Yesterday’s quarterly report from Conoco-Philips (COP) is showing a renewed trend among oil companies, mirroring the report of Anadarko Petroleum (APC) a few days earlier. Both are reporting negative earnings while cutting capex for the remainder of 2017. Capex cuts were epidemic in 2015 and 2016, as oil companies reeled from cratering oil prices. But 2017 was signaled by most oil companies as a green light year, where they chose to again increase capex in hopes that the bust cycle for oil was ending.
It hasn’t turned out that way.
And while capex adjustments from oil companies have very few immediate effects on production, earnings and oil prices, they have a very definite and clear effect on them in the longer term.
Now would be a good time to talk about that longer term and the opportunity it will present, now that several oil companies, and likely most of the others yet to report, will continue this capital expenditure slashing for the rest of 2017. It is a pillar of my long-term thesis of oil prices again breaching $100 a barrel and even making new historic highs.
Oil’s latest bust cycle, which has brought prices well below $70 a barrel for much of the last three years has delivered two difficulties to oil companies: First, it has made much of their current production unprofitable, or only marginally so – witness the stream of losses that continue to swamp oil companies.
But second, it has absolutely decimated the…