To: dealmakr who wrote (36110 ) 1/28/1999 5:20:00 PM From: Mike from La. Read Replies (7) | Respond to
Actually, I don't think things are as grim as they appear. The earnings reports we are seeing are a result of the low oil prices we've been seeing for months. They should be no surprise, though they are still shocking,and are producing some reaction. As I think Doug pointed out a while back, the companies are loading all their write-offs and other bad news now, since no one expects much anyway. Might as well get all the bad news out at once. What we are seeing are the results of low prices, not the cause. Witness the slow rise in oil prices over the last few weeks, in spite of a lack of OPEC agreement, and a warm winter. The effects of low prices are starting to be felt in the form of lowered production. I saw an article last week which stated that Canada has lost over 500,000 barrels of production, and we see here a steady stream of complaints about marginal well shutins and small independents going down. Combine this with the projected cutbacks in e&p spending from the large players (although some are increasing their deepwater budgets such as CNG),and we are looking at some big time reductions in production, which will not be reversed quickly, even if oil went straight up. Just can't go out and rehire laid off people, generate huge e&p budgets with low earnings etc. I read that the huge Russian oil company Gaspah (spelling)lost 2 billion dollars last year, and is planning to lay off 10% of its workforce. Unheard of in Russia. Texaco, in their earnings report said that it's 1999 oil and gas production will drop 1-2%. I think the gradual rise we are seeing in oil prices is this process starting to work, with or without OPEC cuts. The projected cuts in 1999 e&p budgets are huge, and will be felt more every week, as depleted wells' outputs are not replaced. Rough figures are that oil wells deplete at about a 30% rate, and gas at around 40. This depletion cannot be replaced without drilling, which is not happening.
