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How could Shell have got it so wrong on oil? 

Screen Shot 2014-10-30 at 09.22.43In October of this year, just 9 weeks ago, when oil was at over $90 a barrel, Shell CEO Ben van Beurden expressed his confidence that oil would return to what he described as “very robust” pricing. He said that the oil price had been remarkably stable and that in the short term, Shell has a trading strategy to inoculate itself from the swings and “maybe even make money out of it.”

In view of the immediate subsequent slump in the oil price and the anticipated disastrous impact on Shell, he may now wish he had been less confident about the prospect of actually making money out of a downward swing. 

One of his recent predecessors, Jeroen van Der Veer, made an even bigger howler some years back. On 25 January 2008, almost exactly 6 years ago, he warned Shell staff in an internal email that demand for oil and gas would outstrip supply within 7 years.

I passed the leaked email on to the newspapers and articles were duly published by The Times and the Express, which reported his warning that “After 2015, easily accessible supplies of oil and gas will no longer keep up with demand.” In other words, he predicted that we would now be facing the prospect of *”Peak Oil” – a turning point event in world history forecast long ago by a Shell geologist Marion King Hubbert

I can only speculate that both Shell CEO’s obtained their predictions from Shell’s scenarios team, which is paid to gaze into the future.

Seems that someone needs a new crystal ball. 

*”Peak Oil” is the point in time when the maximum rate of extraction of petroleum is reached, after which the rate of production is expected to enter terminal decline.

Many predicting oil prices as low as $40 per barrel

Screen Shot 2014-10-30 at 09.22.43With the oil market appearing set to endure worsening fundamentals over the next few years at least, shareholders could see dividends at Shell come under severe pressure once again.

FROM AN ARTICLE BY ROYSTON WILD PUBLISHED BY THE MOTLEY FOOL ON MON 15 DEC 2014

Headline: Is Royal Dutch Shell Plc Really Robust Enough To Yield 5.4% In 2015?

Extracts

News of a sinking oil price and subsequent dip in investor appetite for the world’s major oil plays like Royal Dutch Shell has dominated the newsflow in recent months.

Concerns over rampant oversupply have pushed crude prices to a string of multi-year lows in recent months, and Brent collapsed to its cheapest since the summer of 2009 at the end of last week around $62.50 per barrel.

Many across the investment community are predicting that prices could even fall as low as $40 per barrel, as abundant supply from the US, combined with subdued demand caused by worsening economic conditions in China and Europe, weighs on prices.

With the oil market appearing set to endure worsening fundamentals over the next few years at least, shareholders could see dividends at Shell come under severe pressure once again.

FULL ARTICLE

RELATED

U.A.E. Sees OPEC Output Unchanged Even If Oil Drops to $40: Bloomberg News 15 Dec 2014

Extract

OPEC will stand by its decision not to cut output even if oil prices fall as low as $40 a barrel and will wait at least three months before considering an emergency meeting, the United Arab Emirates’ energy minister said.

FULL ARTICLE

Oil price to dip to $50 or even lower?

Screen Shot 2014-12-14 at 16.54.27By John Donovan

Recognising the seismic significance of the continuing collapse in the price of oil, The Sunday Times devoted several articles to the subject last weekend.

It has done the same again this weekend, with coverage in the main newspaper and in the Business Section.

Oil price slump puts explorers up for grabs

Predators circle…

Extracts from above linked article by Danny Fortson

THE plunging oil price has unleashed chaos on the london market, with some listed oil explorers trading for less than their cash reserves and others eyeing takeovers at levels that were unthinkable just a few months ago. Since hitting nearly $115 a barrel this summer, the price of oil has plummeted 45%. Brent crude closed on Friday at $61.5. The fall is likely to lead to a flurry of collapses and long-coveted deals amid predictions that the swoon will continue into 2016 and could see the oil price dip to $50 or even lower.

