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Oil Dinosaurs Face Extinction: State Oil Companies And The Meteor-Strike Of Low Oil Prices
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
State-owned oil companies that don't slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.
Domestic and international energy companies are responding to the 50% decline in the price of oil by doing what's necessary to remain in business: they're slashing payroll, postponing capital investments, delaying new projects and soliciting price cuts from suppliers and subcontractors.
This is the discipline of profit-driven capitalism: if expenses exceed revenues, profits vanish, losses pile up, capital contracts and eventually the company runs out of cash (and access to credit) and closes down.
Unfortunately for state-owned oil companies, the feedback of expenses, losses and access to credit are superceded by the need to feed hordes of parasites: the state-owned company exists not to generate profits but to fund large payrolls and support state officials and cronies.
Stripped of the discipline of markets and profits, state-oil companies exist to serve the interests of the state's Elites and their cronies and favored constituents. As a result, critical infrastructure has fallen into obsolescence, capital investments have been hollowed out and the expertise needed to maintain production has eroded.
The state-owned oil companies are like dinosaurs: the extinction meteor of low oil prices has smashed their ecosystem, and all they can do is watch the sky darken as revenues crater and expenses and debt remain at unsustainably high levels.
Case in point: the Brazilian state-run oil giant Petrobas is heavily in debt ($115 billion in 2013) and in danger of defaulting:
The firm has become one of the largest corporate borrowers in the world as it seeks to fund an investment program worth some $221 billion over the next five years, much of which is to develop huge oil fields that lie deep below Atlantic waters off the country's southeast coastline.
Those efforts have turned Petrobras into the region's most indebted company, with net debt of 268 billion Brazilian reais ($115 billion) at the end of 2013. That figure was 36% higher than at the end of 2012, in large part from depreciation of the Brazilian real against the dollar during 2013.
Moody’s Investors Service has placed Petrobras S.A.’s global foreign currency and local currency debt ratings on review for a possible downgrade. This would be the second time Petrobras’ debt ratings was downgraded by Moody’s after in October the oil giant’s debt ratings was downgraded from Baa1 to Baa2 stating that the company’s outlook remained negative.
In March, before the corruption scandal broke, another risk ratings company, Standard & Poor’s cut Brazil’s debt rating to its lowest investment grade 'due to the erosion of the country’s public accounts and slow economic growth.'
According to S&P the state-controlled oil company’s smaller projected liquidity and lower cash flow generation led to the downgrade.
Correspondent Mark G. explains the mechanics of the financial extinction process:
If Moody's follows through then Petrobras will drop to Baa2, or two notches above junk. By the way, Rosneft is already at Baa2. And so is Lukoil. There are plenty of other Russian (and Brazilian) corporate debtors in this situation.
The question - which is almost completely political at this point - is what happens when Moody's reduces its ratings on this BRICS paper to Ba1 and below where it belongs. i.e. Junkland.
1. There are plenty of US institutions that legally cannot hold this degraded paper in their portfolios after it drops to Ba1. Beginning with those perennial yield hogs, US based life insurance companies.
2. At this point hard-currency interest rates charged to the submerging market debtors will soar for rollover refinancing.
Thank you, Mark, for laying out the path to extinction. Hard-currency means the U.S. dollar (USD) in most cases, and as the currencies of oil exporting nations crater (see Russia, Nigeria, Brazil, et al.), the state-owned oil companies attempting to roll over debt or borrow enough to stave off insolvency are being hit with multiple meteors:declining currencies, ratings downgrades and plummeting revenues.
Companies that are being operated as going concerns are responding quickly and decisively to the meteor-strike of collapsing prices. State-owned oil companies that don't slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.
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Dinosaurs didn't go extinct. Scientific fact. They became birds.
The Annanuki are coming back for the rest of their gold.
Thanks knucks [for keeping Friday Night sane] :-)
We are now in the "Smash" phase of the plan.
In the "Grab" phase, all valuable and productive state assets all over the world will be "privatized".
For you Peak oilers out there: the newly privatized oil assets will all of a sudden get way more effective in their oil production and they will discover lots and lots of new oil.
News of the new discoveries may not be shared with you however, and you can continue in your roles as useful idiots.
