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Exxon Cuts 2020 Capex By 30% On Expectations For 25-30% Demand Drop

April 7, 2020

Exxon Cuts 2020 Capex By 30% On Expectations For 25-30% Demand Drop

With oil trading at prices that are uneconomical even for the world’s biggest majors, on Tuesday morning Exxonmobil announced it cut its 2020 Capex by 30% and cash Opex by 15% as the CEO said he expects a record 25-30% demand drop this year.

The company said that the largest share of Capex reductions, or roughly 30% of total, would be in the Permian Basin. As a result of the spending cuts, the company will a production hit of 100,000 to 150,000 barrels/day from the Permian Basin in 2021 due to its spending reductions, CEO Darren Woods says on call with reporters, adding that in 2020 the production cut would be a modest reduction of only 15,000 barrels, which will hardly be enough an OPEC+ demanding US shale producers join the global production cuts now not in one year.

Among the other Exxon announcements:

  • Expects to meet projected investments of USD 20bln on US Gulf Coast manufacturing facilities
  • Expects to reach proposed US investments of USD 50bln over 5yrs announced in 2018
  • Mozambique project, expected later this year, has been postponed
  • Current operations onboard Liza Destiny production vessel are undisturbed
  • Capital allocation priorities remain unchanged
  • Long-term fundamentals that underpin Co’s business plans are unchanged
  • Globally, the company sees industry refinery output declining in-line with demand and storage available

We’re in a “capital-intensive commodity business that’s used to ups and downs in price cycles. However, I have to say we haven’t seen anything like what we’re experiencing today” the CEO said, concluding ominously that “these are definitely challenging times for all of us.”

Exxon’s stock price rose by 7% on the news, although it remains about 40% below levels it traded at at the start of the year. The company’s dividend yield remains a above 8% – a staggering number for what was not that long ago one of the world’s largest companies.

…click on the above link to read the rest of the article…

Big Oil Doubles Down On Shale Despite Price Drop

December 13, 2018

Big Oil Doubles Down On Shale Despite Price Drop

big oil shale

It’s the time of the year when oil companies start announcing their budgets for next year and besides a steady albeit guarded optimism, one thing stands out: oil majors are doubling down on their shale endeavors.

Chevron, ConocoPhillips, and Hess Corp all announced their capex plans for next year in the last few days and all three have big plans for U.S. shale. In fact, Conoco said it would allocate half of its budget on onshore operations in the United States, while Hess Corp said the bulk of its US$1.89 billion production growth budget, or US$1.425 billion, would be poured into the Bakken play.

Chevron has  earmarked US$3.6 billion for expanding its production in the Permian and another US$1.6 billion will be invested in other shale plays in the United States. That makes a total of US$5.2 billion for U.S. shale, which is substantially higher than this year’s budget of US$4.3 billion.

Anadarko, which made its 2019 spending plans public last month, said it planned to allocate more than two-thirds of its 2019 budget to shale operations, with a particular focus on the Delaware Basin in the Permian and the DJ basin in Colorado.

According to Bloomberg, shale has become “a safe haven” for Big Oil amid the recent increased volatility in prices. The argument is that shale production costs are much lower than a few years ago and combine with the opportunity for a steady production increase and quicker returns than conventional projects.

The recent assessment of the U.S. Geological Survey of the recoverable reserves in the Wolfcamp basin must have added fuel to Big Oil’s shale enthusiasm.

…click on the above link to read the rest of the article…

How Will The Surge In Oil Prices Impact US GDP: One Bank Answers

October 4, 2018

How Will The Surge In Oil Prices Impact US GDP: One Bank Answers

Back in late 2014, when oil prices tumbled after the OPEC “thanksgiving massacre“, the conventional narrative was that dropping oil prices were a boon for the economy as they resulted in lower gas prices and thus greater discretionary income. The stark reality emerged quickly, however, once US corporations halted capex spending, resulting in a mini-recession for business investment coupled with dozens of shale bankruptcies.

