oilrpiceeffect

Historic Crude Oil Prices
Source: www.InflationData.com
Revised version
Illinois Crude Oil (Sweet)

Oil Peaks and Lows
!  The major peaks occurred in December 1979 at $116.98, October
1990 at $61.36, and June 2008 at $136.31 (all inflation adjusted to
2015 dollars).
!  Another interesting item to note is that the average price has been
increasing.
!  The average for the entire period from 1946 to present is $41.70 but the
average since 1980 is $53.24 and the the average since $64.52.
!  This may be the result of increased extraction costs as it becomes harder
to find and requires much greater technology to get to it.
!  The absolute peak occurred in June 2008 with the highest inflation
adjusted monthly average crude oil price of $136.31 / barrel.
!  From there we see one of the sharpest drops in history. Note that the fall
from the 1979 peak took until 1986 (7 years) to fall as much (percentage
wise) as it lost in only six months from 2008-2009.

World Bank Prognosis Oil Price
Source: World Bank, Development Prospects Group.

Oil Price effect on Employment
(Petroleum Labour Market Information (PetroLMI) Division of Enform, May 2015)
CANADA
Based on similar industry
spending patterns in
recent years, and
billion reduction in
operational and capital
expenditures is expected
to have a significant
impact on the oil and gas
assuming those spending
patterns do not change, as
many as 185,000 direct
and indirect jobs related
to the oil and industry
and its associated labour
force. Based on similar
industry spending
patterns in recent years,
and
gas industry could
potentially be lost, a
decline of 25% from
2014.

Employment effect on other
industries
(Petroleum Labour Market Information (PetroLMI) Division of Enform, May 2015)
CANADA
The outlook for 2016 and
beyond is still uncertain, and
there are no indications that
the industry will recover as
quickly in 2016 The outlook
for 2016 and beyond is still
uncertain, and there are no
indications that the industry
will recover as quickly in
2016
as it did in 2010. The
employment implications of
this downturn will depend
greatly on what happens to
commodity prices over as it
did in 2010. The
employment implications of
this downturn will depend
greatly on what happens to
commodity prices over
the next few months, but
also on the behaviour of oil
and gas companies and
those that support and
supply the industry
CANADA

NORWAY
August 2015,
LO leader Gerd Kristiansen believes the government needs to come up with immediate measures against the
increasing unemployment.
According to Labor Minister government follows developments closely. He will not promise any specific
measures yet. He states: “We discuss ongoing measures that are necessary to slow the progression of
unemployment”.
Prime Minister announced that measures against unemployment becomes an important priority ahead. She says
the topic is high on the agenda during the budget conference.
+38K/year
+35K/2 year
• For oil and gas industry was a decline in the number of
vacant positions of 65 % from Q1 2014 to Q1 2015. For
all industries together, the decline was 4 % compared
with Q1 2014.
• About 15 000 oil and gas related jobs have been lost
since the oil price began decline. Central Bureau of
Statistics (SSB) estimates that 30,000 jobs in this sector
will disappear in the coming years.
• 239,000 jobs depend on oil as it gives substantial
spillover effects on the Norwegian economy (2014).
Onshore oil industry gives many more jobs in the service
sector than in manufacturing.
• Since this summer, the oil price has more than halved.
15% fall in investment is one of many effects this year.
This can mean many things to many industries that
supply the oil companies.
Oil and Gas
constitutes
about 50%
of this
number
No number on how
many Oil and Gas
jobs were lost in
this period
SSB prognoses +30 K
within Oil and gas alone
Today 4.5% unemployment, in 1-2 years 10+%
The figures below show dependent jobs to the oil
industry:
• Shipbuilding and engineering industry: 34,000 jobs.
• Services directly linked to the extraction of oil and gas:
16,000 jobs.
• Public administration: 10.600
• Services from the mainland, exclusive services related
directly onto recovery: 117,000 jobs.

Why compare
Canada and Norway?
CRED and Leonard Schein, 2015

Heritage Fund Size
Canada vs Norway
Joe Bower, 2014
Ability to withstand the storm coming, creating support programs for unemployment.
However, is that opportunity met, even if you have the available funds for it?
Can it be done, or is the money still locked and cannot be used in emergencies?

