Professor Elam

Monday Oct 26, 2015

OIL-COMPANY SPENDING ON PROJECTS, SHARES OUTSTRIPS CASH FLOW

Cash flow is struggling to keep up with spending at oil companies even after all the cuts they have made, Sarah Kent and Justin Scheck report. Analysts expect the companies to show continuing shortfalls when they report earnings this week and, with the oil-price slump now 16 months old and continuing, the companies likely will take years to bring their spending under control unless prices rebound sharply.

Spending on new projects, share buybacks and dividends at four of the biggest oil companies–Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp. and Chevron Corp.–outstripped cash flow by more than a combined $20 billion in the first half of this year.

“After the initial shock, denial, panic and capitulation, oil producers, service providers, and energy investors must view the future differently based on the lower-for-longer oil price scenario, or risk their own,” Oppenheimer & Co. said.

Energy production is only one of the U.S. industries that say they are facing a long-term slowdown in output, sales and jobs, Theo Francis and Kate Linebaugh report. The oil-price drop has gutted demand for drilling equipment and supplies, and energy sales are expected to drop by more than a third from a year earlier and profits are likely to plummet 65%, Thomson Reuters says, based on analysts’ estimates. Quarterly profits and revenue at big American companies are set to fall for the first time since the recession.

Amid the spending cuts, U.S. oil imports are rising again after a long decline, Nicole Friedman reports. Total crude imports rose for three straight months between April and July.

CHINESE PROPERTY DEVELOPER SNAPS UP TEXAS OIL FIELDS

The struggling crude market has made the price of North American oil assets attractive enough to entice Chinese companies, including some previously unrelated to the oil-and-gas industry, Brian Spegele reports. Over the weekend, a Chinese real-estate developer said it will buy oil properties in West Texas as part of an 8.3 billion yuan ($1.3 billion) deal to buy an investment company. The oil properties were being acquired from two U.S. companies, Plymouth Petroleum LLC and Tall City Exploration LLC. Plymouth Petroleum is owned by Boston-based ArcLight Capital Partners LLC, a private-equity firm, and Tall City is backed by another, Denham Capital Management LP.

Meanwhile, the Alberta Energy Regulator rescinded a suspension targeting 24 pipelines at Cnooc Ltd. subsidiary Nexen Energy ULC’s Long Lake oil-sands facility, imposed after a pipeline spill, Chester Dawson reports.

Separately, Volkswagen AG has suspended a larger number of engineers than previously acknowledged after a recommendation from the law firm conducting an internal investigation into the auto maker’s diesel-emissions cheating scandal, William Boston reports.

Diesel prices have taken a hit relative to gasoline since the second quarter due to inventory builds, Reuters writes.