Oil briefly dips below $ 30; $ 124B in oil company profits lost
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Oil prices are plummeting to levels they haven't seen since 2003. Add in the fact that BP Oil announced it plans to cut more than 4,000 jobs over the next two years and things are looking down for the oil industry.
There aren’t many people who feel bad for oil companies. But the implosion in oil prices — which briefly pushed the price of crude below $ 30 a barrel Tuesday for the first time since 2003 — is causing a profit decline that almost invokes pity.
The companies in the Standard & Poor’s 500 energy sector are expected to lose a collective $ 28.8 billion this calendar year, down from $ 95.4 billion in net income earned during the industry’s bonanza year of 2008, according to a USA TODAY analysis of data from S&P Capital IQ.
That’s a $ 124 billion swing against energy companies – and one you’re probably enjoying at the pump. The analysis includes only the 36 S&P 500 energy companies that reported net income in 2008.
It doesn’t take much sleuthing to understand why energy companies’ profits have absolutely disappeared. The world is awash in oil and that’s swamping demand for crude to the point of driving prices to rock-bottom prices. The price of oil Tuesday dropped another 4% to $ 30.26 a barrel in afternoon trading and has plummeted almost 19% in just seven trading days so far this year.
Energy companies net income has plunged into the red for 2015 ($ millions) (Photo: S&P Capital IQ via Microsoft Excel)
The price of oil is down 79% from the 20-year high hit in July 2008 at $ 145.29 which created record gasoline prices at the pump.The fallout is hitting energy companies hard. Energy sector earnings are expected to fall 69% during the fourth quarter, making it the worst performing sector of the 10, according to S&P Capital IQ. Just during the fourth quarter, energy companies profits are expected to contract to $ 5.4 billion, down 90% from what they collected in 2008. How things have changed.
These companies cash and short-term investments are taking a hit, too, and expected to fall 17% to roughly $ 68 billion.
Cash and short-term investments have plummeted from the industry’s peak (in $ millions) (Photo: S&P Capital IQ via Microsoft Excel)
Falling oil prices are taxing the energy patch unlike anytime in recent history. Take the situation at the S&P’s 500 biggest energy company: Exxon Mobil (XOM). The company is expected to report net income of $ 16.3 billion in calendar 2015, that’s down 64% from the $ 45.2 billion the company reported as net income in 2008. During the quarter, analysts expect the company to report net income of $ 3.1 billion, which is also down 79% from the $ 14.8 billion the company earned in 2008.
At least Exxon is still making money due to its diversified operations. Oil exploration companies are feeling even bigger pain because they live or die by extracting oil and getting enough to pay their high capital costs. Shares of Chesapeake Energy (CHK), an oil explorer, has seen its shares drop 94% from the day oil peaked back in 2008. The company is expected to post a loss of $ 13.1 billion for 2015, down from the $ 604 million profit it made in 2008. For the quarter, Chesapeake Energy is expected to report a loss of $ 184 billion, down from the $ 3.3 billion profit it earned in the third quarter of 2008.
And in a sign of the human toll, BP on Tuesday said it plans to slash more than 4,000 jobs during the next two years because of plummeting oil prices.
Consumer love cheap gasoline prices. But the energy companies are suffering to a staggering degree.
Follow Matt Krantz on Twitter @mattkrantz
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