As Climate Concerns Grow, Fossil Fuels in Turmoil January 20, 2015

The creeping bloodbath in the Oil industry continues. I’ve pointed out that, ever since the Saudis moved to encourage the recent oil price drop, a whole lot of people that had been creating headaches for Barack Obama started to feel a lot of pain.

Just sayin’.

Carbon Brief:

Oil prices slumped to a six-year low earlier this week. In response, oil companies around the world have been cutting jobs and exploration and production budgets.

– The oil price is currently around $48 per barrel, down from a high of about $115 last July. Lots of oil companies have had to adjust their budgets as a consequence. In particular, they’ve had to revise how much they’re going to spend on new projects, known as ‘capital expenditure’, or ‘capex’ for short. Companies put jobs at risk when they reduce their capex budgets, as fewer projects mean fewer workers are needed. Here’s a list of the budget and job cuts recently announced by major oil companies:

The Telegraph reports that the Age of $100/barrel oil will return as energy cuts have been deep and bloody enough.

Just over a year ago, Peter Voser, in one of his last speeches as chief executive of Royal Dutch Shell, warned about the catastrophic consequences that could arise from the energy industry failing to invest in providing the world with enough oil and gas to meet global demand. Mr Voser told an audience of senior oil and gas industry executives gathered in London: “Our first priority must be to invest heavily in new supplies, and to maintain it through economic and political turbulence. Failing to do so would be a sure path to another crunch and major price volatility.” It can take a decade to discover a major oil field and bring it into production, and most oil majors have been basing their long-term forecasts for such projects on the assumption of $80 oil. Failure to ride out the bumps in oil prices along the way can lead to even bigger shortfalls in supply further down the track. The risk in the current market is that oil companies will cut back too hard, too fast, setting the world’s consumers up for another shock that will see the price of a barrel of crude trade well above $100. Instead of heeding Mr Voser’s advice and forging ahead with new investments to boost capacity by pushing the search for new resources in the frontiers of the Arctic and offshore Africa, oil and gas companies are now looking inwards by aggressively reining in capital expenditure. Oil majors like Shell are forensically evaluating their project pipeline to filter out schemes that may not make sense in a supposedly new era of low oil prices, which some pessimistic pundits have predicted could fall to as low as $20 per barrel. The Anglo-Dutch company and its partner Qatar Petroleum this week shelved its first major development this year when it decided not to go ahead with a $6.5bn petrochemicals plant near Doha. Its reason for cancelling the project was simple: the scheme, which probably started as a concept in a world of $100 oil, no longer makes commercial sense with the current economic circumstances weighing on the energy industry.

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The problem is that the current fall in oil prices has been artificially engineered by Saudi Arabia and its close allies within the Organisation of the Petroleum Exporting Countries (Opec). They are determined to win back lost market share from US shale oil drillers at any cost, and are keeping their spigots open with the knowledge that prices will whiplash back even higher. The latest data released by the International Energy Agency (IEA) and Opec’s research office prove that this strategy is already working after only a few months.

Seeking Alpha:

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 (NYSE:HAL) said that it was axing an undisclosed number of people in Houston. Suncor Energy (NYSE:SU), Canada’s largest oil producer, will dump 1,000 workers in its tar-sands projects. Helmerich & Payne (NYSE:HP) is idling rigs and cutting jobs. Smaller companies are slashing projects and jobs at an even faster pace. And now Schlumberger (NYSE:SLB), the world’s biggest oilfield-services company, will cut 9,000 jobs. It 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.

Meanwhile, the widely discussed blow to renewable energy from low oil prices has not really materialized, and to the extent it does emerge, looks to be temporary.

Bloomberg:

Spending on renewable energy, which surged 16 percent in 2014, will remain strong this year, largely unaffected by the slumping oil prices that have artificially depressed their shares. That’s the message from Stuart Bernstein, Goldman Sachs Group Inc.’s global head of clean technology and renewables, and Vishal Shah, Deutsche Bank AG’s renewable-energy analyst. Because oil produces only 1 percent of U.S. electricity, the crude plunge that’s roiling markets should have only a “modest” effect on clean-energy developers or the companies that equip them, Bernstein said in a telephone interview. “I don’t want to be dismissive of the impact of declining oil and gas commodity prices on renewable energy,” Bernstein said. “But they will have a very small impact on the long-term cost of electricity.” Clean energy attracted a total of $310 billion in investment last year, up from $268 billion in 2013 and the first increase in three years, according to Bloomberg New Energy Finance. Goldman Sachs managed $4.1 billion in clean-energy public markets transactions last year. That was about 40 percent of the total and the most of any financier, according to league tables published by New Energy Finance. Goldman has boosted its efforts in clean energy while other financial companies are pulling back, which helped the company retain the top spot, Bernstein said.