There has been no respite for crude oil prices as the slide continues. The recent slide is for a fifth straight week as concern over global oversupply intensified after the head of oil producers’ cartel OPEC indicated there would be no cuts in production despite a huge global oversupply.
OPEC members produced around 31.25 million barrels per day (bpd) in the second quarter, about 3 million bpd more than daily demand. The surplus oil has gone into stockpiles around the world, filling storage depots from China to Chile, and driving prices down sharply. Both major crude oil benchmarks are down more than 50 percent from a year ago.
US crude posted its biggest monthly drop since the 2008 financial crisis settling for $1.40, or almost 3 percent, at $47.32 a barrel. Brent settled down $1.10, or 2 percent, at $52.21 a barrel. It lost 18 percent on the month.
Recent financial results and continued downsizing reveal the pain the low oil prices have inflicted on the industry globally.
Shell projects downturn will last many years
Oil major Shell said the oil price downturn could last for several years, as it revealed 6500 expected staff and contractor reductions in 2015, as well as further capital and operational spending cuts.
“Operating costs are expected to fall by over $4 billion, or around 10 percent, in 2015,” said Shell, as part of the firm’s “sustainable cost reduction program.” Costs will fall further in 2016 it says.
2015 capital investment is expected to be around $30 billion, down $3 billion from Shell’s last estimate in April, and down $7 billion, or 20 percent, compared to 2014 levels and 35 percent compared to 2013, as projects are either cut, reduced or re-phased, said Shell.
Shell said the company’s “planning assumptions reflect today’s market realities.” “The company has to be resilient in today’s oil price environment, even though we see the potential for a return to a $70-$90 oil price band in the medium term,” it said.
The firm expects to make further savings from its BG Group acquisition, which it said was on track. Synergies from the transaction should be at least $2.5 billion per year from 2018, said Shell. The firm also expects $30 billion of asset sales between 2016 and 2018, as the combined portfolios are restructured.
Prior to the BG combination, asset sales should total $20 billion for 2014 and 2015 combined, despite weak market conditions, Shell said, adding it would, at the same time, continue to invest in significant new projects.
Royal Dutch Shell’s second quarter 2015 earnings, on a current cost of supplies (CCS) basis, were US$3.4 billion compared with $5.1 billion for the same quarter a year ago. 2Q 2015 production was 2.7 MMboe/d compared with 3 MMboe/d a year ago. Liquids production decreased by 4 percent and natural gas production decreased by 18 percent compared with 2Q 2014.
Chevron profit plummets, set to cut 1,500 jobs
Chevron posted its lowest profit in more than 12 years after an energy market rout prompted the company to write down the value of oil and gas fields by almost $2 billion. Net income during the second quarter fell to $571 million, from $5.67 billion a year earlier. Chevron’s biggest business unit, oil and gas production, posted a loss as the second-largest US energy company recorded a $1.96 billion write-down on assets and another $670 million charge for taxes and projects suspended because they no longer make economic sense.
Chevron said the ongoing market slump convinced it to lower its long-term outlook for crude prices, though it did not provide precise figures.
Chevron Corp. will cut 1,500 jobs globally as the company aims to reduce internal costs in multiple operating units and the corporate center. The company will cut 950 positions in Houston, 500 positions in San Ramon and 50 positions internationally.
Chevron will be cutting 1,500 employee positions across the 24 groups that comprise the corporate center; 270 of the positions are existing vacancies that will not be filled. Additionally, 600 staff augmentation contractor positions will be cut in the corporate center.
Exxon profit lowest since 2009
Exxon Mobil Corp. posted its worst quarterly performance in six years as a worldwide glut of oil collapsed prices faster than explorers trimmed costs. Net income fell to $4.19 billion from $8.78 billion. Exxon reduced spending on major projects like floating crude platforms and gas-export terminals by 20 percent to $6.746 billion during the quarter, according to the statement.
Chairman and CEO Rex Tillerson was among the first oil-industry bosses to shrink spending as the crude rout began taking shape more than a year ago. After cutting the budget by 9.3 percent in 2014, this year’s reduction may exceed the original 12 percent target, the company disclosed during an April 30 conference call with analysts.
Even as the company cut spending and re-evaluated whether some multi-billion dollar projects make economic sense with oil around $50/bbl, the company has discovered a field off the coast of Guyana that the government said may hold the equivalent of more than 700 Mbbl of crude. Such a prize would be worth about $40 billion at current oil prices.
Statoil Confirms 1,500 Potential Job Losses by 2016
Statoil also announced that up to 1,500 employees and more than 500 consultants could be let go by the end of 2016. The workforce reductions, which are estimated to range between 1,100 and 1,500 jobs, form part of Statoil’s plan to save $1.7 billion in 2016, and beyond. They will be accompanied by a simplification of the company’s work processes and further changes and adjustments to the organizational set-up are scheduled to be presented by the end of June.
Since the end of 2013 Statoil’s workforce has been reduced by 1,340 permanent employees and 995 external consultants. The reductions were achieved through more limited use of consultants, attrition, internal deployment into new positions, severance packages and early retirement. Recruitment has been very limited but Statoil has upheld its focus on recruiting apprentices and graduates, according to the company.
Centrica to cut 6,000 jobs
Centrica will cut around 6,000 jobs by 2020, according to its half year 2015 results, as part of an efficiency program that will be used to deliver a major source of “near-term cash flow growth”. The company expects half of the reductions to come from natural attrition and half from redundancies, with most redundancies occurring before the end of 2017. Centrica’s efficiency program plans to target cost efficiencies of $1.17 billion per year, relative to a 2015 baseline, by 2020. In its 1H 2015 results, Centrica revealed that its adjusted operating profit fell from $1.61 billion in 2014, to $1.56 billion in 2015.
Mexico’s Pemex posts wider 2Q Loss
Mexican state-run oil company Pemex said losses widened in the second quarter, marking its eleventh straight quarter in the red, on slumping prices and a nearly 10 percent drop in crude output. Losses grew nearly 62 percent to $5.388 billion, Pemex said in a statement.
The company also cited a 44 percent drop in the average price of Mexican crude exports during the quarter, from $97.09 per barrel to $53.95 per barrel.
“The results of the company continue to (follow) the clear impact caused by the current environment, where the markets continue to be over-supplied and the US dollar keeps getting stronger,” Chief Financial Officer Mario Beauregard said.
Crude oil production for the quarter stood at 2.225 million barrels per day (bpd), down from 2.468 million bpd in the year-earlier period.
Meanwhile, natural gas production fell 6.3 percent to 5.3 million cubic feet per day.
Last year, Mexico’s Congress completed a sweeping energy overhaul that ended Pemex’s decades-long monopoly on oil production. The overhaul promises to reverse declining crude output by luring billions of dollars in private investment via new contracts.
Pemex did not compete in the first phase of the so-called Round One tender earlier this month, the first opportunity under the overhaul in which oil companies could bid on contracts covering 14 offshore blocks. But the company has said it plans to participate in future phases of the five-stage Round One auction, which consists of 169 blocks.
Pemex is also set to sign its first joint venture deals with private oil companies, another first permitted under the industry overhaul.