Proof – Money is not all
Decision making amongst political and administrative leadership in Norway can not even with the brightest heads be
able to perform Right Decisions at the Right Time, unless they are presented with the facts in time.
Already in May 2015, the Canadian authorities had facts on their table to perform any decisions if they wanted and
could.
Therefore, it is proven, even without a massive Heritage fund, Canadian authorities have a better decision foundation
and ability to withstand the storm coming, creating support programs for unemployment or in any other way find ways
to deploy the unemployment rising up from the crashing Oil and Gas Industry.
However, even if there is money, is it feasible to launch massive amount of cash fast into any measures to counter the
negative spiral Oil and Gas Industry is in at the moment? Heritage Fund money is not readily available and shifting
these funds could have other ramifications in other sectors of the market/ society, and could set off another time bomb.
Amount of jobs lost in Canada vs. Norway is still in the order of 10:1, however the ripple effects could be more massive
in Norway, as there are only 5,1 millions, and in Canada there are 35,87 millions as of August 2015.
Unemployment in Norway is 4.5% and in Canada 6.8% of its population as of August 2015. Both countries struggle
with a larger proportion of their under 25 years old without employment.
• Canada has deployed a system to systematically follow the industry statistics, its moves and what will happen
through a Canadian government Sectorial Initiative program performed by PetroLMI a segment of ENFORM.
• Norway perform standard statistical analysis through its Central Bureau of Statistics (SSB), which leaves not
specific and systematic follow up of the oil and gas industry, despite it is a 100% state agency.

Proof – Money is all
1st Question one asks; How much cash has the companies set aside for rainy days?
What business plans have the companies worked towards, only one scenario? It will grow into the skies and never end.
What have the shareholders of the companies seen of revenues and dividends during the high oil price scenario?
Short-term vs. Long-term vision, mission and goals.
I am afraid there has been a good period for the stockholders, and financial industry, handing out loans for exploration
and development for the oil and gas industry, and their associated industries, supplying the oil and gas companies with
services and products.
Then the hard times comes, the rain begins to flood down and the wind blows heavily from the east, and one crisis after
the other begins to knock on the doors of the decision makers in companies, institutions, countries, regions and the
world as a whole.
WHAT DO WE DO NOW?
THERE IS A CRISIS AT HAND
and we did not see this coming?
Yes, authorities have a responsibility to put a framework together ensuring long term scenarios, both in good and bad
times, but does this relinquish the companies to do the same, or could they just wait for the authorities to save them
during the winter storms?
• International Oil and Gas Companies have seen this before
• Yes, the underlying conditions are different each time, and causes of the oil price volatility is not the same
• There is however one comparable factor each time the oil price drops, the employment drops dramatically, and fast
• Oil Companies have all enjoyed a rally on the oil price and stock exchange during the latter decade
• The cash flow in oil and gas industry has been phenomenal

Security against Volatility
Finance industries have been de-regulated over decades and the result was seen latest in 2008 where it was clearly
illustrated the industry had been left alone for too long, without authorities not having the oversight any longer of what
happened due to freedom, complexity etc.
The result became obvious to most decision makers around the world, the Finance Industry must be railed in, as the
consequences were dramatic and almost totally destructive to our society, to allow this happening again.
The Oil and Gas Industry has in general strong regulations on their operational activities, when it comes to safety,
environmental issues and so on. However, when it comes to their financial side, there are less control, and much more
freedom apart from fiscal control of course.
What if the Oil and Gas Companies would enjoy same criteria as financial institutions have when it comes to
requirement of cash/ capital available based on how large their operations are?
A bank must have a certain level of liquidity in order to be able to perform certain financial instruments and to operate
in case the market decides to be be against them, or other factors forces them to stop their operations.
In addition the authorities are securing the deposits in most countries through a bank guarantee fund, which safe guard
your deposits/ investments in the bank.
What if the Oil and Gas Companies were required together with the authorities to establish such an operational
security fund prior to shareholders dividends were paid out?
Just some ideas
Have a nice day all of you, and with hopes of a bright future
Stig Arne Kristoffersen

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