All signs point to another bleak year for the oil and gas industry. Major operators have begun announcing significant capital spending cuts, and analysts see no quick fix to the current global supply/demand imbalance.
ConocoPhillips’ and Chevron’s announcements last month of deep cuts in 2016 capital spending were likely the first in what is expected to be a wave of further reductions by operators in the wake of the lowest oil prices in a decade. Chevron plans to slash its budget 24% to USD 27 billion, with the most spending on international exploration and production projects and the second-largest amount going to US projects, including shale development in Texas. ConocoPhillips said it will spend USD 7.7 billion this year, a 25% decline from the reduced levels it spent in 2015.
Other major operators echoed those sentiments that this year may be even more difficult than 2015. The outlook for 2016 was on the minds of many executives at last month’s International Petroleum Technology Conference in Doha. Global oil supply is still increasing faster than demand despite the plunge in oil prices and it will take a while to reverse that trend, Total Chief Executive Officer (CEO) Patrick Pouyanné told reporters at the conference, which is organized by SPE and other industry associations. “The market is oversupplied and production capacity will continue to grow because a lot of projects were sanctioned in 2013 and 2014. Many of those projects will be coming on line this year and in 2017,” he said. “(Total) does not expect a price recovery in 2016.”
Oil production from the US Gulf of Mexico is currently rising, as many megaprojects invested in several years ago are now coming on line. Output from the Gulf of Mexico is about 19% higher now than it was a year ago, according to the US Energy Information Administration.
ConocoPhillips’ Ryan Lance CEO said at the conference that US production is now running at about 9.1 million B/D, down from 9.6 million B/D in the first half of last year. US output will likely decline another 500,000 B/D this year, he said. That may not be enough, depending on the amount of oil Iran produces this year and with the world oversupply currently estimated at 2 million B/D. Iranian production could add anywhere from 500,000 B/D to 700,000 B/D to the market in 2016, according to a recent estimate from Barclays. Saudi Aramco’s CEO had a more positive view of the world oil market. Amin Nasser said he thought the market would begin to balance this year and that his company was continuing to invest in upstream projects to meet future world demand.
Analysts Tudor, Pickering, Holt and Co. said that oil companies have canceled or delayed final investment decisions on about 150 projects in the past year that would have produced 125 billion bbl of oil equivalent. That could leave the world oil-short a few years from now if global demand continues to rise as expected. JPT