In Oil & Companies News 14/03/2016
U.S. shale oil producers could become casualties of the depressed crude market as reduced production squeezes their earnings and banks consider cutting off funding.
U.S. benchmark West Texas Intermediate crude futures dipped to $37.84 per barrel in New York Thursday, down 45 cents on news that a meeting of oil-producing nations looking to freeze production, planned for March 20, could fall through. But the futures turned upward once more during after-hours trading. There was little real hope pinned on the Saudi- and Russia-led meeting to begin with, said a trader for a major trading house. The market is focused more on shifts in U.S. production, the trader said.
U.S. oil output dropped to 9.3 million barrels per day in December, falling below the year-earlier level for the first time since September 2011, the Energy Information Administration reported Wednesday. Cuts to shale oil production were largely responsible. Shale output is forecast at 4.87 million barrels per day in April, around 600,000 barrels below its March 2015 peak.
Shale oil and gas companies tried to mitigate some of the damage by shorting futures last year. Yet seven major producers still ended 2015 with net losses of around $1 billion, excluding extraordinary losses, according to Sumitomo Mitsui Asset Management.
More energy companies could be forced into bankruptcy amid the current market downturn than in the wake of the 2008 financial collapse, when 62 went bust, U.S. consultancy Deloitte reported recently. Ratings companies are weighing downgrades of those enterprises. “Financial institutions could begin cutting off funding” starting in April, when many credit negotiations are scheduled, said Nana Otsuki of online securities firm Monex Group.
Can’t go back
Many have worried that even if companies were to leave the market, a recovery in demand after production declines would lead to high prices, prompting production increases, and eventually another round of painful price drops. But that cycle might be broken this time around. Haliburton and other petroleum service companies, which dig wells and perform other essential tasks, are facing severe financial crunches.
Prices are still feeling downward pressure, a Halliburton executive told investors in January. Construction fees fell around 30% in 2015, damaging earnings at the industry’s three leading companies. World petroleum services leader Schlumberger has said it will cut 10,000 jobs, meaning that its employment will drop more than 20% in all since the second half of 2014. Halliburton and Baker Hughes are undergoing similar streamlining. “Workforce reductions will keep companies from quickly increasing production,” Hirokazu Kabeya of Daiwa Securities said.
The U.S. presidential race is also causing headwinds. Both contenders for the Democratic Party nomination, former Secretary of State Hillary Clinton and Senator Bernie Sanders, have been critical of hydraulic fracturing, a high-environmental-impact technique for mining shale gas. The elimination of that technique could sound the death knell for the industry itself.
The environmental impact of shale oil development is certainly drawing renewed focus, though whether any real change is in store is another story, said Ole Hansen of Saxo Bank. Still, raising production in the future could become far tougher, which in turn will underpin oil prices.
Source: Nikkei
