How Oil Prices Affect The Economy

                                                        

     We all use petroleum products in our daily lives in one form or another. This consists of things such as products made out of plastic, gasoline for your vehicle, heating oil or natural gas to heat your place of residence,

     Crude oil prices of been mentioned more frequently as of late due to the fall in oil prices latterly.
As indicated in the following 1 hour chart, the price of a barrel of crude oil for WTI crude oil has falling a lot.

Click to expand

    This chart shows the price of oil fell approximately $7.00 per barrel over a 15 day period.  The price fell to a low of around $47.10 per barrel before heading upwards to around $48.50 at the time of the screen capture.  This massive decrease is due to oversupply in the market as the United States has increased their production, although OPEC has cut production.

    A commercial vessel carrying oil has been hijacked in the past views days off the coast of Somalia.  This has happen in the past couple of days, so this event is likely what has caused the upward movement for the price per barrel after hitting a low of approximately $47.10.

     In the past week, Royal Dutch Shell sold out of their oil sands assets in northern Alberta.  The buyer of these assets was Canadian Natural Resources Ltd. The value of this transaction is approximately 8.5 billion dollars.

      As of the previous week, the utilization of drilling rigs is down across the 4 provinces stretching from BC to Manitoba.  Most of the drillings rights are located in Alberta, which is currently at 35% utilization.  The Canadian Association of Oilfield Drilling Contractors states that each operating rig corresponds to approximately 135 jobs in the communities. With the price of oil, companies are very hesitant to hire extra staff or even to operate at all.  This has effected the lives of lots of people in western Canada.  Also, the people from across the country are not able to fly in or out of the Prairies, which means less money circulating in the eastern provinces. 

     The optimism in the western Canadian oil patch has subsided. This will keep investors and potential oil patch workers returning to the industry.  The oil patch affects the western Canadian provinces, with the greatest impact felt in Alberta.  When the price of oil remains low, the amount of oil patch workers is reduced. This results in hotels, restaurants, and tourist destinations to cut back on staff.

    I had investments in the oil industry.  Enerplus, is an oil and gas producer with assets in the United States and Canada.  Enerplus (Ticker Symbol ERF) trades on both the Toronto Stock Exchange and NYSE.  Enbridge, is an energy supplier that has assets in both Canada and United States. Enbridge (ENB) transports energy through their pipelines, solar panels, wind turbines etc.  ENB trades on both sides of the border.

EDIT:  A major component of the oilfield is oilfield service companies.  These companies service the entire oilfield in different types of services and processes required when drilling oil. A previous company I worked for has closed down during the last few months after layoffs over a 18 month span. The company made parts for the oilfield.  I am unable to name the company that I work for, due to privacy issues.

Disclosure:  I do not own shares in Royal Dutch Shell or Canadian Natural Resources Ltd.  I   have never owned shares in either of these companies.

Disclosure: Long  ERF and ENB

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Enerplus Earnings Release

    

 Enerplus was established in 1986. This company is an energy producer in North American that currently has a portfolio of high quality oil and natural gas assets. The company tries to develop their properties which they hope, in turn, create values the their many investors.
      Enerplus is headquartered in Calgary, Alberta and trades on both the Toronto stock Exchange and the New York Stock Exchange.  The company used to be a Canadian Royal Land Trust, but changed their corporate structure to a corporation.  In 2006 on Halloween, Canadian Finance minister Jim Flaherty changed the tax rules for the income  trust model. The rules would change in 5 years where income trusts would be taxed more after 2011. The income trust did not have to pay taxes by paying out 90% of their earnings to shareholders, who paid the taxes at the individual level. So Enerplus, along with most income trusts, switched to a corporation setup.
       When I started my investment in Enerplus, it was paying $2.16 annual dividend. The yield on this high. The price of Natural Gas has fallen a lot shortly after I owned the stock. As Enerplus is a producer, this greatly affected their bottom line.  The company was losing as Natural Gas fell in value. On April 19, 2012 the price of Natural Gas closed at $1.93 on the NYMEX, which is the New York Mercantile  Exchange. As the company was not as profitable, Enerplus felt it was in there best interest to cut the dividend by 50% to $1.08 per year.

Now to the Earnings Release

Some Operational Highlights

• Daily production averaged near 104000 BOE, which was on par with their previous quarter.
•  Averaged increase of 700 barrels per day over the second quarter
• Natural gas production was roughly the same despite low natural gas prices and maintenance on pipeline in the Marcellus region
• Looking for full year production to come in around 103000 BOE per day.

Financial Highlights

•   Funds flow quarter over quarter at $213 million or $1.04
• Dividends paid out represented 26% of funds flow during the quarter.
• Average realized price on crude oil sales was $86.49 per barrel in Canadian dollars, which is down 9% from the second quarter.
• Average selling price for natural gas was $3.22 per Mfg in Canadian dollars, which represent a 20% reduction quarter over quarter.

      Enerplus has various hedges in place to protect themselves in the near future against possible declines in the price of natural gas or crude oil. These hedges and the positive earnings report, pushed the stock higher on Friday by 10.13 %, or $1.54 a share to close at $16.74 per share. 
       At the current price, I will not be averaging down my shares.  I would consider averaging down my shares if the price of Enerplus falls near or below $15.00 a share. I currently have the DRIP turned on, but missed it last month. So this month I will start to averaging down via DRIP when Enerplus pays their monthly dividend.

Note: BOE stands for Barrel of Oil Equivalent

Disclosure: Long ERF (Toronto Stock Exchange)

DISCLAIMER

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk