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Oil Companies Could Go Bankrupt If Oil Falls, Stays Below $45


Technological advances and deflationary pressure from the downturn have resulted in an 8-percent drop in global average unit production cost to US$30 per barrel of oil equivalent in 2016, which implies that the industry needs the price of oil at US$45 to break even in aggregate, according to a Bernstein Research survey of the 50 biggest listed global oil and gas companies.

Global marginal cost, that is, the cost to replace reserves, for non-OPEC oil producers dropped by 12 percent annually to US$63 per barrel in 2016, according to the survey, as carried by Oil and Gas Investor. The marginal cost now equals the breakeven point from 2006 and is down a massive 40 percent since the peak from 2013, Bernstein analysts, led by Neil Beveridge, say.

The global marginal cash cost of production—representing the floor under oil prices below which it is not profitable to produce a barrel, dropped by 8 percent to US$28 per barrel last year.

The reduced costs for production were mostly driven by a 29 percent annual drop in exploration costs, an 11 percent decrease in production costs, and a 14 percent decline in Selling, General and Administrative (SGA) costs, according to the survey.

The North American shale patch producers were the champions in cost reductions, while national oil companies (NOCs) saw costs grow as “resource complexity and depletion continues to push up production and development costs,” Oil and Gas Investor quoted Bernstein analysts as saying.

With the higher oil prices this year compared to last year, cost cutting is expected to bottom out and in some places—increase.

We suspect we’re getting close to the bottom of the range in what’s possible, although there is certainly no indication of a return to rampant inflation, either,” according to Bernstein.

In the shale patch, for example, oilfield services costs are expected to increase, potentially slowing down the drop in breakeven costs.

The United States Oil Fund (NYSE:USO) LP ETF (NYSE:USO) closed at $10.28 on Friday, up $0.24 (+2.39%). Year-to-date, USO has declined -12.29%, versus a 8.13% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #53 of 127 ETFs in the Commodity ETFs category.

21 Comments on "Oil Companies Could Go Bankrupt If Oil Falls, Stays Below $45"

  1. makati1 on Mon, 29th May 2017 6:44 am 

    “Oil Companies WILL Go Bankrupt If Oil Falls, Stays Below $45”

    There, I fixed it. They not only WILL go bankrupt. but most are already bankrupt and only covered by lies.

    “While the U.S. oil and gas industry struggles to stay alive as it produces energy at low prices, there’s another huge problem just waiting around the corner. Yes, it’s true… the worst is yet to come for an industry that was supposed to make the United States, energy independent. So, grab your popcorn and watch as the U.S. oil and gas industry gets ready to hit the GREAT ENERGY DEBT WALL.”

    Couldn’t happen to a more deserving group.

  2. Midnight Oil on Mon, 29th May 2017 8:37 am 

    ETP wins AGAIN…now for the Spin and Twisters
    BTW…..they will NEVER go “bankrupt”…. You only do that if the money spigot is shut off… Just like the United States Government will never go bankrupt…Cha that ain’t no City in China.

  3. deadlykillerbeaz on Mon, 29th May 2017 8:43 am 

    Regardless of the price, people are going to buy gas for their pickup trucks and fishing boats to go fish 80 miles from home, burn 25 gallons of gas, then return with four perch that weigh a half-pound each at a cost of 80 dollars per pound.

    The demand for gas and oil does not cease to a halt.

    When it comes to consuming oil, it is done pell mell, burn it to make life a better world. A hundred million barrels per day is no problem.

    And why not? The POTUS can pour 54,000 gallons of jet fuel into Air Force One and fly anywhere in the world, the taxpayer foots the bill, not a problem.

    President Trump can lob cruise missiles by the dozen, must be one of those hobbies the president enjoys or something, just a better world. God Bless Donald Trump and God Bless George Washington.

    Bill Hicks would have screamed expletives for an hour or two on stage.

    Everybody needs a hobby, and if it takes every drop of oil available to support your fishing hobby, it will be good for the economy and everybody is happy. You’ve got 8 perch fillets, can’t beat that.

    Can’t afford to fly Air Force One, might as well have a GMC Sierra pickup with the tow package and a nineteen-foot fishing boat with a 200 horsepower Mercury boat motor.

    I don’t hear anybody complaining when Air Force One is wheels up and the drinks are on the house.

    Frigging hypocrites, one and all.

  4. eugene on Mon, 29th May 2017 9:41 am 

    I agree with “deadlykillerbeaz”. I see waste everywhere. Other day I watched a 12 yr old and a 10 yr old ripping around on $5-6000 ATVs. I live in northern MN where local economies are dependent on weekend hoards from the Twin Cities pouring north with 3/4 tone 4 wheel drives pulling 20K boats. And, on our case, it’s for couple of 2 pound walleyes.

