MESTI BACA - Bankruptcies In US Offshore Oil Drilling

The following is adapted from OilPrice.com here . It is about the American offshore oil drilling industry.

Offshore drilling major Valaris latest to file bankruptcy in U.S.

US$6.5b in debt 

latest headache for offshore drillers

more than US$20b in offshore drillers' debt 

not many new drilling contracts

worse offshore drilling will not begin to return until 2021 

demand for drilling rigs will only happen in some parts of world

namely South America and Western Africa

Gulf of Mexico will remain subdued

some largest offshore drillers are folding

Diamond Offshore was first, filing for Chapter 11 in April 

Noble Corp filed for bankruptcy earlier this month

inability to make interest payment for US$15 million

Noble's total debt burden was US$4b

US$30b debt in offshore drilling industry at risk of default, Bloomberg reported 

Offshore drilling structurally damaged, recovery not imminent, Bloomberg

offshore drillers going under at fastest pace since 2017

More bad news may be on the way

majority of offshore drillers may need to visit bankruptcy court, Bloomberg

return to good old days of US$100 oil is not on foreseeable horizon.

By Irina Slav for Oilprice.com

My comments : It is most likely that Iranian oil will fully come back into the market next year. The US led sanctions may not prevent Iran from shipping out more of their oil. China is already offtaking Iranian oil.

That will help keep oil prices down.

The oil price is still hovering in the low US$40+ per barrel. For now this seems to be the "ceiling price".

Alternative fuels are taking up a larger portion of the energy supply industry especially renewables like solar and wind. Energy efficiencies keep improving. 

Then there is that great party pooper - shale oil. Every time the oil price goes beyond US40+ per barrel the shale oil drillers start laughing all the way to the bank. For some producers the cost to produce a barrel of shale ranges from US27 - US35 per barrel. Assuming 15% is a good rate of return, they start pumping more shale oil once the price approaches US40. 

However the biggest problem for offshore oil producers is cost of production. It keeps going up. 

Here is a graph of steel pipes price index in the USA from 1970 till 2020. You cannot drill for oil without steel pipes. 

There are dips and corrections along the way (economic slowdowns, pandemics etc) but as you can see the trend is always up. Between 1982 and 2020 the price of steel pipes has gone up three times.  

But the selling prices of oil have seem to hit a ceiling. So margins are being squeezed very thin. It looks like this trend will continue.

Jadi apa maksud semua ini Tuan-tuan. What am I trying to say on this Monday morning - 24th August 2020? 

Maksudnya kita perlu fikir masak-masak akan masa depan negara dan ekonomi kita. Kita perlu dewasa dalam merancang ekonomi kita. 

We really must move away from oil. We need industry, banking, finance, business, trade, agriculture, fisheries, mining, forestry the whole works to be expanded quickly and aggressively.

The government cannot do this. It is NOT the job of government to get into business. Plus the government will never have enough taxpayers money to create economic enterprises (like GLCs etc).

Here is the chicken and egg situation. The economy (businesses and factories) must first make sales. They must be able to sell their products.

And then, only after they can make sales, Insya Allah, maybe they will also make profits. 

And then only after they make profits can they pay corporate taxes to the government.

Say a business can make RM1.0 million sales a year.

Say they are very clever and they can make a profit of 15% (before taxes) ie RM150,000.

Then the government can collect 28% x RM150,000 = RM42,000 corporate taxes.

So for every million Ringgit sales in the economy, on a very lucky day, the government can only collect RM42,000 in taxes.  

So how much economic activity (sales) must there be in the Malaysian economy for the government to collect RM1.0 billion in taxes? (To pay for that solar project in Sarawak?)

RM 1.0m/RM42k x RM1b = about RM24 billion. 

Jadi Tuan-tuan - ikut kiraan kasar ini saja ok -  bagi setiap RM1.0 bilion hasil cukai yang dikutip oleh Lembaga Hasil Dalam Negeri maksudnya ekonomi negara kita perlu menjana economic activity atau sales atau penjualan sebanyak RM24 BILION !! 

Jadi kalau Tuan-tuan ahli politik membuat dasar bodoh yang mengganggu penjanaan economic activity sebanyak RM24 Bilion, Kerajaan akan rugi kutipan cukai RM1.0 BILION. Kita akan menjadi miskin.  

Jadi kalau Tuan-tuan ahli KABINET membuat dasar bodoh yang mengganggu penjanaan economic activity sebanyak RM24 Bilion, Kerajaan akan rugi kutipan cukai RM1.0 BILION. Kita akan menjadi miskin.  

Jadi kalau Tuan-tuan ahli politik perkauman, ahli politik 'Buy Muslim First', ahli politik ketuanan membuat dasar bodoh yang mengganggu penjanaan economic activity sebanyak RM24 Bilion, Kerajaan akan rugi kutipan cukai RM1.0 BILION. Kita akan menjadi miskin.

Jadi kalau Tuan-tuan yang sudah kemut monopoli, oligopoli, GLC, AP, permit, lesen dsbnya mengganggu penjanaan economic activity sebanyak RM24 Bilion, Kerajaan akan rugi kutipan cukai RM1.0 BILION. Kita akan menjadi miskin. 

Sebab tanpa penjanaan ekonomi yang sihat dan yang boleh bersaing dalam pasaran dunia Kerajaan TIDAK BOLEH kutip cukai yang cukup.

Gaji tak boleh jalan, sabsidi tak boleh jalan, cuti holiday ke Langkawi tak akan jadi, kahwin bini dua artis muda susah, beli yacht tak jadi, beli rumah di London tak boleh dsbnya. 

Jadi jangan menggangu perjalanan ekonomi yang lancar. 

Do not disrupt the economic activity. 

Ingat baik-baik, bagi setiap RM1.0 bilion kutipan cukai oleh Kerajaan, ekonomi kita perlu menghasilkan sales atau penjualan sebanyak sekurangnya RM24 Billion. Lebih kurang lah tapi you get the idea. 

Ingat baik-baik,  jangan tabur pasir dalam periuk nasi sendiri.