Oil prices and its adverse effects on the small and the large producers

 

The decline in the oil prices internationally began in June of the year 2014; the projection in the most severe scenario placed the barrel price that was quoted at $ 100 based on $ 60 for late year of 2015, but the reality exceeded those accounts and a few months the scene of major exporting countries of the world assumes setbacks price lows since the year 2004, thanks to the oversupply of hydrocarbon.

The United States of America small businesses, located in North Dakota and Texas, engaged in drilling using hydraulic mining, have closed or stopped their expansion plans because of the technology investment that represents the oil extraction, It is not profitable given the current prices. The birth of these companies, which boomed some 10 (ten) years ago, responding to the American initiative to flood international markets with oil from shale or shale oil, a non-traditional product that requires aggressive extraction process to fracture rocks and inject large amounts of water, known as fracking.

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The United States commitment to flood the markets was achieved with 536.000 oil rigs operating in that country during the year of 2014; but did pace of production offered by countries member of the Organization of Petroleum Exporting Countries (OPEC), which continued to work at the same rate, and that even today, have shown no intention of diminishing its production levels.

Among independent American industrialists, there are those who decided to close down the companies and others that despite the minimum prices they cannot do it because they are in a position to leverage and should keep pumping to pay debts to the bank. Other companies may declare bankruptcy leaving banks as owners of wells for subsequent sale to big energy firms.

One of the most representative cases of this reality is the one of Samson Resources. The company was purchased 4 (four) years ago by KKR 7000 after disbursing $ 200 million (6000 EUR 640 million), 4.000 of them in debt; today is unable to sustain their finances to a reality in which falling revenue, profit and reserves diluted lose value.

A similar case occurs with Pro-Stim Services, which makes half years and had hampered to maintain the profit margin to $ 100 a barrel and today when bill is not profitable, has suffered the first production declines. It’s a similar situation as Sand Rige Energy companies, Goodrich Petroleum, Swift Energy, Energy XXI, Halcon Resourcers, Hercules Offshore, Key Energy Services, Basic Energy Services or Energy Seventy Seven are.

Meanwhile, the spokesmen for TMR Exploration Inc. based in Louisiana, they said that 20 of its wells (10% of the company), is not economically viable at current prices, and to maintain the sustainability of their operations, It needs a barrel with a price of $ 70.

The reality did not touch only the small industry representatives. In July in the year of 2015, Shell was forced to internally restructure to cope with the situation, regardless of 6.500 jobs, reducing investment and asset sales by putting more than 20.000 million dollars.

The situation can only benefit those companies and industry financially stable, as only low prices for them may be attractive, given the possibility of buying and limited drilling wells, recovering the investment when the market balance envisaged for 2017 occurs.

Similar scenario in the year of 2016

In the last week, the price of London Brent closed at $ 36.06 a barrel, even below the price that was observed during the financial crisis of the year of 2008, when it reached $ 36.20 per barrel; meanwhile, the Texas oil traded at $ 34.25 the New York Mercantile Exchange.

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One of the main producers and the biggest holder of world reserves, the country of Venezuela, closed at 29, $ 17 per barrel on the descent from the main heading of the Venezuelan economy, analysts expect the situation to worsen in the future and may become a level of “catastrophe”.

Under the meeting between ambassadors of Organization of Petroleum Exporting Countries (OPEC) Eulogio del Pino, the current president of the state company that handles the production and marketing of Venezuelan oil company PDVSA, said that the low prices have encouraged the purchase to store, the first quarter of next year the capacity could reach 100%, which would place us before a “catastrophe”.

The statements fueling concern about a rising global storage capacity, which would remain the same after the lifting of sanctions on Iran and normalization of oil production in the Arab country, rather, increased to supply the surplus.

Against this background the downward trend in prices can be maintained until the year of 2017, long enough to see a realignment in the world market, given the decrease in supply due to the inevitable closure of those companies of high costs and the growth of strong time economies.

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