Home' Trinidad and Tobago Guardian : January 25th 2015 Contents Pride of place in last week s
Houston Auto Show goes to
"Texas Edition" trucks: hulking
vehicles, selling for US$50,000
and upward, specially designed
for the Lone Star state s expan-
sive tastes. Allout Offroad customises them
further, lifting the chassis to fit outsize wheels
They are selling "like crazy," said the com-
pany s boss, Chance Kamp. "People can afford
to put gas in them now."
Houston, America s fourth-largest city, is
poised between the joys of cheap fuel and the
pain of the industry which produces it. Dave
Lesar, chief executive of Halliburton, which
provides drilling and pumping services, said
that its customers are cutting spending by as
much as 30 per cent. On January 21 BHP Bil-
liton, a giant miner and oil producer, said that
it would cut the number of its onshore oil rigs
in America by 40 per cent. A so-far modest
fall in the total number of active rigs is set to
A Barclays survey of 225 companies forecasts
that, if crude settles in a range of US$50 to
US$60 a barrel-it was below US$50 in the
middle of last week-the industry worldwide
will cut its capital spending by 9.0 per cent
this year, to around US$620 billion.
Consolidation has been underway for
months. Last year, before oil prices latest
tumble, Halliburton, which is the world s sec-
ond-biggest oil-services firm, agreed to a
merger with the third-biggest, Baker Hughes.
The intention is to save US$2 billion a year in
costs. Both companies announced strong prof-
its on January 20, while warning of hard times
ahead. Baker Hughes said that it would cut
7,000 jobs and a fifth of its capital spending.
Halliburton already has cut 1,000 jobs outside
America, and has said that it will shed more
labor at home in the weeks ahead. This week
Total, an integrated oil giant based in France,
said that it would speed up a cost-cutting
No one doubts that a crunch is coming.
The question is who will crunch whom. The
crunchers will be companies with strong bal-
ance sheets, diversified businesses and the
foresight to have hedged their production,
selling this year s production at last year s
prices. The crunched will be debt-laden com-
panies with a narrow base, high costs and a
risky business model, such as some natural-
gas frackers, whose output is now selling for
less than the cost of production. As weaker
firms have their credit ratings downgraded
and lose access to finance, the prospects for
those businesses lenders, as well as for their
shareholders, is the subject of much gossip in
Oilmen are used to such ups and downs.
In the skyscrapers of Houston, few would deny
the scope for savings.
"There s plenty of fluff in the system," said
Scott Nyquist of McKinsey, a consulting firm.
When prices were high, costs mattered less
than keeping output up. Suppliers asked, and
got, top dollar. The school system in Katy, a
Texas town near Houston, struggled to find
drivers for its buses because there was better-
paid work for drivers to be had with oil-related
For those who can afford to, now is a good
time to buy. Schlumberger, Halliburton s largest
rival, has cut 9,000 jobs and announced US$1.8
billion in write-downs, but it also recently
bought nearly half of Russia s biggest onshore
driller, Eurasia Drilling, for US$1.7 billion. The
Russian company s share price had crashed as
a result of the oil-price fall and Western sanc-
tions. To signal its confidence, Schlumberger
also raised its dividend by a quarter and said
that it would continue a share buyback plan.
Technology is continuing to change the
industry s economics. Halliburton is pushing
ahead with upgrades to the equipment and
techniques it uses at drilling sites, including
improvements to pumps and storage systems.
All this, the company said, can cut a typical
well s capital spending by a quarter, mainte-
nance by half, labor by a third and development
time by more than half, compared with the
previous approach. So far 30 per cent of its
North American operations have been upgrad-
ed. The aim is to reach 50 per cent by the end
of the year.
Such new techniques, as well as falling costs
for everything from rigs and pumps to steel
and labor, are helping the drillers who are still
"We used to think everything worked at
US$80 to US$85 per barrel," said RT Dukes of
Wood Mackenzie, an energy-consulting firm.
"Now it s US$70 to US$75."
Looked at another way, he said, two-thirds
of the shale drillers needed oil at $70 to break
even. Productivity gains and lower costs have
now pushed that down to $60, though that
is still uncomfortably higher than this week s
Share prices are sliding, but gloom is sur-
prisingly scant in Houston. Oilmen expect sup-
ply to tighten by the end of this year. Output
may decline in mature fields, American shale-
oil production may slip back and there always
is a risk of turmoil in some foreign oil province.
"Excess supply is just 3.0 per cent to 4.0
per cent of global production," Nyquist said.
Not much has to happen for prices to recover,
and fortune will reward those who spent money
wisely during the downturn-or so they hope.
Thus, when the going gets tough, the tough
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JANUARY 25 • 2015
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America's oil industry:
The tough get going
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