Riding out the oil crisis

In the short term, the price recovery to USD 67 per barrel in the spring of 2015 created a certain optimism. During the summer, however, this again gave way to pessimism.

A barrel of North Sea crude was trading on 20 August at just over USD 45 – close to the lowest level for more than six years when both North Sea and US oil hit bottom in March 2009.[REMOVE]Fotnote: NTB, “Billigste nordsjøolje siden 2009”, 21 August 2015.

Prices continued to decline in the new slump, and reached a fresh nadir of less than USD 30 per barrel in December 2015.

This collapse reflected overproduction because of growing output on land. Flexible new technology made oil recovery from shale and sands profitable, and US production in particular rose in 2010-15 when the country became self-sufficient in crude.

The unwillingness of the Organisation of the Petroleum Exporting Countries (Opec) to cut output, which it had done many times before when the market was saturated, was another factor.

At a strategy meeting in December 2015, Opec decided to maintain a daily production ceiling of 30 million barrels in the following year to safeguard its market share.

Output from the 11 member states – Algeria, Angola, the United Arab Emirates, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia and Venezuela – had reached a three-year peak in November.

Iraq was producing more than before so that, even if Saudi Arabia was willing to reduce output, overall exports remained higher than before. Oil prices accordingly sank further.[REMOVE]Fotnote: NTB, “Oljeprisen faller til nytt bunn nivå”, 11 December 2015.

Given that Chinese demand was also flattening out, the result was overproduction. The price slump meant that North American oil output also stagnated in 2015-16.

Prices began to start recovering slowly during 2016, to reach USD 55 per barrel. That level was also maintained in 2017.

Revenues down at ConocoPhillips

The price slump meant a sharp reduction in revenues for oil companies worldwide. ConocoPhillips in Norway was no exception. Gross income dropped from NOK 24.6 billion in 2014 to NOK 17.9 billion the following year, and then to NOK 14.8 billion in 2016.

The company’s bottom line was also hit. Pre-tax profit fell from NOK 11.9 billion in 2014 to NOK 3.9 billion the following year. And it was NOK 1.2 million in 2016 – down nearly 70 per cent from 2015.

As in earlier crises, the oil companies’ reflex response was to cut costs where possible. That included downsizing the workforce.

From 2014-16, ConocoPhillips shed 240 permanent employees on the Norwegian continental shelf (NCS) as well as about 400 contract workers.

The company nevertheless had no plans to quit Norway. On the contrary, it invested in new installations, modern technology and able people who could drive it forward.

ConocoPhillips took a long-term approach to the NCS, not least with an eye to keeping the Greater Ekofisk Area in operation until 2050.[REMOVE]Fotnote: NTB, 26 May 2017.

Average realised oil prices began to recover in 2017 and 2018, raising annual revenue to NOK 21.1 billion and NOK 24.9 billion respectively. Pre-tax profit rose from NOK 9.4 billion in 2017 to NOK 13.6 billion in 2018.