Don’t fret: oil price plunge will pump up our growth

Extract from an article by David Smith

With the oil price having fallen by more than 40% to $61 a barrel, and with analysts predicting petrol could drop to almost £1 a litre, there should be more of this to come. The last time oil prices fell this fast, culminating in a drop to just over $30 a barrel (from a high of $147) was in 2008… 

Falling oil price puts Iran over a barrel

Extracts from an article by Michael Sheridan

Tehran is facing painful choices as energy producers from Venezuela to Nigeria come to terms with a five-year low in prices, says Michael Sheridan. The falling oil price combined with sanctions have been bad news for Iran…

Talk of Shell BP tie-up to create £200bn world leader

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After a solid 10 hours locked in secret briefings at the Langham Hotel in London this week, 100 of BP’s top investors emerged into the crisp winter evening air to the grim news that oil prices had sunk to a new five-year low.

From an article in The Sunday Telegraph 14 December 2014 by Andrew Critchlow

UK oil giants fight for control in a current of falling prices

Investors in BP and Royal Dutch Shell – Britain’s biggest international oil companies – now find themselves caught in the crossfire of a much bigger game

After a solid 10 hours locked in secret briefings at the Langham Hotel in London this week, 100 of BP’s top investors emerged into the crisp winter evening air to the grim news that oil prices had sunk to a new five-year low.

Given the challenges facing big oil producers, the mood at the briefing, led by BP’s upstream chief executive Lamar McKay, was described as being “serious” by those present. However, the thought of US crude crashing below $60 (£38) per barrel, a baseline level that most oil majors use to stress test the profitability of their future projects, will have pushed sentiment to a new low.

Investors in BP and Royal Dutch Shell – Britain’s biggest international oil companies – now find themselves caught in the crossfire of a much bigger game that is being played out by the world’s most powerful petroleum producing countries for control of the market.

Shares in these giants may have lagged behind a 44pc decline in Brent crude since June but now, along with most of their peers, they are in a frantic rush to cut capital expenditure and costs in line with the new constrained realities of the global oil market. The gap must start to narrow quickly.

“Every oil producer is hurting a lot,” Qatar’s former energy minister and Opec president Abdullah bin Hamad al-Attiyah told The Telegraph. He has argued that the entire industry, including producers outside the Organisation of Petroleum Exporting Countries (Opec) where international oil companies are prevalent, must prepare to make big cuts.

Given the significant challenge that falling oil prices will continue to present for the likes of BP, the company may have been expected to have revealed even deeper restructuring cuts than the $1bn (£637m) it unveiled for next year. This will mean significant job losses are inevitable. More pessimistic investors would have expected even deeper cutbacks were possible to protect the bottom line.

Part of the challenge for BP’s upstream management team will be working out which projects it must fight to hold on to in the face of investor pressure.

“We expect to see growth from our conventional and deepwater assets and an increasing contribution from gas. And we also have a quality pipeline of opportunities that we believe are capable of extending underlying growth well beyond 2020,” said Mr McKay.

These schemes combined could produce an additional 900,000 barrels per day (bpd) of oil equivalent by the end of the decade, boosting the company’s all important cash flow, which Deutsche Bank expects to grow by 5.3pc through to the end of 2017.

“The falling oil price is clearly a drag on sector cash flow and BP is no exception but we see the underlying operational momentum, flexibility on the capex base, commitment to simplify the business and low gearing levels that will support dividend payouts as enough for the next 12 months to outweigh our concerns over both the Macondo overhang and Rosneft,” said Barclays after the investor gathering.

BP and Shell are not the only global oil majors making hard choices over whether to invest into developing fields and exploring for new resources. Chevron, the second-largest oil company in the US, has delayed its drilling budget for next year and ConocoPhillips has said it would cut capital spending by 20pc to $13.5bn next year.

From the perspective of investors the current fall in oil price will see more emphasis placed on holding shares in the so-called “super majors” instead of higher risk smaller operators such as Cairn Energy and Premier Oil.

“Despite the large falls in oil prices we retain exposure to the highest quality exploration and production companies around the world,” said Neil Gregson, fund manager at JP Morgan Natural Resources Fund.

This flight to quality could trigger a surge in merger and acquisitions in the sector, which hasn’t seen a major deal since the big deals that followed BP’s takeover of Amoco in 1998, when oil prices were also in the doldrums.

Screen Shot 2014-10-28 at 12.29.57Talk of a Shell tie-up with BP to create a £200bn world leader has excited the imagination of the City recently, but insiders in both companies see the deal as unlikely while the financial fallout from the Gulf of Mexico disaster remains unresolved.

