Saudia Arabia is Winning the Oil Game

Without question, House Saud’s deliberate plans to break the backs of non-OPEC producting nations, specifically the U.S. and its shale oil, is working.

The oil and gas industry has cut $200 billion from investments this year as low prices discourage new projects, leading to cuts in crude supplies equal to half the daily output of Saudi Arabia, according to the kingdom’s Prince Abdul Aziz bin Salman.

Nearly 5 million barrels a day of projects have been deferred or cancelled, Bin Salman, who is also vice oil minister for Saudi Arabia, said in prepared remarks set to be delivered to energy ministers meeting in Doha Monday. Saudi Arabia pumped 10.38 million barrels a day in October, according to data compiled by Bloomberg.

Oil prices have dropped 42 percent in the past year as Saudi Arabia led the Organization of Petroleum Exporting Countries in maintaining production in the face of a global glut rather than make way for booming U.S. output. Supply from outside the 12-member group will start to decline next year, after oil prices near $150 a barrel in 2008 proved unsustainable, Bin Salman said, according to the prepared remarks.

Saudi Commitment

“A prolonged period of low oil prices is also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise,” Bin Salman said in the remarks. “As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price.”

In the meantime, our big oil conglomerates will buy up distressed assets, while the chaff simply go away. Jobs will be lost, investments ruined. In the end, Saudi Arabia will be left standing, with our military by their side ready to protect their fields from danger, the same fields that caused pink slips to be doled out, generously, in the Bakken Shale.

Happy Monday.

I am not dismissive of this news, because big oil likes to buy quality distressed assets when oil is cheap. They’ll let the offal flush down the toilet; then buy their assets in liquidation. But companies like Apache have staying power, despite the fact they’ve been shedding billions in losses over the past year.

The Houston-based company rejected the initial offer and is working with financial adviser Goldman Sachs Group Inc. on defense, said the people, who asked not to be identified because deliberations are private. The potential buyer, who couldn’t immediately be identified, sent a letter to Apache in the past few weeks and it’s unclear whether talks will resume, one of the people said.

APA’s market cap is $18 billion, whose shares have fallen over 35% over the past year. Other stocks that might move in sympathy, if at all, include DVN and PXD.

APA is up 12% in pre-market trade.