Oil Price Not Necessarily Tied to Project Cancellations, Layoffs

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Researched by Industrial Info Resources (Sugar Land, Texas)--The benchmark prices for crude oil have fallen to their lowest level in years. With West Texas Intermediate (WTI) hovering around $55, scarily close to the breakeven price for that area, both industry and the general public seem worried, despite drastic price cuts at the gas pump. The price drop has become the scapegoat for any happenings at oil and gas companies in the U.S., being blamed for canceled projects, reduced production and corporate lay-offs. While the correlation in timing of the price drop with these unfortunate events is suggestive, to quote a statistics professor, "correlation does not equal causation."

Enterprise Product Partners' (NYSE:EPD) (Houston, Texas) recently announced the cancellation of its Bakken-to-Cushing pipeline. The $175 million project was slated to carry more than 300,000 barrels per day (BBL/d) of Bakken crude oil to the Cushing hub for transport to the Gulf Coast refining hub. Enterprise announced its decision last week, but said low oil prices were not the primary factor in the cancellation. Like other pipe projects in the Bakken, this one was called into question primarily due to a lack of shipper interest. Given that other pipeline projects following similar routes and aiming to take Bakken crude to market have failed as far back as 2012, when prices were higher, in this case the correlation truly does not necessarily equal causation.

Several hydrocarbon companies have also recently announced layoffs. Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) announced that it will lay off fewer than 100 employees at a Houston subsidiary that operates one of its gas pipelines. Halliburton (NYSE:HAL) (Houston) has also announced cuts, to the tune of 1,000 employees in the Eastern Hemisphere, effective immediately. Meanwhile, two of the Big Six oil companies, BP PLC (NYSE:BP) (London, England) and Chevron Corporation (NYSE:CVX) (San Ramon, California), are reported to be conducting a $1 billion restructuring in 2015 and a hiring freeze, respectively. However, it should also be noted that layoffs of less than 100 people is rarely news when oil prices are high; BP is laying off employees in the Eastern Hemisphere, not in the U.S.; and it is a relatively common business practice to not hire new employees around the holidays. Again, correlation and timing do not necessarily mean causation.

That said, according to Industrial Info, drilling activity is showing signs of slowing. Producers in Andrews County, Texas have elected to slow drilling programs. Crews, which had been hired on in 2014 and had expected to continue into 2015, have been told they will not be drilling next year in certain areas due to the oil price drop. The location of this slowdown is surprising, as Permian Basin crude oil has excellent market access and maintains some of the lowest breakeven prices among U.S. plays.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.