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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…

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…

Former Fed Advisor Asks “Has The Fed Bankrupted The Nation”

April 14, 2016

Former Fed Advisor Asks “Has The Fed Bankrupted The Nation”

Volcker, Greenspan, Bernanke and Yellen.

Which one does not belong? Logic dictates that Volcker should have been odd man out. After all, there is no legendary “Volcker Put.”

The towering monetarist made no bones about never being bound by the financial markets. The same can certainly not be said of his three successors. And yet, history contrarily suggests it is to Volcker above all others that the financial markets will forever be beholden.

Many of you will be familiar with Michael Lewis’ memoir, Liar’s Poker. Yours truly first read the book in a Wall Street training program much like the one Lewis survived to describe in his autobiographical work. The take-away then, in late 1996, was that Gordon Gekko was right — greed was good.

Recently, a second reading of Liar’s Poker, following nearly a decade inside the Federal Reserve, delivered a much different message than did that first youthful reading and was nothing short of an epiphany: Paul Volcker, albeit certainly inadvertently, created the bond market.

On Saturday, October 6, 1979. Volcker held a press conference and announced that interest rates would no longer be fixed and that further the Fed would begin to target the money supply in order to curb inflation and “speculative excesses in financial, foreign exchange and commodity markets.”

Alas, this new regime was not meant to be. In trying to introduce an alternative to interest rate targeting, the Fed replaced one guessing game with another. Predicting the demand for reserves and then buying or selling securities based on that demand proved to be just as dicey as a similar exercise to target a given level of interest rates had been.

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

S&P Just Downgraded 10 Of The Biggest US Energy Companies

February 2, 2016

S&P Just Downgraded 10 Of The Biggest US Energy Companies

Just 10 days after “Moody’s Put Over Half A Trillion Dollars In Energy Debt On Downgrade Review“, moments ago S&P decided it wanted to be first out of the gate with a wholesale downgarde of the US energy companies, and announced that it was taking rating actions on 20 investment-grade companies, including 10 downgrades.

The full release is below:

Standard & Poor’s Ratings Services said today that it has taken rating actions on 20 investment-grade U.S. oil and gas exploration and production (E&P) companies after completing a review. The review followed the recent revision of our hydrocarbon price assumptions (see “S&P Lowers its Hydrocarbon Price Assumptions On Market Oversupply; Recovery Price Deck Assumptions Also Lowered,” published Jan. 12, 2016).

While oil prices deteriorated over the past 15 months, the U.S.-based investment-grade companies we rate had been largely immune to downgrades. However, given the magnitude of the recent reductions in our price deck, most of the investment-grade companies were affected during this review. We expect that many of these companies will continue to lower capital spending and focus on efficiencies and drilling core properties. However, these actions, for the most part, are insufficient to stem the meaningful deterioration expected in
credit measures over the next few years.

A list of rating actions on the affected companies follows.

DOWNGRADES

Chevron Corp. Corporate Credit Rating Lowered To AA-/Stable/A-1+ From AA/Negative/A-1+

The downgrade reflects our expectation that in the context of lower oil and gas prices and refining margins, the company’s credit measures will be below our expectations for the ‘AA’ rating over the next two years. We anticipate Chevron will significantly outspend internally generated cash flow to fund major project capital spending and dividends this year and generate little cash available for debt reduction over the following two years.

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

Texas Economy Collapses – Dallas Fed Survey Crashes To 6-Year Lows As “D” Word Is Uttered

January 25, 2016

Texas Economy Collapses – Dallas Fed Survey Crashes To 6-Year Lows As “D” Word Is Uttered

For the 13th month in a row, The Dallas Fed Manufacturing Outlook was contractionary with a stunning -34.6 print following December’s already disastrous collapse back to -20.1, post-crisis lows. With “hope” having plunged back into negative territory (-2.2) in December, January saw a complete collapse to -24.0 as one respondent exclaimed, “we expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction.“

Bloodbath…

And its across the board with production, employment, and shipments all collapsing…

As hope is crushed…

Chart: Bloomberg

But the punchline was the respondents, virtually all of whom confirm the recession, and one even casually tossed in the “D”(epression) word:

Primary Metal Manufacturing

The impact of the continued decline in the energy sector, compounded with several new regulations from both the Environmental Protection Agency and Occupational Safety and Health Administration, is depressing economic conditions even further from 2015. Our top 10 customers continue to indicate declines in manufacturing and new capital expenditures for 2016. Outlooks continue to be adjusted down from six months ago, and we are seeing several foundry closings in our industry due to the state of our industry and strong offshoring projects.
Our projected increase in business is related to market-share gains at the expense of our main competitor (foreign owned) who is having service problems.

