OE article: Oil price uncertainty looms over industry


#1

very well worth the read…lots of impact remains to be felt in the industry

[B]Oil price uncertainty looms over industry[/B]

Written by Elaine Maslin Tuesday, 27 January 2015

US$75-80 barrel oil price will be the new norm, industry commentators predicted Tuesday morning. But how long it will take to get there is the greatest uncertainty.

Uncertainty around how long oil prices will remain around US$50/bbl and, more crucially, what prices might look like in the future, post-recovery, is weighing heavily on offshore operators and contractors globally.

With predictions swinging wildly between BP CEO Bob Dudley’s prediction prices will remain low for three years and Eni CEO Claudio Descalzi warning of $200/bbl in a few years, uncertainty is the name of the day.

According to Mike Beveridge, managing director of Simmons & Co, the reality is likely to be somewhere in between – around $75-80/bbl – but that it could take 12-15 months to rebound.

Speaking yesterday (Tuesday) morning at the Society for Underwater Technology’s (SUT) Aberdeen Global Market Outlook breakfast seminar, Beveridge says the pressure on costs was already visible, with operators globally announcing capital discipline measures (with dividend protection trumping production growth), pushing capex budgets for 2015 down 20-30%, before oil prices started to fall last summer.

“Then the oil price fell,” says Beveridge, putting further pressure on budgets. “There’s one story I’ve heard about an IOC which rebudgeted 10 times over four days over the Christmas period. Any budgets put out today are still probably very indicative.”

“We had all become very used to range of oil prices at $85-115,” he says. “That was the ‘new norm’ for many of us, we had long term stability and could plan for the future. It’s clear we are in a different world from the one we thought we were a year ago.”

The fall in oil price has been driven by weaker demand, very few geopolitical events and additional supplies, creating ‘a perfect storm,’ with speculators, hedge-fund driven, driving oil prices down to today’s levels, says Beveridge.

“This downturn is supply led, not demand led,” he says. “The problem is about over supply, unlike previous corrections in the last 15 years. 1986 is probably the last time we had a wall of supply hitting the market.”

Saudi Arabia, which could potentially influence the market by reducing production, seems more concerned about protecting long-term demand, not just for itself but for oil per se, as efficiencies, climate change and renewables increase, says Beveridge, citing a Saudi oil minister who, about 30 years ago, said the Stone Age didn’t end for lack of stones.

The market has already started to correct itself, he says, with US activity already falling (the US rig count fell by 70 in the last week and has fallen from 1859 in November 2014 to 1579 on 23 January 2015) and demand for oil is picking up again.

“Our view is that the current down turn is of quarters, not months or years,” says Beveridge. “2015 will be fundamental to addressing the oversupply issue."

The pain is being felt acutely in the North Sea, where, even before the oil price started to fall last summer, the industry was feeling cost pressures, despite record high-spending in 2014. Subsea companies are also feeling pain. The likes of Oceaneering was trading at a 11x multiple of its earnings in December 2013. By 2014 it was down to 7.5x. Others have been equally penalized.

“2014 was about growth and the need for skills. Now there’s an elephant in the room and there’s no getting away from it,” Neil Gordon, Subsea UK’s CEO (pictured, right), told the SUT event.

“We have been through this cycle before, but we cannot just sit back and wait. We need to be getting ourselves in to a fiscally and commercially competitive place,” he continues. “We realized last year, as a basin, the UK was becoming an expensive place to do business, but also production rates were going down. This was compounded by the drop in the oil price. Work is ongoing, looking at why the costs are so high.”

Beveridge says: “Fundamentally it’s about reducing costs. I think we got ahead of ourselves and the North Sea can work in a $75-80/bbl environment, but not $50/bbl. But is need the cost base to be addressed. It needs standardization. There are new technologies which could be used. New business models with a focus on life of field are coming through. Use of data and monitoring could also help, but it is challenging selling to the operator.”

