Oil Firms Expected to Face Deeper Crisis than Seen in 1980s


Published Date : Aug 24, 2015

The oil companies are still bleeding cash and falling into more debts in order to maintain the dividends to shareholders in this industry. 

The downfall spending by US$180bn led to the worst case scenarios of the decade long downturns in this industry. The crude prices of Brent crude is depressed below US$50 a barrel to what it was a year ago. This only means new projects, increase of cash on the disposing of oilfields, and curb on the rising activities at the existing operations are some of the extreme measures companies are expected to take now for the future. 

As the Organization of Petroleum Exporting Countries adds to an already oversupplied crude market, there are very little signs for the oil price to come to a rescue in response to the high growth in the US shale oil. 

Brent crude oil prices will float on an average this year and until 2017. However, according to studies in February, Brent crude oil showed signs of recovery to US$73 in 2020 as the supply flood moves gradually.

According to the analysts at an investment bank the international oil companies lowered at even break-points by US$10/barrel and are in need of price of US$82/barrel by next year. This is in order to cover the spending and dividends that have been the major investment attraction for the sector for decades. 

The shortfall will be covered by means of borrowing and leveraging within the sector. 

The major oil companies in the world are increasing their oil and gas outputs from past investments; however, exacerbating the oversupply. By next year, the spending is expected to decline by 5 to 15 percent depending on the oil price. 

Global leading oil firms used Q2 results to exhibit they were prepared for deeper and more painful measures in this industry. 

According to a note by Morgan Stanley, if oil prices follow the suggested path by the forward curve in the industry, this downturn would be extremely severe than 1986’s condition.

The market has abandoned the dividends of smaller exploration and production oil companies such as Tullow Oil and Premier Oil this year.