    And for the renewable fanatics, not going to do that on electric trucks, outboards, ATVs,
    and living in 2500 ft2 houses. We will pursue oil with our dying breath.

    Personally, I surrendered ys ago. It’s a done deal for all the ranting and whining.

  5. jawagord on Mon, 29th May 2017 9:58 am 

    In the 1980’s when Dome Pete was going bankrupt there was an adage that I think is applicable to this story. “When you owe the bank a million dollars and can’t pay you have a problem. When you owe the bank a billion dollars and you can’t pay the bank has a problem!” Which leads me to believe the bond holders will be the ones that get the first hair cut.

  6. Sissyfuss on Mon, 29th May 2017 10:43 am 

    A 4 wheel drive GMC, $50,000. A fully equipped 20 ft Lund deep v, $30,000. A two pound walleye, priceless.

  7. SRSROCCO on Mon, 29th May 2017 10:59 am 

    Midnight oil,

    LOLOL…… you say they will never let them go bankrupt. That’s a good one. I’ll have to remember that joke.

    I gather you have not been paying attention to the energy industry that reports over 150 energy companies have already gone bankrupt since 2015.


  8. rockman on Mon, 29th May 2017 12:44 pm 

    Folks need to pay attention to the details. Search US “bankrupt oil companies” and you’ll find numerous articles posting less then 100 to many hundreds. The primary reason: there is no common definition of “oil company”. Many articles included service companies who neither invest in oil/NG development nor produce any any oil/NG. And many articles that don’t include service companies. For instance from a few months ago:
    Fewer and fewer oil exploration and production companies are declaring bankruptcy.

    “Woe in the oilfield: 213 companies have now declared bankruptcy

    Fewer and fewer oil exploration and production companies are declaring bankruptcy. But more oilfield service companies are. So far this month, only one North American E&P firm filed for Chapter 11 protection. That’s down from two in September, three in August and four in July.

    But it’s been an especially tough few months for service companies. As crude prices began crashing in 2014, drillers started idling rigs…Moreover, when producers did hire service companies, they often forced them to heavily discount their rates. Eight service companies filed this month. Seven filed last month, and eight again the month before. Almost 50 have filed in the last six months, half of the 108 over two years.”

    The other cause for the discrepancy: there is no such f*cking thing as “filing bankruptcy”. LOL. But seriously, that is a completely misleading and thus useless term. There are 4 different types of bankruptcy filings…7, 11, 12 and 13. And 3 of those filings DO NOT mean a company is GOING OUT OF BUSINESS. Only a Chapter 7 bankruptcy filing involves the forced liquidation of a company’s assets. Details here:

    The other 3 “chapters” allow companies in bad financial shape to “reorganize” their debts. Which, in some cases, they can void a portion or even much of that debt. That’s commonly the case with “bond holders” whose debt is typically classified as “unsecured”. Which is a nice way of saying that under certain conditions a company can completely f*ck over bond holders. LOL. Which is also why some bonds can earn interest rates many times what the banks can: high risk = high reward…or a 100% loss.

    And guess what folk? Despite the foolish spin by the MSM et al the vast majority of E&P companies (IOW not the services companies) filed Chapter 11 Reorganization. IOW they ain’t going out of business. At least not now. And how does a Chapter 11 filing help them? Remember what I said about UNSECURED debt owners taking it in the teeth: look at this chart from one of the leading law firms that handle oil patch bankruptcies.

    Almost half of the total debts owed by companies filing Chapter 11 Reorganization last year were UNSECURED DEBT. When you see the term “unsecured debt” just think of the sound of a toilet flushing. LOL.

    So yes, a lot of E&P oil companies have filed bankruptcy. And no, the vast majority are not “going out of business”. But many will still disappear as they are assimilated by financially healthy companies. As the Rockman has pointed out so many f*cking times: a company might have spent $1.5 BILLION to develop the $1 BILLION worth of oil (@ $45/bbl) it owns today. And that company may be as dead as road kill. But guess what, sports fans: it still owns $1 BILLION of oil @ $45/bbl. Those oil reserves don’t vanish, regardless of how much the company invested AND if the company ceases to exist. They are producing and are still worth $1 BILLION at today’s prices. And as such they are still a valuable asset for the global economy.

  9. SRSROCCO on Mon, 29th May 2017 1:37 pm 

    Rockman….. the Great Rationalizer….. lol.

    Yes, you bring up some interesting factoids, but I do find it hilarious how you rationalize the speed at which the cancer is spreading in the oil and gas industry.

    I imagine you will continue to do so right up to the time in which the patient dies.


  10. Kenz300 on Mon, 29th May 2017 1:38 pm 

    Divest from fossil fuels. They are dead money.

    Wind and solar combined with battery storage are the future.

    How fast did we change from land lines to cell phones?

    The change to all electric vehicles will be just a s fast.

