Is the oil exploration & production spending supply hole real and will it result in a production gap in a couple of years?
The oil industry and its analysts have begun to focus on how capital spending has declined so much recently that we could find that we do not have enough oil within a couple of years to meet demand. This “supply hole thesis” has been used by Saudi to justify a production cut in order to signal producers to allocate more money into the sector and it has been what has been used by stuggling producers to hang on in the hope that the supply hole will drive prices back up to get them back to financial health.
Article by Amy Myers Jaffe (@AmyJaffeenergy) is executive director of energy and sustainability at the University of California, Davis, Graduate School of Management : Why a Coming Gap in the Supply of Oil Is Unlikely
IEA said that investments in oil and gas are set to drop by 24% this year to $450 billion higher than the 17% decline estimated in February. E&P companies continue to struggle as low oil prices make credit increasingly costly. This has led to oil discoveries hitting the lowest level since 1947.
Source: IEA Thinks Oil Industry Could Cut Capex 3 Years In A Row – Oil Markets Daily – The United States Oil ETF, LP (NYSEARCA:USO) | Seeking Alpha
The oil and gas industry will cut $1 trillion from planned spending on exploration and development because of the slump in prices, leading to slower growth in production, according to consultant Wood Mackenzie Ltd.Worldwide investment in the development of oil and gas resources from 2015 to 2020 will be 22 percent, or $740 billion, lower than anticipated before prices plunged in 2014, with the deepest cuts in the U.S., Wood Mackenzie said in a statement Wednesday. A further $300 billion will be eliminated from exploration spending. Global production this year will be 3 percent lower than previously forecast, the consultant said.
Source: Oil Industry to Cut $1 Trillion in Spending After Price Fall – Bloomberg
U.S. energy companies have defied financial gravity for more than a year, borrowing and spending billions of dollars to pump oil, even as crude prices plummeted. Until now. The oil patch is expected to finally face a financial reckoning, experts say, with carnage occurring as early as this month. One trigger: Smaller drillers are bracing for cuts to their credit lines in October as banks re-evaluate how much energy companies’ oil and gas properties are worth. But with oil trading below $45 a barrel, bigger oil outfits are struggling to stay profitable, too.Jim Flores, vice chairman of Freeport-McMoRan Inc., which pumps oil in the Gulf of Mexico, explained the industry’s conundrum this way: “It’s raining and it’s going to rain for a long time. We’re all going to get wet. A few people are going to drown. You just have to make it to the other side.”Mr. Flores’s friend Al Walker, chief executive of Anadarko Petroleum Corp., one of the biggest oil companies in the U.S., recently told the audience at a Barclays energy conference, “Frankly at the end of the day, none of us have a great sense for where oil prices are going.”
Source: Oil Patch Braces for Financial Reckoning – WSJ
Posted in Bankruptcy, borrowing base, capital spending, energy bankruptcy, energy bonds, energy credit, energy debt, energy high yield, energy layoffs, energy M&A
Tagged Bankruptcy, energy bankruptcies, energy bankruptcy, energy bonds, energy capex, Energy credit, Energy High Yield, energy job cuts, energy layoffs, energy M&A, oil prices
The Netherlands-based Royal Dutch Shell PLC (NYSE: RDS-A, RDS-B) is the latest global energy company to disclose it plans to cut more jobs as the downturn in oil prices continues.
The company said July 30 it plans to cut 6,500 jobs, including staff and direct contractors, this year and reduce capital investment by 20 percent compared to 2014.
via Royal Dutch Shell announces more job cuts after BP, Chevron job cuts – Houston Business Journal.
Driller Helmerich & Payne Inc said it may cut 2,000 jobs as it begins to idle rigs amid a slide in crude oil prices, following similar cost cuts by top oilfield services providers Schlumberger NV and Baker Hughes Inc .
Helmerich, which had about 11,901 employees as of Sept. 30, also said it would now build only 2 high-tech FlexRigs per month this year, down from the 4 rigs it had planned.