“We expect the whole industry to be cutting costs aggressively in the present environment,” said Mr Gregson, who doesn’t hold BP in his portfolio. “There is potential also for M&A activity in the sector.”

Other analysts also expect that the downturn in oil prices will encourage majors to shun expensive and risky acquisitions to instead focus more ruthlessly on pruning their upstream project portfolios, to help reduce demand in the industry, which has pushed up the cost of drilling and constructing large engineering schemes. According to research by IHS the average cost for companies to produce oil and gas after drilling was completed had quadrupled to more than $21 per barrel in 2013.

“Downturns can be used to build and strengthen businesses; falling prices and activity levels allow companies to lock in lower costs from contractors and to access resources in the right postcodes on more favourable terms,” said analysts at Credit Suisse in a note to investors last week.

Next year companies are expected to make the final decision on around 800 oil and gas projects worth about $500bn, which will unlock an estimated 60bn barrels of oil equivalent to meet world demand. However, analysts at Rystad Energy say $150bn worth of these schemes may not happen with prices firmly rooted below $70 per barrel.
This cut in project spending by the oil majors has started to weigh heavily on Britain’s oil and gas engineering sector. Shares in companies such as Weir Group, Petrofac and Wood Group have all come under pressure since the current slide in oil prices started to take hold.

“Operator focus on efficiency and the recent reduction in the price of oil is leading operators to reconsider their spending plans for 2015 with a consequential impact on service company activity,” said Wood Group in an update to investors last week.

The North Sea, which has high production costs, could be especially hard hit by oil majors making significant cuts to their operating costs. Industry body Oil & Gas UK has forecasted that 35,000 jobs could be lost in Britain’s offshore oil and gas industry in the current environment.

“The recent fall in oil prices has brought home the challenges ahead, but now more than ever the industry needs to stay the course and continue to invest in developing its own – not repeating the mistakes from the 1980s and 1990s,” said the group in a recent report.

The industry employs about 400,000 people across the complete supply chain in the UK and cutbacks by the big oil majors will hit areas such as Aberdeen hard.

TELEGRAPH ARTICLE

RELATED

Oil price crash means £55bn of projects face axe: 32 developments and 5bn barrels affected with North Sea oil plans in doubt

Extract

A sharp cutback in spending on new projects by oil majors could also threaten thousands of jobs in the UK’s oil and gas sector offshore and hit hubs such as Aberdeen and Montrose, which serve the North Sea, hard.

Oil ‘contango’ fandango over how low prices will finally go

Extract

This global oversupply has created the febrile environment of a price war between Opec and its rivals, such as the US shale oil industry. The cartel, which is dominated by Saudi Arabia and its Gulf allies, is itself overproducing in an attempt to defend its market share, which accounts for a third of global demand.

Bank of America sees $50 oil as Opec dies

The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned. Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source of gas for Europe.

Why investors’ view of falling oil prices has just pivoted

Extract

Oil prices are falling, at a historic rate. Crude prices have more than halved since their post-crisis high, with almost all of that fall coming in the last five hectic months, and their descent is accelerating. This is a huge economic readjustment.

Oil keeps getting cheaper and cheaper

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FROM THE WASHINGTON POST ARTICLE BY CHRIS MOONEY PUBLISHED 12 Dec 2014

The basic reason oil keeps getting cheaper and cheaper

It may well take some time for supply and demand to respond to the price rout…

Extracts

Oil prices continued their slump even lower today, with West Texas Intermediate crude — a U.S. benchmark — now well below $60 per barrel. This is part of a momentous decline of over $40 per barrel since late June.

One catalyst today is the International Energy Agency’s release of its latest Oil Market Report, which lowered the agency’s forecast for global oil demand growth in 2015 by 230,000 barrels per day.

The report could not be more plain that the fundamental cause of the sharp oil price decline — whose knock-on effects include markedly lower gas prices in the U.S., and soon, perhaps, lower airfares — is an imbalance between supply and demand.

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And according to IEA, there may be no letup any time soon to the downward economic pressures on oil prices. “It may well take some time for supply and demand to respond to the price rout,” writes the agency.

