Business

Crude reality: price crash means oil firms must slash spending – Raw Story

Published

4 years ago

March 22, 2020

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.

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.

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.

– 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.

“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’ –

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.

“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.

– 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.

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.

“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.

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Business

Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

Published

19 hours ago

September 13, 2024

Anne Joseph

TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

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Business

Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

Published

2 days ago

September 12, 2024

Anne Joseph

VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

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Business

Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

Published

2 days ago

September 12, 2024

Anne Joseph

MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.

The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.

The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.

Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.

On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.

Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:TRZ)

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