This past year was a difficult year for Albertans. With oil and gas prices at extreme lows, many oil and gas companies are struggling. Even worse, many have had to layoff significant numbers of their staff.
Last month, I mentioned that I expected oil prices would not remain in the US$30 for more than two months. After the disastrous December OPEC meeting where they failed to even agree to disagree, oil prices remain under pressure. Every country appears to be producing near or at maximum capacity as there is no production ceiling. Consequently, I am no longer as confident that oil prices won’t remain in the US$30s for two months or longer.
With oil prices forecasted to be “lower for longer,” many companies will continue to struggle and some may even perish. Companies that are most at risk are those that exhibit some or all of the following conditions:
- Relative to others, a high break-even cost of production;
- High debt to equity ratio;
- Share price has declined more than 65 percent during the past two years; and
- Large percentage dividend cuts.
For those who own shares in such troubled companies, this is a challenging time. Do you sell shares now and absorb your loss? Or, do you hope that the situation changes so that you can recoup some of your losses? There is no easy answer. You will have to assess your personal financial situation and that of each company. And, then make your decision.
While 2015 has been a difficult year and the early start of 2016 appears to be challenging, too, some analysts are forecasting better commodity prices in the second half of the year. For Albertans, let’s hope our situation improves soon.
I wish everyone a happy, healthy, and successful 2016!