Oil Prices Continue To Stagnate, Leaving Shale And Shell In Trouble – Investor's Business Daily

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Royal Dutch Shell (RDSA) announced massive job cuts, and Oasis Petroleum (OAS) filed for bankruptcy as the rebound in oil prices continues to stall.


European energy giant Shell said it would cut 7,000-9,000 jobs by the end of 2022. That includes the 1,500 employees who have taken a voluntary layoff this year.

“We have to be a simpler, more streamlined, more competitive organization,” Chief Executive Ben van Beurden said in a statement. “In many places, we have too many layers in the company: too many levels between me, as the CEO, and the operators and technicians at our locations.”

Oil majors are facing a drop in demand during the Covid-19 pandemic and pressure to expand renewable energy assets from investors, especially in Europe.

In July, Shell reported an over 80% drop in profit and warned about uncertainty in the outlook for oil and gas demand. It also cut its dividend for the first time since World War II and wrote down billions of dollars in assets.

Also Wednesday, French oil major Total forecast investments in renewable energy and electricity will grow to $3 billion per year by 2030 from $2 billion now, while sales of oil products drop by 30% in the next 10 years.

Oil prices have remained around $40 per barrel for several months. Brent fell 0.8% to $40.72 per barrel. U.S. crude edged up 0.3% to $39.40.

Shell’s U.S.-listed shares fell 0.6% to 2549 on the stock market today, while Total rallied 4.5% as it also confirmed the stock dividend is sustainable with oil prices at $40 a barrel. Oasis stock plunged 35% to 27 cents.

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Shale Bankruptcy Filings Pile Up

U.S. shale producers, with higher production costs than their oil major peers, are filing for bankruptcy production.

Oasis Petroleum is filing for Chapter 11 bankruptcy protection in an effort to reduce its debt by $1.8 billion.

“In light of a volatile market environment that drove a severe downturn in oil and gas prices, as well as the unprecedented impact of the COVID-19 pandemic, Oasis Petroleum engaged with its lenders and an ad hoc committee of noteholders regarding restructuring alternatives to reduce debt, increase financial flexibility and position the business for long-term success,” Oasis said in a statement.

At least 20 shale oil and gas producers have gone bankrupt this year, including Whiting Petroleum (WLL) and Chesapeake Energy, according to an earlier report by law firm Haynes & Boone.

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But the current oil price environment is ripe for merger opportunities.

On Monday, Devon Energy (DVN) announced it would buy WPX Energy (WPX) for $2.56 billion to expand its acreage in the Delaware Basin area of the Permian Basin. The new company expects to produce 277,000 barrels of oil per day. It will pay out an 11 cents per share dividend along with up to 50% of its remaining free cash flow.

Meanwhile, the Energy Information Administration reported oil supplies fell by 2 million barrels, while gasoline supplies rose by 700,000 barrels. Analysts polled by S&P Global Platts saw a 1.9 million-barrel increase in crude supplies for the week ended Sept. 25. Gasoline stocks were seen falling by 1.3 million barrels.

The American Petroleum Institute, an industry group, said late Tuesday that crude stockpiles fell by 813,000 barrels while gasoline stockpiles rose by 1.6 million barrels.

Follow Gillian Rich on Twitter @IBD_GRich for energy news and more.


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