FULL ARTICLE

Evil repercussions of Kiobel v. Royal Dutch Petroleum U.S. Supreme Court Decision

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Screen Shot 2014-10-30 at 09.22.43Plaintiff Esther Kiobel (L) joins a protest against Royal Dutch Shell Petroleum in front of the U.S. Supreme Court in Washington October 1, 2012. REUTERS/Gary Cameron

By John Donovan

Yesterday, Reuters published an article about the legal repercussions in the USA from the landmark decision in 2013 by the U.S. Supreme Court in the famed Kiobel v. Royal Dutch Petroleum co case.

Access is provided here to the 35 page judgement issued by the Supreme Court of the United States on April 17, 2013

Esther Kiobel is a regular visitor to this website and says that her husband Barinem Kiobel was executed by the Nigerian regime with the backing of Shell, which she has correctly described as an evil corporation.

Thus far Royal Dutch Shell has managed to escape justice. 

Reuters Insight – U.S. corporations winning fight over human rights lawsuits

By Lawrence Hurley: Friday 12 December 2014

WASHINGTON (Reuters) – A landmark U.S. Supreme Court decision in 2013 that made it all but impossible to sue foreign companies in U.S. courts for alleged roles in overseas human rights abuses is proving to be a boon for U.S. firms too, court documents show.

In the roughly year and a half since the ruling in Kiobel v. Royal Dutch Petroleum Co, U.S. companies such as Chiquita Brands International Inc , IBM Corp and Ford Motor Co have successfully invoked the Supreme Court’s reasoning to fend off lawsuits alleging they were involved in human rights abuses in South Africa, Colombia and elsewhere.

In the seven cases involving U.S. companies that federal appeals courts have decided since the Supreme Court rulings, corporate defendants have won five, according to a Reuters review of the court documents. Only one ruling was an outright win for plaintiffs.

A similar pattern has played out in lower courts, with judges citing the Kiobel decision in favour of defendants in seven of eight human rights cases involving U.S. companies that have been decided since the ruling.

With rulings tending to favour companies, human rights lawyers are thinking twice before filing new lawsuits. The Reuters review shows only one new human rights lawsuit filed against a U.S. company since the ruling came down in April 2013. In the 1990s and 2000s, up to half a dozen cases were filed every year against U.S. or foreign corporations.

Paul Hoffman, a leading Venice, California-based human rights lawyer who argued Kiobel for the plaintiffs, said he has been fighting to keep his existing cases alive rather than planning new ones. He has been presenting legal arguments explaining why the Supreme Court decision does not mean his lawsuits should be dismissed.

“People are waiting to see what the landscape is going to look like,” he said.

Lawyers on both sides of the issue say the Supreme Court might yet have to take another case to clarify exactly when U.S. companies can be sued.

TORTURE, MURDER

In the Kiobel case, the court unanimously threw out a lawsuit by 12 people from Nigeria that accused British and Dutch-based Royal Dutch Shell Plc of aiding state-sponsored torture and murder.

The court said the law under which the Nigerians brought the case, the 1789 Alien Tort Statute, was presumed to cover only violations of international law occurring in the United States. Violations elsewhere, Chief Justice John Roberts wrote, must “touch and concern” U.S. territory “with sufficient force to displace the presumption.”

Before the Kiobel ruling in April 2013, the law had been the primary vehicle for bringing human rights cases for more than 30 years, not just in the United States but globally.

“Human rights litigators have lost a significant weapon,” said John Bellinger, a Washington-based lawyer at the Arnold & Porter law firm who has played a prominent role advocating for corporate defendants. Bellinger was the top legal adviser to the U.S. State Department under President George W. Bush when it filed briefs in various cases arguing that the scope of the law should be pared back.

OTHER OPTIONS

The Supreme Court ruling means human rights lawyers now have to look more seriously at alternative ways to seek redress for alleged abuses.

Human rights lawyers can sue multinational companies in other countries, which has happened in Canada, the United Kingdom, and a handful of other countries, but that option is usually only viable if the defendant is based in one of those countries.

Bringing suit in a developing country where alleged violations occurred is often less appealing to plaintiffs, as such countries often have troubled judicial systems.

In theory, some of the major cases against U.S. companies filed before the Supreme Court ruling could go ahead on other grounds because the lawsuits cite other legal claims.

There is also the possibility that alleged human rights victims could sue companies in U.S. state courts, under common law theories of wrongdoing such as assault and battery. But that too has its drawbacks for plaintiffs, including a shorter window in which to file lawsuits, which are often based on alleged conduct that doesn’t come to light until years after it occurs.

