Low Prices Delay $1.5 Trillion In Drilling Projects

Low oil prices have slowed spending at companies throughout the oil patch and could erase or delay up to $1.5 trillion in oil-field projects, according to a report released Monday by energy analyst Wood Mackenzie.

The report focuses on global oil-field activity, but reflects on tightening drilling budgets throughout Oklahoma.

Besides reduced activity onshore in North America, the Wood Mackenzie report also said 46 large-scale, international drilling projects have been deferred because of the lower prices.

“The implications of this level of reduced investment is huge for the industry’s service sector, which is of a size to comfortably accommodate an average of 40 to 50 new projects globally a year,” Obo Idomigie, principal upstream research analyst at Wood Makenzie, said in a statement Monday. “We expect just six new projects to go ahead in 2015 and around 10 in 2016.”

The report pointed out that operators have tried to reduce drilling costs 20 percent to 30 percent, but that on average services companies have not been able to cut costs that much. Continued slowed drilling activity, however, could force further changes, the company said.

While Wood Mackenzie’s report focused on oil-field services companies cutting amounts they charge production companies, costs are decreasing because producers, services companies and others in the industry have focused on improving their technology and processes, Oklahoma City University economist Russell Evans said.

“One thing that will come out of this downturn is that companies will come out much more efficient,” said Evans, executive director of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University.

“We will see technology and analysts employed in new ways that will push lower the floor price at which new exploration can be profitable.”

While a few companies have declared bankruptcy or sold to other energy firms, most energy firms so far have weathered the lower-price environment.

“One thing that will come out of this OPEC strategy is that they’re going to make the producers they presumed were high-cost shale producers into medium-cost shale producers,” Evans said. “They’re going to push that floor down a bit and force those companies to become more savvy about costs.”

By Adam Wilmoth/The Oklahoman

Source: Examiner Enterprise