Simple Chart Elucidates The Trouble That’s Brewing In The Land Of Big Oil

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Want a clear visual of the issues facing the oil industry (Big Oil, in particular)? Well, then look no further, simply glance below and take away what you will…

Oil Industry Collapse

For more explanation here, the chart is from a recent investor presentation by BP (British Petroleum) detailing the company’s cash-flow problems. Note the huge drop in sources of cash from 1H 2014 to 1H 2015, and note that expenditures outweighed incoming cash in 1H 2015.

Bloomberg provides more detail and context:

Disposals (selling off assets) and underlying cash flow did not cover capex and dividends in the first half of 2015. It should come as no surprise that BP CEO Bob Dudley spent a good chunk of the call with analysts highlighting how BP is going to cut costs and sell more assets. BP said it will invest “less than” $20 billion this year in projects, rather the “more than” $20 billion it said three months ago.

BP is not alone. Statoil, which also reported on Tuesday, further lowered planned spending for 2015 to $17.5 billion compared with $20 billion last year, deepening cuts by $500 million.

Wow. Things are really starting to get interesting in the oil industry, and given how interconnected the oil industry is with the wider economy, things are really about to get interesting in the economy as well, I’d say. Things really seem to be falling into place lately in order to set 2016 up to be a really interesting year (regardless of the election season entertainment).

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James Ayre

James Ayre's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy.

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16 thoughts on “Simple Chart Elucidates The Trouble That’s Brewing In The Land Of Big Oil

  • Ok so now its clear that oil has a problem.
    But what is the problem? A lot less people buy or want oil? Or more people still buy oil but the price has dropped? Or the amounts and price are still the same but the oil companies have more difficulty pumping oil up which increases their costs?
    And what are the consequences? Are they going to sell less or more oil? Are they going to raise or lower the price?

    • They don’t have money to go gallivanting around the Arctic or “exploring” for other expensive sources (tar sands etc).

      It’s a good problem.

      It’s looking like the crunch for oil and gas (like that seen for coal) might come sooner than expected. Maybe.

      • Coal is a reasonable way down the demand-destruction curve with plentiful alternatives, while oil demand is still slightly growing worldwide.

        My medium-term fear is that lowered investment means production declines won’t be fully offset by new production, leading to a tight market and spiking oil prices again, triggering yet another worldwide recession.

        EVs aren’t scaling fast enough to avoid that scenario yet. We need to go faster!

        • Well as long as countries like the Middle East are producing a lot of oils, tight market will be a bit off.

          • My worry is that developing economies will be able to afford to consume low-cost oil faster than production can be expanded, and it’s likely that at current prices global production capacity will shrink.

            Don’t get me wrong, I want us off oil. I would just rather see an orderly “smooth glide” off if it rather than a series of price shocks and recessions.

        • Would you say this pretty much sums it up?

          • I’d need to see numbers. My understanding is that we’ve gone from 500 million passenger & light-duty vehicles worldwide in 1990-ish to two billion today, we’re adding 100+ million a year, additions outpace retirements, “real world” efficiency is barely improving, and 99+% of them require petroleum.

            Some curves gotta bend…

          • We’re manufacturing 90 million or so vehicles per year but millions go to the crusher.

            In 2010 the global count is reported to be 1.015 billion with numbers more like 1.2 billion.

            Just to put the job in more accurate perspective. It’s only half as bad as you thought. ;o)

            Want to see the curve bend? Let Tesla bring a 200 mile range $35k EV to market in 2017 and announce a $25k EV for a couple years later.

            Make it clear that same-model EVs will be cheaper to purchase than ICEV versions.

            At that point the car companies that wish to survive will have to get serious about producing EVs.

            Curve will be bent….

        • Low price will mean that normal new field development won’t be pursued aggressively. But if prices rise the sort of well development that has been done in the Bakken zone can bring in new production in a hurry. That makes it a poor risk to do the sort of resource development that Shell was doing in the Arctic.

          So we’ve got slowing (probably soon dropping) demand. Enough low cost production to cover at least most of the demand, and a price cap create by moderately/moderately high quick to start up production.

          That really screws the oil industry. They can’t afford to spend the “$7 billion” type money that Shell spent in the Arctic in order to line up oil that might be ready to sell a decade or more from now.

          At least one major oil company is having a yard sale to raise cash to pay shareholders dividends so they won’t dump their stock and crash the company’s assumed value.

          Oil price shock throwing the country/globe into recession? Assuming there’s not a major supply disruption (massive Middle Eastern country war type event) an oil price caused recession does not look likely.

          Transportation runs on oil. Industry and everything else runs on electricity. We’re making transportation a lot more efficient which provides a cushion over any rise in oil price.

        • Right now have a lot of fracking wells in US still producing a lot. They’ll taper off in 2 or 3 years and unless oil prices have risen, they won’t drill more fracking wells. Saudi’s and 4 others have 2/3 of known oil and can produce it cheaply. Can only hope they raise price slowly enough to keep prices from spiking. And hope cheap oil doesn’t destabilize Russia and other producers heavily dependent on oil sales.

    • The problem is they (non OPEC oil cos) are spending too much capex to get oil and profits are sagging. Hard to find unconventional oil is more expensive than cheap conventional oil. Now that Saudi Arabia lowered the price, and demand has plateaued, unconventional is too expensive to compete, and the world is awash in excess oil.

      To keep investors, they are selling assets to prop up the dividend. Not hard to see where that is going.

      You can’t keep spending money to get oil that doesn’t pay back the investment.

  • Big OIl is being forced to diet. It will shrink and shrink.

  • Markets, especially resources go up and down depending on demand and ‘the situation’; lets look at this over 3 or 4 years and then create a ‘beginning of the end’

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  • They need to cut the dividend.

  • It should be illegal for BP to use that bright, sunny looking logo after they dropped all pretence of moving the company towards renewable energy.

    Then again, maybe some day the CEO will be glancing at that logo and think hey, maybe we should get into renewable energy instead of oil if we want to be profitable again…

    Not that they won’t be profitable again for a time when Saudi Arabia decides to stop bleeding money and raise oil prices. That’s the key thing this article misses. Demand hasn’t changed much – certainly not enough to account for the massive drop in oil price and thus the massive drop in profit.

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