Price drop affects financial status of oil companies

CEBU, Philippines - The dramatic crash in oil prices may be good for consumers but the same is not true for oil companies.

Edgar O. Chua, country chairman of Pilipinas Shell Petroleum Corp., admitted the plunge in oil prices has been affecting the financial performance of oil companies like Shell. He, however, did not elaborate on the company's financial standing.

Shell is not mandated to publicly disclose its financial status as it is not yet listed on the stock exchange.

Chua explained that it's the exploration and production side in the oil industry that's being affected by the oil price drop.

"Actually, this (the price drop) is not good for exploration and production because the cost of extracting the oil is a fixed cost — $50 a barrel — to get the oil or gas out of the ground. But your price is $30. Your selling at below cost," Chua further explained.

Chua meant that high-priced inventory sold at lower prices could result to weak earnings of oil companies.

"In some places it's (selling price) lower while in other places it's higher but the bottomline is you're getting much less now for the same oil or gas you're extracting before," the Shell official said. 

Recent reports said that crude prices dropped below $27 per barrel and have since perked up to around $30.

Crude oil has totally decreased by 75 percent from its June 2014 peak of almost $108 a barrel.

Prices of crude oil (Dubai, Brent and West Texas Intermediate) have been going down steadily since 2014 due to China's weak economy, oversupply of petroleum products in the global market and lifting of sanctions on Iran.

On the positive side, Chua said cheap oil is an advantage to the refining and marketing side of the oil business. 

"It's good kasi with low prices, mas mataas ang demand for oil kasi mas affordable," he added.

Chua would not know yet how oil prices can rise again significantly in the short-term.

"Inevitably it will increase but it's a question of when and how much," he said. "But oil prices will continue to be low."  (FREEMAN)