Explain why oil companies are loosing money?

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Vern_in_IL

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Can someone explain how a oil operation works? Because I'm a little confused why oil companies are struggling right now, since we have had a long spurt of fairly high oil prices, oil companies should have sufficient cash reserves.

We had a dip in 2008, before that oil was way overheated, then since this recent Saudi flood of market, oil was high enough where unconventional plays were becoming economic.

I understand with this new cash flow, shut in wells were opened, new wells being drilled, explored, but surely there would have been some cash held back for the next oil price depression?

I was talking to a local that works maintaining a local field, 3x1 miles with shallow producers numbering 35, operating for 60 years with 100+ years of reserve. He said they can't really shut in wells because of taxes.
 
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How cash reserves on a dividends and interest embursement quotation to share holders? Values get drained every year. If the company doesnt make money by itself all the time, it will bankrupt asap, no joy. Reserves are only, if any, to investment. Most investments are made under debt. Reserves should be imposed by law, like bank deposits reserves. The rest is just redhearing.
 
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The cost to pull a barrel of oil out of the ground is all over the map. Sometimes it is very cheap, I read where some wells in Iraq have a cost of $3 a barrel to recover. However, some wells are much more expensive to produce. The cost per barrel for the fracking wells is much higher, that's why they are closing them now. The commodity price for oil is too low to make it profitable or break even.
 
Offshore rigs are in deep doo-doo at the moment.

The only thing that keeps the companies from shutting them down and sending all employees home is the fact that they have to seal it and take it apart due to the environmental laws.

Now the question is (like always)...do we screw the consumer or the oil companies as cheap gas is great for consumers as it lowers the price of almost anything.
 
Gas stations are doing well. Exploration and the "hard to get" stuff, as kschachn mentions, are the issues suffering right now. Some of the gas station bosses are telling me they've never been so busy in decades.
 
I don't believe they are as bad off as they claim. They are still making money just not hand over fist at record amounts as they were. My heart bleeds for them - NOT!
 
What makes you think they're struggling? They're still making money, they just aren't making the insane profits they were making when oil was $100+ and gas was $3.50 - $4...
 
Fracking companies in the US are getting creamed currently. That is one of the main drivers of the current market slump since many fracking operations were leveraged to the ceilings with junk debt which has collapsed along with oil prices.

http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335

So how are some companies losing money? It's pretty simple when they have break even costs per barrel above $60/70 a barrel and the prices collapses! The price collapse has many reasons; Saudi Arabia/OPEC trying to force them out via increased production, the increase in output from North American shale itself, simultaneously as China's bubble pops which leads to a decrease in oil demand. It's a perfect storm of circumstances that is now unwinding.
 
Originally Posted By: Drew99GT
Fracking companies in the US are getting creamed currently. That is one of the main drivers of the current market slump since many fracking operations were leveraged to the ceilings with junk debt which has collapsed along with oil prices.

http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335

So how are some companies losing money? It's pretty simple when they have break even costs per barrel above $60/70 a barrel and the prices collapses! The price collapse has many reasons; Saudi Arabia/OPEC trying to force them out via increased production, the increase in output from North American shale itself, simultaneously as China's bubble pops which leads to a decrease in oil demand. It's a perfect storm of circumstances that is now unwinding.


Break even point of $60/$70? That must be another exaggeration claim by the industry, just like them claiming they're losing money....if they were actually hurting as bad as they claim they are, considering how long oil has been cheap now, they would've gone under by now....
 
cuz they have good accountants, pls feel free to send them checks to show your patriotism if ya feel bad low oil prices.
 
Originally Posted By: grampi
Originally Posted By: Drew99GT
Fracking companies in the US are getting creamed currently. That is one of the main drivers of the current market slump since many fracking operations were leveraged to the ceilings with junk debt which has collapsed along with oil prices.

http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335

So how are some companies losing money? It's pretty simple when they have break even costs per barrel above $60/70 a barrel and the prices collapses! The price collapse has many reasons; Saudi Arabia/OPEC trying to force them out via increased production, the increase in output from North American shale itself, simultaneously as China's bubble pops which leads to a decrease in oil demand. It's a perfect storm of circumstances that is now unwinding.


Break even point of $60/$70? That must be another exaggeration claim by the industry, just like them claiming they're losing money....if they were actually hurting as bad as they claim they are, considering how long oil has been cheap now, they would've gone under by now....


There is this thing called debt and derivatives. It's how many companies survive. Amazon hasn't made a profit in a decade and is thriving.

http://www.reuters.com/article/idUSL3N0SH5N220141023
 
Originally Posted By: kschachn
The cost to pull a barrel of oil out of the ground is all over the map. Sometimes it is very cheap, I read where some wells in Iraq have a cost of $3 a barrel to recover. However, some wells are much more expensive to produce. The cost per barrel for the fracking wells is much higher, that's why they are closing them now. The commodity price for oil is too low to make it profitable or break even.


Could someone explain why Fracking is no longer viable? In Illinois the average daily oil production from an oil well was only 1 to 2 BOPD. (1998)

But companies like Strata-X claiming 300 BOPD from their nitrogen stimulated well in the lingle formation. Their next well will be twice as long with even higher flow rates and tuned stimulation technics, so they say.

How can you loose money on a 300 BOPD well? Are the horizontal cost/risk really that high for domestic oil, or are the companies waiting for better times?
 
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Originally Posted By: Garak
Gas stations are doing well. Exploration and the "hard to get" stuff, as kschachn mentions, are the issues suffering right now. Some of the gas station bosses are telling me they've never been so busy in decades.


Yeah gas stations make more per gallon when it's cheap compared to expensive. My guess is they can mark it up more. Plus when gas is cheap, so people drive more which means more stops to the gas station to buy stuff. They make more off of snacks in the store then they do off of gas.
 
Seems to me, with profits dropping, oil companies will be forced to lower there dividends with increased pressure. Might be wrong, but refiners are making a killing with oil around $30. The price spread seems ridiculous unless the gas companies are raking it in too. The Krogers around here can easily be within 6-10 cents from each other while being 2-3 miles from each other. Seems prices should be less than they are.
 
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