The UK government is also starting to play its part in the basin’s recovery. A new regulator, the Oil and Gas Authority, has been created and is due to officially launch 1 April this year. The UK’s Department of Energy and Climate Change (DECC) has a number of projects to try and boost exploration rates in the North Sea – which slumped to just 15 in 2013. It is assessing failed exploration wells, particularly in the Outer Moray Firth and central North Sea, considering blanket seismic campaigns in under-explored areas, such as west of the Hebrides, the edge of the central North Sea and northern southern North Sea, and looking at the potential in the lower Paleozoic layers in the basin.

“2015 is re-group, re-focus, look at budgets, costs, resources, and be prepared that it could be for a while,” concludes Gordon. “We have to be lean and competitive and attract investment.”

btw, WTI for March delivery is trading at $44.53 right now but there are more and more indicators saying that $40 is going to be the floor so hopefully we don’t have much futher to fall before the recovery begins but like the article above clearly says, there will not be a world with the same prices like we had over the past 6 years nor does anyone have an idea of how long this depressed market will last.

best not be buying that brand new F350 King Ranch anytime soon…

.


#2

https://www.linkedin.com/pulse/us400-billion-overrun-past-5-years-jon-mccarty

no more spending money like a lottery winner in a whorehouse either once the shareholders read this?


#3

[QUOTE=powerabout;153044]https://www.linkedin.com/pulse/us400-billion-overrun-past-5-years-jon-mccarty

no more spending money like a lottery winner in a whorehouse either once the shareholders read this?[/QUOTE]

very telling indeed! no wonder the shareholders are screaming like stuck pigs for E&P spending to be reigned in…at the rate of the spending was increasing oil would have to be trading at $300/bbl in 2020 to be profitable. Just the rate that wages went up in the GoM is purely indicative of how out of control costs became. You can rest assured that the costs went up as much throughout the entire offshore industry for all goods and services. Totally unsustainable even with oil at $100/bbl yet alone $50!


#4

Bloomberg has a new article. “Shell misses Q4 profit expectations. . .” To cut $15 Billion more from capex in 2015. Investments under severe pressure due to low oil price.


#5

this is of course the oil industry that does know how to spend money like a lottery winner in a whore house when the feel like it…


#6

[QUOTE=tugsailor;153055]Bloomberg has a new article. “Shell misses Q4 profit expectations. . .” To cut $15 Billion more from capex in 2015. Investments under severe pressure due to low oil price.[/QUOTE]

is this the same Shell which plans to spend another billion on yet another risky bid to look for oil in the high Arctic that when it is found cannot be produced anywhere close to profitably in today’s market?


#7

[QUOTE=c.captain;153071]is this the same Shell which plans to spend another billion on yet another risky bid to look for oil in the high Arctic that when it is found cannot be produced anywhere close to profitably in today’s market?[/QUOTE]

I fully expect another taxpayer bail out in some form of the banks, hedge funds etc., that lent money to these speculators that cannot now pay their loan back. Too big to fail and all that. Of course the people who no longer have jobs because of irresponsible lending and piss poor planning by the corporate/financial geniuses that produced this bubble will have to just suck it up, live on reduced unemployment benefits, take a drug test to get what little food stamps still are around and live in their car until it is repossessed. Because, they should have seen this coming even though the professionals in the banks and the expert speculators are ‘shocked’ this happened and blame it on the Arabs. As if the Arabs just suddenly mysteriously appeared with tons of cheap oil and screwed up the price .
Of course if I was using other peoples money to drill and make myself rich I wouldn’t care if it all went to hell in a hand-basket either. Heck, I just made myself rich over the last few years and I’ll go to my island in the Caribbean thank you very much. Just because I saw demand falling do you think I should have slowed down borrowing, drilling, paying myself enormous sums and lying to my investors? Ain’t like they going to put me in jail… it’s just bidness in the good old US of A .


