More oil workers, specifically big shots, are expected to join over 20,000 workers sacked in the oil industry, as the debt woes of International Oil Companies (IOCs) hit $138 billion within one year.
The London-based Fitch Ratings, which disclosed this at the weekend, declared that the hope of recovery at the year-end has dimmed for Shell, ExxonMobil, Chevron and other big oil and gas firms.
These companies’ debts, the rating agency said, had grown tenfold since 2008.New Telegraph had recently reported plans by two IOCs – Shell and Chevron – to slash over 18,500 from their workforce in their countries of operations including Nigeria,due to the price rout.
An associate director at Fitch Ratings, Dmitry Marichenko, however, said that the results of these companies showed that the last is yet to be heard on cost-cutting measures of the companies.
The first-half results, he said, indicate that oil companies “are likely to generate large negative free cash flows for the full year.” He said that Exxon Mobil, Royal Dutch Shell and other oil giants have seen their debt double to a combined $138 billion.
“Two years on, you could excuse mining executives for feeling smug. As crude trades well below $50 a barrel, Exxon Mobil, Royal Dutch Shell and other oil giants have seen their debt double to a combined $138 billion, spurring concerns they’ll need to keep slashing capital spending, employees and that dividend cuts may eventually be necessary,” the report stated.
Besides, according to Fitch, executives and analysts said the mountain of debt, which had grown tenfold since 2008, is likely to increase further in the third and fourth quarters.
“On the debt, it may go up before it comes back down,” Shell’s Chief Financial Officer, Simon Henry, told investors last week. “And the major factor is the oil price.”
The main concern is that companies have so far failed to stop the increase in debt load, said Harold “Skip” York, vice president of integrated energy at consulting firm, Wood Mackenzie, in Houston.
“The debt traffic light is yellow,” he said. “In the absence of an oil price uptick or sizable asset sales, commitments to maintain the dividend will face even more pressure.”
In the first half of the year, Chevron generated $3.7 billion pumping crude, refining it and selling gasoline and other products. But that was not enough to cover the $4 billion it paid to shareholders over the same period, let alone the $10 billion it invested in projects.
Although Chevron tried to close the gap by selling $1.4 billion worth of assets, it still had to take on $6.5 billion in new debt over six months. The imbalance explains why the debt load has grown so quickly over the last decade.
Before oil prices plunged in mid-2014, big oil companies had around $71 billion in net debt, up from a low of just $13 billion in mid-2008, when oil prices hit a record high of nearly $150.
Debt levels are currently rising at an annual rate of 11.5 per cent, more than double the 5.1 per cent witnessed between 2009 and 2014, said Virendra Chauhan, an oil analyst at consulting firm, Energy Aspects in Singapore.
“Whilst credit markets have been expansive and accessible during this period, investor concerns about the sustainability of this trend are valid,” he said. For some oil bosses, including Shell Chief Executive Officer, Ben Van Beur-