Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, August 2, 2015

the frackers’ 2nd quarter earnings and losses, more industry layoffs, et al

the unusual changes in the oil patch metrics we saw last week reversed themselves this week, so all of our speculation on possible energy markets changes they might have indicated have gone by the boards...US field production of crude oil, which had been holding near its early June record until last week, fell 1.5% in this week's report, from 9,558,000 barrels per day in the week ending July 17th to 9,413,000 barrels per day in the week ending July 24th; though that's still up 11.5% from the 8,443,000 barrels per day production in the same week last year, it's now more than 2% off the record of 9,610,000 barrels per day produced in first week of June this year....our imports of crude oil also fell, from 7,941,000 barrels per day last week to 7,545,000 barrels per day in the current reporting week, which was down 2.6% from the same week last year, but still left the 4 week average over 7.5 million barrels per day, 1.0% above the same four-week period last year...with lower production and imports, our inventories of crude oil in storage fell by 0.9%, from 463,885,000 barrels in last week's report to 459,682,000 barrels as of July 24th...that's still 25.1% more than the 367,374,000 barrels that were reported stored on July 25th of last year, and still nearly 20% more oil than had ever been stored at the end of July in the 80 years of EIA record keeping, which had never seen 400 million barrels of oil in storage before this year... 

likewise, after the unusual increase in drilling rigs last week, after oil prices had been falling for month, the total count of rigs in operation this past week fell once again, although oil drilling rigs did increase again for the 5th week in a row...Baker Hughes reported that in the week ending July 31st, the number of active drilling rigs in the US fell by to 874, with oil rigs up 5 to 664, gas rigs down 7 to 209, and miscellaneous rigs unchanged at 1; that was down by 1,015 rigs from the 1,889 that were running at the end of July last year, with oil rigs down from 1573, gas rigs down from 313, and miscellaneous rigs down from 3...while 6 land based drilling rigs were taken out of operation this week, leaving 841, one rig was set up on a lake in Louisiana, bring the inland lake total to 5, and 3 rigs were added offshore in the Gulf, which now has 34...the shift to conventional drilling has also reversed, as there were 126 vertical rigs in operation, 5 less than last week, while horizontal drilling rigs increased by 2 to 664 and directional rigs increased by 1 to 84...

the largest increase in rigs this week was in the Cana Woodford, where 4 were added, bringing the total to 37; the count there is up from 32 a year ago, and it's the only shale basin in the US to see an increase in rigs over the past year..in addition, 3 rigs were added in the Permian basin, and the Utica and the Williston shales each saw an increase of 1 rig...meanwhile, 3 rigs were pulled out of the Marcellus, 2 were pulled from the Eagle Ford, and one was pulled from the Granite Wash....

the state rig totals don't match up well with the basin counts, however...we know Oklahoma drillers added 4 rigs in the Cana Woodford, but the net change for the state is zero...that would suggest that 3 conventional rigs were shut down in the state, and that a Granite Wash rig also was removed from OK...elsewhere, the Kansas rig count was reduced by 4 to 7, the Utah count was reduced by 3 to 4, the Pennsylvania count was reduced by 2 to 42, the Alaskan count was reduced by 2 to 9, the Colorado count was reduced by 1 to 38, and the rig count in West Virginia was reduced by 1 to 19....states adding rigs included New Mexico, where rigs increased by 3 to 54, Louisiana, where rigs increased by 2 to 78 with the removal of two land rigs and the addition of 4 on the water, North Dakota, where the rigcount increased by 1 to 70, Ohio, where the rig count increased by 1 to 21, Texas, where the rig count increased by 1 to to 375, and Wyoming, where the rig count increased by 1 to 22...in addition, single rigs were added in Alabama and Mississippi, which now have 2 and 3 rigs in operation respectively...

this past week has brought us the first raft of quarterly reports from the major oil & gas companies and the independent frackers, so looking at how they did over the April thru June time-span, when oil prices pretty much stayed within a few dollars of $60 a barrel, should give us a sense of whether or not they can remain profitable, or even remain in business, in the current oil price environment, where oil has been trading below $50 a barrel over the past few weeks...understand that the financial situation for independent drillers, whose profitability is directly related to the wellhead price they receive for oil and gas, is quite different than that of the vertically integrated major oil companies, who have downstream oil refining and product marketing operations that are likely made even more profitable when oil prices are lower...

of the major oil companies reporting this week, Chevron reported net income of $571 million in the second quarter, barely one-tenth of the $5.7 billion income they reported in the second quarter of 2014...reporting the same day, Exxon saw 2nd quarter earnings of $4.2 billion, less than half of the $8.8 billion they earned in the same period last year, even though their oil and gas output rose by almost 4%, for both Chevron and Exxon, these results were the worst of the decade, and Chevron accompanied their earnings report with the announcement that they'd be cutting 1,500 jobs globally, including 950 in their corporate headquarters in Houston, and 500 at their corporate offices in San Ramon, California...