    The technology is just better.

  11. Anonymous on Mon, 29th May 2017 2:30 pm 

    From a consumer standpoint what matters is if the price oil gets developed at. Nobody cares if some execs lose jobs, some bondholders lose money and some stockholders get cleaned out.

    What matters is how much production comes but of the US at what price. Right now we are doing 9 MM bpd at ~50 prices.

  12. shortonoil on Mon, 29th May 2017 4:10 pm 

    “So, grab your popcorn and watch as the U.S. oil and gas industry gets ready to hit the GREAT ENERGY DEBT WALL.”

    This is like watching the front gate as the fox hauls the chickens out the back door. This article should say “Oil Companies Could Go Bankrupt If Crude Falls below $X.” Extraction is the least significant portion of the petroleum production cycle; it constitutes about 20% of the total cost of delivering a barrel of finished product to the economy. An awful lot of companies are likely to have gone broke while everyone is watching the last $2 dollars of the crude price.

  13. newfie on Mon, 29th May 2017 4:21 pm 

    But the world is burning more oil than ever – 96 million barrels a day.

  14. Midnight Oil on Mon, 29th May 2017 5:17 pm 

    Yep, It’s a good one because they left the small go bite the dust and very gobbled up by the Big Fish….rinse and repeat…
    As I stayed the Oil INDUSTRY will never lack a loan extension…chew on that for a bit..LOL

  15. rockman on Mon, 29th May 2017 5:38 pm 

    SRS – “rationalize”. What rationalization? I’ve explained before in detail: many oil patch companies are going thru a reserve acquisition boom time the likes of which we haven’t seen in decades. So again for those who are “special” I talk sloooowlyyyy. LOL.

    While some companies are hurting others are buying PROVED PRODUCING oil reserves cheaper they they were developing a few years ago by drilling for UNCERTAIN reserves. Companies are buying PRODUCING wells for $12 to $18 per bbl of PROVED OIL RESERVES. IOW even if oil fell another 50% to $25/bbl those acquisitions would still be profitable. And at $50/bbl very profitable…a higher average ROR then what the industry did when oil was $90+/bbl. Now imagine the profit margin of those acquistions if oil goes to $60/bbl…3X what companies paid for those PROVED PRODUCING reserves.

    No one is tracking the numbers but I’m pretty sure we’re experiencing the largest oil wealth transfer in the history of the US oil patch. And no, the public isn’t going to see much about the ongoing dynamic. The MSM is focused on the damaged companies and the industry is very satisfied to leave the public (like you) in the dark. We never care to have our profits (especially when they are really big) advertised to the consumers.

    Just like the refinery industry (much not which is owned by Big Oil): did you read any stories about their NET profit margins increasing 100% from 2010 to the summer of 2016…to $16/bbl. What? You didn’t know that sector on the oil patch was clearing $270 MILLION PER DAY at the peak of refinery margins? Of course they’ve dropped a good bit since then. But you and others were ignorantly smiling over the “bad times” the ENTIRE oil patch was going thru back in 2016…just like some of y’all are doing today.

    Which, as I say, is OK by the Rockman and some others. I’m too busy to care since the Rockman is trying to find more production acquisitions to buy with the $200 million acquisition budget our owner gave us back in 1Q 2016. LOL.

    Of course, since the Rockman’s company didn’t spend $1 drilling the shale plays during the boom we had a lot of capex on hand. We thought about drilling the shales for a while since costs had dropped by buying PROVED PRODUCING OIL RESERVES are still more lucrative.

    But mums the word…it’s a secret. LOL.

  16. deadlykillerbeaz on Mon, 29th May 2017 9:54 pm 

    The Seneca collected oil globs along Oil Creek in Wisconsin, I mean, Pennzoilvania. lol

    After Titusville, Texaco became an oil company, nobody ever thunk it. How about Gulf Oil, where did that come from?

    The White oil harvested in the Baku region over there somewhere in Asia, wherever that is, happened some sixteen hundred years ago now.

    Before E.L. Drake’s well of 1859, many attempts to retrieve oil at a seep site on the east side of Oil Creek near Titusville, Pennsylvania, had taken place. Beginning with nearby pits by Native Americans in the deep past, infrequent gathering of it was continued by early settlers and passers-by. The seep oil was used meagerly by a local saw mill of Brewer and Watson and at other places for lighting and lubrication of machinery. It had some early medicinal use too, such as a purge and balm. Some hawkers claimed that it could cure everything. It was called Seneca Oil.

    There you have it.

    Oil is essential and is not going to be non-existent. Better than snakeoil. lol

    End of the story, mon.

    The world can continue to remain irrational longer than you can stay alive.

    Civilizations will be using oil well into the future. Just a plain matter of fact, all it really is. As time goes by, more oil will be consumed for your comfort and convenience.

