CEO
If Gould is to be believed—and I think, at the very least, like Will Loman, attention must be paid to the CEO of the world’s most international oil service company—the world’s oil and gas reserve situation is not nearly as close to a Goldilocks supply/demand balance as the bond market appears to think.
Here’s how Mr. Gould expanded on those opening remarks, at the request of one of Wall Street’s Finest:
Mike Urban – Deutsche Bank:
You addressed this a little bit but wanted to dig a little deeper into your comments on the project delays and the supply response or lack thereof. This sounds like a step-up on your comments which were to date have been pretty bullish already. Just wanted to clarify exactly what you're getting at. I guess the question is are you suggesting that both the amplitude and the duration of the international cycle are extending or is is it that activity might be pushed out but that's okay because you're going to see supply disappointments and that means the oil price stays high or a little of both?
Andrew Gould – Schlumberger CEO:
…. In terms of the decline rate, our feeling is, and I think there are theaters of activity like the North Sea where you can see this very clearly, that because the resources that our customers have are very much tied up on new development projects, there is insufficient money being spent on stemming the decline rate in their existing production base, and it is not the unwillingness to spend it.
It is just that they don't have the rigs, equipment or people, particularly people, to do that. To the extent that not enough money is being spent on stemming the decline rate, it makes it that much more difficult to increase production. [Emphasis added.]
So in one sentence we have shortages of competent oil service workers, sufficient drilling rigs and the money to supply both labor and capital equipment to the world's most pressing economic issue: the supply of energy at economic prices.
If Warren Zevon were still alive, he might be revising his wonderful original lyrics thusly:
“Send roughnecks, rigs and money…”
Our readers can fill in the rest.
I Am Not Making This Up .
© 2007 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
Posted by Jeff Matthews at 11:55 AM