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Page added on September 19, 2016

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Big Oil Was Never That Big A Money-Maker

Business

Oil companies longing for the glory days of ultra-high crude prices might wish to think again.The rising oil prices that came to characterize energy markets in the mid-2000s, and which culminated in a record near-$150 a barrel in 2008, were not the windfall investors might have imagined, according to a new note from Goldman Sachs Group Inc. Instead, returns for major oil companies such as BP Plc, Royal Dutch Shell Plc, and Exxon Mobil Corp., actually declined between 2005 and 2014 as measured by cash return on capital invested.

The measure means that while the big three oil majors saw their total profits rise alongside higher oil prices, the amount of cash generated by their investments was declining, indicating higher costs of business. Returns per euro or dollar invested by capital-intensive Big Oil were hit with a triple whammy of higher taxes, more expensive service costs, and increased finding and development (F&D) expenses, Goldman analysts led by Henry Tarr argue.

Still, return on capital is even lower now thanks to crude prices currently languishing at around $43 per barrel hovering at a 50-year low for the three super majors, according to Goldman’s figures. Technological changes culminating in the explosion of shale drilling in the U.S. as well as the fight for market share launched by members of the Organization of the Petroleum Exporting Countries (OPEC), have combined to flatten the cost curve, meaning that there’s less differentiation between ‘break-even prices’ for different oil producers.”We believe the majors will find ways to compete with shale through driving costs lower on conventional projects, flattening the cost curve further,” the analysts said in their note published late last week. “With a relatively flat cost curve, the outlook for returns remains muted, since most participants should just earn their cost of capital, with limited opportunity to do better than this by having projects lower on the cost curve.”

Still, those returns look further threatened with oil prices at less than $50 a barrel, Goldman added.”If the oil market rebalancing is delayed, then further U.S. shale efficiency improvements and low cost production in OPEC could keep oil prices lower than we anticipate,” they concluded. “At a $50 per barrel flat oil price, sector multiples would be elevated vs. history and we believe all the European majors would cut dividends.”

RIGZONE



33 Comments on "Big Oil Was Never That Big A Money-Maker"

  1. Go Speed Racer on Mon, 19th Sep 2016 2:39 pm 

    Make more money buying Apple stock,
    than oil stock.

  2. rockman on Mon, 19th Sep 2016 4:08 pm 

    Racer – Depends on the oil company: had you bought Chevron 12 months ago you would be up 27% today. ExxonMobil…up 17% today. How does that compare to your 401k this last year? LOL.

  3. Anonymous on Mon, 19th Sep 2016 7:30 pm 

    Wonder how much the oil cartels PR division payed for Rigporn to insert this little piece of ‘poor us’ prop-ganda into its rag?

  4. Davy on Mon, 19th Sep 2016 8:03 pm 

    Warm water stacking:

    http://bloom.bg/2cz0311

  5. Go Speed Racer on Mon, 19th Sep 2016 8:29 pm 

    No 401K over here, I am just the formerly middle class.

  6. makati1 on Mon, 19th Sep 2016 8:40 pm 

    401ks are for suckers. Anything based on the Market Casino is doomed to fail.

  7. frankthetank on Mon, 19th Sep 2016 8:42 pm 

    Lol…retirement…maybe for the 1%. I’m still young. Lots of years before i get old. I hope to see Mad Max Fury Road play out. witness me.

  8. makati1 on Mon, 19th Sep 2016 9:12 pm 

    frank, I expect to see something similar too, and I am 72. I hope I am wrong. At least time-wise.

  9. Boat on Mon, 19th Sep 2016 9:40 pm 

    Davy on Mon, 19th Sep 2016 8:03 pm

    Great link.

  10. rockman on Mon, 19th Sep 2016 11:41 pm 

    Racer – “I am just the formerly middle class.” Sorry to hear that. Too bad you and I didn’t put all our savings into Chesapeake stock in 2000 and sold just 8 years later: we would have increased our retirement nest egg 1,000%.

    The stock market is easy: buy low…sell high.

  11. rockman on Mon, 19th Sep 2016 11:54 pm 

    Mak – “Anything based on the Market Casino is doomed to fail.” Had you put all your retirement nest egg into a Dow Jones indexed fund you would have 280% in the last 6 years. But had you wanted to play long term you would have increased 330% in the last 20 years.

    In either case all you would have needed to NOT DO is panic in a downturn and sell. Of course had you thought you were smart enough to pick individual stocks you might have lost your ass.

