Ecuador’s Oil Industry Catastrophe… To Spread Around The World

There’s an ongoing catastrophe taking place in Ecuador.  Not only has a significant part of the Amazon been polluted by toxic waste oil left behind from the wonderful folks at Texaco when the company started drilling for oil in Ecuador back in the 1970’s, but the low oil price has totally gutted the oil industry.

This is a big problem for Ecuador because 50% of its exports and 30% of its government revenues come from oil (source).  According to the article, Ecuador Reveals Pain Inside OPEC: It’s Pumping Oil At A Loss:

President Rafael Correa said on Tuesday that the South American nation is receiving as little as $30 a barrel for its crude, while production costs average about $39.  The warning comes after several other members of the Organization of Petroleum Exporting Countries, including Algeria and Libya, said the group should consider holding an emergency meeting to respond to the drop in oil prices.

Ecuador-Oil-PriceEcuador was receiving as little as $30 a barrel back in August 2015 when that article was written.  However, today its likely getting a price closer to $20 for a barrel of oil.  If Ecuador was in serious trouble last year due to low oil prices, the situation today is nothing short of a catastrophe for it’s oil industry and economy.

Even though Ecuador isn’t a large producer of oil, it produced a little more than 556,000 barrels a day (bd) in 2014, while total consumption was 259,000 bd.  Thus, it exported nearly 300,000 bd in 2014.  Here is a chart of Ecuador’s net oil exports since the 1970’s:

Ecuador-Net-Oil-Exports

What is interesting in the chart above, is the increase in Ecuador’s domestic oil consumption.  Even though overall production increased significantly since the 1970’s, so has consumption (black line).  Ecuador’s total production increased from 200,000 bd in the 1970’s, to 556,000 bd, however net exports (green) did not increase all that much due rising domestic consumption.

The Collapse Of Ecuador’s Drilling Rig Industry

While the drilling rig count in the U.S. and world has fallen considerably over the past 18 months, nothing can compare to the collapse that has taken place in Ecuador.  When oil was trading over $100 in August 2014, Ecuador had 27 drilling rigs working in the country.   Today… they have one:

Ecuador-Industry-Drilling-Rig-Count

Thus, the low price of oil has totally gutted Ecuador’s drilling rig industry…. a 96% collapse in just 18 months.  Again, the reason for the huge decline in Ecuador’s drilling rig industry has to do with simple economics–you can’t continue producing something as a loss, especially at a huge loss.

According to the article, Ecuador: A Nation Of Oil No Longer:

In 1972, the military Government of General Guillermo Rodríguez Lara instigated a mini oil boom. In Quito, his regime exhibited the first barrel of oil produced by a consortium between transnational Texaco and the fledgling Ecuadoran State Petroleum Corporation (CEPE for its Spanish acronym). Nearly half a century later, the Government of Rafael Correa Delgado ends the extractive cycle, squeezing the last drops of black gold from the earth. The depletion of Ecuador’s crude reserves, combined with the collapse in oil prices, spells economic tragedy for a country that has tied its fate to hydrocarbons.

…. In 2015, at an average price of $50 per barrel, the situation is catastrophic. The country expects to make $9.942 billion from oil exports and derivatives, but production and import costs of $10.145 billion leave a shortfall of $226 million.

Unfortunately, for Ecuador, it’s now receiving a price closer to $20 a barrel.  This is the reason the county only has one lousy drilling rig.  And that was based Baker Hughes International rig count as of Jan.

While Ecuador’s oil troubles are worse than other oil exporting countries, due to shortsighted government energy policies, I believe it will be blueprint that will spread throughout the world.  Why?  Because, I don’t believe oil prices will recover for quite some time.  Matter-a-fact, I think we are going to see the price of oil to reach the $20’s before a bottom is made.

Zerohedge published this article today: BP’s Stunning Warning: “Every Oil Storage Tank Will Be Full In A Few Months”:

On Wednesday, BP CEO Robert Dudley – who earlier this month reported the worst annual loss in company history – is out warning that storage tanks will be completely full by the end of H1. “We are very bearish for the first half of the year,” Dudley said at the IP Week conference in London Wednesday. “In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in,” he added. “The market will start balancing in the second half of this year.”

Maybe. Or maybe excess supply will simply be dumped on the market once all the “swimming pools” are full.

If that happens, don’t be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market.

BP suffered the worst annual loss in the company’s history.  So, it’s not just the lousy shale oil companies that are losing money, now its the MAJOR’s.  For example, Chevron made $14.8 billion in cash from operations in the first three quarters of 2015, but spent $22 billion on capital expenditures and paid $6 billion in dividends.  Thus, Chevron paid out $13.2 billion more than it made from operations.