Fast forward 4 years when Brent oil prices are trading back near $85/barrel, their highest level since October 2014, right before they tumbled. And with the “lower oil is beneficial for GDP” narrative discredited, following the recent rally, questions about the economic impact of oil prices have resurfaced, among them: have higher oil prices contributed to the upside surprises to 2018 growth via higher energy capex, as Chairman Powell suggested last week? Can US shale further ramp up production when capacity constraints are looming? Do higher energy prices still exert a meaningful drag on consumer spending and boost core inflation in an era of increased energy efficiency?

This is an analysis that Goldman conducted this week, and found that higher oil prices have had a neutral impact on GDP growth so far this year with a -0.25pp contribution from lower real consumption roughly offset by a +0.25pp contribution from higher energy capital spending. However, if oil prices remain at their current level the net growth contribution will decline to -0.1pp to -0.2pp in 2018Q4 and 2019H1.

The key reason is that while higher oil prices will remain a steady drag on consumption growth, the boost to energy capex is likely to shrink as the shale industry runs into transportation capacity constraints. It is only in 2019 H2 that the eventual arrival of new pipelines will likely trigger a re-acceleration of energy capital spending.

…click on the above link to read the rest of the article…

Oil Investment In Canada To Drop Despite Rallying Prices

June 28, 2018

Oil Investment In Canada To Drop Despite Rallying Prices

oil pipeline Canada

Canada has the world’s third-largest crude oil reserves, but the country seems determined to pretty literally keep these in the ground. This determination becomes strikingly obvious when Canada is compared with its southern neighbor, which is just what Bloomberg’s Robert Tuttle and Kevin Orland did in a recent story.

In the United States, they write, the number of oil and gas rigs are increasing—currently at its highest level since 2015, the height of the oil price crisis. In Canada, on the other hand, there has been an exodus of oil majors including Shell, ConocoPhillips, and Equinor, among others.

In the United States, capex in the oil industry is forecast by an Oil and Gas Journal poll to rise by 9.1 percent to US$132.5 billion this year alone. In Canada, total oil investment is seen falling by 2 percent to US$30.11 billion (C$40.1 billion).

Of course, there is a clear difference between the energy policies that the two neighbors’ governments are pursuing. Washington is all about energy independence, even energy dominance. Trump’s administration has been working consistently towards ensuring the best possible investment climate for oil and gas producers, much to the chagrin of environmentalists and the renewable energy industry.

Ottawa, conversely, has been clearly in favor of what might very loosely be called the green lobby. This has proven a challenge recently, as the federal government had to step in and buy the Trans Mountain pipeline expansion project from Kinder Morgan after the company refused to move forward with it in the face of strong provincial government opposition from British Columbia. Despite this move, caused as much by desperation as by any desire to have the pipeline built, Ottawa has on the whole been playing against oil.

…click on the above link to read the rest of the article…

Peak Shale: Anadarko Just Became The First US Oil Producer To Slash CapEx

July 24, 2017

Peak Shale: Anadarko Just Became The First US Oil Producer To Slash CapEx

It appears that Horseman Global’s Russell Clark may have been spot on with his bearish take on the US shale sector.

As a reminder, in his latest letter to investors, Clark said that “the rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money…. at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the next month.”

What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me.

While the bearish thesis has yet to play out, moments ago Anadarko poured cold water on US energy investors after it missed earnings badly, reporting a Q2 EPS loss of 77c, more than double the 33 cent loss expected.

…click on the above link to read the rest of the article…

End of the U.S. Major Oil Industry Era: Big Trouble At ExxonMobil

November 12, 2016

END OF THE U.S. MAJOR OIL INDUSTRY ERA: Big Trouble At ExxonMobil

The era of the mighty U.S. major oil industry is coming to an end as the country’s largest petroleum company is in big trouble.  While ExxonMobil has been the most profitable U.S. oil company in the past, it suffered its worst year on record.

