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Occidental Petroleum Corporation
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R.R. Donnelley & Sons Company
(Bloomberg) -- Occidental Petroleum Corp. wants U.S. government financial aid for the oil industry even as the biggest producer of Permian Basin crude urges Texas regulators not to interfere with market forces.In a sign of how important the appeal is to Chief Executive Officer Vicki Hollub, employees are being urged to send a pre-written wish list to Congress members. Among other things, the company wants the government to “provide liquidity to the energy industry through this period of unprecedented demand destruction and unsustainable pricing until normal economic conditions return.”The letter, linked in an internal email dated April 7 and seen by Bloomberg News, also encourages the Trump administration to negotiate with Saudi Arabia and end the kingdom’s price war with Russia. Lawmakers are asked to advocate for fair access for U.S. crude to Asian markets and to support buying oil for the nation’s Strategic Petroleum Reserve.A representative for Occidental declined to comment.See also: Fracking Decline May Be Worst Ever Because There’s Too Much OilThe email was sent the same day that Occidental appealed to the Texas Railroad Commission to reject mandated production cuts. Occidental said output caps, which have been strongly supported by some of the company’s smaller Permian rivals, would be “extremely short-sighted” and would interfere with contractual obligations.‘Resolve Itself’“It is Occidental’s position that the surge in the supply of oil coupled with the decline in oil demand will resolve itself without state regulatory interference,” the company told the Railroad Commission, the state’s primary oil regulator.The commission is set to hold a meeting next week to consider what would be the first production curtailments in almost half a century.Occidental’s stock has been hit especially hard in the wake of crude’s historic meltdown as the coronavirus outbreak crushes demand and Saudi Arabia floods crude markets as part of a market-share battle with Russia.Hollub has faced criticism over her decision last year to amass debt in order to beat Chevron Corp. in a bidding war for Anadarko Petroleum Corp. Occidental has seen its bonds fall to junk and has recently replaced its chief financial officer.She joined other oil executives in a meeting last week with President Donald Trump. Prior to the gathering, there had been some expectation that Trump could bolster the chances of a deal between OPEC and its allies by committing the U.S. to some sort of supply curtailments. But the meeting ended without any public declaration of a plan to cut domestic output, with Trump saying it’s a free market and up to Saudi Arabia and Russia to solve their dispute.“This letter lists the steps our government needs to take immediately,” Hollub said in the email to employees. “Now more than ever, we all need to inform our elected officials that inaction could result in long-lasting harm to the U.S. economy.”(Updates with Railroad Commission letter in fifth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- U.S. shale drillers are engaged in a bitter test of wills as sinking oil prices force the weakest operators to retreat just as OPEC urges the world’s biggest source of crude to help rescue a market roiled by the coronavirus pandemic.With American production expected to decline this year for the first time since 2016, it’s becoming increasingly clear any reductions in domestic output will fall on the companies that can least afford it. The result is likely to be a sector increasingly dominated by international behemoths that have the ability to endure the downturn and ramp back up once prices recover.“The pain is definitely going to be felt by smaller and medium players in second-tier acreage,” said Raoul LeBlanc, a Houston-based analyst at IHS Markit Ltd. “If you ramped it up in the last couple of years and you grew fast, you now have a hangover.”READ: U.S. Slashes 2020 Oil-Output Forecast Ahead of OPEC+ MeetingU.S.