Russia Holds the Cards

From time to time, I write about things that garner a few emails and comments that are anything but supportive. Sometimes, it’s because I’m being horrible and unfair to Gwyneth Paltrow or Jamie Dimon or the Obama Administration; other times, it’s that I’m too conservative/liberal/biased/optimistic, etc. on the important things in life. And that’s OK – actually, it’s what lets me know I need to double down. That’s what’s been happening over the past several weeks. In December, I wrote, “I’ve said for weeks that Russia is the big winner in this latest oil scramble…” Soon after, I was told that I was wrong and that I was overestimating Russia’s role, even though I knew there was something to it, and even if I couldn’t quite quantify it yet. That was in December and sure enough, things began unwinding, not so much on the Russian front, but here in the U.S.

Stay with me – I’m linking it all together.

In November, when Halliburton announced it would buy Baker Hughes for $35 billion, that should have been the first clue. When things like that happen, especially in such a short time frame (it’s said the two were in talks for less than a month), you know to expect job cuts. Shareholders fared well, but it wasn’t until last week that we heard anything else about it in terms of specifics – and even then, it’s not as specific as most would like:

Houston-based Halliburton Co. has cut an undisclosed number of jobs in Houston due to current business conditions. (Read it here).

But things became clearer during this morning’s Halliburton earnings conference call when it announced it would be laying off more than 7,000 people.

After I’d published Friday’s post, several more companies announced layoffs, including Apache and Swift, both oil and gas asset companies, OFS Energy, BP, Enbridge Energy Partners, and Civeo Corp. (a lodging and workforce accommodations company for the oil and gas industry). These “widespread energy layoffs” are expected to continue and trickle down to other subsectors:

In a Rigzone survey taken from Dec. 15 to Jan. 2, 48 percent of U.S. energy hiring managers said they have already experienced a loss of budgeted positions due to market volatility, up from 18 percent who said this six months ago.

Attorney Lydia Protopapas, with Winston & Strawn LLP, a Texas bankruptcy firm, said the signs of an increase in bankruptcy filings are in place, courtesy of the fall in oil prices.

New fears are that a lot of companies are going to have to come clean on just how much oil they do have in reserve. Some say these companies have been sugarcoating the truth. We’ll soon see.

But here’s the reason for today’s post:

This past Friday, another Houston-based oil company announced it was cutting 9,000 jobs. While it felt like there was a “Paul Harvey” (as my mom would say) to it somewhere else, I couldn’t find “the rest of the story”. Until this morning:

Oilfield services company Schlumberger buys 46% of Russian Eurasia Drilling Company

(On a personal note, I reckon I wasn’t as wrong as some said).

Now it’s beginning to make sense. Schlumberger’s biggest competitor is Halliburton. In fact, when Halliburton merged with Baker Hughes in November, it cited its competition in what seemed like a taunt:

Halliburton will buy Baker Hughes for about $35 billion in cash and stock, creating an oilfield services to take on market leader Schlumberger.

First, oil was already down more than 45 percent when this happened in November. Job cuts were bound to happen, right? And they did, as we’re seeing now.

So why would Schlumberger make these choices, especially considering it pulled out of Russia last year, citing U.S. sanctions? Well, the sanctions might have hurt smaller companies and countries, but hey, this is the U.S. We make multi-billion dollar mergers in our sleep, right?

Sure enough, the job cuts, mergers and nearly every other decision being made (not only with Schlumberger) has the same common goal in mind: to get in on the huge Russian oil brouhaha.

The Putin Diplomacy

There’s another little gem in all of this. The sanctions, the insults, the silliness, the insanity of the Obama Administration at times: Putin never flinched. Not once. Now, he’s known for his stoic personality, but there have been some eyebrow-raising antics going on recently. He didn’t even weigh in on the absence of the U.S. during the massive and really, awe-inspiring show of global force in Paris after the terror attacks earlier this month. He was simply there, showing his country’s support and declining any opportunities to talk smack.

In fact, how many of us here in the U.S. have dogged Secretary of State John Kerry for that ridiculous and embarrassing spectacle he made last week with his efforts of serenading France (See? I just did it again.)? Putin, though? Not one word. And why would he? He knew things that were going on in the U.S. that makes you wonder if our own president was even aware was happening.

There is one more overwhelming, though not often reported reality that could play a role moving forward, especially considering what’s going on with these oil and energy companies:

BlackEnergy

Late last year, we heard from just a few mainstream media sources regarding a Russian government Trojan horse. The malware, according to DHS, has been planted, though not activated. Russia has already used this specific malware when it attacked NATO networks in early 2014. The infected systems here? DHS says it’s the “complex industrial operations like oil and gas pipelines, power transmission grids, water distribution and filtration systems, wind turbines and even some nuclear plants.”

So what, if anything, can BlackEnergy do? Get ready – it can do anything it wants. From destroying the systems from the inside out, causing damage to the physical pipes and computers – not to mention the potential for harming employees who are working the computers, pipes and valve systems; it can paralyze our mobile systems and can result in self destruction to power grids, generators and nuclear reactors.

If the U.S. has the capability of stopping this, it’s not saying. Our biggest employers in the energy sector are cutting jobs in America so they can go to Russia.

Any wagers on how much of tonight’s State of the Union will be spent on these job losses and the crash and burn that could become the oil and energy sector in the U.S? Nah…we already know O & Co. will be discussing raising minimum wage and giving free community college education.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s