Energy groups have shelved nearly $400bn of spending on new oil and gas projects
since
the crude price collapse
, pushing back millions of barrels a day in future output from areas
including the Gulf of Mexico, Africa and Kazakhstan.
In an authoritative study published on Thursday,
the energy consultancy Wood Mackenzie
says
development of some 68 major projects, or 27bn barrels of oil equivalent in
reserves, has been put back as companies scramble to curtail costs and protect
dividend payouts.
The latest figures show that the amount of deferred capital spending on
projects awaiting approval has almost doubled since June, from $200bn to
$380bn, with 2.9m barrels a day of liquids production — equivalent to Kuwait’s
crude output — now not due to come on stream until early in the next decade.
The savage new year sell-off in Brent crude, which has tumbled more than 70
per cent
from its summer 2014 peak of $115 to about $30 a barrel
— close to 12-year lows — has lent renewed urgency to cost-cutting.
US crude erased gains on Wednesday after
a weekly petroleum report
showed that stocks at Cushing, a key delivery point, had climbed to a
record high.
“Company budgets have shrunk drastically and investors are favouring those
delivering severe capex cuts,” the Wood Mac report says. “As a result, there is
a growing backlog of deferred greenfield and incremental developments that
require significant investment.”
In what the consultancy describes as a “bleak” outlook for the “vast
majority” of such fields — many of which are high-cost deepwater projects —
only a handful of projects are likely to get the go-ahead this year, while
billions of dollars more spending is expected to be postponed.
“It’s a bunker mentality,” says Wood Mac’s Angus Roger. “We will see more
projects delayed over the next six months. This trend is going to continue.”
The roll call of delayed projects includes developments such as
Statoil
’s Johan Castberg field in the Norwegian Arctic,
BP
’s Mad Dog 2 in the Gulf of Mexico, and the second phase of the giant
Kashagan field in Kazakhstan, which is being developed by an international
consortium.
The list has grown by a third in the last six months, with the average
“break-even” price of the projects being $62 a barrel. Deepwater fields account
for more than half of new deferrals, up from 17 six months ago to 29.
Such developments have been hit hardest because of their high break-even
prices, heavy upfront capital needs and “relative inflexibility”, says the
report.
Royal Dutch Shell
’s Appomattox in the Gulf of Mexico was one of a handful to be approved
last year, which is estimated to break even at $50 a barrel.
(Financial Times)