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Consequences for domestic oil & gas companies resulting from the recent crash in oil prices

Consequences for domestic oil & gas companies resulting from the recent crash in oil prices - Research Paper Example

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There has been a steady drop in oil prices orchestrated by a number of factors including the increased production of oil in the United States, weak China demand, and determination by OPEC (mainly Saudi Arabia) not to reduce production1. The fall in oil prices affects the United…

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Consequences for domestic oil & gas companies resulting from the recent crash in oil prices

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Subject: Business
Type: Research Paper
Level: Masters
Pages: 5 (1250 words)
Downloads: 3
Author: elmohodkiewicz

Extract of sample "Consequences for domestic oil & gas companies resulting from the recent crash in oil prices"

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According to Baker Hughes, there was a reduction of energy industry oil rigs by 16 rigs in the week ending December 23, 2014 with 26 more rigs reduced in the week ending January 2, 20153. The decline in the rig count is evidenced by the chart below. The other impact on the US oil and gas companies is a reduction in drilling of new wells with a fall of 40% in issuance of new permits for oil production in the United States in November in response to fall in oil prices. Hemerich & Payne, an energy exploration and production company based in Tulsa, reduced its oil rigs by 50 in January in response to the low oil prices after a previously reducing its oil rigs by 11 rigs.

The other impact of the declined oil prices on US oil and gas companies is a reduction in share prices. US shale producer’s shares fell by 8.4% on January 5, 2015. The fall in oil prices resulted in the fall of share value of Continentals resources by 12%4. Transocean’s shares declined by 7% making it a 65% fall in stock for the company within the last one year5. Rigs witnessing low production have also been shut to allow the company’s to concentrate on more productive rigs. The fall in oil prices also resulted in the layoff of workers in the oil and gas sector.

Schlumberger (SLB) stated low oil prices and few wells being drilled as reasons for dismissal of 9,000 workers6. A total of 53,041 jobs were lost in January in the United States with 40% of the job cuts being directed related to the fall in oil prices7. Of the 53,041 jobs lost, a high percentage was lost from the energy sector with 21,322 jobs attributed to oil price cut. Halliburton and ConocoPhilips announced 0.42% (1000 workers) and 0.75% job cuts in January respectively, because of the reduced prices of oil.

In Texas, 19, 833 people lost their jobs with the main reason being the fall in oil prices while Baker Hughes reduced its workforce by 7,000 workers. The fall in oil prices has also affected economies that were booming

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