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The Trump Administration is Reshaping the Country Under the Guise of National Security. The Energy Sector is Next.
THE TRUMP ADMINISTRATION is unilaterally reshaping the United States under the cover of national security. The White House’s justification for its “zero tolerance” policy of separating families at the border was based on the president’s powers over national security.
President Donald Trump’s Muslim travel ban was justified on grounds of national security, as are his vague “extreme vetting” proposals for visa applicants. Now, his Energy Department is looking to reshape the energy industry and reverse the trend away from coal-fired power plants. Their justification?
National security.
Yet in the case of the energy industry, nobody is buying the rationale, and the radical intervention into energy markets has produced an odd-bedfellows coalition of opposition that includes the oil and gas industry, renewable energy companies, and environmentalists.
On the other side, in support of the White House, stands the coal and nuclear and industry, headed up by Murray Energy and First Energy, who’ve long lobbied for just such a lifeline.
Speaking at the World Gas Conference this week in Washington, Energy Secretary Rick Perry assured the government and industry representatives present that the U.S. is working to “honor the right of every nation to use every available fuel at its disposal. I wish I can tell you the entire developed world is on board with our vision. They are not.”
Neither is much of the oil and gas industry that was gathered before him. Thanks to his plan to bail out struggling power plants — a measure opposed by the likes of the American Petroleum Institute — Perry now finds himself caught in the crosshairs between two dueling arms of the fossil fuel industry.
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One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High
One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High
Record high US Energy credit risk…
The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.
The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” said William Snyder, head of corporate restructuring at Deloitte, in an interview. “It’s all about liquidity.”
Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.
“2016 is the year of hard decisions, where it will all come to a head,” John England, vice chairman of Deloitte, said in an interview.
For now, however, there is a corner of the market that offers perhaps a smidge of saefty…
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When good loans go bad among junior energy companies
The energy sector is facing a season of pain as its loans are renegotiated.
This is shaping up to be a deeply unpleasant autumn for junior energy companies and the banks that lent them hundreds of millions of dollars.
“Everyone got hall passes until the fall, but the principal is going to be standing in the hall wanting his passes back.”– Bruce Edgelow, ATB Financial
Banks typically review their loans twice a year, but the last review took place in the spring when it looked as though oil prices might be poised to make a recovery. There are no such illusions now.
- Alberta has lost 35,000 oilpatch jobs, petroleum producers say
- Oilpatch pain will continue, say 3 wise men
“Everyone got hall passes until the fall,” said Bruce Edgelow, head of energy banking at ATB Financial. “But the notion is that the principal is going to be standing in the hall wanting his passes back.”
Looking for the exit
Oil reserves are worth a lot less than they were a year ago. That has banks looking to renegotiate their loans in the energy sector. (REUTERS)
The investment bank Canaccord Genuity suggested that Canada’s banks are going to be looking to reduce their exposure to oil and gas loans by 15 to 20 per cent, simply because lending to energy has become too risky.
This has come as a shock to some juniors. The relationship between banker and corporate borrower tends to be pretty jolly when times are good, with money on tap for growth plans and parties during the Calgary Stampede. But when those loans become troubled, they are passed to another group, whose job it is to collect or otherwise get the debt off the books.
It’s a little less friendly.
“When you move files to the special loans teams, in most of the eastern banks, they are managed by the eastern-based special loans guys and their sole mandate is to get off the position,” said Edgelow. “Not necessarily to restructure and return it to health.”
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What’s Coming Unglued Now in Canada?
What’s Coming Unglued Now in Canada?
Canada lumbered through the first half of 2015 in a “technical recession,” Statistics Canada confirmed this week, as GDP shrank in both quarters. Among the culprits: the swooning energy sector and an investment slump.
Now everybody is lining up behind the hope that a sudden acceleration will put the economy back on track in the third quarter, despite oil that has re-crashed and despite the ongoing collapse – and that’s what it is – of the all-important energy sector.
To get to this acceleration, the once booming residential and commercial construction sectors have to hold up, or else Canada’s economy is in real trouble. Alas….
“Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption” in the second quarter, warns a new report by commercial real estate firm Colliers International cited by the Financial Post. It paints a picture of an epic office boom turned into an even more epic office glut, particularly in Calgary and Edmonton, Alberta, the epicenter of Canada’s oil patch.
This office glut comes on top of Calgary’s housing meltdown. For the first eight months, total home sales in Calgary plunged 25%, according to the Calgary Real Estate Board. Condo sales collapsed 39% in August and 30% year-to-date. Inventory sits a lot longer on the market before it sells, if it sells. And pressures are building on prices: the average condo price was down over 10% in August from a year ago.
Commercial real estate is heading in a similar direction. Only worse. Calgary was a boom town. Office towers have been sprouting like mushrooms. In recent years, commercial real estate costs downtown were “going through the roof” and “accelerating at a pace far beyond the Canadian average,” Calgary Chamber of Commerce director of policy and research Justin Smith told the Financial Post. But it takes years to plan and build office towers, and now no one can just turn off the flow.
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Layoffs Surge As Oil Price Outlook Remains Sober
Layoffs Surge As Oil Price Outlook Remains Sober
Lately the leaders of some of the world’s biggest energy companies have been saying oil prices will remain depressed for some time – perhaps for the next five years – and now they’ve decided to cut their costs in the most painful way possible: massive job cuts.
Royal Dutch Shell announced July 30 that it expects to eliminate 6,500 positions. The announcement came the same day it reported that earnings in the second quarter were $3.4 billion, 33 percent lower than the $5.1 billion it made during the same period of 2014.
The same day, the British utility Centrica said it plans to cut fully 6,000 jobs and reduce the size of its division for producing oil and gas. The day before, Chevron Corp. of the United States expected to eliminate 1,500 positions.
Related: The Broken Payment Model That Costs The Oil Industry Millions
And as oil producers struggle to rein in spending elsewhere in their operations, the pain is being shared by the oil service companies they rely on. The Italian energy contractor Saipem, for example, says it plans to cut 8,800 jobs in two years.
“We have to be resilient in a world where oil prices remain low for some time,” Shell CEO Ben van Beurden said in the statement. “These are challenging times for the industry, and we are responding with urgency and determination.”
It may be too early to determine whether the price of oil, which began falling a year ago, was now forcing the energy industry to go beyond cutting fat and is now gouging into the very sinew of its operations, but it’s clear that they’re convinced that other economies simply weren’t enough to keep themselves afloat.
Related: Greenpeace Going All Out To Stop Shell Drilling In The Arctic
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