I’m tossing you a softball. Now think carefully. The choices are:
A. Zero
B. Zero
C. Zero
D. Zero
I know Americans are math challenged and need a calculator to subtract 10 from 20, but I think even a CNBC bimbo or Princeton economic professor could get this one right.
Last year there was much banter from the Wall Street shysters and Bakkan shale oil experts about the true breakeven price for shale oil not being $80 (which is the truth) but actually being as low as $58 a barrel. They were spreading this lie in order to keep idiot investors buying the stocks and bonds of these fly by night shale oil companies.
Well, we are now six months further down the line and Bakkan shale oil this morning is selling for $37 per barrel. Where are the babbling baboons of bullshit with storylines of shale oil breakeven prices of $30? I guess even corrupt lying scum can’t work up the gumption to try and convince the ignorant masses of that doozy.
Think about this for a minute. What business in their right mind would start a project that is guaranteed to lose $43 per barrel produced? How long will these small shale oil companies with gobs of junk bond debt last at these prices? The answer is easy. Not long. The bankruptcies have begun. The rig counts are collapsing at the fastest pace in history. And the number of layoffs is increasing exponentially. It’s like watching a devastating car crash in slow motion. And it has only just begun.
And as OilPrice.com’s Andrew Topf explains it’s going to get worse…
100,000 Layoffs And Counting: Is This The New Normal?
This time a year ago, the oil industry’s biggest problem was finding a way to deal with the “retirement tsunami” about to crash down on it as older oilfield workers hung up their cork boots to enjoy freedom-55. Now, with oil prices still in the doldrums, many of those same workers are lucky to be hanging onto their jobs, while others have been booted from the payroll as an ugly wave of layoffs takes hold.
On Thursday one of the region’s big players, Husky Energy, announced that about 1,000 construction workers employed by a contractor at its Sunrise oilsands project, would be issued pink slips. The bad news for the workers came a day after Husky said that it had started to produce from the $3.2 billion, steam-assisted gravity drainage (SAGD) Sunrise operation, which it co-owns with BP.
The layoffs by Husky followed Suncor’s decision in January to cut 1,000 employees and Royal Dutch’s Shell’s announcement that it will shed close to 10 percent of the workforce at its Albian sands project – around 300 workers.
The Canadian Association of Oilwell Drilling Contractors, which closely tracks drilling activity, said in February that up to 23,000 jobs could be lost as the number of rigs fall. Since the price started dropping last September, about 13,000 positions in the Alberta natural resources sector, mostly oil and gas, have been eliminated, according to Statistics Canada.
The bloodletting among the oil majors and their vast web of ancillary services has of course extended to the United States – which appears to be taking far more casualties than Saudi Arabia in the battle for marketshare. In January oilfield services giant Baker Hughes said it will lay off 7,000 employees, about 11 percent of its workforce; that number was rivalled only by its competitor, Schlumberger, which let go 9,000 workers. Shell, Apache, Pemex and Halliburton are among major oil companies to issue recent pink slips to the growing army of unemployed oil workers. In the U.S., the worst pain is, not shockingly, expected to be felt in Houston. Assuming a one-third reduction in oil company capital expenditures this year and 5 percent in 2016, the hydrocarbon capital of the world could lose 75,000 jobs, in a city that has added 100,000 new positions every year since 2011, said a professor at the University of Houston.
The oil jobs nightmare is in fact spreading like a cancer. According to Swift Worldwide Resources, “the number of energy jobs cut globally has climbed well above 100,000 as once-bustling oil hubs in Scotland, Australia and Brazil, among other countries, empty out,” Bloomberg reported recently. Examples include foreign-trained engineers whose promise of employment at LNG plants in Australia have evaporated as projects get delayed; development projects halted in Brazil resulting in the closure of international schools and the relocation of workers; and 8,000 Mexican workers left without paycheques after Petroleos Mexicanos slashed contracts and purchases, Bloomberg said.