Global demand certainly hasn't fallen off a cliff and production is already falling. Plus I didn't hear about Obama rushing to King Abdullah's bedside and threaten to kill him if he didn't cut production and raise prices.
http://www.eia.gov/forecasts/steo/images/Fig32.png
I still smell an engineered takedown...
King Abdullah? What ever happened to that dude?
I hear lately he's been busy keeping a very close watch on the nations reserves...
May they all R.I.P. [& leave me THE FUCK alone while they're at it!!!].
As long as the "Blue line" stays sbove the "Black line" the falling in price makes perfect sense. However, this year the Blue line will plunge under the Black one, and then the rise in price will be nothing short of spectacular.
just painful...so the "state" owned oil company needs financial help? isn't that where the "state" owned national bank steps in and prints the money needed? if i'm putin don't i just order the central bank of russia to keep the lights burning at the oil companies? exploration...pumping....repairs....etc. china, iran, mexico??? what a waste this article is.
They left goldmen in charge, it would appear.
Somebody knows .....
The Justified Ancients of Mumu?
https://www.youtube.com/watch?v=PPKaBhDPVRA
In May 2004, the price of U.S. gasoline reached an all time high of $2.02 a gallon. For the past ten years, the price of gasoline has zoomed up not because of sky rocketing demand but because of the predatory practices of OPEC, government tax increases and commodity hedge funds. High oil prices have profited quack science companies like Solyndra, which claim that solar power is a reliable source of energy, as opposed to baseline power from coal and natural gas power plants and hydropower (except during severe droughts). Considering factors such as line voltage drop when transmitting power on electrical cables over long distances versus the meager loss of fuel to ship gasoline by pipeline, gasoline powered vehicles are less wasteful as far as the transmission energy needed to send the power (either fuel or electric) to the end consumer. The most efficient way to have a car with a gasoline engine that charges up the battery pack when driving, allowing the driver to run on battery power for short commutes. All that is academic, the New World Order does not want people to own cars, have cash and, especially, have guns.
Ya, I saw a T. Rex at my feeder the other day.
Acambaro, Mexuco & Ica, Peru — Forbidden Archeology
Dino graveyards, Bitches!
In essence, this is a war between the big companies to control the energy deposits. The biggest barrier now are the state-controlled giants in Russia and China and neoliberalism is trying to conquer these countries. The Western companies have declared war against companies like Gazprom, as they seek to control all the energy deposits, but in this case things are not so easy. The neoliberal model that opens the road for the Western capital, has to face now, two superpowers.
Mr. Know-it-All CH-S had come with another dud. The whole point of a state company is that it is owned by A STATE (as in a whole country). In order for it to die-off, the owner (i.e. the respective state) has to die first. If you want to hold your breath until a state like Brazil or Russia dies, be my guest by all means. They could even default on their national debt, and still be very much alive. It's another version of TBTF if you wish. To conclude, here's another CH-S article going into the "whatever" bin...
Here, take a look at the big plan which may, however, fail:
http://x2t.com/BigPlan
To paraphrase Myke Tyson, "Everybody has a big plan 'til they get punched in the mouth"...
Exactly.
And the author has not pointed Petrobras can still be nationalized.
Excellent point about Governments. Still...that is a huge interest rate expense both Brazil AND Russia are bearing.
You could argue such a rate represents a failure of the State.
You could also argue that interest rates "at or near zero" represent that same failure too.
Figure that one out. I know I can't.
Beware.
When socialists run out of other peoples' money, the murdering starts.
Not sure what moron downvoted you, that is always what happens to socialism...all you gotta do is watch on a long enough timeline.
On a long enough timeline you're dead anyway...
I hope Keynes found himself reincarnated as a black girl in the inner city and was made to live out his own terrible experiment.
We could all only hope that it is the way it works!
And when grasping liberal uber capitalists can't get their grubby paws on othert nations assets, i.e. steal them, we get the usual whining diatribes about wasteful socialist/commie economies etc etc..........Pass the sick bag Alice.
Oil itself will be a dinosaur in 20 years.
Oh WTF... replaced by?
Dinosaurs apparently...
"Kerosene, propane, gasoline." All that worthless stuff.
Hope. We liberals will power the world with hope.
Free hope for everyone!
