Money Dries Up for Oil and Gas, Layoffs Spread, Write-Offs Start

[marmar]

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street


When money was growing on trees even for junk-rated companies, and when Wall Street still performed miracles for a fee, thanks to the greatest credit bubble in US history, oil and gas drillers grabbed this money channeled to them from investors and refilled the ever deeper holes fracking was drilling into their balance sheets.

But the prices for crude oil, US natural gas, and natural gas liquids have all plunged. Revenues from unhedged production are down 40% or 50%, or more from just seven months ago. And when the hedges expire, the problem will get worse. The industry has been through this before. It knows what to do.

Layoffs are cascading through the oil and gas sector. On Tuesday, the Dallas Fed projected that in Texas alone, 140,000 jobs could be eliminated. Halliburton said that it was axing an undisclosed number of people in Houston. Suncor Energy, Canada’s largest oil producer, will dump 1,000 workers in its tar-sands projects. Helmerich & Payne is idling rigs and cutting jobs. Smaller companies are slashing projects and jobs at an even faster pace. And now Slumberger, the world’s biggest oilfield-services company, will cut 9,000 jobs.

It had had an earnings debacle. It announced that Q4 EPS grew by 11% year-over-year to $1.50, “excluding charges and credits.” In reality, its net income plunged 81% to $302 million, after $1.8 billion in write-offs that included its production assets in Texas. .................(more)

The complete piece is at: http://www.nakedcapitalism.com/2015/01/money-dries-up-for-oil-money-dries-up-for-oil-and-gas-layoffs-spread-write-offs-start-gas-layoffs-spread-write-offs-start.html

[riversedge]

1. will the taxpayers have to bail out US oil companies like we did the car companies?

[kelliekat44]

2. I hope not. nt

[BlueCaliDem]

3. GOPlifer, Chris Ladd, had warned about the effect of plunging oil prices on Texas' economy.

And his gloom-doom prediction for the Koch Bros Party for Texas is coming true.

From the article:

- Keep an eye on oil prices. Texas, which is at the core of GOP dysfunction, is a petro-state with an economy roughly as diverse and modern as Nigeria, Iran or Venezuela. It was been relatively untouched by the economic collapse because it is relatively dislocated from the US economy in general. Watch what happens if the decline in oil prices lasts more than a year.
http://blog.chron.com/goplifer/2014/11/the-missing-story-of-the-2014-election/#28114101=0

It couldn't happen to a more deserving State.

[dawg]

4. Some industries will be hurt, but I believe this will be a net positive for the U.S. economy.

Cheaper gas and oil will leave more money in consumers' pockets, allowing them to pay down debts and spend more of their incomes on things other than gasoline.

[marmar]

5. That doesn't seem to be happening

http://fortune.com/2015/01/15/gas-prices-retail-sales/


Stocks are up modestly Thursday, following a four-day slump capped by a more than 1% decline in the Dow Jones Index on Wednesday. The market dip came on the heels of a Census report on retail sales that showed a big drop in spending by Americans in December.

So, where is the bounce the economy was supposed to get from cheap gas at the pump?

Some analysts argue that consumers have simply been pocketing the extra money they have been saving on gas, using it to pay down debt or bolster their savings. Others have a far gloomier story to tell.

[dawg]

6. Stocks are driven down by panicked fund managers who fear the worst.

Stock indexes don't really correlate with the underlying economy, at least they don't over the short term.

The retail sales report is more troubling. But if the money isn't making its way into retail, its either adding to savings or going to pay down debt. Both are potentially good for the economy in the long run.

It's also possible that those retail numbers aren't that accurate. Consumer confidence surveys have been rising, and we won't know the real story until big retailers like Walmart and Costco report numbers.