Prolonged price slump prompts new budget cuts by oil giants
With crude oil prices hitting below $30 and no sign of recovery any time soon, oil and gas companies around the world are shelving investment and cutting jobs, under a new wave of budget slashing.
According to Rystad Energy, global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 per cent fall to $595 billion in 2015.
Already, members of the Organisation of Petroleum Exporting Countries (OPEC) have shelved $200 billion of spending on new projects in 2015 in an urgent round of cost-cutting aimed at protecting investors’ dividends as crude oil prices continued its free fall.
Among companies postponing big production plans while they wait for costs to come down are UK-listed BP, Anglo-Dutch Royal Dutch Shell, US-based Chevron, Norway’s Statoil, and Australia’s Woodside Petroleum.
Energy companies had expected crude oil prices to recover to at least $70 per barrel in the near future and therefore resorted to cutting cost measures to deal with the current market pressure.
For example, Royal Dutch Shell, in its fourth quarter report, postponed the final investment decision on the $12 billion Bonga South-West project in deep-water Nigeria.
The company said its adjusted profit fell by 56 per cent in the fourth quarter of 2015 compared to a year earlier, while its earnings fell by 80 per cent to $3.84 billion, compared to $19 billion in 2014.
Also, ConocoPhillips cut its dividend by two-thirds and sliced another chunk from its budget, underscoring concerns that the oil industry’s downturn could stretch into 2017.
The company reported a fourth-quarter loss of $3.45 billion, or $2.78 a share, as it posted $2.7 billion in asset write-downs to reflect low oil and natural-gas prices and changes to its energy-exploration plans.
Total has also reduced its 2016 capital spending and operating expenditure target.
The company slashed its 2016 capital expenditure budget by about $2 billion from 2015 level.
Total will also further reduce investment down to between $20 billion to $21 billion in 2016, before returning to a “sustainable level” in the range of $17 billion to $19 billion from 2017 onwards.
Chevron Corp. projected capital spending plans for 2016 of $26.6 billion, which the oil giant said is 24 per cent below expected capital and exploratory spending this year.
Chevron, the second-largest energy company in the U.S. by revenue, and other major oil companies have been cutting costs and capital spending plans in response to an extended downturn in prices for crude.
The 2016 capital spending budget includes $24 billion for exploration-and-production projects, with the bulk targeted for its international upstream business.
The company said about $9 billion of the spending plan is targeted for existing base producing assets, which includes shale investments. An additional $11 billion is earmarked for major projects currently under way while global exploration represents roughly $1 billion of the spending plans.
Chairman and Chief Executive Officer, John Watson, said that the 2016 capital spending plan will allow the company to complete and step up projects that are under construction and “fund high return, short-cycle investments” while preserving options for long-cycle programmes.
“Given the near-term price outlook, we are exercising discretion in pacing projects that haven’t reached final investment decision,” he said.