Also, lawyers on both sides say such cases would lack the headline-grabbing punch of a case filed under the Alien Tort Statute alleging human rights violations.

A limited number of Alien Tort Statute cases could still move forward in the United States even under the new restrictive interpretation.

In the one clear victory for plaintiffs since the Supreme Court ruling, an appeals court in Virginia said in June that Iraqi nationals who complained of mistreatment at Abu Ghraib prison near Baghdad could sue a subsidiary of U.S.-based CACI International Inc , a military contractor that worked at the site.

Judge Barbara Keenan wrote that the plaintiffs had alleged sufficient connection to the United States to “require a different result than that reached in Kiobel.”

(Reporting by Lawrence Hurley; Editing by Amy Stevens and Ross Colvin)

SOURCE

Oil prices continued their collapse on Friday

Screen Shot 2014-12-13 at 09.19.40Oil prices continued their collapse on Friday… The new rout began Friday morning… Gas prices will continue to be in a free fall as long as crude oil is searching for a bottom,” the AAA motor club reported on Friday.

From an article published by The New York Times on page B1 of the New York edition dated 13 December 2014

Oil Prices Fall Again, and Stocks Follow Suit

Extracts

Oil prices continued their collapse on Friday as evidence mounted that the frenzy of American oil production would continue well into 2015 even while growth in global demand was declining.

The global benchmark for crude approached $60 a barrel — down more than 3 percent on the day and roughly 45 percent since the summer. And the American benchmark continued its free fall as well, to below $58 a barrel, down around 4 percent. A day earlier, it sagged below $60 a barrel in the United States for the first time since 2009.

The new rout began Friday morning after the International Energy Agency, the organization based in Paris that advises industrial countries, cut its forecast for global demand for crude oil in 2015 by 230,000 barrels a day. The agency cited less oil consumption in countries that produce it like Russia and a weaker-than-expected global economy.

“Gas prices will continue to be in a free fall as long as crude oil is searching for a bottom,” the AAA motor club reported on Friday.

Analysts say a major cut in global production would be needed next year to avoid an inventory buildup and to stabilize falling prices. But the prospect of a supply cut was dashed last month when the Organization of the Petroleum Exporting Countries declined to change its output ceilings at a meeting in Vienna.

SOURCE ARTICLE

From an article published in the weekend edition of the Financial Times 

Oil price fall sparks market turmoil

The price plunge forced operators such as BP and ConocoPhillips to reassess spending plans this week and put pressure on currencies exposed to crude exports.

From an article published by The Independent Friday 12 Dec 2014

New era of cheap oil…

The collapsing oil price that is reshaping the global economy could derail the green energy revolution by making renewable power sources prohibitively bad value, experts have warned.

Oil tumbled below $60 a barrel for the first time in more than five years yesterday – a fall of 44 per cent since June. It is forecast to fall further.

A new “era of cheap oil” would be good news for consumers and motorists – but analysts say the consequences for politics, industry and the climate could be even more radical.

A consensus is growing that oil prices will remain low for at least the next couple of years.

The low oil and gas prices are hurting Scotland now because the North Sea is a key part of its economy and they will hit it in the future because, at these prices, it won’t be commercially viable to extract many of the remaining reserves as what is left is difficult to access, making it expensive to extract.

FULL ARTICLE

Leaked BP CEO Internal Memo

Screen Shot 2014-12-04 at 20.54.03It’s completed about $43 billion of asset sales since the 2010 oil spill in the Gulf of Mexico. The offshore disaster has cost London-based BP more than $28 billion in clean-up costs and damages, and the company is still fighting legal battles on multiple fronts.

BLOOMBERG NEWS ARTICLE

BP Chief Says Company Must Slim Down to Match Rivals on Costs

Dec 12, 2014 11:07 AM GMT

BP Plc (BP/), dealing with the lowest crude prices in five years, must cut jobs because costs are higher than at the oil company’s global competitors, the chief executive officer told staff this week.

“In many parts of BP, we have higher costs and larger teams than other companies operating at a similar scale,” Chief Executive Officer Bob Dudley said in an internal memo to staff obtained by Bloomberg. Programs are “well underway in many areas to streamline our work and refocus our activities.”

