Meanwhile, an array of oil and gas companies reported positive Q3 results.
After a particularly volatile year, many experts believe oil prices will remain lower for the remainder of 2015 and into 2016. However, in a report released Tuesday, the International Energy Agency (IEA) states that it sees low prices sticking around much longer.
According to the IEA, while the plunge in oil prices will eventually force the market to rebalance through lower supply growth and higher demand, the adjustment is unlikely to be smooth. Indeed, in the central scenario it lays out, the IEA describes the tightening balance leading to prices around $80 per barrel only by 2020.
What’s more, there is a possibility that low prices could last much longer. That’s because today’s price levels are pushing higher-cost producers out of the market, forcing a heavy reliance on the world’s low-cost producers and creating a supply concentration that’s likely to elevate global energy security concerns.
“We estimate this year investments in oil will decline more than 20 percent. But, perhaps even more importantly, this decline will continue next year as well,” Fatih Birol, executive director of the IEA, told Reuters. “In the last 25 years, we have never seen two consecutive years where the investments are declining and this may well have implications for the oil market in the years to come.”
Higher-cost producers in Canada, the US and Brazil are likely to fold under low oil prices faster than other exporters, with Iraq and Iran expected to pick up the slack. At present, the Middle East provides about one-third of the world’s oil, but Birol told The Globe and Mail that a sustained $50 price environment would see exports equate to more than two-thirds of total supply.
“We have to think carefully about the oil security implications of a very few number of countries exporting a big chunk to the global markets alone,” he said.
Company news: Q3 results
Penn West Petroleum (TSX:PWT,NYSE:PWE) released its Q3 financial and operating results late last week, highlighting the recent sale of its Mitsue properties for about $193 million. During the quarter, the company produced 82,198 barrels of oil equivalent per day (boed), slightly below estimates from Dundee Capital Markets. The company’s cash flow per share of $0.03 also missed the mark.
Raging River Exploration (TSX:RRX) also put out its Q3 results, reporting average production of 13,418 boed, a 26-percent increase from Q3 2014 and a new record. The company also reduced its operating and transportation costs for a ninth consecutive quarter, to $10.51 per boe. Dundee Capital sees the results as promising because they surpassed its expectations.
“RRX has repeatedly been able to chip away at competitors, increasing its position in the Viking, and that has continued with a letter of intent signed to acquire 13 (10 net) sections of undeveloped land in the core of Dodsland,” the firm states in a report.
NuVista Energy (TSX:NVA) also reduced its costs in the third quarter, achieving funds from operations of $31.8 million, or $0.21 per share, and production of 21,622 boed.
Surge Energy’s (TSX:SGY) put out its first quarterly operational and financial results since the $430-million sale of its Saskatchewan and Manitoba assets. Surge sold 5,300 boed in two transactions for combined gross proceeds of $465 million, completely repositioning its balance sheet. The company also announced a 50-percent reduction in its dividend, from $0.30 to $0.15.
“In one move, the company goes from being on the bubble to now having amongst the lowest payout ratios, cleanest balance sheets and torque to recovery,” Dundee analyst Chad Ellison said. “We believe that as oil prices recover, this sets the company up for dividend increases and share buybacks in the future, while protecting one of the cleanest balance sheets in the space.”
Chinook Energy (TSX:CKE), TORC Oil & Gas Ltd (TSX:TOG) and Granite Oil (TSX:GXO) also recently released Q3 financial and operating results.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
Oil and Gas Price Outlook for Q4 2015