Of course, industry defenders say the oil and gas business is boom and bust by nature, and most veteran oilmen have gone through many a cyclical downturn and lived to fight another day. The question of whether or when the oil price will recover and all those laid-off workers are rehired is best left to the prognosticators. In the meantime, there is a danger in oil companies cutting too deep, according to oil and gas industry recruiters. They say firms that lay off too many workers will put pressure on older workers who may opt for early retirement. That could leave companies in the same situation as the 1980s, when an oil downturn meant few businesses hired and new graduates went into other more promising fields, leaving a serious talent gap.
“They will be very careful about reducing staff, because they’ve seen cycles like this before where commodity prices are weak for a certain period time, they lay off employees and they’re not well-positioned to get access to high-quality talent,” said Mike Rowe, vice president of exploration and production research at Tudor Pickering Holt, an energy investment and merchant bank, in a story run by CNBC on how the layoffs could come back to haunt the industry.
By the time this plays out, North Dakota, Texas, Oklahoma, and parts of Pennsylvania will be in smoldering ruins of unemployment and dramatically reduced tax revenues. These energy jobs were high paying. Maybe they can get themselves an Obama job – waiter, bartender, hotel room cleaner, social worker, or government drone.
B?
You are correct.
You win a week at bb’s house where you get to clip his toenails, cook dinner for his mom, and clean little bb’s litter box.
Does anyone else’s name/etc. go to anonymous too? I’ve heard Minot/Williston homes are no problemo to buy now – so, problem solved! Funny how you hear about the shale miracle non stop the closer you are to them on the way up, and like now…..not a peep. Sounds familiar.
And then there’s this (I swear they are going to fuck up the ground water also):
Fault lines dating back hundreds of millions of years in Oklahoma that have been recently reactivated could lead to a devastating quake in the state where many structures were not built to withstand major seismic activity, a report said.
The state, which has seen several hundred seismic events over the past five years, has “a high degree of potential earthquake hazards,” according to the study accepted for publication this month whose authors include researchers from the U.S. Geological Survey (USGS).
“The majority of the recent earthquakes in central Oklahoma define reactivated ancient faults at shallow depths in the crust” of less than 3.7 miles (6 km), said the report for the American Geophysical Union.
The report did not look at whether the reactivation of the faults was linked to the energy extraction technique known as hydraulic fracturing, or fracking.
Daniel McNamara, one of the paper’s authors and a research geophysicist at USGS, said on Tuesday the 300 million-year-old subsurface faults that had not been active are suspected to be associated with the recent seismic activity.
http://news.yahoo.com/reactivated-fault-lines-oklahoma-could-cause-major-quake-200209233.html
Rebuilding Oklahoma could takes thousands of dollars.
Anonymous is not bb all the time .Sometimes it’s Billy.Weeeeee
I would rather have shale oil than support the house of Saud and their nutty version of Islam. So its OPEC forever. We can never be energy independent?
@yahsure: That “energy independence” meme was bullshit propaganda from the “drill baby drill” bunch. It’s leaving behind a horrendous environmental mess that taxpayers will be forced to pay for cleaning up.
Investors who bought the oil at 37 don’t care about layoffs at those drilling fields and the companies that own them..they were forced to take possession and will just store it at Cushing, Oklahoma until prices rise.
Chevron has a huge ongoing project in the Gulf that will soon vastly increase oil supply. Google
Big Foot sighting in the Gulf of Mexico
March 16, 2015
After years of construction, the colossal Big Foot platform is proving it isn’t just an urban legend. The deepwater offshore rig is finally heading out into the Gulf of Mexico.
Although Big Foot was built in Korea, additional work has been ongoing since March 2013 in the Gulf Marine Fabrication yards in Corpus Christi, according to FuelFix. But the rig’s final touches are finally complete. Now Big Foot is headed to an area called Walker Ridge, a journey that started Saturday morning.
Chevron’s final destination for the rig is about 225 miles south of New Orleans. With anywhere from eight to 10 days of travel time, Big Foot could arrive as early as this upcoming Saturday. The platform will be anchored in an area roughly a mile deep in the Gulf, where work on Chevron’s latest offshore drilling project can begin.