That means, along with certain positions being removed, some sites or plants may also be shut or sold, Dudley said.

BP, Europe’s third-largest oil company by market value, said on Dec. 10 said it anticipated about $1 billion of restructuring charges through next year as it overhauls operations. Competitors including Royal Dutch Shell Plc (RDSA) and Total SA (FP) are holding back capital spending as margins are squeezed by the 40 percent drop in prices since June.

“We have not only seen the recent dramatic fall in oil prices, but sensible expectation from investors who expect the industry to deliver value,” Dudley said.

BP plan to cut about $1 billion to $2 billion from a previous capital spending budget for 2015 of $24 billion to $26 billion,it said this week.

It’s completed about $43 billion of asset sales since the 2010 oil spill in the Gulf of Mexico. The offshore disaster has cost London-based BP more than $28 billion in clean-up costs and damages, and the company is still fighting legal battles on multiple fronts.

BP spokesman David Nicholas confirmed Dudley sent the internal memo earlier this week.

To contact the reporter on this story: Nidaa Bakhsh in London at [email protected]

To contact the editors responsible for this story: Will Kennedy at [email protected] Alex Devine

SOURCE

Why Is Shell Divesting Stake In China Lubricants Business

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By: MICHEAL KAUFMAN
Published: Dec 12, 2014 at 10:05 am EST

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) has announced plans to sell off stake in the Tongyi oil lubricants joint venture. The company holds a 75% stake in the lubricant firm, while the remaining 25% stake is held by Huo Zhenxiang, the founder of the joint venture. Shell has hired services of China’ investment bank China International Capital Corp to aid in the sale of its 75% stake in Tongyi, which comprises of oil lubricants for motorcycles, cars, and other vehicles.

The investment bank plans to hold the first round of bidding in which major industry players and potential buyers will participate and issue their respective bids. It is expected that foreign buyers will also participate in large numbers to avail the opportunity to buy a majority stake in the joint venture.

The bids that will come in are expected to fall in the range of $350-500 million. The deal will offer buyers a rare majority stake in the company. A US private equity fund The Blackstone Group L.P (NYSE:BX) appears to be on the front line for the first round of bids for the lubricant firm. According to sources, Blackstone in collaboration with Huo Zhenxiang is all set to issue a joint bid for the Tongyi joint venture.

In September 2006, Shell bought the 75% stake in Tongyi. However the firm’s strategy back then was of expansion, in contrast to its strategy now. The fall in crude oil price has significantly reduced the profitability of companies involved in the upstream exploration and production activities. Now, companies aim to sell off their assets and focus primarily on their core business areas.

BP plc (ADR) (NYSE:BP), for instance, was involved in asset divestitures valued at $44 billion as part of its 18-month efficiency strategy of cutting costs. The company is also undertaking a $1 billion restructuring program and is all set to cut-back on thousands of jobs. Similarly, Shell aims to divest the local lubricant business and focus mainly on its core business area.

Shell CEO Ben van Beurden in January had indicated plans to undertake asset divestitures worth $15 billion by the end of 2015. Shell has recently undertaken asset divestitures worth $1.5 billion in Nigeria over theft concerns, and has sold 50% stake in the Haynesville Shale, a gas field in Louisiana, to Blackstone.

Such asset divestitures are necessary given the current low-price environment to ensure that the companies have enough cash to payout dividends and sustain shareholder confidence. Shell currently has the largest lubricant business in China and despite the sale will continue to have significant operations in the country. For conventional vehicles, Shell has its Shell Helix brand and for diesel vehicles the company has its Shell Rimula brand in China. Furthermore, the company has investments in natural gas exploration projects like Nanhai Petrochemicals Complex, and over 1,000 retail fuel stations.

Shell stock has fallen 5% year-to-date. During pre-market hours, the stock was trading at $63.68, down 0.42%.

SOURCE

US oil price below $60 a barrel

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From a Financial Times article published 11 December 2014 @10.49pm:

US crude closed below $60 a barrel

US crude closed below $60 a barrel for the first time in five and a half years… The declines came on top of falls of more than $2 on Wednesday after the Opec producers’ cartel said demand for the group’s crude in 2015 would be the lowest in a decade and below current levels.