#8

[QUOTE=tengineer1;153179]I fully expect another taxpayer bail out in some form of the banks, hedge funds etc., that lent money to these speculators that cannot now pay their loan back. Too big to fail and all that. Of course the people who no longer have jobs because of irresponsible lending and piss poor planning by the corporate/financial geniuses that produced this bubble will have to just suck it up, live on reduced unemployment benefits, take a drug test to get what little food stamps still are around and live in their car until it is repossessed. Because, they should have seen this coming even though the professionals in the banks and the expert speculators are ‘shocked’ this happened and blame it on the Arabs. As if the Arabs just suddenly mysteriously appeared with tons of cheap oil and screwed up the price .
Of course if I was using other peoples money to drill and make myself rich I wouldn’t care if it all went to hell in a hand-basket either. Heck, I just made myself rich over the last few years and I’ll go to my island in the Caribbean thank you very much. Just because I saw demand falling do you think I should have slowed down borrowing, drilling, paying myself enormous sums and lying to my investors? Ain’t like they going to put me in jail… it’s just bidness in the good old US of A .[/QUOTE]

if as you say " another taxpayer bailout…" occurs and the taxpaying American people do nothing, then the American people are idiots.
1 bailout was too many, sorry. It should not happen again.


#9

[QUOTE=Doodlebug;153197]if as you say " another taxpayer bailout…" occurs and the taxpaying American people do nothing, then the American people are idiots.
1 bailout was too many, sorry. It should not happen again.[/QUOTE]

Oh it will happen.Bail out is coming. Might be tax right offs or something similar that goes under the radar but these guys will get a break.The working folks that lose jobs will get nada and get bitched at for being poor, not pulling themselves up by their own bootstraps etc., when in fact that is exactly what they were trying to do.

The American people apparently are idiots. They just reelected most incumbents to congress even though in poll after poll these same citizens said they thought congress was ineffectual and useless. As long there is only a two party system in the USA that in actual fact are run by the same powers nothing will change. In one case you get a little lubricant in the other you don’t but the screwing is going to take place.


#10

much as hate to say it they will just talk about gun control and abortion and you wont even notice the theft of your future as politians know how to play you


#11

I fully expect we are going to be seeing more stories like this one in the month or two ahead

[B]Chevron Tightens Belt as $40 Billion Makeover Sweeps Oil Sector[/B]

By Bloomberg On January 31, 2015

By Joe Carroll

(Bloomberg) — Chevron Corp. halted share buybacks, slowed work on new projects and announced the biggest spending cut in more than a decade as oil explorers around the world curtail ambitions to cope with free-falling oil prices.

Chevron lowered its 2015 capital-spending target by 13 percent to $35 billion and halted stock repurchases that absorbed $5 billion in cash last year. The San Ramon, California-based company reported a 30 percent drop in earnings from the year-ago period.

Chevron’s reduction is the most by dollar amount among more than $40 billion in spending cuts announced industry-wide since Nov. 1. Still, other producers have slashed on a bigger scale, with some cutting outlays by 50 percent or more. Chevron’s accountants are hamstrung by multi-billion dollar developments that are too close to completion to postpone.

“Chevron doesn’t have quite the flexibility of some other companies to cut spending in the near term because they are still finishing some mega-projects,” said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis. “Beyond 2015, their flexibility will improve.”

Oil explorers and the contractors that help them drill wells, build offshore platforms, lay pipelines and feed rig crews have been whiplashed by the seven-month rout of oil markets that saw the value of a barrel of crude shrink by 57 percent.

Office Space

The industry has responded by cutting more than 30,000 jobs, halting exploration projects and deferring investments in everything from gas-export terminals to petrochemical plants.

The ripple effects from contraction in the $1.7 trillion-a- year oil industry is being felt across North America. The U.S. economy grew at a slower pace than expected in the fourth quarter as business investment cooled. Gross domestic product expanded at a 2.6 percent annualized rate after a 5 percent gain in the third quarter, according to the Commerce Department Friday. Economists’ forecasts had called for a 3 percent advance.

Even as demand falls for office space in oil hubs like Houston and Calgary, rock-bottom gasoline prices are goosing some economic activity because consumers have more cash to spend on non-fuel purchases.

American consumer confidence reached an 11-year high in January as a strengthening labor market and plunging gas prices kept households looking on the bright side. The University of Michigan final consumer sentiment index rose to 98.1, the highest since January 2004, from 93.6 in December.