Fabricated Metal Product Manufacturing

We expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction.
I believe that if the stock market continues to deteriorate, spending on housing replacement products will decrease. Large purchases on housing seem to parallel consumers’ 401k performance.
It is getting pretty ugly, and the strength of the dollar is really making us noncompetitive.

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

$10 Trillion Investment Needed To Avoid Massive Oil Price Spike Says OPEC

December 29, 2015

$10 Trillion Investment Needed To Avoid Massive Oil Price Spike Says OPEC

The OPEC published its World Oil Outlook 2015 (WOO) in late December, which struck a much more pessimistic note on the state of oil markets than in the past. On the one hand, OPEC does not see oil prices returning to triple-digit territory within the next 25 years, a strikingly bearish conclusion. The group expects oil prices to rise by an average of about $5 per year over the course of this decade, only reaching $80 per barrel in 2020. From there, it sees oil prices rising slowly, hitting $95 per barrel in 2040.

Long-term projections are notoriously inaccurate, and oil prices are impossible to predict only a few years out, let alone a few decades from now. Priced modeling involves an array of variables, and slight alterations in certain assumptions – such as global GDP or the pace of population growth – can lead to dramatically different conclusions. So the estimates should be taken only as a reference case rather than a serious attempt at predicting crude prices in 25 years. Nevertheless, the conclusion suggests that OPEC believes there will be adequate supply for quite a long time, enough to prevent a return the price spikes seen in recent years.

Part of that has to do with what OPEC sees as a gradual shift towards efficiency and alternatives to oil. The report issued estimates for demand growth five years at a time, with demand decelerating gradually. For example, the world will consume an extra 6.1 million barrels of oil per day between now and 2020. But demand growth slows thereafter: 3.5 mb/d between 2020 and 2025, 3.3 mb/d for 2025 to 2030; 3 mb/d for 2030 to 2035; and finally, 2.5 mb/d for 2035 to 2040.

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

Oil Bankruptcies Hit Highest Level Since Crisis And There’s “More To Come”, Fed Warns

December 25, 2015

Oil Bankruptcies Hit Highest Level Since Crisis And There’s “More To Come”, Fed Warns

“Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now.

As Citi and others have noted – a year or so after we discussed the issue at length – uneconomic producers in the US are almost entirely dependent on capital markets for their continued survival. “The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow,” Citi wrote in September. Here’s a look at what the bank means:

Of course this all worked out fine in an environment characterized by relatively high crude prices and ultra accommodative monetary policy. The cost of capital was low and yield-starved investors were forgiving, allowing the US oil patch to keeping drilling and pumping long after it should have been bankrupt. Now, the proverbial chickens have come home to roost. In the wake of the Fed hike, HY is rolling over and as UBS noted over the summer, “the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis; sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries.”

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

The Next Domino: CANADA

December 13, 2015

The Next Domino: CANADA

The Federal Reserve has kept its zero interest rate policy (‘ZIRP’) for several years (and much longer than originally anticipated) whilst the European Central Bank seems to be getting serious about doing ‘better’ and has now reduced the deposit rate at the ECB to -0.30%. It’s already remarkable a central bank doesn’t seem to have any problem to reduce interest rates into the negative territory, but now Canada is considering making the same step as well.

Source: tradingeconomics.com

Even though Canada’s benchmark interest rate is still relatively ‘high’ at 0.5%, the governor of the Central Bank of Canada has now hinted at a negative interest rate as well. That’s interesting, but not really surprising when you look at the current situation of the mining sector and the oil and gas sector, which have been important backbones of the Canadian economy for quite a while.

The gold and copper price aren’t really giving mining companies a lot of hope and not only have the corporate tax payments from the sector been reduced, several mines have announced layoffs, reducing the employment rate in Canada. That’s tough luck, but the oil and gas sector might be in an even worse shape, and especially the province of Alberta will be in for a lot of pain in 2016 (and we would honestly be extremely surprised if the GDP in Alberta would increase ). Unfortunately this will create a ripple-effect throughout the entire Canadian economy and the Toronto Stock Exchange has lost 17.5% since April of this year which is more than three times as much as the loss of the Dow Jones Index in the same time frame.

Source: stockcharts.com

Just have a look at the oil and gas price, and it shouldn’t surprise you the majority of the oil and gas producers is ‘underwater’ and won’t generate a profit this year.

