Issue link: http://read.dmtmag.com/i/578659
I DA U N I V E R S A L S e p te m b e r - O c to b e r 2 0 1 5 11 LEGAL LINE Robert W. McIntyre IDA Association Legal Counsel Continued on page 52 E very year as the annual Convention approaches, I have refl ected on the past year and some of the impacts on our industry by global and national events. is past year and, in particular, the last six months, have been an eye-popping roller coaster ride. For starters, the international oil business went from an unstop- pable force to a listing rudderless hulk. Following this has been the eff ective collapse of the Chinese economy and its ripple (tsunami?) eff ect on the global economy. Capping this has been the 50 percent reduction in energy costs in developed countries that, while helpful in cutting costs, has the backlash of slashing demand for everything that supports the energy business. Let's look at a few examples. In Ohio, a plant that employed 600 skilled workers making oil fi eld drill pipe is now cold. Another, that makes heavy-duty welding equipment, has had its fi rst layoff s ever in 90 years. Why? Because they supported the boom in shale oil drilling and production in the U.S. that eff ectively folded when the cost of shale fi eld production exceeded the price of benchmark U.S. crude oil. In Calgary, tar sands oil that cost $60+ to produce can't be sold at $50. In Peoria and Moline, gloom prevails where the anticipated demand for more effi cient equipment faltered, as prices for commodities mined and farmed slide down. In Brazil, the economy is fl at on its back, with exports falling on oil prices Brave New World and the government in chaos over top-to-bottom scandal. Russia is in the way-back machine to pre-World War I agricultural feudalism, with foreign invest- ment looking elsewhere or fl eeing in droves. Last, but not least, the world's second economy is off the rails; the "central planners" are paralyzed by the near collapse of the Wild West (East?) stock markets and banking industry. All of the above is compli- cated by the complete fragmenta- tion of the energy business. e once-all-powerful OPEC is no longer viable. Why? Because its members must pump more and more oil to generate revenues for their one-trick-pony economies against falling prices, and instead of "all for one," it's "every man for himself." Combining this near panic in the producer world with the downward demand for energy in China, the "Russia Factor" and the near self-suffi ciency of the U.S. in energy, makes the energy business a very diffi cult proposi- tion for the foreseeable future. Also, amid all of this basic and combined industry upheaval is the continuing shi of capital and investment from actually building present and future basic industry business capacity and innovation, to gambling and gadgets. Why? Because the returns are o en immediate or, at worst, very short term, and there is no thought of actual risk. Why invest in a new foundry or forge shop for GET or undercarriage or engine parts with a minimum 7-10 year payback, when a similar investment in a dot-com company that makes no products or o en no money at all, can double or quadruple the same investment in the inevitable venture capital or roll up buyout. All of this is beyond conven- tional wisdom. Uber, which is basically some offi ces, so ware, and dedicated server time, is "valued" at $50 billion dollars! at is more than all the a er- market suppliers in our industry put together; companies that actually make and sell real products, not just sell seats in gypsy taxicabs on the Internet. Every new Internet-based start- up can raise millions on the strength of an idea. What are the criteria for borrowing for receiv- ables and inventory or expanding a manufacturing plant…right arm, le leg and fi rst-born child as collateral, if you are lucky. Where does this land on our industry? First, as the basic industries are no longer following traditional cycles, the lead-lag cycle eff ect on the supplier community now becomes highly unpredictable. Add in the unreal- istic, o en simply whimsical, actions of governments everywhere, and all rules are suspended. In the U.S, the lame duck president sees his legacy in