Posts tagged “oil industry”
In my previous column, Energy Industry Capital Spending Reaching New Highs, we looked at how the industry continues to ramp up spending across its sectors. As I noted, this is no surprise given the enormous capital requirements to sustain its business models.
However, what is surprising is that despite the significant tailwind of high crude prices since 2010 to current, net free cash flows (operating cash flow less cash capital spending) have actually declined for the industry overall. Operating costs are increasing crimping margins, and investment spending is rising faster than top-line revenue growth. To put things into perspective, although total industry operating cash flow (OCF) dropped only 1% in 2012 from 2011, from 2007 to 2012 spending grew at a per annum rate of nearly 10% while OCF increased at a 5% per annum rate.
The worst offender has been the U.S. E&P sub-sector heavily weighted to natural gas production at low prices; the sector has seen its deficit cash flow grow. In 2012, despite spending decreasing 2% from 2011, OCF dropped a whopping 17%. From 2007 to 2012, capital spending grew at nearly a 7% per annum rate, while OCF increased only 3% per annum.
On Friday, the U.S. Bureau of Labor Statistics (BLS) released the February jobs report, showing an increase in employment by 227,000 – the third month in a row of job growth higher than 200,000. This report, coupled with strong numbers from the stock market and other leading indicators show that we may finally be entering a point of sustained economic recovery from the 2008 financial crisis. However, some people are speculating that the run-up in gasoline prices will push the recovery off track (see: LA Times, USA Today, Businessweek).
I think this run-up in gas prices is different than previous ones, because our economy is more balanced between oil producers, who benefit from high prices, and consumers, who are harmed. On balance, I agree with Professor Hamilton’s view over at Econbrowser: high gas prices won’t derail the U.S. economy.
This week’s episode of R-Squared Energy TV answers the following viewer questions: Do you have any comments on Matthew Nordan’s recent 4-part response to Peter Thiel’s comments on cleantech VC as a failure? Do you retain any oil industry ties that your readers/viewers might like disclosed? What books do you recommend that choose a more positive outlook on our future, and are actual realistic predictions? Do you see a future in petroleum engineering, as most think it will be a doomed profession within the next twenty to thirty years? If I choose to become more involved in other energy solutions what would you recommend studying? Readers who have specific questions can send them to ask [at] consumerenergyreport [dot] com or… Continue»