The price of oil has been dropping steadily for more than a year now, hitting lows not seen in more than a decade.
And as the glut has increased, most exploration has become unprofitable.
In response, it’s not surprising that E&P companies have been slashing their budgets to weather this oil downturn — even Big Oil is feeling the pain.
Total, Statoil, and BP need $60 oil to balance their budgets, so the current sub-$40 oil price environment just isn’t cutting it.
Cut to the Bone
Chevron, ConocoPhillips, and Shell have already announced reduced budgets for 2016. Chevron and ConocoPhillips will reduce spending by about one-quarter from last year, and Shell will cut $5 billion from its capex if it successfully takes over BG Group this year.
Globally, oil and gas investments are expected to fall to $522 billion according to consultancy Rystad Energy.
It will be the first time such investments have fallen for two straight years since the 1989 oil price drop, Rystad vice president of oil and gas markets Bjoernar Tonhaugen notes.
What can you expect in the year ahead?
To start, we’re only going to see big projects get the green light… at least until crude prices rebound.
Some of these projects include Shell’s Gulf of Mexico exploration project, and Statoil’s North Sea Johan Sverdrup field.
Chevron may still expand its Kazakhstan Tengiz project, and BP may be able to afford its Mad Dog Phase 2 Gulf of Mexico project, as its estimated price has been cut almost in half recently.
Shell, with its expected acquisition of BP Group, will be focusing on the LNG market, which is likely to see prices rise more quickly than oil.
More than anything, companies are forced to focus on their most lucrative projects — ones that can still turn a profit for Big Oil when oil prices are in the gutter.
Still, further project delays and layoffs could be in store for 2016.
To continue reading about Big Oil’s savings dilemma, simply click here to read the Reuters article.
Until next time,
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