Oilfield companies feel pain of weak oil and gas futures

Weak commodity prices are causing oil and gas producers and related oilfield and drilling specialty firms to revisit their earlier announced 2015 capital plans, including a growing number of companies that operated in the shale play.

Southwestern recently announced it was cutting 40% of its investment in the unconventional Arkansas shale play. BHP has also cut its budget in the Arkansas shale play to only $100 million – a fraction of its original spending plans when it bought those assets for $4.75 billion in 2011.

And although crude oil prices have crept up slightly in the past few weeks, the U.S. Energy Information Administration said in its short-term energy forecast Tuesday that the recent uptick is simply a reflection of “falling U.S. crude oil rig counts and announced reductions in capital expenditures by major oil companies, along with lower-than-expected Iraqi crude oil exports.”

That means for many of the companies that are tied to the Arkansas natural gas sector, 2015 may turn out to be a lost year given the fallout from oil and gas prices. Midstream operator, Crestwood Equity Partners, a master limited partnership that operates natural gas liquids and pipeline facilities across the Midwest and East Coast, has announced a workforce reduction for the first half of 2015 “to better withstand any sustained downturn in commodity,” the company said in its recent fourth quarter earnings report.

VOLUMES DECLINE IN ARKANSAS SHALE PLAY
Of note in that quarterly report was the fact that Crestwood’s natural gas “gathering volume” in the Fayetteville Shale was down nearly 30% from a year ago.

“Due to the recent decline in commodity prices and expectation for a prolonged period of price weakness, many of our customers have indicated a lower level of development activity across our asset portfolio in 2015,” said the Houston based pipeline and storage owner. “As a result, we have initiated a program to immediately realign Crestwood’s cost structure while maintaining our strong commitment to safety, compliance and customer service.”

According to Crestwood officials, the Houston midstream operator owns 171 miles of pipeline and storage systems in the heart of the Fayetteville Shale in Van Buren, Faulkner, Conway and White counties. The assets are composed of five separate systems known as Wilson Creek, Prairie Creek, Twin Groves, Woolly Hollow and Rose Bud.

Crestwood has fee-based contracts in the Arkansas shale play with BHP, Exxon Mobil’s XTO, BP and Chesapeake Energy. Company officials did not respond to Talk Business inquiries concerning whether or not any of Crestwood’s employees in Arkansas will be affected by the company’s ongoing downsizing.

THOUSANDS OF OILFIELD JOBS CUT
Meanwhile, oilfield service giant Baker Hughes announced in January it would lay off 7,000 mostly in the first quarter of 2015, saying that it expected the crude oil price slide and drilling slowdown to worsen for much of the year.

The layoffs will trim about 11% of Baker Hughes’ 62,000-plus workforce across the globe. The Houston oilfield giant said it expects to book a one-time charge in the next period in the range of $160 million to $185 million for severance, and said it is reviewing its facilities for possible closures.

And with rig counts in the Arkansas shale play down to single digits and many companies largely giving up drilling projects in 2015, there is no word if Baker Hughes’ downsizings will touch its Arkansas operations.

“When we reflect on the marketplace, the bearish sentiment that has pervaded our industry is understandable, considering the steep drop in commodity prices in recent months,” said Martin Craighead, chairman and CEO for the Houston oilfield giant. “While market demand ended up being more resilient in the fourth quarter than many had predicted, the recent declines seen in rig counts will clearly affect results in 2015. We are taking proactive steps to manage the business through these challenges, and we are well positioned financially for the months ahead.”

Baker Hughes and oilfield rival Schlumberger are largely responsible for bringing many of the next-generation drilling and fracking technologies to the Fayetteville Shale that allowed natural gas companies to get more wellhead production with fewer rigs. Those technologies have generated a nationwide shale-driven oil and gas boon that has made the nation’s past dependence on foreign energy sources a faint memory.

Schlumberger also has announced cost cutting plans – letting go 9,000 workers worldwide and slashing $1 billion in spending on future exploration and production as it seeks to control costs amid collapsing crude prices. The world’s largest oilfield services company, which opened a regional, 20-acre office in 2007 hiring over 100 employees, said the companywide layoffs will impact about 7% of its employees.

The Houston-based oilfield conglomerate said that its capital expenditures are expected to be $3 billion for 2015, compared to $4 billion in 2014. Although neither company has announced any Arkansas layoffs, the loss of high-paying jobs in the oil and gas sector has been noted in both state and national labor figures over the past 12 months.

In Thursday’s session on the New York Mercantile Exchange, oil prices fell to a six week low as Brent crude oil fell 0.8% to $57.08 per barrel. West Texas Intermediate crude declined $1.12 or 2.3% to $47.05 per. NYMEX natural gas futures contract settled at $2.713 per million British Thermal units (MMBtu), down 8.4 cents. The EIA expects the Henry Hub natural gas spot price, which averaged $4.39 per MMBtu in 2014, to average $3.07 per MMBtu in 2015 and $3.48 per MMBtu in 2016.

The Energy Department forecasters expect international Brent crude oil prices to average $59 per barrel in 2015 and $75 per barrel in 2016. Prices for the benchmark light, sweet Texas crude is expected to average $7 per barrel and $5 per barrel below Brent in 2015 and 2015.