Energy companies cut capital spending as oil price drops

The oil price plunge will force energy companies to slash capital spending in North America, Europe and Asia in 2015, according to a report by investment bank Evercore on January 6 highlighted in the Bangkok Post.

But investment will continue to rise in Africa and the Middle East as producers in those areas seek to boost long-term output in the flooded global oil market.

Evercore estimated that oil companies would cut spending on exploration and production globally this year by 10-15 percent, and by 25-30 percent in North America.

How this might affect investment in Myanmar’s oil and gas fields is as yet unclear.

“To sum it up, a sharp recession is coming to the global oilfield,” said Mr James West, an oilfield services analyst at Evercore, after surveying 300 global oil and gas companies on their 2015 spending plans.

The report shows the impact of the steep drop in oil prices. US oil prices Tuesday closed at US$47.93, down from nearly $107 in June.

The oil-price crash is also beginning to reverberate across other industries. US Steel plans to lay off hundreds of workers due to lower petroleum industry demand for pipes, a union source said Tuesday. About 750 workers are expected to lose their jobs, according to US media.

Evercore said the oil industry is contending with lower cashflow and a lack of access to capital. Independents are especially vulnerable.

As a result, companies are cutting back especially in high-cost Arctic drilling and in Canadian oil sands projects, as well as on some US shale ventures.

Arctic projects require oil prices of about $115-122 a barrel to break even, while Canadian oil sands and deepwater developments can require $90 a barrel.

Many US shale developments can withstand a somewhat lower price, but Evercore said a sustained fall to $60 a barrel or below would force companies to curtail operations.

Evercore also expects capital spending in Europe to fall by 20 percent due to cuts in the North Sea. It projects more modest declines in spending in Asia and Latin America.

Investment in Russia will be trimmed by 10 percent or more due to lower prices as well as international sanctions on Russia.

However, Middle East capital spending is expected to rise 15 percent, with Saudi Arabia proceeding with a number of high-cost natural gas projects and Kuwait working to boost its crude output to four million barrels a day in 2020 from about three million now.

The report said African spending would rise by six percent in 2015, thanks to strong investment in Angola and Algeria.

Source: Bangkok Post

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