UPDATE: Capex From Smaller Oil, Gas Cos Seen Down 30% In '09
March 27 2009 - 8:01AM
Dow Jones News
Investment from all but the largest oil companies in 2009 is
seen falling by almost a third, due to weak cash flow and lack of
access to capital, a survey from specialist energy investment bank
Tristone Capital said Friday.
Firms that had capital expenditure of less than $10 billion in
2008 are cutting spending by 30% in 2009, the survey of 205
companies found. "Companies are struggling to make definitive
business plans in this extremely uncertain and volatile
environment," the report said.
The largest oil companies that spent more than $10 billion last
year, are keeping spending relatively steady. "(They) have the
financial flexibility to continue to spend on multiyear projects
already under development and less flexibility to cut spending on
committed projects," the report said.
Historically, the spending of the five largest international oil
companies - BP PLC (BP), Chevron Corp. (CVX), ExxonMobil Corp.
(XOM), Royal Dutch Shell PLC (RDSB.LN) and Total SA (TOT) - has
been closely tied to the oil price, it said. Based on the current
oil price, "historical relationships would suggest (capital
expenditure) would fall 30-35%," the report said.
So both groups of companies may be forced to make further
capital expenditure cuts this year or next if the price of oil
doesn't increase.
"Many budgets were announced in late 2008 or early 2009 and
commodity prices have weakened substantially since then, especially
for natural gas," the report said. "If the commodity and capital
markets remain weak, we expect additional cuts will be necessary
due to the impact on cash flow and the lack of external financing
available."
Total spending from all companies will be down around 17% in
2009, compared with 2008, with the bulk of the reduction in North
America, it said.
The slowdown in the industry will most likely lead to reductions
in operating costs that, "should have the favorable outcome of
lowering break-even costs for marginal production, including oil
sands," the report said.
It may also lead to a quick rebound in oil prices once the world
economy begins to grow again. "With reduced spending, the upstream
industry will be challenged to replace the annual production
decline rates of 7-9%," the report said.
"We are already seeing evidence of declines in non-OPEC
stalwarts Russia and Mexico, and the impact will become
increasingly pronounced beyond 2010 when demand recovers and the
market burns off OPEC spare capacity," it said.
Consultancy Cambridge Energy Research Associates said Thursday
that the investment slowdown could cut nearly 8 million barrels a
day from future supply.
Company Web site: www.tristonecapital.com
-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317;
james.herron@dowjones.com