The oil sector is slipping into the red after years of fat profits as the steep slump in oil prices shows little sign of ending, with this quarter shaping up to be the worst since the downturn started.
The world’s top oil companies have struggled to cope with the halving of oil prices since June 2014. They have cut spending repeatedly, made thousands of job cuts and scrapped projects.
The lower-for-longer outlook for oil prices took its heaviest toll yet in the third quarter as oil companies again reported a dramatic drop in income. Some saw results swing into the loss column, and the industry had billions of dollars in impairment charges.
“This downcycle poses significant challenges,” Jeff Sheets, ConocoPhillips’ chief financial officer, told investors on a conference call after the company posted a loss.
With 10 of the top 20 European and North American oil and gas producers having reported third-quarter results, seven have posted losses.
These include Royal Dutch Shell, Italy’s Eni and in North America Occidental Petroleum Corp, Anadarko Petroleum Corp, Hess Corp, Suncor and ConocoPhillips.
Shell posted a third-quarter loss of $7.4bn on Thursday, hit by a massive $8.2bn charge after halting its exploration in Alaska’s Arctic sea and a costly oil sands project in Canada.
Downward revision
About half of Shell’s charges reflected a downward revision of the long-term oil and gas price outlook, Chief Executive Ben van Beurden said. Net profit excluding identified items collapsed to $1.8bn from $5.85bn a year ago.
Eni posted a net loss of $1bn and France’s Total had a sharp drop in profit, though its results were stronger than expected.
ConocoPhillips, the largest US independent oil and gas company, reported a quarterly loss of $1.1bn and lowered its 2015 spending target 7%.
Smaller companies also showed signs of pain. Marathon Oil Corp slashed its quarterly dividend 76% to preserve cash as it tries to weather the slump.
“The sector is rapidly moving into the red,” Jefferies oil and gas equities analyst Jason Gammel said.
“It is slowly going to claw its way back into the black through cost-reduction efforts, but that will take time. It will depend on price movements, but it will take time to get all these cost savings through the system.”
Even after cost efficiencies and spending cuts, European oil companies on average will require an oil price of around $78 a barrel in 2016 to cover spending and dividend payments, according to Jefferies estimates before the latest results.
Analysts polled by Reuters expect Brent crude to average a much lower $58.60 a barrel in 2016.
Source: Dhaka Tribune