Weakening Profits

The retrenchment by Chevron, the second-largest U.S. energy producer, followed the company’s weakest quarterly profit report since the global financial crisis half a decade ago. Net income in the final three months of 2014 dropped 30 percent to $3.47 billion, or $1.85 a share, from $4.93 billion, or $2.57, a year earlier, according to a company statement.

Chevron’s per-share result was 21 cents higher than the average of 20 analysts’ estimates compiled by Bloomberg.

Chevron fell 0.5 percent to $102.53 at the close of trading in New York Jan. 30. Shares have declined 12 percent in the past year.

Chairman and Chief Executive Officer John Watson said in an interview last autumn that he’ll look beyond current price declines when assessing the profit potential of future energy projects.

Despite the steep fall in prices, “we believe long-term market fundamentals remain attractive,” Watson said in Friday’s statement. He said the company would seek to reduce its expenses “throughout our supply chain.”

Existing Projects

Chevron’s budget cut announced Friday was its largest since 2003, when spending plunged 26 percent and crude prices were half their current levels.

The majority of Chevron’s spending this year will go toward supporting existing production, including decades-old fields in California and Texas, and projects under construction, such as its Gorgon natural gas project in Australia. Chevron said that spending will account for $26 billion of the planned $35 billion budget, with $3 billion aimed at exploration.

All projects, particularly shale assets, will be tested for profitability against current market prices, with Chevron “selecting only the most attractive opportunities to move forward,” Watson said.

Chevron has expanded investments in deep-sea oil fields as crude prices fell almost 60 percent since June.

Gulf of Mexico

In December, Chevron inaugurated production from the Jack/St. Malo deep-sea development in the Gulf of Mexico, a $7.5 billion venture that is expected to pump oil and natural gas for four decades. Earlier this week, the company agreed to take control and buy stakes in two Gulf discoveries and a nearby exploration prospect from BP Plc for an undisclosed price.

Watson has said he wants to boost Chevron’s worldwide output by more than 20 percent by the end of 2017. The company has slated about $150 billion in new oil and gas installations both on land and at sea to meet that goal.

That goal could be harder to reach with spending constrained by the market crash.

“I’m assuming their production doesn’t grow this year,” Youngberg said. “The growth outlook will need to be scaled back.”

Poland Exit

Also Friday, Chevron said it was abandoning natural gas exploration in Poland’s shale formations, joining at least four other international energy producers, including Exxon Mobil Corp., that quit the nation because of disappointing results. The departure deals another blow to Poland’s ambition to join the shale revolution and help free itself and its central and eastern European neighbors from dependency on Russian gas supplies.

Brent crude, the benchmark for most of the world’s oil, fell 30 percent to an average of $77.07 a barrel during the final three months of 2014. The year-earlier average was $109.35.

U.S. natural gas averaged $3.83 per million British thermal units during the quarter, little changed from the $3.85 average of the year-earlier period.


#12

ANADARKO 4Q Earnings per share 37C, EST. 82C. Huge miss.


#13

#14

boom bust boom
Depends how much stuff gets laid up to never return and how many people leave the industry never to return
( PS Saudi cant pump any more oil ( when we are at 200bbl) thats just a story, they have been pumping less and less for years)

I cant wait for the return, old company men retired, uni students with zero experience will be making the decisions…scary!


#15

not going to start a new thread but want to post this to the forum for discussion…looks like more pain still ahead

[B]Hedge Funds Continue to Bet Against the Price of Oil[/B]

By Lynn Doan On March 1, 2015

(Bloomberg) — Hedge funds raised bearish wagers on oil to an all-time high, speculating crude has further to fall as the supply glut keeps swelling.

Money managers increased short positions in West Texas Intermediate crude by 17 percent in the seven days ended Feb. 24, U.S. Commodity Futures Trading Commission data show. Net- long positions slid to the lowest in seven weeks.

Stockpiles in the U.S. have risen for seven consecutive weeks to a record 434.1 million barrels. Domestic production is continually topping weekly records, reaching 9.29 million barrels a day during the report period, while an unprecedented decline in oil drilling rigs is showing signs of slowing.

