BULLETIN - June 2016 - (Page 20)

FE AT UR E ■ Surviving in a Downturn: An Examination of Legal and Economic Alternatives BY WILLIAM G. WILLIAMS AND IAN R. HOKE, K R U G L I A K , W I L K I N S , G R I F F I T H S & D O U G H E R T Y C O . , L . P. A . THE U.S. OIL AND Gas Industry is starting its third year of depressed prices. The WTI NYMEX price for oil when it was last above $100 a barrel was May 2014. The price for oil slid more than 50 percent by January 2015 to below $50 a barrel. One year ago, May 2015, it was at $65 a barrel, hit bottom in February 2016, and now is hovering around $45 a barrel. Since the majority of Ohio's Utica well production is primarily from natural gas, that price slide is likewise significant. The NYMEX price for natural gas was almost $5 per mcf in January 2014. The price was last above $4 per mcf in November 2014, and one month later, in December 2014, it was last above $3 per mcf. It then stabilized until it fell below $2.50 per mcf in September 2015, and six months later, in February 2016, it bottomed below $2 per mcf and in May 2016, it is around $2.15 per mcf. Most companies need the WTI NYMEX price for oil to be above $53 a barrel and for natural gas to be above $2.55 per mcf to be marginally profitable in today's marketplace. Of course for every $1 per barrel and $0.01 per mcf above those figures, as long as expenses stay constant, producers will increase their net income. 20 OOGA Bulletin | www.ooga.org The media focuses on E&P companies; however, the vast majority of businesses in the oil and gas industry are the nonproducers, that is, the manufacturers, the suppliers, the service providers and vendors. More than 90 percent of OOGA members are non-producers. The manufacturers of pipe, casing, compressors, pump jacks, proppants, storage tanks, cable, clothing and safety attire, to name a few, as well as their distributors, have been deeply affected. The service providers consist of drilling, cementing and completion companies, fracing and welding businesses, trucking companies, brine and frac water haulers, title agencies, accounting, advertising, engineering, environmental, surveyors, geologic, insurance and law firms. Diversified suppliers provide chemicals, equipment rentals, measuring equipment and gravel. How many businesses will stay above water? How many industry workers will be around and available to be hired when the downturn ends? Just how healthy is your company? The size of the business does not matter; everyone is affected. Due to today's environment, most companies are not financially well-off. Orders have dwindled; accounts payable are large in dollars that are owed. A larger percentage of accounts receivables (aka collections) are over 120 days delinquent, and inventory is at an all-time high. Companies are confronted with common questions and hard choices to make. Most companies are not adequately prepared to fully assess their current financial condition and what they should do to lower expenses, increase capital and cash flow, and prevent lenders from accelerating loan payments. One cannot afford to ignore professional assistance, whether seeking advice from accountants, consultants, financial advisors or attorneys; it would be very wise, sooner rather than later, to proceed with those calls. One must figure that the entire industry is in the same boat, especially if at least 40 percent of the overall business revenue is derived from the oil and gas industry. Downsizing the payroll through layoffs probably is a continuing occurrence leading to low employee morale and possible quality issues. Now, more than ever, outside company-sponsored activities should be considered - golf, softball, tennis leagues, a company outing or picnic, provide lunch http://www.ooga.org

Table of Contents for the Digital Edition of BULLETIN - June 2016

Presidential Paper
EVP Comments
Explorer Foundation Corporate Members
Ohio Senate Introduces Unitization Bill
Anti-Fossil Fuel Activists Sue EPA on Oil and Gas Waste Rules
IOGCC Accepting Nominations for 2016 Chairman’s Stewardship Award
OOGA 2016 Summer Meeting Preview
Call for Abstracts
Surviving in a Downturn: An Examination of Legal and Economic Alternatives
Member Spotlight
Ohio Map of Utica Shale Activity
Prices
New OOGA Members
New Member Profile
Index to Advertisers
Advertiser.com

BULLETIN - June 2016

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