Major oil companies are being hammered by low oil prices, with the companies posting losses in their earnings reports released this week.
BP posted a $969 million loss in the final quarter of 2014 when accounting for asset write-downs and other one-off measures. Its rivals also limped through the end of the year by announcing cuts to spending that will last through this year.
The struggles, revealed through corporate earnings reports and guidances for this year, demonstrate the wobbly position of the blue-chip companies, caused by plummeting prices. It also portends to weaker-than-anticipated growth in oil production through 2016.
“We have entered a challenging phase of low oil prices. Our focus must now be on resetting BP, while maintaining safe operations,” said BP CEO Bob Dudley, who also said the company’s 2015 capital expenditures would hit $20 billion, down from original forecasts of at least $24 billion.
Oil prices have rebounded from last month’s lows, but crude remained under $60 per barrel Tuesday — nearly half its June price. Despite the uptick, prices are likely to remain suppressed for a while longer, said Terry Marshall, a senior vice president with Moody’s credit-rating agency.
“We see no near-term catalysts that would change the supply/demand equation,” Marshall said in a Jan. 6 note, which said North American companies would reduce capital spending between 30 and 40 percent if prices stay below $60 per barrel throughout the year.
The large, integrated major oil companies are best positioned to weather the storm, as they can shed assets and lean on profits from refining operations. But the slump has at least rattled the giants.
Further pain is likely to surface in BP’s first-quarter 2015 results, given that crude prices fell into the new year. The company won’t be alone.
Royal Dutch Shell said last week that it would cut capital spending by $15 billion through 2017. Chevron last week said it would lower capital spending 13 percent, down to $35 billion this year. ExxonMobil, which will release its capital spending plans in March, saw profits fall 21 percent. That was better than analysts expected, thanks to a 74 percent bump in its chemicals business.
ConocoPhillips, the world’s largest independent oil and gas company, last week announced a fourth-quarter loss of $39 million. It also said it would slash capital spending to $11.5 billion, just weeks after it had forecast $13.5 billion in spending. That amounts to cutting its capital spending one-third from last year.
“We are responding decisively to a weak price outlook in 2015 by exercising our capital and balance sheet flexibility,” CEO Ryan Lance said. The company forecast weaker production as a result, with growth of 2 to 3 percent compared with 4 percent last year.
The low prices reflect a combination of factors.
Surging U.S. production has turned the nation into the world’s top oil producer, according to third-quarter figures from the U.S. Energy Information Administration, and the leading natural gas producer. U.S. output threatened Saudi Arabia’s market share, prompting the House of Saud to buck tradition by keeping production churning rather than cut it to boost prices. Weak global oil demand also figured to sap consumption.
As companies curb capital spending, production growth is expected to slow as well. The EIA projects output will hit 9.3 million barrels per day this year, down from an original estimate of 9.5 million barrels.
The number of U.S. rigs searching for oil in the past six months has dropped “significantly,” EIA Administrator Adam Sieminski noted last week at a Washington event. He said the global market has entered an “experiment” to gauge the adaptability of U.S. companies producing in lucrative, but high-cost shale regions.
“We will find out how quickly shale oil and shale gas can come off and come on the market,” Sieminski said.
But Royal Dutch Shell CEO Ben van Beurden said last week that investors should keep their cool.
“We are taking a prudent approach here and we must be careful not to overreact to the recent fall in oil prices,” van Beurden said, according to media reports.
