David Feldman

Three Things to Know in Energy – 10/31/2016

Blog Post created by David Feldman Champion on Oct 31, 2016

1.  Agreements to cut oil output still in limbo.


As oil prices still hover around the $50 mark, OPEC and non-OPEC countries continue the struggle to find a common solution for oil output cuts.  Recent talks were aimed at agreeing upon a coordinated action to address the global oil supply glut but they ended with a resolution only to continue discussions the next scheduled meeting in November.  This internal disagreement has obstructed efforts to secure cuts from non-OPEC members including Russia and Brazil.  Additionally, both Iran and Iraq are still both seeking exemptions from the agreement, with Iran increasing its output after sanctions were lifted and Iraq arguing it needs the continued revenues to fund the fight against Isis.


2.  GE inks deal with Baker Hughes


General Electric Co. and Baker Hughes inked a deal to combine their oil-and-gas business.  Estimated to be a roughly $30 billion deal it would give GE a cost-effective way to take advantage any recovery in the industry.


The deal would entail GE contributing its oil-and-gas business and some cash to the new entity, which would have publicly traded shares and be majority-owned and controlled by GE. 

This agreement would be the latest large scale merger to be announced in recent days, after AT&T Inc. agreed to buy Time Warner Inc. for $85 billion and Qualcomm Inc. agreed to buy NXP Semiconductors NV for $39 billion.  However, there is no guarantee of a GE-Baker Hughes deal. The last merger Baker Hughes attempted with Halliburton Co. was rejected by anti-trust regulators.


3.  Energy slumps still effecting large oil producers.


Looking at the world’s largest publicly-traded oil producers, their third-quarter earnings fell well below year-earlier levels, providing further evidence that their businesses face a long road to financial recovery.  Even though many companies and analysts are taking an optimistic position in regard to the recent oil price crash, with crude still trading around $50 a barrel, we are far from out of the woods.


Exxon Mobil Corp. Chevron Corp., Statoil ASA and others are generally reporting profits lower than a year ago, and for the last 12 months, earnings for these industry giants is the lowest in more than 15 years.  Exxon, the world's largest publicly-traded oil producer, reported a 38% decline in quarterly profit and Chevron said its quarterly profit fell 35% from a year earlier to $1.3 billion. Each is looking ahead to 2017 for more opportunity with a modest recovery.