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Depressed oil prices bring more
gloom and doom to industry
Depressed commodity
prices, generally aggravated by a weakening economy and
specifically by difficulties accessing troubled
financial markets, continue to plague the oil and gas industry
worldwide, with little apparent hope for a meaningful recovery anytime
soon. Company profits heading into the New Year were on the
slide, especially for the oilfield services industry and exploration
and production
(E&P) sector, which found itself caught in a double
whammy of reduced income and high operating costs.
Oil prices
take toll on Big Oil
To no one’s surprise, U.S. oil prices
struggled during the final
quarter of 2008, averaging around $59 a barrel, down by a third
from the year before and far below the $147 record seen last
July. By the second week of January, however, prices were hovering in
the low $30 per barrel range, putting unprecedented financial pressure
on the oilfield service sector and E&P companies, including
some of the globe’s largest.
Chevron Corp., the second largest U.S. oil and gas
producer, rattled Wall Street in early January after warning investors
that its 2008 fourth-quarter earnings would be “significantly
lower” than the third quarter due to lower commodity
prices on its upstream, or E&P business. Chevron also disclosed
that its U.S. oil-equivalent production in October and
November dropped to 608,000 barrels per day from 647,000 the previous
quarter and 730,000 in the fourth quarter of 2007.
A few weeks later another major oil company,
ConocoPhillips,
announced a deep cut in capital spending for 2009 versus 2008
and that it would be laying off 4% of its workforce, or some
1,350 employees. BHP Billiton, a major deepwater oil player in the U.S.
Gulf, said it planned to cut 6% or 6,000 employees and close
its giant Ravensthorpe nickel mine in Australia with a $1.6
billion
writedown, its biggest in nine years.
Fourth quarter earnings for the integrated majors
were expected to fall by more than 26% from a year ago, ranging from
11% for BP to 40% for ConocoPhillips, according to industry
analysts. Sequentially, they believe earnings would be around 51%
lower, with declines ranging from 41% for ExxonMobil to more than 50%
for BP, Chevron and ConocoPhillips.
Independents
to see lower Q4 profits
Independent producers also were expected to post
significantly lower profits for the 2008 fourth quarter. In fact, a
Platts survey of consensus earnings projections for 15 key US-based
E&P independents indicated analysts expected a hefty 51%
decline
for the
quarter ended December 31, when compared with the same period of 2007
and a 65% drop from the third quarter ended September 30.
With less activity because of less E&P
spending, oilfield service companies also are feeling the pinch. Last
month Schlumberger Ltd., the world’s largest services
provider, announced plans to shed 5% of its North American workforce,
or 1,000 positions, and said it was looking at reductions
elsewhere. Schlumberger employs 84,000 people in about 80
countries.
Drilling rig
count to continue slide
The number of drilling rigs operating at a given
time provides a
telling snapshot of industry’s overall health. From the
recent peak in U.S. domestic rig activity, some analysts
believe the drilling industry could lose up to 1,000 rigs in
2009. Sadly, the actual rig count has declined faster than
suggested by the historical pace.
Industry columnist Allen Brooks believes the U.S.
domestic rig count, based on his study, will drop about 500 to 600
additional rigs
from where it ended in 2008.
“That drop will result from the sharp
cutback in petroleum industry capital spending due to uncertainty about
the future levels of crude oil and natural gas prices, global petroleum
demand, the role of alternative energy, producer access to
capital markets and the energy regulatory environment,”
Brooks said.
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