Last year was a tough one for the giant oil companies. BP made an annual loss of $5.2bn, while its four major rivals saw their profits plunge by anything from 18% (in the case of Total) to 80% (in the case of Royal Dutch Shell). As a result, they are drastically cutting back on investment in exploration and extraction, with just nine out of 230 potential projects likely to be approved this year.
Some in the industry are even asking "whether the business model of large international oil companies" is "fundamentally flawed", say Ed Crooks and Chris Adams in the Financial Times. The combination of huge capital investment in the mega-projects they prefer and their investors' expectations of large dividends are putting a growing strain on their finances.
Certainly, anybody looking for reasons to be optimistic about their future didn't find it at International Petroleum Week, the industry's annual get-together, say Andy Hoffman, Grant Smith, Javier Blas and Angela Rascouet on Bloomberg.com. Attendees were "greeted by a cacophony of voices" delivering the same message: "the world is awash with oil". Bearish analysts think that "prices will stay low for up to a decade as Chinese economic growth slows and the US shale industry acts as a cap on any rally".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
By some estimates, supply exceeds demand by as much as 1.7 million barrels per day. Bob Dudley, chief executive of BP, joked that the glut "is so extreme that people could soon be fillingtheir swimming pools with crude".
Still, if the major firms are suffering, the situation for smaller US shale oil and gas firms who are in part responsible for the glut is even more dire. Until recently, firms that had hedged against falling prices effectively sold their production in advance were cushioned from the worst of the falls. But recently "most of those hedges expired, leaving a number of oil companies low on cash and unable to pay their debt", say Clifford Krauss and Michael Corkery in The New York Times.
Now, "lenders are realising that a recovery in oil prices is at least a year away, too long for many companies to hold out". Hence the industry is bracing itself for a wave of bankruptcies a development that could bail out Big Oil. "Many billions of barrels of reserves in the shale fields could be coming on to the market, priced to sell so creditors can collect their cash," say Crooks and Adams, potentially allowing the majors to pick up these less capital-intensive, more-flexible assets at bargain prices.
-
Which UK region has the most in savings? Average savings by areaThe amount people have in their savings differs from region to region in the UK. How does your nest egg compare to those living nearby?
-
Doug and Mary Perkins: Specsavers’ clear-sighted foundersHelped by the deregulation of the sector in the 1980s and brilliant advertising, Mary Perkins and her husband Doug have taken Specsavers to the top of the optometry market
-
BP’s profits surge, but the company’s growth is far from guaranteedAnalysis BP profits are at their highest in a decade, and it looks to be a business firing on all cylinders. But its future is far from certain, says Rupert Hargreaves.
-
BP: really going “beyond petroleum” won't be easyNews BP is recovering and plans to become carbon neutral by 2050. Meanwhile, activist investors are targeting ExxonMobil. Matthew Partridge reports
-
BP looks set to return more money to shareholders as it beats expectationsNews Oil major BP is to embark on a share buyback programme after significantly reducing its debts. Saloni Sardana looks at what it means for your portfolio.
-
BP has slashed its dividend – and markets love itOpinion BP has bowed to the inevitable and cut its dividend in half – and its share price promptly rose. John Stepek explains what it means for shareholders and for beleaguered income investors.
-
BP bows to reality as it writes down $17bn of assetsNews The oil giant has ditched its conspicuously bullish outlook and written down the value of its assets. Will it cut its dividend too? Matthew Partridge reports
-
Watch out income investors – BP looks likely to cut its dividend in the near futureOpinion Oil major BP is writing billions off the value of its assets as it struggles to adapt to the changing world. Unlike Shell, however, BP hasn’t yet cut its dividend. But, says John Stepek, it’s only a matter of time till it does.
-
How reliable is your income from dividend payouts?Tutorials Many blue-chip stocks are stretching their dividend payouts to the limit. Make sure you don’t pay the price.
-
Navigating a low oil priceOpinion The low price of oil has thrown up a few opportunities for canny investors. Professional stockpicker Simon Gergel reveals three of his favourites.
