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| Economy |
| Money Dries Up for Oil and Gas |
| 2015-01-18 |
| When money was growing on trees even for junk-rated companies, and when Wall Street still performed miracles for a fee, thanks to the greatest credit bubble in US history, oil and gas drillers grabbed this money channeled to them from investors and refilled the ever deeper holes fracking was drilling into their balance sheets. But the prices for crude oil, US natural gas, and natural gas liquids have all plunged. Revenues from unhedged production are down 40% or 50%, or more from just seven months ago. And when the hedges expire, the problem will get worse. The industry has been through this before. It knows what to do. Layoffs are cascading through the oil and gas sector. On Tuesday, the Dallas Fed projected that in Texas alone, 140,000 jobs could be eliminated. Halliburton said that it was axing an undisclosed number of people in Houston. Suncor Energy, Canada’s largest oil producer, will dump 1,000 workers in its tar-sands projects. Helmerich & Payne is idling rigs and cutting jobs. Smaller companies are slashing projects and jobs at an even faster pace. And now Slumberger, the world’s biggest oilfield-services company, will cut 9,000 jobs. It had had an earnings debacle. It announced that Q4 EPS grew by 11% year-over-year to $1.50, “excluding charges and credits.” In reality, its net income plunged 81% to $302 million, after $1.8 billion in write-offs that included its production assets in Texas. To prop up its shares, it announced that it would increase its dividend by 25%. And yes, it blew $1.1 billion in the quarter and $4.7 billion in the year, on share buybacks, a program that would continue, it said. Financial engineering works. On Thursday, its shares were down 35% since June. But on Friday, after the announcement, they jumped 6%. All these companies had gone on hiring binges over the last few years. Those binges are now being unwound. “We want to live within our means,” is how Suncor CFO Alister Cowan explained the phenomenon. Because now, they have to. Larger drillers outspent their cash flows from production by 112% and smaller to midsize drillers by a breathtaking 157%, Barclays estimated. But no problem. Wall Street was eager to supply the remaining juice, and the piles of debt on these companies’ balance sheets ballooned. Oil-field services companies, suppliers, steel companies, accommodation providers… they all benefited. More at the link... |
| Posted by:badanov |
| #12 Rewind to the 1970s. Looks more like the late 80s to me. With the exception that then OPEC was sitting on spare capacity equivalent to around 25% of global demand. Today? Closer to 2%, if the spare capacity exists at all. Plus seasonal variation is nearly equivalent to present oversupply. Plus natural annual decline from existing wells dwarfs the present oversupply. Etc. Volatility will be the norm for a while but no one will have to cut production voluntarily to make it happen. |
| Posted by: Sheater Thud2458 2015-01-18 23:32 |
| #11 I have no doubt gas will go back up; that's why I put aside the same amount from each paycheck for gas how as I did when it was nearly $4/gal. |
| Posted by: Barbara 2015-01-18 17:22 |
| #10 This bridge zbadMan, the maintenance is killing me. Buy bridge here, pay for bridge here, Simple! |
| Posted by: Shipman 2015-01-18 17:00 |
| #9 Rewind to the 1970s. When the domestic energy sector stops producing, expect the Saudis to twist the knife. Production cuts to not just swing the price of oil back up but to cause fuel shortages in every neighbor hood, long lines at the pump, gas rationing. If we had leadership that would prepare the US for this, the reserves would be restored and tariffs implemented to keep our energy sector somewhat active. But expect more Saudi shenanigans. |
| Posted by: Ebbomosh Hupemp2664 2015-01-18 11:14 |
| #8 Why do you think they inflate these credit bubbles? It's so they can tax more. Without exponential credit you'd see the results of your governments taxation of the "economy". |
| Posted by: Bright Pebbles 2015-01-18 10:11 |
| #7 All that was needed was some leadership and a tariff. But Obama's good with this outcome. Instead of a vigorous oil industry that's keeping its products onshore and a blooming advanced energy R&D sector, we have layoffs and contraction. |
| Posted by: KBK 2015-01-18 10:08 |
| #6 I have every faith in American capitalism to grow from this price break. Not if the Beltway Party of Tax, Tax, Tax can help it. More money to steal. Why do you rob banks? That's where the money is. Why do you keep taxing? That's where the money is. How many poor indigent congresscritters leave the farm? |
| Posted by: Procopius2k 2015-01-18 09:53 |
| #5 I have every faith in American capitalism to grow from this price break. Posted by badanov Yes, in spite of the beltway thieves. Just think where we might be with honest, effective leadership. |
| Posted by: Besoeker 2015-01-18 08:43 |
| #4 The oil industry, and the prices thereof will recover some, but I do not think we will see $4 gas for some time, maybe ten years or more. The individuals and companies which accrued so much debt will suffer, and maybe even get bought out or go bankrupt, but many companies will survive and morph as they find new opportunities to make money. I have every faith in American capitalism to grow from this price break. |
| Posted by: badanov 2015-01-18 08:38 |
| #3 When money was growing on trees even for junk-rated companies... Doesn't seem to stop for the Beltway. Apparently, based on the Donk party donor list, Wall Street still believes in it too. |
| Posted by: Procopius2k 2015-01-18 08:17 |
| #2 Might be a good time to fill up the strategic petroleum reserve, might make a few bucks in a few years. |
| Posted by: Shipman 2015-01-18 06:19 |
| #1 Thanks Badanov. Not that we needed further evidence that the recent price reductions at the pump are temporary. SUNCOR (SU) has increased it's annual dividend 8 of the last ten years. Their quarterly dividend now sits at .28 cents per share. Not intended as an endorsement, but certainly a good sign. |
| Posted by: Besoeker 2015-01-18 03:33 |