ADN by Nathanial Herz. Gov. Bill Walker’s (NGP Photo) administration is asking the Legislature to approve an $840,000 salary and benefits package for a public employee to work on Alaska’s natural gas pipeline megaproject.
Fuel Fix by Collin Eaton. A $32 billion operating cash shortfall and persistent low oil prices will probably force big shale drillers to announce billions in oil field impairments and spending cuts in third-quarter earnings reports this week. More…. Reader Comment: Our Mid Atlantic energy analyst friend observes of this article that:
"The two major issues affecting E&Ps this season will be asset impairments this year and capex budgets for 2016. The impairments have already been hitting the earnings releases in both the second and third quarters, but the big numbers are still ahead. This is, in part, a reflection of the exuberance that has driven spending to build bigger wells and increase production year-over year, in an effort to placate Wall Street and some major investors. Some of these companies that took massive impairment test hits to their asset values in 2009-10 will take huge hits again this year. The lessons are not learned.
"The second disclosures (which may stretch out beyond 3Q earnings releases will be 2016 capital spending budgets. We have written several notes about bank redeterminations. The consensus seems to be that the banks will do more to “work things out” with their E&P customers to not cut off the credit too quickly, lest they find too many keys left on the table. They may work more to protect their interests through securitization and/or strengthened covenants.
"But another input to the capital budget equation is more certain. As shown in the table below (sorry for the quality), the amount of production hedged on both the oil and the gas side for major players is dropping off dramatically for 2016 compared to 2015. On top of the percentages, one can be sure that the prices at which production is hedged will be generally lower for the coming year. While many companies still talk about increasing volumes for next year, there should be a fair amount of doubt about increases for many of them. The notion that they can keep producing more while spending less is getting a bit stretched.
"We will have at least one more comment about impairments after the 3Q season is over, which will include our observation as former outside auditor to the business about why the accounting for impairments is wrong-headed, at best.
"Bottom line: We see the decreases in spending for next year as merely part of a process toward some modest recovery for prices next year. Baby steps…"
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