The company’s shares fell as much as 10 percent to $54 on Thursday as weak forecast for 2015 margins and revenue overshadowed a better-than-expected quarterly profit.
via UPDATE 2-Helmerich & Payne may cut 2,000 jobs as it idles rigs | Reuters.
Following the trend of other oil and gas companies that have already announced their capital budgets for 2015, Cecil-based Consol Energy Inc. said it would spend $1 billion drilling for oil and gas this year, a drop from the $1.3 billion it spent last year.
Coal spending for the year is projected to be around $220 million, Consol said.
The oil, gas, and coal producer reported fourth-quarter earnings this morning, posting net income of $74 million, or 32 cents per share, for the fourth quarter of 2014. During the same time in 2013, Consol had a profit of $738 million, or $3.20 per share.
Revenue was $936 million, up from $825 million during the year before quarter.
Consol achieved and surpassed its goal of growing oil and gas production by 30 percent in 2014, a target it plans to reach again in 2015 and 2016.
via Consol Energy announces trimmed capital budget.
Royal Dutch Shell Plc will cut $15 billion of investment over the next three years as the crash in oil prices saw fourth-quarter profit miss forecasts.
Shell, the first of the world’s largest oil companies to report earnings following the slump in crude to a five-year low, will defer or cancel about 40 projects worldwide, Chief Executive Officer Ben van Beurden said today. Exploration will also be curtailed.
“We see pressure on our investment program,” van Beurden said on Bloomberg TV. “It’s a game of being prudent but at the same time not overreacting.”
Profit excluding one-time items and inventory changes was $3.3 billion in the quarter, up from $2.9 billion a year earlier, Shell said today. That missed the $4.1 billion average of 13 analyst estimates compiled by Bloomberg.
Shell shares dropped 4.3 percent to 2,060 pence at the close in London, the biggest decline since Oct. 31, 2013.
The global industry is scurrying to respond as oil below $50 a barrel guts cash flows. Occidental Petroleum Corp. and ConocoPhilips also announced lower spending today. BP Plc has frozen wages and Chevron Corp. delayed its 2015 drilling budget. By cutting investment, companies aim to protect returns to investors.
via Big Oil Cuts $20 Billion in Five Hours to Preserve Dividends – Yahoo Finance.
Independent oil and gas company, Magnum Hunter Resources, which is active in the Utica, Marcellus and Bakken shale gas plays, has said it is to cut capital spending on its projects, citing low commodity prices.
In a conference call last week, chief executive Gary Evans said the expectation was that natural gas prices were expected to remain low until at least the end of the year.
Evans said that the board will meet this week to discuss the fiscal plans for the year, but expects expenditure not to exceed $100 million.
He explained that “when you’re in a death spiral of prices in this business, you’re crazy to be spending money… we’re not spending any money right now.”
The company is set to produce the equivalent of between 30,000 and 35,000 barrels of oil per day in 2015.
via Magnum Hunter to significantly reduce capital expenditure | Shale Energy Insider.
BHP Billiton Ltd., the biggest overseas investor in U.S. shale, will cut the number of its rigs there by about 40 percent as plunging petroleum prices add to concerns about lower iron ore earnings.
Drilling and development spending on U.S. onshore oil and gas fell to $1.9 billion in the six months to Dec. 31 from $2.1 billion a year ago, the Melbourne-based company said today in a statement. BHP will cut the number of active rigs to 16 from 26 by July, it said.
Brent crude, a benchmark for more than half of the world’s oil, declined 48 percent last year as increasing output in the U.S. contributed to a global glut. The price of iron ore, the biggest earner at BHP, slumped 47 percent in 2014 as the largest miners raised volumes amid weaker demand from China, the largest buyer.
“Their plans to cut oil drilling rigs in the U.S. is a pointer to what’s to come in the oil market,” Ric Spooner, chief strategist at CMC Markets in Sydney, said today by phone. “We will eventually see a supply response to the drop in the oil price from the U.S. onshore producers.”
U.S. drillers have cut the number of oil rigs in service by 209 since Dec. 5, the steepest six-week decline since Baker Hughes Inc. began tracking the data in July 1987. The count was down 55 to 1,366 in the week to Jan. 16, the data show.