on Thursday, Royal Dutch Shell, based in The Hague, reported that 2nd quarter earnings, adjusted for inventory changes and excluding one-time items, were at $3.8 billion, almost 40% lower than the $6.1 billion they earned in the same period of 2014, as their exploration division saw revenues drop by 80 percent due lower oil prices...Shell, who has already indicated they believe that oil prices will remain depressed for several more years, responded by announcing they'd be slashing 6,500 staff and contractor jobs this year, and reducing 2015 capital expenditures to $30 billion, $7 billion lower than last year..

in contrast with the oil majors that have a large retail presence, ConocoPhillips, which had refocused its business on exploration, production and distribution of oil, reported a second-quarter 2015 net loss of $179 million, or ($0.15) per share, compared with second-quarter 2014 earnings of $2.1 billion, although part of that loss was related to a deferred tax charge from a change in Canada’s tax law; excluding that and non-cash items, they still managed to eke out $81 million in earnings from operations; they had already announced layoffs and cut their 2015-2017 capital spending plans from an initial $16 billion to $11.5 billion per year, and with Thursday's announcement indicated they'd  be further scaling back their deepwater and Gulf of Mexico operations....also taking a hit from a Canadian oil tax increase and other one time charges, Canada's Husky Energy, their 3rd largest integrated oil company, reported income of C$120 million in the second quarter, down 81% from their C$628 million in earnings a year earlier...they also reported their oil production rose slightly to 337,000 barrels of oil equivalent per day. from 334,000 per day in the 2nd quarter of 2014..

meanwhile, BP also reported a 2nd quarter loss of $6.3 billion, largely due to one-time charges from the Deepwater Horizon spill settlement with the US Gulf states, while it still had an operating profit from oil and gas exploration and production of $494 million in the second quarter, compared with $4.7 billion in the same quarter a year earlier, when oil prices were averaging over $100 a barrel...they are also warning of more layoffs ahead, including at corporate offices in Houston and Aberdeen..in addition, another British oil company, Centrica, announced it would cut 6,000 jobs, partly due to a reduced focus on oil and gas production, while Italy's biggest oil and gas industry contractor Saipem announced that not only is it cutting its earnings estimates, but that it also plans to cut 8,800 workers by 2017...

of the smaller frackers who reported this week, Range Resources of Ft Worth Texas reported that they lost $119 million in the second quarter this year, in contrast to their earnings of $171 million in the second quarter of 2014...they had already slashed their drilling budget to $870 million this year, $700 million less than in 2014, and had reduced their operations from 15 rigs to 10...they now plan to cut that to 6 rigs by year end...Houston-based Cabot Oil & Gas Corp reported a small second quarter loss of $14 million in the second quarter 2015,in contrast to $118.4 million profit in the same quarter last year; they had already seen a major loss of $221.8 million in the 4th quarter of 2014 and slashed their spending at that time, which seems to have ameliorated large losses going forward...

Pennsylvania based Consol Energy, with both coal and natural gas operations in Ohio, reported a net loss of $603 million during the quarter that ended June 30, much worse than the $25 million loss it reported in the 2nd quarter last year; despite a 45 percent increase in gas production, their revenue fell nearly 31 percent to $649 million, and they now plan to stop drilling new wells through next year...they had already announced a new round of layoffs, eliminating about 470 positions throughout the company, and also announced they would end retiree benefits for about 4,400 former employees by the end of this year...meanwhile, Pittsburgh based EQT Corporation eked out a $5.5 million profit in the quarter, down 95 percent from their earnings of $111 million last year, but they only managed that because of increased revenue from their midstream pipeline operations...Marcellus frackers have been netting less than $2 per mmBTU at the wellhead for their natural gas, so few have been able to maintain profitability...

Anadarko Petroleum, one of the larger oil-and-gas exploration and production companies, managed to report a profit of $61 million, or 12 cents a share, compared with earnings of $227 million, or 45 cents a share, a year earlier, but much of that was from hedging; excluding the hedging gains, Anadarko had a profit of 1 cent per share, which was still above analysts expectations of a 51 cent a share quarterly loss....and although Chesapeake Energy is not expected to report its 2nd quarter losses until this coming Wednesday, it has already announced it would suspend its dividend for the first time in 14 years... according to Bloomberg, Chesapeake has been cash-flow negative in 22 of the past 24 years,...

the oilfield service companies, the first to feel the hit when drillers cut back, also announced that they had made additional workforce cuts this week; as of quarterly filings on July 24th, Halliburton said it had cut nearly 14,000 jobs, 5000 more than it had previously announced, while Baker Hughes said it had laid off 13,000 employees, 2,500 more than it had previously reported....and on Thursday, Weatherford International announced an additional 1,000 job cuts, on top of the 10,000 workers who were laid off earlier this year...finally, Hercules Offshore did not have any earnings to report, as they announced they'll be filing for bankruptcy and turning control of what's left of the company over to bondholders...they'd already cut 40% of their workforce and cold-stacked 11 of their 20 offshore drilling rigs...they join  BPZ Resources, Quicksilver Resources, American Eagle Corp. and Dune Energy, who have all sought bankruptcy protection in recent months...


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