The steady washout across commodity markets continues to cast a pall over energy and mining colossus BHP Billiton (LSE: BLT). Indeed, further oil price weakness pushed the producer’s share price to levels not seen for more than a decade in start-of-week trading.
Brent crude, a market from which BHP Billiton generates over a fifth of total earnings, toppled to its cheapest since 2003 below $28 per barrel as fresh supply fears surfaced. Traders hit the ‘sell’ button as the lifting of Iranian sanctions prompted the country to announce plans over the weekend to export an extra 500,000 barrels per day.
The steadily-declining crude price has forced BHP Billiton to swallow a $7.2bn writedown on the value of its onshore oil assets in the US, it announced last week. And expectations of further pressure have forced the business to cut the number of operating rigs in the current quarter to five from seven.
In theory, BHP Billiton’s diversified operations should help lessen the impact of worsening dynamics across single markets, such as that being seen in the oil segment. But the outlooks for each one of BHP Billiton’s major markets remain troubled by deteriorating supply/demand balances, providing investors with scant consolation.
No longer a premier pick
It comes as little surprise that falling fossil fuel prices makes dedicated fossil fuel producer Premier Oil (LSE: PMO) a highly risky proposition too, in my opinion.
Shares in the business remain suspended after Premier Oil announced last week it was purchasing E.ON’s North Sea assets for $120m. This figure marginally exceeds Premier Oil’s current market capitalisation, prompting a halting of the firm’s shares.
Under usual circumstances the deal would prove a canny one, adding 15,000 barrels per day to Premier Oil’s total production. But given that oil prices continue to head south, and that Premier Oil’s net debt pile stood at a sizeable $2.2bn as of December, last week’s proposed ‘reserve takeover’ adds another layer of risk to the already-embattled operator.
Supplier set to sink?
Of course energy giant Centrica (LSE: CNA) also remains in peril as sliding revenues at its Centrica Energy division smack earnings. But the company faces an additional headache as the future remains uncertain for its retail operations.
Regulatory scorn over the charging policies of the ‘Big Six’ operators has died down in recent months, but the issue exploded once again on Friday after Ofgem chief Dermot Nolan told the BBC that energy prices should be lower “for the vast majority of people,” mirroring the steady slump in wholesale commodity prices.
The Competition and Markets Authority is expected to release its report into the industry within weeks, and it could make for grim reading for the likes of Centrica.
A range of measures, from draconian price caps right through through to a break-up of the London business, have been called for by politicians and consumer groups during the past few years in a bid to restore competitiveness to the sector.
With Centrica’s customer base already taking a pasting thanks to the strong progress of independent suppliers, I reckon the company is a risk too far for sensible investors as problems across its upstream and downstream operations worsen.
