Energy companies: Budget cuts
Energy companies keep steady approach
Energy companies put on a brave face in response to rapidly deteriorating pricing, keeping next year’s spending plans largely steady, even as crude oil prices tumbled to a 16-month low.
Executives plan to wait for cues from clients before altering capital budgets because, even if oil prices are half that of three months ago, a $70-a-barrel range still represents a historically healthy level for production.
ConocoPhillips, kicking off third-quarter reporting for big oil companies with good results, said next year’s capital expenditure would be similar to this year’s.
"We want to live within our means," Chief Executive Jim Mulva said.
Baker Hughes executives told analysts they could maintain capital spending or even raise it depending on how next year shapes up, and they would have a clearer view on that in the next month or so as clients set budgets, said a Reuters report.
"The whole industry over the last three years has probably been less focused on inventory and receivables because everybody is growing," Chief Executive Chad Deaton said.
The steady approach of the two Houston-based companies mirrored that of Norway's StatoilHydro, which said cheaper oil was not affecting its projects or spending.
Indeed, much of the world looks in relatively better shape than the US energy production market, where a collapse in natural gas prices in particular threatens marginal projects.
Noble, with rigs in the US Gulf of Mexico, Middle East, Mexico, North Sea, Brazil, West Africa and India, reported a better-than-expected quarterly profit and unrelenting demand for deep-water units.
"Our outlook remains positive for the balance of 2008 and for 2009 and is driven by our unprecedented fleet backlog and the high percentage of committed days under contract for next year," Chief Executive David Williams said in a statement.
But operational health is not the only concern. Russia's gas industry, while enjoying good prices, is being squeezed by a shortage of finance, Gazprom said.
Asked about what projects $70-a-barrel oil will threaten, Deaton at Baker Hughes expected clients in the declining fields in the waters near Britain could feel the impact hardest.
"The UK could be one that we'd have to watch," he said on a conference call with investors. "Fortunately, right now we are extremely busy in Norway ... which is pretty handy to support out of the UK."
The Baker Hughes results follow those of larger rivals Schlumberger and Halliburton in the past week. Both had strong quarters, but expect slower growth for next year as clients tighten belts and run fewer rigs in North America.
Baker Hughes expects some 200 rigs to be idled this quarter alone, out of 2400 operating at the end of September in North America, due to tighter credit and lower energy prices.
But that decline would only put profit margins back where they were in the first quarter of the year, before the industry began increasing the number of rigs in operation.
"The next 200 rigs are the ones that are going to hurt a little bit more," Deaton said.
Another big US oilfield services company, Weatherford International, forecast this week that a decline of 400 rigs next year would cut North American margins by up to 4.5% from its third-quarter level of 26.5%.