Oil in­dus­try cut­ting jobs, in­vest­ment to off­set lower prices

The Pak Banker - - MARKETS/SPORTS -

Oil com­pa­nies are cut­ting in­vest­ment, slash­ing jobs and sell­ing off pipe­lines and other as­sets as crude prices plunge. "It's go­ing to be a very tur­bu­lent year for our in­dus­try," says BP CEO Bob Dudley. The lat­est warn­ings came from Exxon Mo­bil, which re­ported Tues­day that fourth-quar­ter earn­ings fell 58 per­cent in the oil gi­ant's weak­est quar­ter since 2002. The re­sults were even worse at BP, which posted a 91 per­cent de­cline in profit.

Those re­ports fol­low Chevron Corp.'s first money-los­ing quar­ter in more than 15 years and Royal Dutch Shell's warn­ing that its 2015 profit fell sharply. Even with a big glut of oil and low prices, pro­duc­ers are pump­ing to earn what they can. Exxon boosted pro­duc­tion of oil and nat­u­ral gas by nearly 5 per­cent. Oil com­pa­nies are count­ing on sea­sonal de­mand to pick up some of the slack later this year, but it is any­one's guess how long the cur­rent lower crude prices will last.

Crude prices first fell below $30 last month from above $100 in mid-2014. Con­sumers are ben­e­fit­ing from cheaper gaso­line and other fu­els, but oil com­pa­nies and em­ploy­ees are feel­ing the pain. "I ex­pect con­tin­ued lay­offs, re­struc­tur­ings, and con­sol­i­da­tion among oil and gas com­pa­nies," said Gianna Bern, an as­so­ciate pro­fes­sor of fi­nance at the Univer­sity of Notre Dame. "We are wit­ness­ing the per­fect storm in this in­dus­try." A snap­shot of how the com­pa­nies are far­ing:

The fourth quar­ter was Exxon's weak­est since 2002 but bet­ter than Wall Street had feared. It earned $2.78 bil­lion, or 67 cents per share. That was 3 cents bet­ter than the av­er­age fore­cast of an­a­lysts sur­veyed by Zacks In­vest­ment Re­search.

The com­pany says it has 20 per­cent fewer work­ers than five years ago and will con­tinue to fo­cus on "pro­duc­tiv­ity en­hance­ments" and ef­fi­ciency, said di­rec­tor of in­vestor re­la­tions Jeff Wood­bury. Exxon slashed fourth-quar­ter cap­i­tal and ex­plo­ration spend­ing by 29 per­cent com­pared with a year ear­lier, and it plans to cut that spend­ing by one-fourth, or about $8 bil­lion, in 2016. But it still plans to start six new projects this year.

Exxon shares fell $1.70, or 2.2 per­cent, to close at $74.59. The UK's big­gest en­ergy com­pany re­ported that fourth-quar­ter earn­ings fell to $196 mil­lion from $2.2 bil­lion on lower prices and an­other huge set-aside to cover costs re­lated to the 2010 drilling rig disas­ter in the Gulf of Mex­ico. Higher mar­gins in refining weren't enough to off­set lower oil prices.

It will cut 3,000 jobs around the world by the end of 2017, on top of 4,000 cuts planned in ex­plo­ration and pro­duc­tion. The com­pany also fore­cast as­set sales of up to $5 bil­lion this year. US-traded shares of BP dropped $2.68, or 8.5 per­cent, to $29.02. The No. 2 U.S. oil com­pany be­hind Exxon re­ported last week that it lost $588 mil­lion in the fourth quar­ter, com­pared with a year-ear­lier profit of $3.47 bil­lion and its first los­ing quar­ter since 2002. The com­pany cut 3,200 jobs last year and will elim­i­nate 4,000 more this year. Chevron has al­ready sold off $11 bil­lion in pipe­lines and other as­sets in the past two years and hopes to un­load up to $10 bil­lion more through 2017.

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