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Page added on June 29, 2016

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Big Oil Faces US$2 Trillion Cash Shortage

Business

A report by consultancy Deloitte has revealed that the oil and gas industry may find itself unable to improve its reserves replacement rate and overall performance over the next five years due to a huge shortage of cash of as much as US$2 trillion.

Deloitte notes in the report that oil and gas exploration and production is a capital-intensive industry, and a lot is necessary to just stay afloat. With all the budget cuts that this industry has seen over the last two years, staying afloat has become challenging, not to mention any growth, said Deloitte vice chairman John England.

The report was based on a survey of integrated public and listed national companies as well as independent E&Ps and warned that things are not looking particularly good. The rate of well depletion is 7-9 percent annually for both traditional and shale wells, and spending at many of the companies surveyed has been cut to below the necessary minimum that would ensure that this depletion is being offset, England noted.

Findings in the area of capital spending are also grim. Outside the Middle East and North Africa, capex in the exploration and production business dropped by a quarter last year and is expected to fall by a further 27 percent this year.

 

Debt maturing over this and the next four years totals US$590 billion, the report pointed out, and dividend payouts are estimated at around US$600 billion. In order to cope with these payments, E&Ps will need more than US$4 trillion, which they won’t have if oil prices don’t start rising above US$50 a barrel.

On a positive note, England noted the resiliency of the oil and gas industry, noting that as hard as it may be, it will survive the crisis, just as it has survived all the crises until now.

By Irina Slav for Oilprice.com

 



8 Comments on "Big Oil Faces US$2 Trillion Cash Shortage"

  1. Roger on Wed, 29th Jun 2016 10:39 pm 

    Spot on. I believe the Baken alone dropped 70,000 bbl/d in the most recent month’s numbers. Check out yahoo for the balance sheets of the players there…most are under $10/share and overloaded with debt. Even if oil went to $100/bbl tomorrow, it would take years to unwind the debt. Living on cash flow while covering the interest will make it a struggle just to hold production flat…for many years.

    Anyone who’s under the delusion the shale producers are the new “swing producers” waiting to meet the world’s energy demands is in for a sad awakening.

  2. Bystander on Thu, 30th Jun 2016 3:22 am 

    $2T, peanuts. That’s a problem the Fed can solve in a heartbeat. Unless of course foreigners will begin to refuse the dollar. China and Russia come to mind.

  3. MSN Fanboy on Thu, 30th Jun 2016 4:23 am 

    Hasn’t shortonoil been predicting this for headline for over a year?

    short, how on earth is your data set allowing you to get your predictions correct?

    nobody gets any prediction correct.

  4. shortonoil on Thu, 30th Jun 2016 7:33 am 

    “short, how on earth is your data set allowing you to get your predictions correct? “

    We can make accurate determinations by simply employing good engineering practices; that is, by identifying, and using the correct metric to measure the the quantity that is being derived. For example: if someone wants to know how tall they are, they don’t find out by weighting themselves!

    The oil industry has survived, and prospered for the last 100 years by selling barrels of oil. The barrel became the standard to determine the success, or failure of the industry. Consequently, everyone analyzing the industry has attempted to count barrels. Barrels, however, are not the end product for the petroleum industry.

    The oil industry is a primary energy provider to the economy, therefore, the correct metric to use is energy, not barrels. Barrels are a flawed metric because not every barrel delivers the same amount of energy to the economy, and the energy is what one really needs to know. Because of depletion, over time, the value of a barrel in energy terms has changed, but analysts have attempted to keep right on counting barrels. It should not be surprising that they come up with the wrong conclusions time after time.

    The Etp Model began many years ago as a question that we proposed to ourselves; “what is the size of the world’s petroleum reserve?” To accurately determine that we realized that we would have to state it in energy terms, not barrels. Barrels did not seem to work because no one seemed to know what the value of a barrel was in energy terms, and that is what we needed to know. All that most understood was what its present value was in dollar terms, but that was constantly changing?

    To derive our needed energy term we pulled an equation out of a text book, “The Entropy Rate Balance Equation for Control Volumes” and wrote thousands of lines of code to solve it. What we came up with was a curve that looked almost exactly like Hubbert’s Curve, but stated in energy terms – not barrels. We checked it against the historical price of oil (the only data set that there was that was likely to be almost 100% accurate) and then used it to make projections into the future. Those projections worked time, after time, after time. So we knew that we had an accurate Model, and that we were able to answer our original question. Everything else simply becomes an extrapolation from our model – the Etp Model.

    Hope that helps to answer “your” question?

    BW Hill
    http://www.thehillsgroup.org/

  5. Kenz300 on Thu, 30th Jun 2016 9:34 am 

    New Documents Show Oil Industry Even More Evil Than We Thought

    http://www.huffingtonpost.com/entry/oil-cover-up-climate_us_570e98bbe4b0ffa5937df6ce

    Climate Change is real….. we will all be impacted by it.

    Oil Giants Spend $115 Million A Year To Oppose Climate Policy

    http://www.huffingtonpost.com/entry/oil-companies-climate-policy_us_570bb841e4b0142232496d97

    The Kochs Are Plotting A Multimillion-Dollar Assault On Electric Vehicles

    http://www.huffingtonpost.com/entry/koch-electric-vehicles_us_56c4d63ce4b0b40245c8cbf6

    Inside the Koch Brothers’ Toxic Empire | Rolling Stone

    http://www.rollingstone.com/politics/news/inside-the-koch-brothers-toxic-empire-20140924?page=2

  6. shortonoil on Thu, 30th Jun 2016 11:20 am 

    “short, how on earth is your data set allowing you to get your predictions correct? “

    One advantage of a model like the Etp Model is that it provides a calculable margin of error. Against the historical price of oil that is ±4.5%. That also means that in border situations it may not give the correct result. One can usually get around that problem by using a tried, and true methodology. It’s called, “good old fashion common sense”!

    Unfortunately, in our virtual, digital world it is becoming an increasingly scarce commodity.

  7. Boat on Thu, 30th Jun 2016 11:44 am 

    The world is still in an oil glut. US tight oil among others are the highest cost producers. They will continue to drop production until there is profit to be made. This will continue until the glut is gone.

    Irina Slav doesn’t seem to grasp there will always be money for oil for production if the price is right. In a glut that weeds out some of the high cost players. Iran, Iraq and other plays seem to have no problem getting money to increase production.

  8. shortonoil on Thu, 30th Jun 2016 1:53 pm 

    “The world is still in an oil glut. US tight oil among others are the highest cost producers. “

    AND – there will be excess supply until the last producer shuts their doors. That is why they will shut their doors!

    When oil producers can no longer make money producing oil, they will stop. When producers can no longer afford to replace their reverse they are no longer making money. Producers are no longer replacing their reserves; they are turning what reserves that they have left into cash as fast as possible.

    When they have converted what reserves they have into cash that is by definition the end of the oil age. Get used to it.

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