I heard you guys also have unicorns that shit skittles. Is this true?
They used to, but Michelle had them slaughtered for "meat" for her school lunch program.
HILARIOUS
Thanks, Knucks!
The White House garden OKRA side dish won't be ripe until July:
- While Chewy is visiting The Alhambra with 100 of his BFN's [while the okra just jumps off the self watered vine & wraps itself into Tiffany's boxes all by its lonesome self]
- and a month before the Martha's Vineyard trip [where the boxes are gifted to the brides of prominent lizards].
Tally Hoe! [Don't forget to eat your peas & cake]!
Well photovoltaic fiinshes on auto's for a start. Someone on here recently complained that solar doesn't work for auto's, but that's just because the conditions aren't right for the necesary technologies to emerge, but they will when the world hits Zero Oil c. 2030, or more likely even before then. Too many of you guys running with a post WW2 mindset, economically and technologically.
I would highly recommend reading the Hirsch report from 2005. That transistion needed to happen 20 years prior to peaking.
(Ironically, it came out the same year as the peaking of conventional oil production.)
http://www.netl.doe.gov/publications/others/pdf/oil_peaking_netl.pdf
That's the $64,000 question. But if the marginal cost of producing is greater than the marginal revenue, something will or we perish.
. Dup
There IS no direct replacement.
thorium molten salt reactors....
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100026863/ch...
You are just as clueless as my man Kenneth...there are hundreds of years of oil left just in the reserves we know about.
“By the year 2000, if present trends continue, we will be using up crude oil at such a rate…that there won’t be any more crude oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and he’ll say, `I am very sorry, there isn’t any.’”
• Kenneth Watt, Ecologist 1970
I'm quoting the industry's own figures based on calculation, not opinion. Fracking may take us a couple of years past 2030, new recovery techniques will facilitate the extraction of residues, but that's all they'll be, the leavings.
walktheline..your not relying on industry figures that would keep the oil price high and adding greatly to their profits, would you? zerohedge had no shortage of, running out of oil, stories posted between $100-$80 oil prices. those articles only came out at about $95 oil for the longest time. then the price broke below $95 and then the new line in the sand was $80. once it broke $80 it was a free fall to $45 and the stories of shortages dried up. now we get the end of the world is upon us with oil at $45? this article wants us to believe that the "state oil company" won't get any help from the same "state' central bank? laughable
C of C,
We'll see. But you'll have to analyze marginal cost versus marginal revenue to convince me to change my mind. That's a lot of oil in the ground, true, but if it's not profitable (monetarily or eventually energetically) it won't be produced. Adapt or die, my good sir.
If it's not profitable now, it will be when the price goes up.
Unicorns do not shit skittles for free
" if present trends continue"
So, was he wrong or did the trend change?
He was wrong as all Peakers engage in limited and illogical thinking.
I tracked oil production in the early 70's. Reserves and Annual BBLs consumed. Did the basic maths.
OH NO! Only 42 years of oil left. We all die in 2014.
2015, OH NO! Now we only have...38 years of oil left.
See the problem? You assume (why? you think you know everything?) that all the oil that we know of NOW is all the oil we will pump EVER FOR ALL ETERNITY.
Then people discover more of it, prices rise, and what was not pumpable becomes economical to do so.
Of course if oil is abiotic then we never run out, but that's "hope".
It's not hope if history proves that whenever an essential-to-human-life resource exists, that humans will find more of it or a replacement.
Never in the history of mankind have we run out of a resource that could not be replaced.
Never.
Huhum
Hopium
I'm quite sure that the IMF will be happy to loan them a few credits in exchange for their citizens.
Terms and conditions may apply.
End game: China will bail them out in exchange for a controlling stake in each company. It's obvious.
....feeding on the liquified remains of the dead...
http://images.rapgenius.com/8335e272330e9da61f6ca7c5a7d0e9e8.650x322x1.jpg
The more in debt you are today, the more likely you will go bankrupt very quickly at these prices. So, say good by to Frackers and Tar Sands. North Sea oil. And some deep water drillers.
State owned oil companies indeed serve governments rather than share holders and management. I see no difference if state entites strip all the wealth from an oil company or if a private cabal strip all wealth from an oil company. It's cost of production that matters, right now that is all that matters. Saudi is low cost. Russia is low cost. Other state vary depending on their resources. The USA is high cost! Canada is high cost. I would look there for real trouble.
