It's like buying a lottery ticket
When we were pitching to the offshore marine companies in 2015, a lot of people were asking us where oil prices were going. Well, they weren't really asking us, most of them already had a view in their head and wanted a second / third opinion or someone who could possibly reveal information they don't already know or to potentially pick out a blind spot.
I remember presenting the 'house' view of where prices were heading. The house view being what research analysts within the investment bank think about the future based on hours of research and spreadsheets of data. It was like every bank had their own "crystal ball" of where oil prices were hovering. And so the house view was that in the 2-3 years, it was going to be between $50-60. After all, who could say you were wrong?
When we spoke separately to the various companies, everyone maintained their views that prices would stabilize in the longer term. Sure, the day rates were down today but downcycles in the oil and gas markets were not uncommon. The market was a cartel, the automotive and aviation sectors will underpin demand, and we believed that the Saudis will continue producing. Besides, any financial institution that ran a baseline financing model off $20-30 a barrel will not get any deal done - drilling for oil at those prices simply isn't commercial. There was no benefit is predicting a doomsday scenario.
The problem was that everyone's crystal ball was broken.
The declining oil prices in 2015-16 due to oversupply, weak demand and initiatives by OPEC exporters to diversify away from oil, resulted in many players in the oil and gas sector going bust. Some of the largest players included Hercules Offshore, Seadrill and many others within the value chain.
Seadrill, once a famous and industry renowned Norwegian offshore driller used to dominate the exploration market wit its rigs and deepwater marine equipment. The supply glut in the oil and gas sector in 2015 decimated its value. Even at its low price, one Chinese billionaire apparently bought into them. It's like buying an extremely expensive lottery ticket. Who could say he was wrong?
Today, Seadrill's share price is no more than $50 million.
Think twice, do your homework (and due diligence), and don't follow others blindly.