Energy Companies Worldwide Retrench in Wake of Low Oil Prices; Enefit Also Cuts Back, But Remains Committed to Utah Oil Shale Project
Crude oil prices hovering at around $30 a barrel continue to bedevil the world’s oil producers, leading to dramatic cuts in investment by companies large and small. The Financial Times reported Feb. 14, 2016, that about $400 billion in expected oil development projects worldwide have been canceled or delayed due to low prices, and many companies are also slashing dividends.
What’s more, Morgan Stanley analysts predict that only nine large projects globally, out of more than 230 awaiting a green light, are “realistic candidates” for approval this year. Several of the industry’s majors, including Total of France, say they won’t be approving any new projects at all in 2016.
It’s definitely a time of retrenching in the energy industry. Shell alone, for example, announced an $8 billion write-down last October. Chesapeake Energy posted a $15 billion loss for 2015; Apache Corp., another large oil and gas company, announced a $23 billion loss.
Enefit is experiencing these economic realities as well. The Estonia-based company wrote down the book value of several of its investments in Europe and the U.S. Enefit’s financial adjustment of 66 million euros (approximately $72.7 million, of which $28.7 million applies to the Utah Project) pales in comparison to the tens of billions of dollars written down by the energy industry’s major producers.
Enefit Continues to Pay Dividends & is Committed to Utah Project
Despite the financial adjustment and industry downturn, Enefit has continued to pay a significant annual dividend to its owner, the Estonian government. In 2015, Enefit paid the government a dividend of 62 million euros (approximately $68 million). Estonia’s largest employer, Enefit also paid the government 65 million euros ($71.7 million) in labor taxes and excise duties, 28 million ($30.8 million) in resource charges, and 30 million ($33 million) in environmental taxes.
Despite the write-downs and other belt-tightening moves, Enefit leadership remains committed to the Utah Project, says Enefit CEO Hando Sutter. “We will continue our work to seek environmental approval for a utility corridor over federal land to serve the Project, to adjust our engineering processes to be as efficient and cost-effective as possible for the Utah resource, and to move forward with other activities that will maintain and add value to the Project.”
Recent activities at the Project site include a new geologic research program to extract new oil shale core samples for additional test work. This is part of ongoing work to help fine-tune the engineering of Enefit’s oil-production process and evaluate alternative mining horizons.
Enefit will also soon begin an assessment of whether the Utah’s Project’s known oil shale resources can be validated as “reserves,” which would increase the Project’s value. It’s anticipated that the resulting reserve report could be used to help raise private equity investment and/or to inform valuation as part of other potential future financial transactions.
Finally, after a few months of delay, Enefit is pleased that the Bureau of Land Management will soon release a Draft Environmental Impact Statement (DEIS) on establishing a corridor across federal land to accommodate the extension of utilities to Enefit’s project site. The BLM will receive and respond to public comment on the DEIS before releasing a Final EIS and decision about whether to allow the utility corridor later this year.
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