Home' Trinidad and Tobago Guardian : February 4th 2016 Contents FEBRUARY 4 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
The 19-month-old dive in the
price of oil has left few options
for oilfield services companies,
which provide energy compa-
nies with the nuts and bolts
they need to be productive.
The choice for companies such as the Hous-
ton-based giants Schlumberger and Halliburton
is stark: Either refuse to offer customers further
discounts on expertise and equipment, which
could lose them critical business, or offer even
greater discounts and lose revenue.
The average global price of oil has plunged
from more than US$110 per barrel in the sum-
mer of 2014 to around US$30 per barrel today,
a decline of more than 60 per cent. Fully 15
per cent of that loss has occurred in this first
month of 2016.
That means dramatically lower revenues for
oil and gas companies, which nevertheless
want to continue exploring for energy and pro-
ducing it even as they cut capital expenditures,
or capex. Oilfield services companies have
responded by offering these clients discounts
sometimes exceeding 30 per cent for onshore
operations such as hydraulic fracturing and up
to 50 per cent for offshore operations.
This naturally has led service companies
such as Schlumberger Ltd, the world s largest,
and the Halliburton Corp, both based in Hous-
ton, to make their own spending cuts, which
are perhaps best illustrated in personnel lay-
Schlumberger said January 21 that it cut
10,000 jobs in the fourth quarter of 2015.
Company spokesman Joao Felix said total job
cuts for the company since the third quarter
of 2014 now total 34,000, or 26 per cent of
the company s work force before the cuts
Meanwhile, in October, Halliburton said it
had cut 18,000 jobs from its own work force
in 2015, and on January 25 it announced 4,000
Both companies disclosed the latest layoffs
in their announcements on their performance
records during the fourth quarter of 2015.
Schlumberger reported a net loss of just over
US$1 billion in the period, compared with a
net income of US$302 million in the same
period of 2014. Halliburton reported a net loss
of US$28 million, a reversal of its net income
of US$901 million in the fourth quarter of
To help rectify matters, Schlumberger plans
a US$10 billion stock buyback programme, a
move applauded by some analysts. "It s always
nice to know the company is investing in itself,"
Matt Marietta, a Houston-based analyst at the
investment bank Stephens Inc, told Bloomberg.
"All things considered, I think their cost-savings
programme can be viewed positively."
Halliburton, meanwhile, is hoping regulators
approve its bid to buy a smaller rival, Baker
Hughes, for US$35 billion in an effort to expand
its operations and cut costs further by elim-
inating redundancies in the combined company.
But that deal has been delayed by questions
from both US and European regulators.
Given the bind faced by oilfield services
companies, they may simply have to end their
current practice of ever-greater discounts to
their customers and hope that the resulting
drop in energy exploration and production
could lead to a more equitable alignment of
supply with demand.
That is how OPEC sees it. In its Monthly
Oil Market Report issued January 18, it said its
strategy of driving prices down could "rebal-
ance" the oil markets and restore oil prices to
more realistic levels. It said that "2016 is set
to see output decline as the effects of deep
capex cuts (by non-OPEC producers) start to
feed through." AP
Saudi Arabia has managed to buy itself a couple
of months. The global rout of oil prices is
taking its toll on the kingdom s bottom line.
The country has been forced to cut government
spending in its upcoming budget and increase
production of crude oil---even though its hardly
worth pulling it out of the ground.
Still, the world s largest producer of oil appears on a crash-
course for bankruptcy as early as of 2018, according to a new
Big Crunch analysis.
Many oil-dependent nations are having to dig deep to
balance budgets, with crude oil fetching so little on the global
market. Money-rich nations like Qatar and Kuwait look to be
getting by, while poorer nations like Libya have descended
further into strife and civil war. Oil would need to be selling
for US$269 a barrel for Libya to balance its budget, according
to the IMF.
Saudi Arabia is somewhere in between: A stable nation with
a sizable backup of reserve assets, somewhere around US$624
billion as of December. But much of that stability is bought
with government jobs and generous public spending and with
falling oil prices, the country has had to dip into its reserve
assets to make up the difference.
Of course, the analysis depends on no major economic
changes or events effecting Saudi Arabia. It also assumes oil
prices remain low, which experts consider likely for the time
CNBC looked at the country s finances back in August ,
when oil swung between US$48 and US$41 a barrel. It had
fallen a long way from its highs of US$65 a barrel a few months
before, but our lower estimate for its direction was way off.
At the time, CNBC estimated the Saudis would be broke in
August of 2018, yet that was based on oil at US$40 a barrel
and before they cut public spending.
The 2016 Saudi budget includes a spending cut of 13.8 per
cent from 2015 levels, though projections from Barclays puts
that cut closer to 5 percent. Even so, the country is expected
to reach a budget deficit of 12.9 per cent of GDP in 2016,
according to the investment bank.
In addition to spending cuts, Saudi Arabia has increased
production, to more than 10 million barrels a day as of October,
the latest figures available from the Energy Information Admin-
While the increased production helps to add a bit to the
Saudi s bottomline, it does nothing to alleviate the glut of oil
on the global market. Global production is projected to be 95
million barrels a day in the first quarter of 2016, and con-
sumption around 94 million, according to the EIA.
The economic slowdown in China is often blamed for much
of the decreased demand. On the supply side, US shale pro-
ducers have proved more durable in the harsh economic climate
than the Saudis expected. Iran, too, has entered the oil market
in recent weeks as Western sanctions have been lifted. The
Islamic Republic produces about 1.1 million barrels a day and
has said it wouldn t consider slowing production until its
grown to 1.5 million.
Earlier hopes of a deal between OPEC nations and Russia
to cut production were dashed on Friday when an unnamed
Iranian official told the Dow Jones news agency that the country
would not participate .
Saudi Arabia has said before that it would agree to cut pro-
duction if both OPEC members and non-OPEC nations would
do the same. AP
These oilfield service giants
are feeling the squeeze
How long can Saudi Arabia live with low oil prices?
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