-focused oil producers have slashed more than $27 billion from drilling budgets this year in an unprecedented contraction in the sector responsible for the lion’s share of global supply growth over the past decade. But for the largest companies, such as Exxon Mobil Corp., the rout is only prompting a slowdown in growth rather than outright reductions.Exxon took an ax to its Permian Basin drilling budget on Tuesday, saying that the shale region would absorb the largest share of $10 billion in global cuts this year. Even so, production is expected to increase through the end of 2021.Chevron Corp. also probably will boost output this year, despite a 20% reduction in its forecast.Independent shale specialists like EOG Resources Inc., Pioneer Natural Resources Co. and Diamondback Energy Inc. are also pledging to keep production flat or slightly higher this year, despite cutting their budgets by at least a third. Marathon Oil Corp. announced a 46% spending cut on Wednesday without signaling whether output will be impacted.Those drillers are protected by financial hedges designed to blunt the worst excesses of the price collapse, which saw some North American crudes trading for less than $10 a barrel last month.The unwillingness of some of the marquee names in shale to curb output flies in the face of growing calls by Saudi Arabia and other major producers for a new era of supply restraint to arrest the freefall in prices. The Organization of Petroleum Exporting Countries and allies are scheduled to conduct an emergency session later this week.Momentum ReversalStill, there’s a catch, according to Dane Gregoris, a director at RS Energy Group. “If you’re growing through 2019 and declining through 2020, you can still average the same year over year,” he said. “However, the momentum has completely reversed.”The largest players represent only about 20% of overall U.S. shale production and so only provide a narrow snapshot of the overall market, according to IHS. There are more than 6,000 producers in the Permian Basin alone, many heavily-indebted private players whose business model was to lease exploration rights, drill a few wells and then flip whatever they struck to the highest bidder.Occidental Petroleum Corp., burdened by debt incurred by last year’s $37 billion takeover of Anadarko Petroleum Corp. is one major shale player reducing overall production this year. Harold Hamm’s Continental Resources Inc. indicated it will reduce production by about 30%.Texland WellsAt the other end of the scale, Texland Petroleum LP, a small operator in business since 1973, expects all of its wells to be completely shut by May 1 as buyers cancel orders in response to dwindling demand.The long-term implications could be vast. Shale wells are gushers for the first three months but after that, output plummets so that by the end of the first year it’s down about 60%. That’s 10 times the decline rate of conventional wells. As U.S. production has become more weighted toward shale, the country’s overall decline rate has accelerated, according to IHS.In the 2014-2016 crash, the industry borrowed about $40 billion to survive, according to IHS. That’s not available now, LeBlanc said. “The low price translates almost immediately to taking off capital spending and letting massive decline rates start to set in.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Global oil producers are scrambling to secure a supply cuts deal to counter an unprecedented drop in demand triggered by the coronavirus pandemic. “I don’t think a deal between Opec and other producers like Russia makes any difference because of the severity of the drop in demand,” the 73-year-old executive said. “Opec, as the so-called central bank of oil, has disappeared.”
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(Bloomberg) -- About $25 billion of oil and gas deals are hanging in the balance following crude’s historic collapse, potentially doing further harm to the finances of companies already battered by the slump.Companies including Occidental Petroleum Corp., BP Plc and Exxon Mobil Corp. are relying on asset sales started last year to bolster their finances. But many deals look less attractive now with oil near $30 a barrel and a bleak outlook for the global economy, according to consultant Wood Mackenzie Ltd.As oil companies around the world scramble to protect their finances by boosting credit lines, slashing spending and suspending buybacks, those leaning too heavily on asset sales may need to find other measures.“I think they’re going to be extremely difficult to execute in the near term,” said Greig Aitken, director of M&A research at WoodMac. “It’s borderline impossible for the next few months.”Valuations have been hit hard by the slump. Infections and deaths from the coronavirus pandemic are still climbing, and large parts of the world are likely heading toward a recession. While OPEC and other major producers are planning talks this week to help steady the market, immense output cuts would be required to compensate for a demand destruction that some traders estimate has risen to as high as 35 million barrels a day.Failed asset sales would only make matters worse for the companies, Aitken said. Oil majors have an additional $27 billion of planned disposals beyond what has been announced.Occidental may have the most to lose from a freeze in the market. The U.S. shale producer has a pile of debt due over the next two years and is depending on asset sales to pay it.A key pillar of its purchase of Anadarko