PTR Petrochina Company Ltd

   (FROM THE WALL STREET JOURNAL 10/30/15) 
   By Georgi Kantchev and Sarah Kent 

Some of the world's largest energy companies are becoming more pessimistic about the ability of crude oil pricing to reach even $60 a barrel next year, reporting steep losses as they take hits on projects that no longer make financial sense.

A barrel of oil fetched more than $100 in June 2014, but a combination of ample supply and weaker demand has driven the international benchmark price to about $50 in the third quarter, the lowest sustained levels since the financial crisis.

Continued oversupply means that next year, Brent crude prices will average $58 a barrel and West Texas Intermediate, the U.S. oil benchmark, will average $54 a barrel, according to 13 investment banks polled by The Wall Street Journal. Many of the same banks were predicting $70 a barrel in 2016 just a few months ago.

The analysis comes as energy titans such as Royal Dutch Shell PLC and France's Total SA on Thursday reported billions of dollars in write-downs after a quarter in which oil prices fell to the lowest since the financial crisis. BP PLC earlier this week said it had revamped its business to be cash-flow positive by 2017 at $60 a barrel.

On Thursday, Brent crude settled at $48.80 a barrel while WTI ended at $46.06 a barrel.

"The reality of the day is that we don't know when and how this will balance out. We don't even know if it really stabilizes," said Ben van Beurden, Shell's CEO, on Thursday.

While U.S. shale oil production, a driving factor in the supply glut, has started to fall, heavyweight producers like Saudi Arabia and Russia are still pumping at near-record levels.

Cheap energy is forcing other producers to give up on ventures that no longer make sense with prices below $50 a barrel. On Thursday, several oil companies reported sharply lower earnings because of the price decline.

Shell posted a $6.1 billion third-quarter loss over its decision to walk away from exploring the Arctic for oil and from exploiting Canada's oil sands, which contributed to $7.9 billion in charges to earnings.

In the U.S., ConocoPhillips reported a loss of $1.1 billion and announced new plans to trim spending.

Petro China Co., the biggest oil-and-gas producer by volume in China, said its third-quarter profit fell by more than 80%. At Total, the French oil giant, the decline was 69% and partly the result of a $650 million write-down in its Canada oil-sands ventures.

Italy's Eni SpA experienced a loss of 952 million euros in the third quarter and decided to sell 12.5% of its troubled oil-field services company Saipem SpA.

Shell's about-face is among the industry's starkest. The U.K.-Dutch giant had appeared optimistic about the future direction of oil prices, moving aggressively earlier this year to buy BG Group PLC for $70 billion.

Now, Shell is looking at about $55 a barrel as the break-even price for new projects and took billions of dollars in impairment charges after lowering its long-term oil and gas price outlook.

"Prices need to stay low in order to balance the market," said Michael Wittner, global head of oil research at Societe Generale.

U.S. production has started to tail off as low prices force drillers to shut rigs and shelve costly projects.

According to the U.S. Energy Information Administration, the nation's output peaked in April at 9.6 million barrels a day and since has fallen to around 9.1 million barrels.

Other major suppliers, including the Organization of the Petroleum Exporting Countries have kept producing at a high pace. Iran, which holds 13% of the world's oil reserves, is expected to ramp up oil exports when sanctions against the country are lifted. Iran's return could add up to 500,000 barrels a day to the global oil market by the middle of 2016, analysts say.

Meantime, a string of weak economic readings in China has fueled fears about a slowdown in the world's second largest economy, which could spill over to other markets.

The extent of the crude prices' effect on the oil industry will come into sharper focus on Friday when American giants like Exxon Mobil Corp. and Chevron Corp. reveal their third-quarter earnings.

"These things take at least two years to shake off," said Michael Hulme, manager of the Carmignac Portfolio Commodities Fund, which manages $560 million.

---

Eric Sylvers and Inti Landauro contributed to this article.

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(END) Dow Jones Newswires

October 29, 2015 20:00 ET (00:00 GMT)

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