Mexico and Brazil, I don't know much about. Brazil has that deep water strike, right? If so, I can't see further development of a deep water field at this point, thus they would have to shut down a whole branch of their company.
Tar Sands is pretending they will be okay. This is political, as the government has fed locals with pie in the sky, Canadian miracle stories. Their pain is coming. Tar Mining is 10X cost to Saudi production. Canada for political reasons is telling lies, and hoping for a miracle, it will not come. Liars are everywere in the Canadian story. Talk of maintaining production and weathering the storm, up in the tar sands country. That is going to change.
Job losses, and financial fall out coming soon.
yes - I think that's a major reason for the BOC to move earlier this week. The tar sands/high oil prices created some screwy economics. There is cheaper oil to drill for - but it required more capital contributions and longer term outlooks. Tar sands oil was immediate cash flow positive, even though it was drastically less profitable.
Long term planning will have to come back. There will be oil drilled in Canada at sub $50/barrel prices (oh and it's brent not the crappy stuff in the tar sands).
What about the US deep water drilling? You think that's any cheaper? LOL.
Everybody is in deep water now.
What a nonsense article promoting "agile" capitalism. Aramco is a state owned oil company - do you see that going bankrupt? There will be many many many non-state owned oil companies that go bankrupt.
What self serving fluff.
Exactly. Petrobras is publicly traded.
Apparently its quite corrupt....but certainly it has not been nationalized.
"Saudi/Aramco" is owned by the King himself.
You cannot even have a Bank in Saudi Arabia.
What Ambrose said would happen (double whammy: dollar and oil)
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/113004...
Ambrose is a shill of the establishment. The debtors could call the BS and default on their debts, as Argentina did several times in the last 10 years. Then the problem goes to the creditors...
"Then the problem goes to the creditors..."
Yeah, and then they turn the problem over to their respective taxpayers. Banks always get their money, otherwise they wouldn't be banks.
good
Kind of points out the need for oil services even at low oil prices. Fortunately, my stack needs no maintenance to stay shining bright.
The Saudi’s are pomping oil which already contains up to 80 to 90% salt water, they’re really running out of the stuff.
So now they’re pumping up everything that’s left to destroy as many oil companies as possible and buy them on the cheap.
And it’s actually the Saudi government who’s doing the buying all over north America as it’s the most stable.
And once they’re dominant againt by new purchases they’ll ride the price back up.
And the plan is working prettty welland become clear in 3 to 6 months.
I can just imagine the pricing slingshot that awaits after we're thrown clear of this "market" gravity well.
Don't worry, in the US they will be getting paid what they are worth shortly.
Well if it wasn't an *actual* "conspiracy" involving the US government to have the Saudis do this, it should have been, as the main targets are Venezuela, Russia, Iran, and ISIS. Anything else being collateral damage (cough).
But I guess the main cause was probably some high-powered game theory by the Saudis, or else some crazed desperation by some element of the royals there, or, y'know, both.
Oil prices go UP: Conspiracy and bad for the economy.
Oil prices go DOWN: Conspiracy and bad for the economy.
You guys are idiots.
It's called a Market Correction. It's not permanent - recall that when prices went UP everyone invested in oil recovery technology and the oil came out of the ground?
Same thing will happen if oil prices go back up, and if they do not go back up then we don't need that oil because demand does not call for it and thus there is PLENTY OF OIL AT CHEAP PRICES.
Morons - you Peaker Doomers are two-toned, gilt-edged, duo-encephalitic, morons.
Enter China to the rescue...
...and CHY being more utilized 'round the Globe...
where's algore, He invented the intenet, can't he drive the price of back oil up to a respectable level? What a crock of shit, a commodity fell back from the federally supported level to a supply and demand level or as some say, the fed dropped a spinning plate. All the chicken little's are shitting their pannies wanting to control every market and consumer sentiment. Great case for how broken our representative government is.
news outta Davos.. saudi oil minister bando something or other says oil will stay at current levels and then go up. $30 to$ 25 will not happen. he seemed very pleased as he mocked the bloomtard interview babe.