Confronted with a dizzying drop in prices, oil firms face a real challenge as they try to cut investment spending in order to survive a coronavirus-induced collapse in demand coupled with a Russia-Saudi Arabia price war.
Investment in oil exploration and production was set to hit just over half a trillion dollars this year according to the French research body IFPEN, as firms sought to maintain and expand output.
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But the emergence of the coronavirus, which has seen nations across the world confine citizens at home and shutter businesses to slow its spread, has upended all forecasts.
The International Energy Agency, which advises oil-importing nations on energy policy, now expects the first annual drop in oil demand since 2009 during the global financial crisis, as the global economy tips into recession.
The main international benchmark, Brent crude, has fallen from just shy of $60 per barrel to under $25 this week, before regaining some lost ground.
The main US benchmark, WTI, tumbled from nearly $54 to just over $20.
Not all of the drop is due to the coronavirus.
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The price of oil had been supported for the past couple of years by production limits agreed by the OPEC oil cartel led by Saudi Arabia and a number of other producers including Russia.
However Russia and Saudi Arabia failed to agree earlier this month on deeper cuts to take account of falling demand due to the coronavirus pandemic.
Saudi Arabia subsequently slashed prices and announced it would boost output and Russia followed suit, leading to the vertiginous drop in prices.
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– Cut and shift –
“All companies in the sector will be seeing what more they can do to cut costs, shift their activities to the lowest cost fields they can, trim investment and think hard about what dividend they can pay,” said Professor David Elmes at Warwick Business School.
While reducing investment is relatively easy in the near term, the longer prices remain low the more firms will need to look at shutting down production that is more expensive, such as offshore.
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“For the majors, the prospect of $30 per barrel of oil or below for a period of time is an extreme challenge,” said Biraj Borkhataria, an analyst at RBC Capital Markets.
He said that if these prices persist more than six months, then oil majors would need to cut into the generous dividends they pay — which is why they are prized by many investors — and that prospect has already been partly incorporated into their share prices.
– ‘Unprecedented’ –
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Saudi Aramco says it will cut investment to $25-$30 billion this year, a modest drop on the $32.8 billion it spent last year.
“Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term,” said Exxon Mobil Corporation’s chief executive Darren Woods.
British oil major BP is targeting a 20 percent drop in spending this year, its chief financial officer Brian Gilvary said in an interview on Bloomberg television.
There are also many smaller oil companies who may struggle.
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“The medium-sized independent companies will be hit hard,” said Moez Ajmi at auditing firm EY in France.
“Decisions will be taken to delay projects and we’ll see restructurings of debt.”
The boom in shale oil production made the United States the world’s top producer and even a net exporter, but the industry is fragile.
Many of the independent shale firms have been built on debt and even before the drop in prices had trouble turning a profit, according to analysts.
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– Poor returns –
Environmental activists can barely hide their joy at the difficulties the oil industry faces.
“We consider it is pretty much good news considering that these (exploration and development) projects shouldn’t see the light of day given the urgency of climate change,” said Cecile Marchand of the French chapter of Friends of the Earth.
She acknowledged abandoning these projects may not be permanent unless major political and economic policy changes are made.
Marchand also warned of the risk of “a concentration of the market in the hands of the majors who are more resilient that the small firms.”
Elmes at Warwick Business School said some positive outcomes were also possible.
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The European oil and gas majors have already indicated they intend to reduce their reliance on these fuels and become more active in renewables such as wind and solar.
“There will be intense discussions on what they can do to move faster,” he said.
The industry as a whole may also find it is no longer the darling of investors.
“Bankers will throw up their hands and bend to the pressure from institutional investors now demanding transparency for the emissions associated with their investments,” said Elmes.
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“The profitability of the oil and gas sector used to be attractively high but now it has the worst return over the last five years across 33 different industries,” he noted.
TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.
The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.
The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.
Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.
Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.
Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.
This report by The Canadian Press was first published Sept. 19, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
