The impending writedowns represent the latest blow
Tumbling crude prices will trigger a flood of oilfield writedowns 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, said a team of Citigroup Inc. (C:US) analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $48-a-barrel market include international titans such as Royal Dutch Shell Plc (RDSA) and small wildcatters like Sanchez Energy Corp. (SN:US)
The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.
Oil dipped to $47.55 a barrel today in New York, the lowest since April 2009. The decline represents a $4.4 billion drop in daily revenue for oil producers, which equates to $1.6 trillion on an annualized basis, Citigroup researchers led by Edward Morse said in a Jan. 4 note to clients.
The oil-market rout is 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. Shell, Europe’s largest energy producer, may have as much as 5 percent of its capital tied up in money-losing projects. For U.K.-based BG Group Plc (BG/), the figure could be as high as 8 percent, according to the Citi analysts.