“This tidal wave of crude oil is just too overwhelming,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Feb. 27. “There’s no end in sight.”

West Texas Intermediate crude, the U.S. benchmark, tumbled $4.25 to $49.28 a barrel on the New York Mercantile Exchange in the week covered by the report. WTI, which settled at $49.76 on Feb. 27, has lost more than half its value since reaching last year’s high in June.

U.S. crude inventories climbed 7.72 million barrels in the seven days ended Feb. 13 and jumped another 8.43 million the following week to reach 434.1 million, the most in records compiled since August 1982 by the Energy Information Administration.

Rig Count

While the number of rigs drilling for U.S. oil has fallen 39 percent since Oct. 10, the decline reported by Baker Hughes Inc. on Feb. 27 was the smallest in eight weeks and domestic crude production has continued to climb.

The EIA, the U.S. Energy Department’s statistical arm, forecast production will rise 7.8 percent to average 9.3 million barrels a day this year, the most since 1972.

“You would have to take 2 million barrels a day of production away just to get to thinking that the market is no longer oversupplied,” Michael Hiley, head of over-the-counter energy trading at LPS Partners Inc. in New York, said by phone.

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of the world’s oil, has resisted calls to curb production and has no plans for an emergency meeting as prices fall, an OPEC delegate who asked not to be identified because the group’s talks are private, said on Feb. 23.

OPEC Production

Total OPEC output climbed 0.5 percent in February to 30.568 million barrels a day, the most since October, a Bloomberg survey shows.

Saudi Arabian Oil Minister Ali al-Naimi said on Feb. 25 that oil demand is rising and the market is “calm.”

Short positions in WTI increased by 17,180 contracts to 117,646 futures and options, the most in CFTC data going back to 2006. Net long positions fell 3.1 percent to 202,609, while longs gained 3.4 percent.

In other markets, net-short positions in U.S. ultra low sulfur diesel shrank 25 percent to 15,229 contracts, the least since August. Futures rose 2.6 percent to $2.0289 a gallon in the report week as freezing temperatures, refinery upsets and repairs pinched supplies.

Net-long position in gasoline fell 7.2 percent to 41,189 futures and options. Futures gained 1.9 percent to $1.6202 a gallon on Nymex in the report week.

Regular gasoline at U.S. pumps rose 1.8 cents to $2.414 a gallon on Feb. 28, the highest in more than two months, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

Natural Gas

Net shorts on natural gas narrowed for a second week, with contracts down 3.9 percent to 42,219. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

Natural gas futures gained 14.3 cents to $2.902 per million British thermal units in the week covered by the report.

Oil wagers may turn more bullish because the 7.9 percent drop in the CFTC report period came after a 7 percent gain in the previous week, Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone.

“It could have just been viewed as a technical correction,” he said. “Demand is increasing, and seasonally, the market is getting close to a bottom.”


#16

I had dinner with a commodity broker that specializes in crude a few days ago and asked for his insight. He told me they “think” things will pick up in two years. But he said I make a business of predicting prices and the best of us are only right 60%. He said it looks similar to the 80’s crash and he wouldn’t bet against that being the case.
Makes sense to me. Every time an investor looks at history and sees something they don’t like they say, this time will be different. Almost never is.


#17

Here is an academics view on the future of the oil industry in a world where renewable energy is demanded to “save the planet”. The article is targeted at the Norwegian oil & Gas industry, but it pertain to the world in general: http://sysla.no/2016/10/31/syslagronn/lider-norsk-oljebransje-samme-skjebne-som-kodak_169227/
(Hope GT handle this reasonably well)

An example of an industry that looks ahead is mentioned; that of the US pharmaceutical industry.
I have a feeling not everybody here agrees??


#18

The outlook for the OSV market worldwide is gloomy at best: http://www.hellenicshippingnews.com/demand-for-offshore-supply-vessels-will-drop-10-through-2017-due-to-oil-price-decline-and-ep-spending-cuts/


#19

Thanks for the newsflash Nostradamus…


#20

Outlook gloomy for everything.