SUDDEN DROP IN CRUDE-OIL PRICES ROILS U.S. ENERGY FIRMS’ REBOUND 

By Lynn Cook  July 26, 2015 5:30 a.m. ET  wsj.com

More job cuts, asset sales are expected; layoffs extend to engineers and scientists

U.S. energy companies are planning more layoffs, asset sales and financial maneuvers to deal with a recent, sudden drop in U.S. crude-oil prices to under $50 a barrel, the lowest level in four months.

The companies had been banking on a rebound in oil prices in the second half of 2015 after a falling sharply late last year. Prices began to regain ground in the spring, rising so quickly that some American producers started hiring back drilling rigs to pump more crude. That speedy return to the oil patch and the threat of new Iranian oil production have pushed down prices more than 20% over the past six weeks to $48.14 as of Friday , bringing storm clouds back to the energy patch.

Oil-field services providers that help drill wells have quietly revealed job cuts that were deeper than initially announced, and warned of more layoffs to come. Halliburton Co. and Baker Hughes Inc., two big service companies that plan to merge, disclosed last week that they had cut 27,000 jobs between them, double the 13,500 they announced in February.

Initially, Halliburton expected to reduce its workforce by 8%, but ultimately cut it by 16%. Baker Hughes first announced it would cut about 10% of its jobs, but cut 21%.

“We continue to evaluate our operations and will make further adjustments as required to adjust to market conditions,” Christian Garcia, Halliburton’s acting chief financial officer, told investors.

Baker Hughes management called the layoffs a difficult decision and said other cost-cutting measures have been rolled out across the company, too.

Nearly 50,000 energy jobs have been lost in the past three months on top of 100,000 employees laid off since oil prices started to tumble last fall, according to Graves & Co., a Houston energy consultancy. Initial rounds of layoffs this year tended to be blue-collar jobs, such as roughnecks on drilling sites, fracking crews and workers at industrial-equipment manufacturers.

Now the job cuts are starting to extend to engineers and scientists.

ConocoPhillips, one of the world’s largest oil-and-gas exploration companies, has already cut nearly 1,500 jobs so far this year, according to Graves. But the Houston-based company is planning more layoffs for this fall that could number into the thousands, according to people familiar with the matter.

“We are currently reviewing and adjusting our workforce levels in light of an extended period of low prices,” said Daren Beaudo, a spokesman for the company. “We’ve informed our workforce that reductions should be expected. It would be premature to speculate or estimate at this time.”

Many oil-exploration companies hesitate to lay off geoscientists and other highly skilled workers, said Dennis Cassidy, the Dallas-based managing director of oil and gas at Alix Partners, a global consulting firm. That reluctance stems from the oil crash of the mid-1980s, when so many educated workers were let go that it created a talent gap the industry struggled to fill for 20 years.

“The last thing a company wants to do is dismantle the dream team they took a decade to put together,” Mr. Cassidy said.

U.S. energy producers proved surprisingly resilient in the first half of the year amid languishing crude prices, aided by a flood of investment from Wall Street that was counting on an industry rebound. Hedging programs, which lock in a guaranteed minimum price for oil, also helped protect sellers against the price drop.

But many are likely to run into trouble as the year progresses if prices don’t rebound, Mr. Cassidy said. “Everybody was hopeful, but it feels like the hangover is dragging on.”

The problem is partly of the companies’ own making. Even as they slashed their budgets and drilled fewer wells, they coaxed more fuel out of the ground than ever before. American oil production finally appears to be flattening out after climbing sharply for five years, but U.S. Energy Department now pegs it at 9.7 million barrels a day, the highest since 1971.

Of course low energy prices are a boon to consumers—from American drivers to international airlines—who have been buying more cheap gasoline, diesel and jet fuel. But their purchases have hardly been enough to sop up the global glut of oil. And if a sanctions-ending nuclear deal with Iran goes into effect, the OPEC nation could put as much as a million barrels a day into the already saturated market sometime in the next year.

Oil-hedging programs that protected many companies from falling prices will begin expiring this fall, leaving them exposed to the low price of crude. Those with lots of debt and poor liquidity could be forced into bankruptcy; others with valuable pipelines or oil-and-gas fields might have to start selling off assets to raise cash, according to Simmons & Co. International, an energy investment bank.

U.S. producers have typically hedged 50% of their projected annual oil output, but most are heading into 2016 with hedges that cover just 15% of the oil they expect to pump.