For example, just four years ago, ExxonMobil enjoyed a $45 billion net income profit in 2012.  Now compare that to a total $5 billion net income gain for the first three-quarters of 2016.  If Exxon continues to report disappointing results for the remainder of the year, its net income will have declined a stunning 85% since 2012.

Actually, the situation at Exxon is much worse if we dig a little deeper.

profitability is much less when we factor in capital expenditures

To understand the real profitability of a company we have to look at its cash flow, or what is known as free cash flow.  Free cash flow is calculated by deducting capital expenditures (CAPEX) from the company’s cash from operations.  ExxonMobil’s free cash flow declined from $24.4 billion in 2011 to $1 billion for the first nine months of 2016:

steve-1

So, here we can see that Exxon’s free cash flow of $1 billion (2016 YTD) is down 95% from $24.4 billion in 2011.  The reason for the rapidly falling free cash flow is due to skyrocketing capital expenditures and falling oil prices.  But, this is only part of the picture.

If we include dividend payouts, Exxon’s financial situation drops down another notch.  While free cash flow does not include dividend payouts, the money Exxon pays its shareholders must come from its available cash.  By including dividend payouts, the company was $8.3 billion in the hole in 2015:

…click on the above link to read the rest of the article…

The Spook In the Casino—–Recession Just Ahead, Part 1

February 9, 2016

The Spook In the Casino—–Recession Just Ahead, Part 1

The wise guys keep buying the dips owing to the simple proposition that there is never a lasting bear market without a recession. So after today’s blow-out we are likely to get another call to scoop up the “bargains” because the correction has run its course and the US economy is still chugging along notwithstanding the contretemps in China and other places of purportedly limited moment.

Indeed, on the basis of Wall Street’s muscle memory alone there is surely another dead cat bounce on its way any day. But here’s the memo. BTFDs is not working any more and, more crucially, there is a recession coming and soon. And then the bear will maul, not simply paw as today.

The fact is, BTFD hasn’t worked on a net basis hasn’t for about 730 days now. The S&P 500 closed today where it first crossed in February 2014.
^SPX Chart

^SPX data by YCharts

In light of this extended dwell time in no man’s land, it is not surprising that the market is getting spooked. After all, the real driver of the post-March 2009 rebound of the stock indices was the Fed’s massive intrusion in money and capital markets, not a sustainable recovery of main street business activity or real household incomes. Real net CapEx is still below 2007 levels, for example, as is the real median household income.

And most certainly the market’s 220% gain between the post-recession bottom of 670 and the May 2015 peak of 2130 was not owing to an explosion of corporate earnings. If you set aside Wall Street’s annually renewable ex-items hockey stick, what you actually have on the profits front is a paltry 8% cummulative gain since the pre-crisis earnings peak way back in June 2007.

…click on the above link to read the rest of the article…

It Is Different This Time——–Now Comes The Global CapEx Depression

November 20, 2015

It Is Different This Time——–Now Comes The Global CapEx Depression

Caterpillar (CAT) posted a disastrous 16% decline in worldwide retail sales this morning, meaning that its sales have now fallen for 35 straight months. As Zero Hedge noted, not only did US retail sales finally rollover and drop by 8% compared to prior year, but the rest of the world was a veritable bath of yellow blood:

…….. sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -28%, a dramatic drop from the -17% a month ago, EAME dropping -13%, and Latin America down -36%…

Needless to say, this is something new under the sun. CAT is the leading heavy capital goods supplier to the global construction and mining industries and has a long history of boom and bust.

But CAT’s past contains nothing like what is conveyed in the graph below. The current 35 month plunge in its global sales is now nearly twice as long as the downturn in sales during the Great Recession, which was itself a modern record.

