Strain on oil companies is easing: EIA

The Energy Information Agency (EIA) reported that a reduction in capital projects and a stabilized oil price have helped oil and gas manufacturers as they look to the future.

By Bob Vavra, CFE Media July 19, 2016

The Energy Information Agency (EIA) has some good news for oil companies—even if that good news will continue to depress the industry’s suppliers and equipment manufacturers, who are still struggling with the slump created when oil prices crashed in 2014.

The EIA recently reported a reduction in capital projects and a stabilized price of oil have helped even out the balance sheet. "Although the crude oil price decline since 2014 has led to significant reductions in operating cash flow for U.S. oil companies, their immediate financial situations are improving," the EIA reported. "As oil companies’ spending falls and crude oil prices increase, the need for oil companies to find external sources of funding may decline, which could reduce financial strain in the coming quarters."

But the budget has been balanced on the back of a reduction in new projects and new equipment, the EIA noted. "Larger reductions to capital expenditure brought these companies closest to self-finance (when capital investment can be paid for entirely from operating cash flow)," they reported. "With crude oil prices such as the global benchmark Brent price averaging over $45 per barrel in the second quarter—a 34% increase from first-quarter 2016—cash flow may improve and help offset declining revenue from lower production."

The next step after that would be to increase production, but no one is willing to predict exactly when that may happen, or whether oil companies may continue to simply take profits and forego capital expenditures. Oil industry suppliers are looking for signs of a reinvestment in the industry, and right now, that prospect is still uncertain in an industry that hates uncertainty.

Bob Vavra is content manager for Oil & Gas Engineering, bvavra@cfemedia.com.

Original content can be found at Control Engineering.