  12. rockman on Tue, 20th Sep 2016 12:09 am 

    Frank – I’m a bit surprised to find myself looking forward to retiring next year. Only recently started to work the numbers. Obviously not a big check but with no debt including no mortgage it’s workable. Plus the big bonus: with my MS and with Medicare Advantage paying 100% of the very expensive equipment I’ll need if I live long enough I could get back every penny I put in SS. Not complaining about my contributions: for 41 years I’ve been fortunate to make the max SS payment.

    Especially heartwarming to think how many young farts it will take just to cover me. Last time I saw the stat it took about 6+ paying into SS to cover the cost of one retiree. With my higher load it might be closer to 10 of them.

  13. makati1 on Tue, 20th Sep 2016 12:52 am 

    Rockman, I’ve never played the market casino or any other. I know a sucker bet when I see one. I never got into the 401, mutual fund craze either. Fro the few who were smart enough to get out art the peak, I take my hat off to them. As for me, I enjoy my peace of mind and ability to sleep well in any financial up or down.

    I recently watched several youtube movies of the crash of 29′. Greed killed a lot of dreams and took America into the trash bin that only WW2 was able to get them put of. That and the exporting of most of America’s oil over the next few decades. Another ‘never ending’ source of wealth, many thought.

    That too is over. Greed is a disease that most Westerners share. Too bad that too is slowly filtrating into the rest of the world, thanks to American movies, TV and magazines.

  14. shortonoil on Tue, 20th Sep 2016 6:52 am 

    “Still, those returns look further threatened with oil prices at less than $50 a barrel, Goldman added.”If the oil market rebalancing is delayed, “

    We are now at the point where burning additional oil does not produce enough additional goods and services to pay for the additional oil. The facts bear that out; demand growth is now only 22% of its historical level. There is now no justification for higher prices, and producers will not be cutting production, and subsequently their revenue. Market re-balancing is a myth; the last one available to the sellers of Buy the Dip.

    The story line has gone on for almost three years; the market would re-balance, and prices would recover. Production has remained all but flat, and prices have fallen 57%. The story is starting to get a little old. Producers are now pumping as much oil as they ever have, and are receiving $1.9 trillion per year less for it. The old P vs. Q story of supply and demand appears to have gone permanently off its rails. Supply is obviously no longer responding to price. The supply, demand line is now pointing directly into the ground; in the same direction from which the oil originally came.

    Prices will continue to decline as additional oil continues to fail to produce additional goods and services to pay for any additional oil. There is little incentive to restrain production as long as producers can find the funding to plug the $1.9 trillion hole in their balance sheets. Because the world needs the oil it will continue to pay the toll on this highway to bankruptcy.

    If oil had been treated for what it is, rather than what producers wanted it to be; energy vs. barrels, the world may have avoided a crash into an upcoming condition of financial insolvency. Even now as their story line grows feeble, and wobbly from advancing old age we can still hear the hawkers peddling their patient brand; Buy the F’ing Dip.

    http://www.thehillsgroup.org/

  15. Davy on Tue, 20th Sep 2016 6:57 am 

    Short it is not “buy the dip” it is BTFD. You forgot the emphasis.

    https://www.youtube.com/watch?v=0akBdQa55b4

  16. Cloggie on Tue, 20th Sep 2016 7:18 am 

    “I’m a bit surprised to find myself looking forward to retiring next year. Only recently started to work the numbers. Obviously not a big check but with no debt including no mortgage it’s workable.”

    Expect the number of rockman posts to increase dramatically as of next year.lol

    This forum could suffer a worse fate.

    When I lived in Leiden I was the neighbor of a retired Shell man. It was the usual pattern: retirees enjoy the first three months and then begin to miss their regular work. Shell man’s solution: part-time consultancy.

    Alternatives: book writing, classes, blogging, projects.

    I am doing the same. House paid off, small funds package, but who cares. I am still programming, but 3 months max. at a time and 5-6 months per year max. Standard state pension still 6 years away, hopefully not the same pattern as with fusion power.lol

  17. Cloud9 on Tue, 20th Sep 2016 7:33 am 

    In the world of high finance and manipulation price is not an indicator of scarcity. “Warren Buffett, one of the world’s richest investors, says the total amount of gold in the world – the gold above ground, that is – could fit into a cube with sides of just 20m (67ft).” This is a rather small cube when placed beside a population of seven billion. Yet, with all of the potential demand for gold, the current price is cheerfully cheap.
    Prices and debt are irrelevant as long as the money conjuring can continue to make the insolvent solvent.

