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Tumbling oil prices

From a Bloomberg article by Joe Carroll and Tara Patel published 12 Jan 2015 by Business Report under the headline:Screen Shot 2015-01-12 at 08.45.23

“Analysis: Falling oil prices to trigger flood of write-downs”

Extracts

TUMBLING crude prices will trigger a flood of oilfield write-downs starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration.

With crude prices down more than 50 percent from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, says a team of Citigroup analysts led by Alastair Syme. Firms on the hook for risky, high-cost projects that do not make sense in a $50-a-barrel (R587) market include international titans such as Royal Dutch Shell and small wildcatters like Sanchez Energy.

The stocks of oil and gas producers fell for a second day in Europe. Eni, Italy’s largest energy company, dropped as much as 1.9 percent to e13.12 (R184) in Milan trading after crashing 8.4 percent on Monday. Royal Dutch Shell, the region’s largest oil producer, fell as much as 1.6 percent.

The oil market rout was exposing projects dating as far back as 2009 that were either poorly executed or bad ideas to begin with, Syme’s team said in a note to clients.

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From an article By MICHAEL CORKERY and PETER EAVIS published 11 Jan 2015 by The New York Times under the headline:

“As Oil Prices Fall, Banks Serving the Energy Industry Brace for a Jolt”

Extracts

Tumbling oil prices are dimming one of the few big bright spots that banks have enjoyed since the financial crisis.

Banks have been lending hand over fist to companies in the nation’s energy industry, underwriting bonds, advising on mergers, even financing the building of homes for oil workers. All of this has provided a boon to banks that have been struggling to find more companies and consumers wanting to borrow.

Yet with the price of crude oil falling below levels sufficient for some energy companies to service their huge debts, strains are being felt and defaults are likely. While it may take some time for the crunch in the oil industry to translate into losses, one thing already seems clear: The energy banking boom is over.

…if oil prices remain near $50 a barrel for long, economists and industry analysts expect a sharp deceleration in production this year…

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“Global Oil Price Plunge Forces Shell Canada to Shed Jobs”

From an article by Esther Tanquintic-Misa published on 12 Jan 2015 by The International Business Times

Extracts

Royal Dutch Shell has been forced to slash some jobs at its Albian Sands mining project in northern Alberta, Canada due to the continued decline of global crude oil prices. The company announced over the weekend it will shed between 5 percent to 10 percent from the over 3,000 workforce at the Athabasca oil sands project.

Prices for Brent, the global oil benchmark, continued to go down in recent weeks. Last week it hit below $US50 a barrel.

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Screen Shot 2014-10-28 at 11.51.59From an article by Harvey Jones published 12 Jan 2015 by The Motley Fool under the headline:

“Is Now The Perfect Moment To Buy BP plc And Royal Dutch Shell Plc?”

Extracts

The collapse in the oil price has been as rapid as it was unexpected. And it continues to break new lows, with Brent crude busting through $50 a barrel last week.

The share prices of FTSE 100-listed oil majors have followed, with BP falling 20% in the last six months and Royal Dutch Shell down 13%.

Many investors will have been looking for an opportunity to build a position in these two stocks. Could this be it?

Many projects can’t pay their way with oil below $60 a barrel, let alone $50, and BP and Shell both face tough decisions on whether to cut back on production and by how much.

More expensive energy sources, whether tar sands, deepwater drilling, Arctic and North Sea oil, shale and renewables, are becoming increasingly uneconomical.

BP and Shell could ultimately find the downturn works in their favour, by forcing them to review their businesses, cut costs, renegotiate contractor charges, drop more expensive operations and shun expensive acquisitions. They could emerge leaner operations, just as the oil price starts to rise.

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