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

“On The Cusp Of A Staggering Default Wave”: Energy Intelligence Issues Apocalyptic Warning For The Energy Sector

November 28, 2015

“On The Cusp Of A Staggering Default Wave”: Energy Intelligence Issues Apocalyptic Warning For The Energy Sector

The Energy Intelligence news and analysis creator and aggregator is not one to haphazradly throw around hyperbolic claims and forecasts. So when it gets downright apocalyptic, as it did this week in a report titled “Is Debt Bomb About to Blow Up US Shale?”, people listen… and if they are still long energy junk bonds, they panic.

The summary:

“The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get?”

The full report by Paul Merolli, a senior editor and correspondent at Energy Intelligence:

Debt Bomb Ticking for US Shale

The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get and when? It increasingly looks like a number of the weakest companies will run out of financial stamina in the first half of next year, and with every dollar of income going to service debt at many heavily leveraged independents, there are waves of others that also face serious trouble if the lower-for-longer oil price scenario extends further.

“I could see a wave of defaults and bankruptcies on the scale of the telecoms, which triggered the 2001 recession,” Timothy Smith, president of consultancy Petro Lucrum, told a Platts energy conference in Houston last week.

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

Oil Majors Sacrifice Production To Protect Dividends

September 26, 2015

Oil Majors Sacrifice Production To Protect Dividends

The French oil company Total released a downward revision to its production forecast, lowering its target from 2.8 million barrels per day (mb/d) in 2017, to 2.6 mb/d, a sign that low oil prices continue to cut into long-term oil production for even the largest companies.

Total’s CEO said part of the reason for the more modest target was spending cuts, amid falling oil prices. Lower investment will lead to lower output in the future. The other part of the problem is delays to projects that the company already has in the works.

It is no secret that low oil prices are eating into the resources that major oil companies have to use at their disposal. Less revenue from lower oil prices leaves less capital to invest. But, the oil majors do have choices, and for now they are choosing to find savings in their capital spending budgets in order to protect their dividend policies. Dividends are seen as sacred, something that cannot be touched for fear of losing their sterling reputation with major investors. That means that even profitable oil projects get the axe in order to protect payouts to shareholders.

There are few exceptions to this approach, save for Italian oil giant Eni, which became the first oil major to slash its dividend in March of this year. “We are building a much more robust Eni capable of facing a period of lower oil prices,” CEO Claudio Descalzi said at the time, explaining the company’s decision to trim its dividend. Eni’s share price plummeted in the days following the news, but has not performed noticeably worse than its peers in the intervening months.

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

Saudi Exec Expects $1 Trillion Drop In Energy Investments

March 11, 2015

Saudi Exec Expects $1 Trillion Drop In Energy Investments

A high-ranking Saudi Aramco executive says the plunge in energy prices already has caused many in the industry to cut spending on oil and gas projects, and the trend probably will continue for a few years, perhaps reaching a cut of $1 trillion in investments.

“Challenges during down cycles are more complicated today than before,” Amin Nasser, a senior vice president for exploration and development at Saudi Aramco,told the Middle East Oil and Gas Show on March 9 in Manama, Bahrain.

“At this moment the global industry is poised to potentially cancel about $1 trillion in capital funding,” Nasser said.

Later Nasser told reporters on the sidelines of the conference that the $1 trillion amount included initiatives that might be delayed, not merely those that would be canceled altogether. “What we’ve heard from the industry is that there is $1 trillion of planned projects that will be dropped or deferred over the next couple of years because of what’s happening,” he said, without identifying his source.

The price of oil has plunged since late June from around $115 per barrel to around $60 today because of an oversupply caused by increased US production of shale oil and weaker demand for oil, especially in China and Europe.

This has eaten into the profits of both big and small energy companies, leading them to cut costs in many ways, including employee layoffs. But the largest hits are being felt in capital expenditures in companies ranging from Exxon Mobil Corp. of the United States, Norway’s Statoil and Britain’s BP.

…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.

Oil jumps 3 percent to $63 as energy firms slash investments | Business | Reuters

December 18, 2014

Oil jumps 3 percent to $63 as energy firms slash investments | Business | Reuters.

LONDON (Reuters) – Brent crude jumped 3 percent to above $63 a barrel on Thursday, extending a rebound from five-year lows this week as oil’s six-month price rout forced more energy firms to cut investments in new production.

Oil this week slumped as low as $58.50 and has almost halved since June as fast-growing U.S. shale output overwhelms demand, with losses accelerating after producer group OPEC decided not to cut output at its meeting last month.

But signs that lower prices are threatening future production have given some traders pause. Oil prices were volatile on Wednesday, briefly spiking as much as 6 percent as players rushed to close short positions, before falling back.

At 1109 GMT on Thursday, Brent for February delivery was $2.09 higher at $63.27, after settling up $1.17 in the prior session.

U.S. crude for January delivery, which expires after Friday’s settlement,

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

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