When the fossil-fuel divestment movement first stirred on college campuses three years ago, you could almost hear Big Oil and Wall Street laughing. Crude prices were flirting with $100 a barrel, and domestic oil production, from Texas to North Dakota, was in the midst of a historic boom. But the quixotic campus campaign suddenly has the smell of smart money.
One of the biggest names in the history of Big Oil – the Rockefellers – announced last September that they would be purging the portfolio of the Rockefeller Brothers Fund of “risky” oil investments. And that risk has been underscored by the sudden collapse of the oil market. After cresting at more than $107 in mid-June, the price of a barrel of West Texas Intermediate dipped below $50 a barrel in early January. The crash carries big costs: Goldman Sachs warned that nearly $1 trillion in planned oil-field investments would be unprofitable – even if oil were to stabilize at $70 per barrel. The industry is already scaling back the hunt for high-cost sources of new oil. Chevron has shelved drilling in the Canadian Arctic, and Hercules Offshore, a significant driller in the Gulf of Mexico, has idled four rigs and laid off more than 300 workers.
Plunging profits are also putting the brakes on fracking. The biggest player in North Dakota, Continental Resources, is cutting expansion plans by more than 40 percent for 2015. And if crude prices drop much lower, the U.S. boom could go bust. The break-even price in North Dakota’s Bakken field, Continental CEO Harold Hamm confessed to Business Week in November, is $50 a barrel. Oil’s collapse threatens to destabilize global governments from Caracas to Tehran to Moscow. And it is punishing the valuations of oil companies: From late June to early January, across the world, the 10 oil firms with the largest proven reserves collectively lost roughly 20 percent of their market value.
Source: Rolling Stone/Jim Dickinson