Furthermore, ConnocoPhillips only made $5.9 billion in cash from operations (Q1-Q3 2015), but spent $8 billion on capital expenditures and paid out $2.7 billion in dividends.  Which means, ConnocoPhillips spent $4.8 billion more than it received from operating cash.

The largest U.S. oil company did a little better than Chevron and ConnocoPhillips, but not by much.  ExxonMobil received $25.9 billion in cash from operations (Q1-Q3 2015), but spent $20.3 billion on capital expenditures and paid out $9.1 billion in dividends.  Unfortunately, ExxonMobil also paid out more than it made in operating cash… to the tune of $3.5 billion.

This means, if the price of oil continues to remain low (highly likely), watch for the top three U.S. Major Oil Companies to start slashing dividends.  Investors still holding onto these energy stocks… YOU HAVE BEEN WARNED.

ChevronToxico Dumped 18 Billion Gallons Of Toxic Oil Waste In Ecuador

Ecuador-Oil-Polution

From the article, A slippery decision: Chevron oil pollution in Ecuador:

Canada’s Supreme Court ruled Friday (04.09.2015) that Ecuadorian villagers can seek to enforce a judgment in Canada for $9.5 billion (8.5 billion euros) against United States oil company Chevron Corporation on a legal case over pollution in the Amazon rainforest.

The Ecuador Supreme Court had ruled in 2012 that Chevron owes this amount as compensation for dumping more than 18 billion gallons (68 billion liters) of oil and toxic waste in the Ecuadorian Amazonia region, where the company operated for 25 years.

While Chevron didn’t drill oil in Ecuador when the oil pollution took place, Texaco did.  When Chevron acquired Texaco in 2000, it inherited the mess it left behind in Ecuador.  According to several sources, it’s the worst case of oil pollution on the planet, 30 times more than the Exxon Valdez oil spill in Alaska.

Lastly, I believe the disaster taking place in Ecuador’s oil industry and economy will spread throughout the rest of the world.  There is just too much debt in the world and with the low oil price, it is gutting economies everywhere.

Please check back for new articles and updates at the SRSrocco Report.  You can also follow us at Twitter, Facebook and Youtube below:

Enter your email address to receive updates each time we publish new content.

I hope that you find SRSroccoReport.com useful. Please, consider contributing to help the site remain public. All donations are processed 100% securely by PayPal. Thank you, Steve

11 Comments on "Ecuador’s Oil Industry Catastrophe… To Spread Around The World"

  1. Steve,

    These are the sad stories starting to surface concerning the global oil glut. Commodity-currency countries like Ecuador have been hammered for too long (Australia, Canada, etc) and the deflation spiral is just beginning to take hold. IMHO the members of OPEC will be forced to capitulate and hold back production despite all I hear that any progress to this end is slim to none.

    Per Casey Research Conoco slashed their dividends 66% last week and also had this to say:
    “Oil companies have laid off more than 250,000 workers since the downturn began. Worldwide, they’ve cut spending by more than $100 billion in the last year alone.”

    I also heard a good interview this morning on the subject of oil (sorry, it’s CNBC)

    http://www.cnbc.com/2016/02/10/crude-oils-bad-days-are-here-to-stay.html

    • Mark,

      Casey Research was bought out by Stansberry & Associates. Stansberry has been pumping Shale Oil and Majors for years. Now they are bearish??? LOL.

      steve

      • Still do not see what you mean that “oil prices will remain low” : for the next couple of quarters or years ?

        I cannot how at around 20 USD for best quality oil, some production cuts will not occur as only a 5% production cuts will probably allow oil to make a 50%/100% gain depending whether the bottom will/would be.

        That said, a rise at about 40/50 would be good for lotys of coutries like saudi arabia as it will not allow to much renewable energy devlopments and other ramp up in shale oil production.

        However capitalists have always been the dumbest people on earth so they can impress us again !

  2. Thank You for the update..so sad about the pollution…hoping jail time for oil execs, won’t happen. Perhaps sometime you folks can write an article about how oil and gold are enmeshed, intertwined, married. I’m beginning to think the USA invaded the Middle East NOT for oil, as all say…but, at the end of the day..for Gold. Why the contrarian viewpoint? We are at the end of fossil fuel driven industry, and, the beginning of fuel cell driven machines. A need for oil will not exist soon. The Gold comes in, due to the Governments that have collapsed currencies, due to extreme debt, and bankrupt on bonds, will be forced to back their currencies with gold..or silver, as in the old days. King of the currency hill will be the country with the most gold reserves for mining, and/or, vaulted. Payments for imports and exports will NOT be with the Dollar, but, the new crytpto-currency not developed yet…I’ll call it “BlockGold”, after the blockchain technology used for bitcoin. The Chinese think they may have the most gold in the world, but, the USA will develop the BlockGold currency first, and, again, be king of the hill for controlling world trade. Iran, Iraq, and nearby countries will be forced to discontinue oil drilling, as Saudi Arabia, and, only the fuel cell producers will accept payment via BlockGold currencies, a new paradigm for who runs what. Those countries will BEG the USA for help to compete, set up infrastructure and R& D ecologies, thus, we control their Governments, and, basically own their land in the process…walla…a virtual takeover, with no soldiers needed.