Terry Marshall, an analyst at Moody’s Investors Service, said hedges panned out for companies as oil prices plunged from $100 a barrel to $50, but going forward many producers need higher crude prices to turn a profit.

“Hedging for 2016 isn’t a panacea for these companies,” he said. “Without an improvement in price, they run out of time.”

Energy producers have been able to forestall many effects of oil’s downturn in part because investors still wanted to put money into the industry, because many banks were forecasting that oil prices would rebound in the second half of 2015. During the first half of the year, 57 energy companies issued $21 billion in new equity, and 58 more issued $73 billion in new debt, according to Moody’s.

That now looks unlikely and easy access to capital is ending, said Lloyd Byrne, an energy analyst at Nomura Group, a financial services company. Recent offerings haven't been well received, debt is no longer low-cost and share prices are languishing.

In the past two weeks several smaller companies have filed for bankruptcy protection, including Sabine Oil & Gas Corp. and Milagro Oil & Gas Inc., both based in Houston.

In another sign of stress, Chesapeake Energy Corp. said last week it would eliminate its annual shareholder dividend. The U.S. shale driller said the move will save it $240 million in payouts that it can plow back into capital spending to help it survive 2016.

Morgan Stanley warned recently that the current downturn could be even worse than the one that crippled the industry in 1980s. If Saudi Arabia and Iraq keep running full tilt and Libya and Iran get their oil production back on track, crude prices could languish below $60 for the next three years, said Martijn Rats, an analyst.

“On current trajectory, this downturn could become worse than 1986,” he said.

Views: 1922

Reply to This

Replies to This Discussion

Abraxas is ripe for the picking!

Mike, do you think Abraxas will be bought? Curious as I am heavily invested in Abraxas

caveat emptor

- Most top-pickers and bottom-pickers eventually become cotton-pickers.

- The plunging knife continues to bring pain. When this is over the bottom will be littered with fingers.

- But not mine. I follow the long-term trend. A 52-week (for ex) high -> long-term trend = UP (and visa-versa).

- Plus a wanna-be musician needs his fingers for piano playin', and acoustic guitar pickin', "... i'm a picker, i'm a grinner, i'm a lover, and i'm a sinner. I get my lovin' on the run..." lol.

- If natural gas can stay above the inverse head-and-shoulder low, when it DOES eventually make a (for ex) 52-week high, the long-term trend will turn UP and I am gonna be buying everything, ANYTHING, related, and then if things do continue higher, I am gonna buy even more of everything, ANYTHING, related. and then if things continue even higher, I am gonna continue to pyramid up.

- If wave 3 is not the big wave, which it was not, then wave 5 will be mega big, and the next long-term UP trend wave is wave 5.

- A company like Shell is positioning and behavin' as if LNG is terra firma's 100-yr future. Do what ya want, but I am heeding this development.

- The above is IMHO. I may be right, I may be wrong.

- { -_-} .

Jscott,
plz post link to the Shell dev

"...Shell is already building one the world’s first major floating LNG (FLNG) projects. The Prelude will be a state-of-the-art vessel that will drill for natural gas 200 kilometers off of the coast of Australia, liquefy that gas, and load it onto ships for export. The project marks a new era for LNG, in which onshore liquefaction facilities and pipelines are no longer needed..."

"...Shell will soon be the largest LNG player on the planet..."

"Shell Betting Its Future On LNG"

- man I have never seen the gloom and doom'ery intensify as much and as quick as it has in the recent 2 weeks.

- nothin' goes straight up. counter forces are natural. yes it DOES bug me that wva and sen. byrd and duke energy and coal $$$ had the iron grip for as long as they did.

- natural gas has always been the "red-headed step-child" in the face of duh, like more efficient, cheaper, cleaner. ok that schoolhouse tragedy but very few of that kind of thing.

- but think of the possibilities directly ahead. catastrophic hurricane. heck 2. geo-political event. way early way harsh winter. an energy prob somewhere or fook you putin, we are gonna get our LNG from the great state of Louisiana USA. for a fair price AND with a smile.

- opec I think wanted some shale chap 11's. well whatever. I am a proud producer of THE global solution. Thus I can be a cartel. saudia ya doomed, and ya know it.

- gonna spin in-a-gadda-da-vida the long version.

- {-_- } .

RSS

Support GoHaynesvilleShale.com

Not a member? Get our email.

Groups



© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service