Chevron owns 60 percent of the project Big Foot is stationed on and is also the operator of the $5.1 billion platform. Statoil has a 27.5 percent stake in the project, and Marubeni Oil & Gas holds the remaining 12.5 percent. When Big Foot is finally up and running in the Gulf, it will be able to process 75,000 barrels of oil and 25 million cubic feet of natural gas each day.
Preparation for Big Foot began in 2010. Its slightly larger cousin rig, Jack, began production in the Jack/St. Malo field during the final weeks of 2014. Chevron’s operations in the Gulf of Mexico have exhibited the company’s offshore strength in the last year, and the new platform will serve to strengthen Chevron’s portfolio. The Big Foot field where the rig will be anchored was discovered in 2006 and could yield as many as 200 million barrels of oil over the course of 35 years.
http://bakken.com/news/id/235003/big-foot-sighting-in-the-gulf-of-mexico/
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Sensetti
I notice your little story comes from the Bakkan news website, the cheerleader for shale oil.
The real question is what will it cost Chevron to extract each barrel of oil. Usually these deep water wells cost in excess of $50 per barrel to extract.
Chevron is laying off tens of thousands of employees. Will they really spend $50 per barrel to extract oil that will get them $42 per barrel in the market?
Don’t believe everything you read.
And the delivered price is even lower for Bakken crude see here:
http://www.paalp.com/_filelib/FileCabinet/Crude%20Oil%20Price%20Bulletins/Daily/2015/2015-050_March_18_2015.pdf
@Sensetti, funny how only foreign owned oil companies can drill in our Gulf.
If I didn’t know better, I’d think American jobs & businesses were being intentionally impaired by our government.
But we all know that can’t happen.
USA! USA! USA!
Things that should make a thinking person realize our demise is planned and intentional. Welcome Third World!
FOOLS & THEIR MONEY ARE SOON PARTED
Shale Producers Have Found Another Lifeline: Shareholders
by Bradley Olson
(Bloomberg) — U.S. oil producers are issuing new shares of stock at the fastest pace in more than a decade, looking to investors for a cash lifeline to pay down debt and keep drilling as crude prices continue to sink.
Tapping equity markets has become the best option for companies such as Dallas-based RSP Permian Inc., which announced March 17 it’s seeking to raise as much as $232 million by selling additional shares. Calgary-based Encana Corp. and Noble Energy Inc. of Houston also have issued shares in the past two months to reduce debt.
That brings funds raised in the first three months of the year to about $8 billion, more than 10 times the total in the same period last year. As the continued slide in oil prices further crimps cash flows, banks are pressuring these companies to shore up their capital and reduce debt to lower servicing costs and provide wiggle room.
“There aren’t really any better alternatives right now,” Chad Mabry, an analyst at MLV & Co. LLC in Houston, said in a telephone interview.
A growing acceptance that low prices will persist has convinced producers to turn to equity markets while they still can, he said. “They’re preparing for the worst.”
Few saw issuing new stock as an attractive option when the oil market first started crashing late last year because it would dilute the value of stock held by existing shareholders at a time when their holdings already were hurt by falling prices.
Changing Interest
As recently as December and January, many producers assumed there would be little interest in pouring more money into the sector, and that funding from debt or equity wouldn’t materialize, said Rob Santangelo, co-head of equity capital markets Americas for Credit Suisse Group AG.
That began to change in February when prices seemed to stabilize and frozen credit and equity markets opened up. The $8 billion in stock issued in the first three months of 2015 is the highest of any quarter in more than a decade. If the pace continues, sales of new equity would surpass the total of 2008 and 2009 combined, the last time oil prices crashed, according to data compiled by Bloomberg.
The surge in equity offerings, even with the dilution of existing shareholders, now is widely considered the lesser of evils versus expensive borrowing or asset sales at reduced prices, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells.
Debt-Free
“Equity does not have to be paid back and requires no disbursements of revenue and net profits,” Eckard said. “It buys into your plan and works for companies that can make it through the downturn in commodity prices.”
Investors are coming to the table in the belief they are buying in at the bottom of the market and will reap gains in the long-term as oil prices recover, said Christian O’Neill, an energy analyst at T. Rowe Price International Inc., which owns shares in numerous producers.