    • lastmanstanding | February 11, 2016 at 8:36 am |

      Just collateral damage. If a clean up is done, investors will pay for it. Oil Co.’s walk to the next disaster…no prob, no cost.

      Elites divested themselves of oil. They’ll scoop it back up for the last time at the bottom and hoard it. Cost to us will be 10x what it is now.

      They will never have to worry about stupid little issues with oil…but I know who will if they haven’t planned for this.

  3. I was an investor in Chevron several years ago and so I read about this case. Texaco was partners with the national oil company of Ecuador the entire time. According to Chevron they cleaned up everything that they were required to do and the Ecuador national oil company did not. Plus they showed video tapes of the judge making a deal for a bribe for contracts for the clean up. I am no longer an investor and so I have no dog in this fight but you are not reporting the facts behind this story.

    • Steve,

      Just to let you know, there are protests by citizens in 20 countries against Chevron. Yes, I know about the corruption and bribes by parties on the Ecuadorian side. However, there is still a great deal of pollution.. and no, not all of it was cleaned up.

      Of course there is corruption. The president of Ecuador is as corrupt as they get. The people in the Amazonian region are the victims.

      The list of polluting corporations in the Energy & Mining Sector is significant. Barrick is one of the largest gold mining polluters on the earth. The list goes on and on.

      Let’s not delude ourselves here.

      steve

  4. Am Freitag wurde der Austritt von sechs Bergbauunternehmen aus der London Metal Exchange bekannt. Laut Reuters haben sich Rio Tinto Ltd., Cargill International S.A., Nyrstar Budel BV, MetAlliance LLP, Lonconex Ltd. und Enmetco LLC dazu entschlossen, der Metallbörse den Rücken zu kehren.

    Für die Kündigung ihrer Mitgliedschaft der sogenannten “Category 5” wurden keine Gründe genannt. Es gibt jedoch einige Spekulationen, dass der entscheidende Anlass für diesen Schritt die zunehmende Kritik bezüglich mangelnder Transparenz sowie die Manipulationsvorwürfe gegen die Metallbörse gewesen sein könnten.

    Der London Metals Exchange verbleiben nun noch 48 Mitglieder der Kategorie 5.

    At Friday 6 Members of the LME escape without a reason.There are rumours that they don’t accept any longer the Manipulation of PM.

    Rio Tinto not a small fish!

  5. Weak Global Oil Price Getting Weaker.

    Phillips 66 has dumped crude at Cushing Okla. for immediate delivery.
    Crashing the 1st – 2nd month spread to 5 year lows in the process.

    You thank Warren. Here come further lay offs, errr… I mean “cost cutting” measures!

  6. So perhaps Ecuador will go from exporter to importer and leave OPEC membership behind. Although I understand OPEC membership is open to oil importing members these days; Indonesia. As well I understand that on January 26, the government of Ecuador formally signed exploration contracts for two Amazonian oil blocks—known as blocks 79 and 83—with a Chinese state oil company. It’s a million acres of jungle. That will be fairly controversial I imagine.

    It seems to me that Ecuador is on the short path the failed statehood. One more to ad to the region behind Honduras, Guatemala, El Salvador, and Venezuela. The people will reach for an economic lifeline and it will be growing more cocaine.

    Buckle your chin strap! This does not end well!!

  7. The commentary here about reduction in rig activity in Ecuador is good. It is unfortunate that the article conflates that with misinformation about the Chevron Texaco oil pollution case. On March 4th 2014, the US district court in New York found that the main lawyer for the Ecuadorian villagers had coached them in their answers and had violated RICO laws. http://www.chevron.com/ecuador/

    Further, said lawyer, Steven Donziger lost a second case when the supreme court of Gibraltar ruled that a company that he set up to receive damage payments had to pay the money back to Chevron.

    http://www.bloomberg.com/news/articles/2015-12-16/chevron-wins-28-million-judgment-in-latest-pollution-case-twist

    I suggest that if you want to inform your readers, you present all of the information, not just part of it that suits a certain agenda.

Comments are closed.