    What more can you ask for? Eggs in your beer?

    Anymore questions?

    What’s time to a hog?

  17. shortonoil on Tue, 30th May 2017 9:47 am 

    ” imagine you will continue to do so right up to the time in which the patient dies.

    Considering that there is not one producer on the planet who is now replacing (or can) the reserves that they are extracting that will not be long in coming. When what is already there is gone the patient will have died. Of course, we are not exactly sure how long existing reserves are going to last, but with shale wells that deplete out at a first year rate of 60%, and conventional wells declining by at least 6 to 8% per year it will not be many before the day of reckoning arrives. Existing models give anywhere from 4 to 9 years.

    The politics behind this massive and consistent attempt to obfuscate the fact that 2+2 = 4 is obvious. Someone is playing a shale and pea game, and they plan on pocketing the pea by the end of game. They are dependent on exploiting peoples credulity, of which there is an ample supply, and leaving the scene with everything not nailed fast. Anyone believing this hyperbole will have no else to blame but them selves.

  18. bobinget on Tue, 30th May 2017 3:05 pm 

    For all the financial and technical reasons put forward, it’s possible we are missing something.

    #1 Todays equity slaughter in the oil patch, (4%) was accompanied by a one half percent diminution of POO (price of oil).
    $49.60 this minute.

    Instead of reporting the news. So called oil analysts
    are instead making news. I’ll leave motivation up to you. (API reports this Tuesday, EIA, Thursday)

  19. Jerome Purtzer on Tue, 30th May 2017 3:05 pm 

    In Australia the government commissioned a study on peak oil and then tried to repress the study because of the panic that might ensue. The study basically found that, no matter what people might do to mitigate the depletion, beginning in 2017 it will be impossible to keep up. Seems simple. I guess we’ll see if their super computers were correct.

  20. rockman on Tue, 30th May 2017 4:37 pm 

    “Considering that there is not one producer on the planet who is now replacing (or can) the reserves that they are extracting…”. Not even close to the truth. In 2016 one of the largest companies on the planet, ExxonMobil, produced 4.1 million oil-equivalent barrels per day. Or 1.496 billion bbls equiv for the year:

    But during 2016, ExxonMobil added nearly 2.5 billion oil-equivalent barrels to its resource base through by-the-bit exploration discoveries, undeveloped resource additions and strategic acquisitions:

    Of course, much of that was gained by acquiring proved reserves from other companies as opposed to drilling up new reserves. But the spin machine is trying to weave the tail that the PETROLEUM INDUSTRY is withering away. It is not. What are withering away are a number of companies. Companies whose PROVED OIL/NG reserves are being bought at bargain basement prices by the non-withering away companies. In fact, we may be witnessing the largest petroleum wealth transfer in history.

    IOW none of the oil/NG developed the last several years has disappeared. Even those reserves that are worth less then the capex spent to develop them still exist. Those are the reserves being acquired from the dissolving companies by the companies that will carry on into the future. A future where their new oil/NG reserve acquisitions will be profitable at the current oil/NG prices. And even more profitable for any increase in prices.

    So yes: there will be many fewer US petroleum companies in the future then there were doing the shale boom. But the reserves developed by those companies (including the ones that lost money) now belong to the surviving companies. Acquired at an acceptable profit margin based upon CURRENT prices.

    From the bbls equivalent ownership standpoint ExxonMobil and the other viable companies have BENEFITED from the price crash because it has allowed them to acquire assets they would HAVE NOT been able to do by drilling alone.

    Yes, the price crash reduced XOM revenue. But it still pulled in $7+ BILLION. And yes, its stock price has declined but it’s still trading at 80% of it’s all time record high. And trading at a higher price then at anytime in its history prior to April 2007.

    The idea that ExxonMobil et al are at death’s door is truly laughable. But hey, if you want to shed a tear for XOM et al don’t let the facts stop you: whip out your hanky and have a good cry. LOL.

  21. rockman on Tue, 30th May 2017 5:01 pm 

    Jerome – “…beginning in 2017 it will be impossible to keep up.” Better late then never. The oil patch realized many decades ago we could not keep increasing global oil production indefinitely. When it would peak was never predictable. But the date itself wasn’t very relevant. Maybe some decades down the road we can look back and be fairly certain 2017 was the year we reached GPO.

    But why would folks panic if GPO were explained to them? Did they panic when oil hit $147/bbl in 2008? When it hit $100+/bbl in 2012?? If they believed GPO was hitting this year are they going to panic because oil is $50/bbl?

    IOW how will explaining to the Aussies (what the smart ones already knew) that fossil fuels are a finite resource that will eventually decline regardless of the price? And if your politicians could convince everyone Down Under that in 2017 we have reached GPO at the same time they’ve seen oil prices halve the last few years? That will cause a panic???

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