Energy News From the M&A Sector

Energy News From the M&A Sector

By Roy Graham

March 17, 2016

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As many as one-third of US oil and gas producers may seek bankruptcy protection by mid-2017 if oil prices remain near current levels, according to a forecast by Wolfe Research reported by The Wall Street Journal. A host of factors, from China’s economic slowdown to the dollar’s rise to producers themselves continuing to flood the market, have pushed oil prices lower and lower since mid-2014. Prices below $40 per barrel are viewed as unsustainable for the vast majority of US operators, especially those with significant debt loads.

Oil and gas companies are revising production targets and cutting capital spending amid a global slump in oil prices. Royal Dutch Shell, which posted a $6.1 billion loss in third quarter 2015, cut its losses related to some major projects, resulting in $7.9 billion in charges. The company has decided to abandon an Arctic exploration well off the coast of Alaska, as well as construction of an oil sands project in Western Canada. Although Chevron and Exxon Mobil were profitable during Q3, both companies announced plans to cut capital spending in an effort to weather the price slump; Chevron will also cut up to 10% of its workforce, according to The Wall Street Journal. The US Energy Information Administration projects Brent crude prices will remain below $60 a barrel until mid-2016. Prices averaged more than $100 a barrel as recently as August 2014.

Removal by the US Interior Department of some of the remaining obstacles to drilling in the Arctic creates a new market for oil and gas field services companies, but key restrictions remain. Arctic oil drillers must keep active rigs at least 15 miles from wildlife, which could make transport between drilling sites more burdensome.

Industry Indicators

  • The average US retail price for diesel and regular gas, which influences profitability for oil and gas companies, fell 28% and 7.4%, respectively, in the week ending January 18, 2016, compared to the same week in 2015.
  • The spot price of crude oil, which affects profitability for oil and natural gas operations, fell 29% in the week ending January 8, 2016, compared to the same week in 2015.

Posted by Roy Graham.

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