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U.S Drillers' Operating Losses Could Surge In 2016
Submitted by Michael McDonald via OilPrice.com,
What do you do when all of the low hanging fruit is gone? That question is one that oil producers are increasingly facing as they confront an oil price slump that is now more than a year old and shows no serious signs of abating. With oil prices having fallen by nearly half over the last sixteen months, it is little wonder that oil companies found their balance sheets under pressure. From Exxon to Continental all oil companies have faced problems in maintaining their capital spending and more importantly, their profitability. In light of that, it is little wonder that oil companies pulled every lever they could to survive.
The vast majority of oil companies have seen their profits fall markedly in the last year, and most companies have turned to the same three tools in order to cope with falling prices.
First of all, companies have been relying on production growth. Shale producers especially have done all they can to keep production as high as possible. The idea has been to offset the falling price per barrel with more barrels of output. Some firms, like Devon Energy, have been exceptionally successful with this strategy. The problem is that production growth is not sustainable for shale firms in the absence of large amounts of capital spending, which these firms cannot sustain at this point. The declining production curves are simply too great for oil companies to keep the oil flowing without significant new investment. Thus investors should be prepared to see production fall in 2016.
Secondly, cost cuts are also playing a big role at oil companies in sustaining profits. Oil companies in general are “sharpening their pencils” on cost cuts according to analysts. The supply chain crimp on prices across the entire oil vertical has been severe. From Haliburton to Frank’s International, every oilfield supplier has felt the pinch. This has motivated the supply chain to be more efficient in providing services and has let oil companies wring additional savings out of their businesses’.
These double-digit savings have helped oil companies considerably in maintaining the bottom line, but it is starting to look like that trend may be waning. From Baker Hughes to mom & pop operations, the supply chain simply cannot do much more to help producers. That bodes ill for 2016 profits at oil producers.
Finally, and even more important than production growth, oil producers were as a group fortunate and wise enough to be significantly hedged against the fall in oil prices over the last year. For much of 2015, oil prices hedges have helped keep oil companies afloat and led to sizeable hedging gains.
The problem is that very few companies hedge out for more than one or two years. As a result, these existing hedges are now starting to roll over which is leading some to predict hard times for the industry ahead. Oil companies now face a choice of hedging production at much lower levels per barrel, or of selling production at spot prices and hoping for a rebound.
Given hedges have arguably been the biggest source of economic strength for various oil companies, it is likely that many firms will be facing severe operating losses next year.
That in turn could finally motivate sellers of oil assets enough to narrow the spread between bids and asks on assets which are on the block. More importantly, as those wells continue to decline in output and less capex goes into maintaining them, national oil production could finally start to stagnate or even fall. And that would finally set the stage for a limited rebound in prices. In this case, oil companies do not need to be “faster” than the “oil price bear” they just need to be “faster” than the slower companies in the industry.
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Could? How could they not?
I logged in to say the exact same thing. Hedges are gone or almost gone - here it comes!
Regards,
Cooter
Unfortunately, the very practice area that spurred the law firm's growth ended up dragging it down in light of the downturn in oil prices. Land and title law in the oil patch is tied to drilling activity. As drilling activity has declined, so has the work coming from the firm's once prolific clients, said Burleson.
"When the rig count goes from 1,300 to 600, our business is impacted dramatically," said Burleson.
http://www.bizjournals.com/houston/blog/drilling-down/2015/11/more-detai...
Moar of Barry's "Legacy."
OT but Now the U.S. isn't bombing oil fields because of environmental issues. http://thehill.com/blogs/blog-briefing-room/261283-ex-cia-chief-fear-for...
This is just incredible. It is so moronic but the sheeple eat it up with a giant fucking spoon.
Kim K and Caitlyn are launching new stores. Did you see that?
We will destroy ISIS
LOL
Further Yuan deval = Bankster oil derivatives implosion
Throw in Iran/Iraq production increases and this can get extremely ugly.
$10/Barrel...?!
Prices drop either by glut...or by wallpapering a complete lack. The results are the same at the end of the day though. Systemic Collapse.
My TA suggests $24ish by around the middle of 2016.
Long term I don't rule out FA reasons why crude never sees north of $45 again (technology that exists but is suppressed, abundance versus scarcity of crude, eradication of the financialization of crude as a bankster instrument, etc.).
Gets a little weirder. Miners are also operating in the red with commodities markets being grounded for whatever reason. That lack of new production will roll over any new manufacturing being done by increasing the costs of practically everything. The oil prices are just a reflection of other systemic infrastructure, systems and economic issues that are now no longer avoidable. The buck has been passed along too often and too long for any other outcome.
What happens, essentially, is all the flat earth right wing boomers who have invested in oil companies will get nothing for their selfishness greed and shortsightness and will most likely die in the collapse.
Many say that life is 'unfair'.
I say life is very fair, if you long the reality timeline.
Is there a market that isn't completely fraudulent...fully manipulated by our financiers and the government officials they bribe? I am just waiting to bail out the next billionaire gamblers...I still have a few dollars left.
Your fiat notes are owned by dem too, silly goose.
And they will stop when people start darwinning them.
No other way.
Who looks forward to Hillary price controls....Oil with here forth be priced at $100 or whatever price her billionaire backer wishes....and a USSA black market for goods. All hail Obama's rescue of the richest!
Wouldn't that mean, instead of the "Gold Standard", the US would be on the "Oil Standard"?
When the supply starts to roll over due to the lack of pumping due to the lack of profit due to the lack of development due to the lack of new financing, then we will see more bankruptcies and big shot DIPs at the upstream. Only then will the price of crude begin an inexorable return to triple digits. AND the MF'in Bankers will own the means of production.