Spending Cuts by Oil Companies Likely in Exploration and Drilling

Published Date : Aug 04, 2015

Some of the largest oil companies in the world have promised to reduce their costs of larger projects amid slipping oil prices. However, with crude priced below US$ 50 per barrel, the unrelenting price weakness indicates that these companies will have to dig much deeper to recover. 

Over the past year, prices of oil dropped a massive 60 per cent from a high of US$ 114 per barrel in 2014. Amidst this, energy giant in the United Kingdom BP PLC started experimenting with new projects aimed at profitability. This circled around US$ 60 per barrel, from US$ 80 per barrel in 2014. Royal Dutch Shell, BP’s Anglo-Dutch competitor, is also experimenting with projects at crude prices as low as US$ 50 per barrel, despite the fact that the overall price outlook ranges somewhere between US$ 70 and US$ 110 per barrel.

France’s Total SA stated that this year the company had slashed its break-even oil price to US$ 70 per barrel, which down by over a third from US$ 110 last year. 

Had it been any other circumstances, these cuts would seem rather severe. Billions of dollars are being reduced when it comes to spending on everything right from project engineering and exploration to drill rigs and construction equipment.

Last week, however, BP reported a loss and all of the largest oil companies in the world displayed quarterly earnings much lower than the previous year. At this time, chief executives said that they would continue to maintain the pressure as far as spending was concerned, even as oil was being traded at prices much below their new assumptions. Others, like Chevron Corp and Shell, reported layoffs. 

Ben van Beurden, chief executive officer of Shell said that even though there is no crystal ball to foresee what will happen, the company was planning for a rather extended downturn.