Plunging Oil Price Fear

[Brandon Cravens]

I would like to hear from other investors in the Houston area about strategies and outlook for 2015 in this climate of of dropping oil prices.  I am fearful unfortunately and I am trying to fight it.

My elders are full of doom and gloom, citing the 80's disaster. I believe prices will rebound next year once reduced investment in development in estabilished fields and increased demand hits the market but that is just my guess.

What are y'all doing to protect yourself while still staying active? 

[Sam Craven]

Whoa whoa whoa....there is someone else on this board with the name Craven AND you are in Houston....@Brandon Cravens 

Anyhow, we are watching the markets closely and so are our lenders and bankers.  I don't think we are headed for another 80s ghost town scenario.

First, Houston got smart after the 80s and is much more diversified.  This does not mean we are immune to it, we are still heavy oil industry but in recent years Oil and gas job growth has ranked sixth in Houston since December 09.  

We are adding jobs like crazy, 85k in the 12 months since April 2014.  Down slightly from 2013.  With that job growth, and influx of new people comes demand for housing.  Our inventory currently sits at 2.7mo, our record low was 2.6mo.  We have stayed below 3 for quite some time (forget exactly how long).  Will we stay there as oil prices stay low. NO and that's ok.  If a stoic market is 6mo we have a ways to go.  This tells us we are still not building houses fast enough to keep up with demand.  We will catch up eventually, but there is still plenty of demand for houses.

We also have to consider why oil prices are low:

OPEC doesn't like Iran and Russia and Putin has been quite spunky lately.  The drop in oil prices has put Russia in a recession.  How long at reduced oil prices will it take to crush Russia?  Don't know, but OPECs has enough in the vaults to weather its own storm.

US as a country is energy neutral thanks to our fracking technology and various shale plays.

Fracking is expensive, small companies are going to sweating a bit.  When it costs 60bbl to get out of the ground and the market will only pay 45 we have a bit of a problem.  The small are just that...small.  Exxon has said hey are just find at 40bbl oil.  They have assets all over the world, and not all of them require fracking so they are much cheaper to extract.

Here are the rumors i have been hearing:

BP is planing a round of layoffs

Companies are taking a wait and see mentality

prices will only stay down for a year

prices will only stay down for 6mo

Our comapny saw this market correction coming from a long ways away.  Cheap money flooding the industry has inflated values and caused people to chase low return O&G assets.  This combined with our rocketship the last couples years, the writing has been on the walls.  

This is getting long so i want to wrap up.  Houston will see a slow down this year, we were expecting it before oil prices dropped, and frankly...i think its a good thing.  A city that historically appreciates at 4% cannot sustain 12%.  The oil being low will have downward pressure on that even further...but the way i see it...its an opportunity, not a sky is falling we are all going to die scenario.