“Many executives are expecting a longer downturn,” O’Neill said in an interview. “Some companies that have issued shares have attractive long-term growth profiles. For others it is a function of trying to survive and buy themselves more time.”
Carrizo Oil & Gas Inc., which has debt that makes up a far lower percentage of its market value than other shale producers, announced March 16 an offering of $204 million worth of stock to pay down debt. Carrizo’s debt hasn’t traded at a significant discount in the past six months, a sign that investors are bullish about its prospects.
Shoring Up
“We like that Carrizo is taking advantage of an open market to shore up the balance sheet,” Tudor Pickering Holt & Co. wrote March 17 in a note to investors.
Encana and Noble, both of which have retained investment-grade credit ratings, have each sold shares as well, offering about $1 billion each this month and last month, respectively.
Even successful equity offerings come at a price in today’s market. To raise that $1 billion late last month, Noble had to sell 21 million shares at a price of $47.50 each. Six months ago when its stock traded for $76.71 a share, the Houston-based company would have sold 13 million shares to raise the same amount.
Carrizo’s offering of 4.5 million shares for $45.50, which generated about $205 million in cash, would have required just 3.2 million shares in June, when the Houston-based company’s shares sold for about $65 apiece.
Debt Ratios
Equity sales by producers in a weaker position have not been as readily embraced by the market. Houston-based Rosetta Resources Inc.’s shares fell 6.5 percent after announcing a $204 million offering March 9.
Since June, when crude began to decline, Rosetta’s market capitalization has fallen 63 percent while debt is $2 billion. That ratio of debt to market value is higher than average compared to 73 companies that specialize in shale production, according to data compiled by Bloomberg.
Oil companies that borrowed record amounts over the past several years to accelerate drilling during the boom days have swelled the U.S. market for energy-related high-yield bonds to $201 billion from $65.6 billion at the end of 2007, according to Bank of America Merrill Lynch index data. The extra yield, or spread, that bond investors are demanding to own the typical junk-rated energy security has more than doubled since June to 7.44 percentage points above government debt, the index shows.
Ugly Outlook
That compares to an average spread of 4.82 points since the inception of the data in 1996, suggesting investors see higher risk and an uglier outlook for the industry.
As oil prices continue to fall, reaching a six-year low of $43.46 a barrel on March 17, funding options are becoming increasingly limited. Fewer companies are willing or able to buy assets as debt becomes increasingly expensive, and operators who have painstakingly built up their drilling land holdings over years are loath to part with them if they can find alternatives.
Investor appetite for new shares of smaller companies may be short lived, forcing those companies to use debt and other sources of funding at significantly higher rates, analysts from Bank of Nova Scotia said in a note Wednesday.
Hedge fund and private equity investors including Blackstone Group LP and KKR & Co. are raising billions for new funds created in the past few months to invest in distressed oil producers.
Managing Liquidity
Many banks are working with producers to help them manage their balance sheets and reduce debt as they face a potential reduction of their borrowing limits, said Eric Scheyer, the head of hedge fund Magnetar Capital’s energy business, who oversees a group that manages nearly $4 billion.
“When companies are looking at an environment where the price of crude is very uncertain, they need to manage liquidity,” said Scheyer, whose firm invests in the equity and debt of energy producers. ’’For some, they don’t issue debt because their leverage levels are too high, they have debt-to-equity levels that are substantially different than they were last summer.’’
Even the $80/bbl figure might be low. In addition to capital costs (mainly drilling and completion) and operating costs, there are also costs such as amortization. They don’t just give away oil fields. You have to explore for them, find them, and then finally, start drilling development wells.
Another thing about shale oil wells. Most of their production comes in the first year of production. Then, after a steep decline in barrels produced per day, they produce a small amount of oil per day for several years. Even if a well is already drilled, it makes no sense to spend a fortune on fracking and other completion costs for the privilege of selling your oil for $37/bbl.
” Obama job – waiter, bartender, hotel room cleaner, social worker, or government drone”
Well that’s better than NO jobs under Bush, and the job situation would have been even worst if it wasn’t for the illegal war in Iraq and fraudulent subprime loans craze.