  18. Davy on Tue, 20th Sep 2016 7:33 am 

    I feel using “prices” as a gauge for oils future is not valid at a point. It is essential in the short term status quo for sure because it will enlighten us to just how bad our existential predicament is. Yet, at a point in the not too distant future we are going to enter a point of economic phase change that will be characterized by turbulence. There is no model or formula for turbulence so our super computers, engineering models and economic formulas will be useless. This turbulence will be pure dysfunction or better yet chaos. We will have wild speculation smashing against desperate attempts at control by the authorities all with the common denominator of destructive change of physical decline, financial deflation, dysfunctional networks, and destabilizing social arrangements.

    Destabilized social arrangements are the most difficult to gauge but will mean a loss of confidence. Confidence is liquidity so a loss of confidence will be a pseudo hyperinflation. Pseudo hyperinflation is undefinable by current measures because it will be both extremes of inflation and deflation. Most want to point to Weimar inflation but it can also be severe deflation of the USSR where products were in shortage with stable currency. In our over complex global world it will be both extremes because we have a physical economy and an abstract financial one. Increasingly it is an abstract financial one we live in but in our mind. Physically we naturally live in a human civilization that is within a greater earth ecosystem. That is called irrational and can’t end well.

    We will increasingly see wild swings in assets prices as physical realities smash into the abstraction we call finance. Oil is a part of the economy. Oil’s economic meaning will change without a global economy. Oil will go local and its price will adapt to that local. At some point there will be no global price. There will be multiple local prices. Price is a smoke screen for value. Price may disappear and it will be a pseudo barter/price. It may be nothing more than local warlords and dependent serfs. A serf is just a nice way to be a slave.

    Price is a smokescreen because we do not have pure price discovery. We have an adapted financial system with a physical global economic reality. This dualism is diverging. That cannot end well because the financial realities do not represent physical realities anymore. Economic complexity must have realistic financial backing. The world is too complex to function without global finance. This is the primary reason we are drifting into a dysfunctional world of extremes. When reality is departed from extremes occur. In a highly complex interconnect world approaching the surreal world of “Alice in Wonderland” it will not last much longer. We are in the vicinity to this “dead state” of civilization. Price will be irrelevant because price represents our civilization and our civilization will be gone.

    “But I don’t want to go among mad people,” Alice remarked. “Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”
    ― Lewis Carroll, Alice in Wonderland
    https://www.goodreads.com/work/quotes/2933712-alice-s-adventures-in-wonderland

  19. makati1 on Tue, 20th Sep 2016 7:36 am 

    Cloggie, I retired in 2007, about two years shy of my plans but the 2007-8 mess took the construction industry down and projects to bid dried up. I was “laid off” and at 63, the options were few. I decided to take the reduced SS, sell off my “stuff” and relocate out of the US. Here I am.

    I wrote a 300 page SF novel the first year I was retired. Then decided it was not worth the tax hassle to actually get it published after getting interest from several publishers. I printed out a few copies for family and friends who like to read and put it away.

    I find current events to be much more interesting than working to pay taxes, fees, and all the other ‘necessities’ of employment. Tapering may be your idea of retirement, but there is so much to do in today’s world that I am never bored. Good luck on your path and may it be a long one filled with all that you like and want.

  20. rockman on Tue, 20th Sep 2016 8:01 am 

    Cloggie – “Shell man’s solution: part-time consultancy.” A lot of old farts in the oil patch like the Rockman had similar plans. But with the bust they can kiss those goodbye…in such times the consultants are the first cut loose.

    My employment contract runs until I’m 67. But being operations VP for a company not drilling wells there’s not a hell of a lot to keep from getting bored. So these days I do a lot more volunteer work. And the great thing about that: I usually have a captive audience that can’t escape my dumb jokes. LOL.

  21. Cloggie on Tue, 20th Sep 2016 8:01 am 

    “I wrote a 300 page SF novel the first year I was retired. Then decided it was not worth the tax hassle to actually get it published after getting interest from several publishers.”

    You can still self-publish on Amazon.com with very little effort:

    https://kdp.amazon.com/help?topicId=A2NBSNHQIHR4W3

  22. Cloggie on Tue, 20th Sep 2016 8:10 am 

    @rockman

    http://www.despreker.nl/

    You are meanwhile so good at pushing an opinion that you could consider preparing a speech about your experiences in the “oil patch”, complete with slides and what not and en passant ventilate your opinions about folks like Heinberg, peak oil et al.