FULL ARTICLE

From a Motley Fool Article published Friday 12 December 2014

THE OIL PRICE CRASH

If 2014 is remembered for anything, economically, it will be the oil price crash. In July, Brent Crude traded at $115, and that seemed perfectly rational. Today, it has plunged to $64. The share prices of BP and Royal Dutch Shell have duly crashed as well. As global, vertically-integrated businesses, the UK-listed oil giants aren’t a pure play on the oil price, but they can’t escape unscathed in times like these.

FULL ARTICLE

From an OilPrice.com article published 11 December 2014

Big Oil Slashing Spending Amid Low Prices

Many oil companies are beginning to pare back capital expenditures, reconsidering pouring billions of dollars into expensive projects that may or may not be profitable in the current environment.

FULL ARTICLE

From an article published by The Telegraph, 11 December 2014.

Opec veteran says oil price a ‘disaster’ and cartel powerless

Opec is now “powerless” on its own to prevent oil prices falling further because of a 2m barrels per day (bpd) surplus of supply in the market and the cartel should seek a deal with Russia, Norway and Mexico to arrest the decline, according to a senior Gulf official. “It’s a disaster,” said Mr al-Attiyah. “Opec should meet with non-Opec countries to resolve this but America will never cut production.”

FULL ARTICLE

From an article by PennEnergy published 11 December 2014

Massive BP jobs threat; AXE SET TO FALL ON UK STAFF CITY DESK

ENERGY giant BP is to slash thousands of jobs as part of a $1billion cost-cutting drive in the wake of plunging oil prices. The company said its restructuring programme would see jobs cut among its worldwide oil exploration, refining, IT and human resources divisions by the end of next year. Although not confirming the exact number of jobs to go, it is understood several thousand positions out of the group’s 84,000 global staff are at risk. The main cuts are expected to be in the UK…

FULL ARTICLE

WILL BP BE ABLE TO SURVIVE?

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By: MICHEAL KAUFMAN
Published: Dec 11, 2014 at 4:50 pm EST

The operating cashflow for BP plc (ADR) (NYSE:BP) is expected to grow 5.3% between 2014 and 2017. BP is slightly above Royal Dutch Shell plc’s (ADR) (NYSE:RDS.A) growth rate of 4.1%.There have been several factors that have contributed to low expected growth for the future operating cash flow.

Oil price has dipped 40% since June, with the West Texas Intermediate trading at $61.24 per barrel and the Brent crude trading at $64.56. The falling oil price has led to a decline in the cash flows for oil giants globally. BP has been adversely impacted due to the huge amounts it has paid in fines and settlements. The Californian lawsuit against the company along with the Gulf of Mexico 2010 settlement charges has clearly dampened the company’s liquidity position.

The company is looking to cut down on its costs. It has divested assets worth $43 billion and has decided to cut thousands of jobs across all business segments. The company is now looking forward to a 18-month efficiency program and has decided to focus more on value instead of volume. BP has announced $1 billion restructuring program. Lamar McKay who heads BP’s upstream sector indicated at the company’s investor day on Wednesday that the oil giant will experience a $2 billion decline in next year’s capital expenditure.

The $43 billion assets sold include 12% of the company’s reserves, 50% of the pipelines, and 35% of the wells. While production has dropped 30% since 2009, the number of employees in the upstream sector has increased 13%. This justifies BP’s policy of cutting jobs. This production figure is exclusive of the production from Russia. The company undertakes oil exploration and production activities with Rosneft Oil Co (OTCMKTS:RNFTF) in Russian and is suffering greatly amid the Western sanctions placed.

Critics have questioned the new mantra adopted by the company. Despite the benefits of cost-cutting measures, critics are concerned about BP’s new discoveries which will ensure that the company remains in the super-market bracket.

Investors’ concerns were addressed by Mr. McKay who expects the company to produce more than 900,000 barrels of oil equivalent per day till 2020. Half of the production growth will be associated with the Mad Dog field in the Gulf of Mexico, whose construction is delayed and is expected to start by 2017. Mr. McKay further pointed out that projects like Thunder Horse field and Clair Ridge will help cover the losses BP faced through the 2010 oil spill.

BP stock stood at $37.74, down 2.02%, during the pre-market hours on Thursday. Some analysts still believe the company to have a lot of expertise in deep-water drilling. This coupled with higher margin in the Gulf of Mexico region will allow the company to survive.

SOURCE

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