Petroleum Corp. last year was selling off its African assets to Total SA for $8.8 billion. But the disposal of operations in Ghana and Algeria, valued at almost $5 billion, is yet to be signed off.Total can walk away from both transactions should Algeria not give approval by Sept. 30, according to Morgan Stanley. The government there has suggested it may seek to preempt the purchase of the asset, adding further uncertainty to an already stressed market. Ghana meanwhile is claiming $500 million in taxes, complicating the deal.Total declined to comment on the status of the agreements. The French major is pushing ahead with its own $5 billion divestment plan, and on Tuesday closed the sale of more than $400 million of assets in Brunei and West Africa.Occidental referred Bloomberg to remarks from Chief Executive Officer Vicki Hollub in February that there’s “increased risk” associated with the Algeria and Ghana sales. But she pledged to reach her target of raising $15 billion from selling assets, with or without the Africa deals.Wyoming SaleOccidental also wanted to sell land in Wyoming, which state authorities had expressed interest in buying. However, the outbreak of the virus may complicate the state’s efforts to get that deal done, according to Devin McDermott, a New York-based analyst at Morgan Stanley.“There are a lot more pressing issues that every state including Wyoming has to focus on right now,” he said.Even so, Wyoming Governor Mark Gordon said he will “continue to find ways to take steps to explore this opportunity” despite the coronavirus and legislative hurdles in a letter dated March 26. Hollub said the bidding was a “competitive process,” indicating the interest of other bidders.BP to ExxonOthers oil companies including BP, Exxon and smaller players in the North Sea have also been looking to sell.In early February, BP said it would boost its divestment program from $10 billion to $15 billion by the middle of next year. It said last week it’s still on track to hit that target. The company had agreed more than $9 billion of deals by the end of last year, about $5.6 billion of which will come from the pending sale of its Alaskan business to Hilcorp Energy Co.Some deal completions may be revised, “particularly while volatile market conditions persist,” BP said last week, adding that it expects the Hilcorp transaction to go through. Hilcorp didn’t respond to a request for comment.Exxon, already paying its dividend with borrowed money, has been relying on asset sales to bolster its financial position as it attempts to build a series of mega-projects in one of the worst oil markets in decades. Announcing a pullback in its ambitions on Tuesday, the company said it would reduce spending this year by 30% to $23 billion. Exxon is targeting about $10 billion of disposals by the end of next year with assets in the Gulf of Mexico, Azerbaijan and Malaysia on offer. But Senior Vice President Neil Chapman sought to temper expectations for successful sales at Exxon’s analyst day in March.“We don’t expect success on every asset that we put in the market,” he said. “If the value is not there, we’re not going to transact.”Bleak OutlookThe grim macroeconomic outlook is making it “doubly important” that any announced deals close, WoodMac’s Aitken said. But that’s difficult to do since potential buyers are focusing on existing portfolios and looking to conserve cash rather than seeking new opportunities.“Asset sales are extremely challenging right now,” said Morgan Stanley’s McDermott. “In the low oil-price environment we’re in right now, the universe of buyers just dries up.”(Updates with Total’s asset sales in Brunei in 10th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Investor days are an early March tradition for US oil supermajors ExxonMobil and Chevron. A month later, after a near-global economic shutdown and conflict between Russia and Saudi Arabia, both companies have been forced into evasive action to preserve their sacrosanct dividends. On Tuesday, ExxonMobil announced it would cut capital expenditure by roughly a third to $23bn.
Saudi Arabia’s effort to crush US shale producers through ultra-low oil prices can only work if prices remain low, but once prices bounce back above $50, so will US shale production
Investing.com’s Commodities Week Ahead typically looks at the prospects for oil and gold prices in the upcoming trading week. In the first of this two-part series, we examine the Trump administration's attempts to save the U.S. oil industry amid the collapse in demand for crude from the coronavirus crisis and the production-and-price war between market titans Saudi Arabia and Russia. Read part 2 here.
Last year’s oil and gas merger mania seems to have stopped in its tracks as crashing oil prices and the coronavirus crisis weighs on the industry