    A professional with a speech can at least ask 750-1250 euro or far more (Holland, see link).

    There are many companies who love to invite speakers, for instance to celebrate an anniversary.

  23. Davy on Tue, 20th Sep 2016 8:14 am 

    Makati! can I have a copy? It must be about the death of the US from a surprise NUK attack from China and Russia. It might be the 1000year Asian Reich with Manilla as its new Asian Rome. Please MaKati! I will even pay for it.

  24. makati1 on Tue, 20th Sep 2016 8:25 am 

    Cloggie: Yes, there are many self publishing houses in the world, some here in Manila. Not worth the hassle or cost. It is about an alien missile striking the south pole, setting off the 40 some volcanoes there and causing drastic sea rise. Researching for it was where I learned so much about global warming and all of the effects it will have on coastlines and the human inhabitants of this planet. The main characters are from the US, Europe and Asia. Interesting project but I have not even looked at it in years.

  25. Cloggie on Tue, 20th Sep 2016 8:58 am 

    “Yes, there are many self publishing houses in the world, some here in Manila. Not worth the hassle or cost.”

    Only Amazon has global reach and it costs ***nothing***. Just upload a document and you are good. Amazon takes a percentage, don’t know how much. Apple for instance takes 30% of my apps.

  26. Cloggie on Tue, 20th Sep 2016 8:59 am 

    Btw, I am talking about a downloadable e-book, not a dead tree book.

  27. makati1 on Tue, 20th Sep 2016 9:29 am 

    Cloggie, I decided to not publish because I do not want the tax hassle with the US IRS over what may be a few hundred dollars a year. At the present, I have zero taxable income and I plan to keep it that way.

    Perhaps you do not understand that the US taxes its citizens on ALL income, no matter where earned or where in the world you are living at the time. I have to file a Federal tax return every year, even with zero taxes due. It is a simple one page form with a dozen questions. Not a multiple page form I would have to file if I had an income from a published book.

    I don’t need the money. I need the independence/freedom that not having to worry about it provides. I am more free than 99% of Americans and I love it.

  28. Kenz300 on Tue, 20th Sep 2016 10:34 am 

    The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them.

    Climate Change is real….. it will impact all of us…

    It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..

    The world is moving to embrace alternative energy sources…….. the fossil fuel companies can transform themselves into “energy” companies or they can die a slow death.

    As Climate Change impacts more people there will be a bigger backlash against fossil fuels.

    23 States to Rely on Geothermal, Solar, or Wind Power as a Primary Source of Electric Generation in 2016

    http://www.renewableenergyworld.com/articles/2016/09/23-states-to-rely-on-geothermal-solar-or-wind-power-as-a-primary-source-of-electric-generation-in-2016.html

    Solar Cost Hits World’s New Low, Half the Price of Coal

    http://www.ecowatch.com/solar-price-chile-1982242311.html

  29. Apneaman on Tue, 20th Sep 2016 11:00 am 

    Cloged there is still a dead tree bringing you that e-book. It’s called a coal. They pulverize it in a ball mill and feed it into the furnace of big boiler to create steam to spin a turbine and generate electricity, so you and the rest of the global computer zombies can read your, so called, eco friendly e books and watch Alex Jones YELL. The 7.5 billion dopamine junkies can’t get enough electronic intoxication. Power demand for that big toy goes up every year.

    No worries, the overlords have it covered.

    There are 2,100 new coal plants being planned worldwide — enough to cook the planet

    http://www.vox.com/2015/7/9/8922901/coal-renaissance-numbers

  30. Apneaman on Wed, 21st Sep 2016 10:37 am 

    Oil Majors Must Count on M&A to Replenish Reserves, WoodMac Says

    http://www.bloomberg.com/news/articles/2016-09-20/oil-majors-must-count-on-m-a-to-replenish-reserves-woodmac-says

  31. Boat on Wed, 21st Sep 2016 11:15 am 

    ape,

    Glad to see you using Bloomberg as a source of information. Some of it is opinionated, some of it is not. Some posts are spun as a positive for oil, some are negative. Same as much MSM on any topic.

  32. Apneaman on Thu, 22nd Sep 2016 8:05 pm 

    Study finds abnormalities in drinking water in Eagle Ford Shale region

    http://phys.org/news/2016-09-abnormalities-eagle-ford-shale-region.html

  33. Dredd on Fri, 23rd Sep 2016 6:36 am 

    Au contraire (Groundhog Day & The Climate of Fear – 2).


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