Indeed, CAT’s sales during the quarter ended in September had retraced all the way back to the September quarter of 2006. It is as if the massive tide of global capital spending that CAT has been riding for well more than a decade is heading back out to sea.
CAT Revenue (Quarterly) Chart

CAT Revenue (Quarterly) data by YCharts

In fact, it is. The flip-side of the massive commodities boom since the turn of the century is CapEx.

That is, the tremendous increase in demand for iron ore, copper, zinc, nickel, aluminum and hydrocarbons was mainly driven by a massive one-time build-out of industrial infrastructure for mining, manufacturing, transportation and distribution—–along with related public facilities such as roads, bridges, ports, rails and airports—- in China and the EM.

…click on the above link to read the rest of the article…

What The Rig Plunge Really Means For The Price Of Oil

February 3, 2015

What The Rig Plunge Really Means For The Price Of Oil

Arguably the biggest catalyst for the surge in crude, in addition to the technical move which started off with a vicious short squeeze into the NYMEX close last Friday, was last week’s record drop in the Baker Hughes rig count to 1,223, down from 1,609 just three months earlier. That, coupled with the ever louder reports of majors and all other energy companies cutting CapEx, has led some to believe that the supply imbalance is finally starting to normalize, and that production in the coming months will sharply drop off. However, as Morgan Stanley’s Adam Longson explains, that is not nearly the case.

Here are his big picture thoughts on what the recent rig count drop relaly means:

…click on the above link to read the rest of the article…

 

Oil fall could lead to capex collapse: DoubleLine’s Gundlach

January 14, 2015

Oil fall could lead to capex collapse: DoubleLine’s Gundlach

(Reuters) – DoubleLine Capital’s Jeffrey Gundlach said on Tuesday there is a possibility of a “true collapse” in U.S. capital expenditures and hiring if the price of oil stays at its current level.

Gundlach, who correctly predicted government bond yields would plunge in 2014, said on his annual outlook webcast that 35 percent of Standard & Poor’s capital expenditures comes from the energy sector and if oil remains around the $45-plus level or drops further, growth in capital expenditures could likely “fall to zero.”

Gundlach, the co-founder of Los Angeles-based DoubleLine, which oversees $64 billion in assets, noted that “all of the job growth in the (economic) recovery can be attributed to the shale renaissance.” He added that if low oil prices remain, the U.S. could see a wave of bankruptcies from some leveraged energy companies.

Brent crude LCOc1 approached a near six-year low on Tuesday as the United Arab Emirates defended OPEC’s decision not to cut output and traders wondered when a six-month price rout might end.

…click on the above link to read the rest of the article…

Suncor to cut 1,000 jobs in response to low oil prices

January 14, 2015

Suncor to cut 1,000 jobs in response to low oil prices

Energy firm to cut $1B from capital spending, delay work on some projects

Oilsands giant Suncor Energy says it will cut approximately 1,000 jobs and reduce its 2015 spending plans in response to lower oil prices.

The job cuts will primarily affect contract workers, but will also involve a reduction in employee positions, according to Suncor’s announcement, made in a press release today. The Calgary-based company also said it will implement a hiring freeze “for roles that are not critical to operations and safety.”

“Cost management has been an ongoing focus, with successful efforts to reduce both capital and operating costs well underway before the decline in oil prices,” said Suncor CEO Steve Williams in the press release.

“However, in today’s low crude price environment, it’s essential we accelerate this work. Today’s spending reductions are consistent with our commitment to spend within our means and maintain a strong balance sheet.”

Suncor says it will cut $1 billion from its capital spending program, and reduce sustainable operating expenses by between $600 million and $800 million over two years. It will defer expansion of its MacKay River project in Alberta’s oilsands, in addition to delaying work on the White Rose Extension oilfield off the coast of Newfoundland and Labrador.

Suncor said its Fort Hills oilsands project will continue as planned, as well as work on the Hebron oil field located approximately 350 kilometres southeast of St. John’s.

 

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