Oil industry: Where’s the biggest cutbacks?

Getty

Getty

The oil industry has been very volatile this year with the price of WTI crude falling more than 50 percent from its previous high back in June of 2014. As a result, oil companies have been making drastic changes to future investments and adjustments to their 2015 capital expenditures in the process.

Now more than ever, the return on investment to extract crude from the earth is marginal at best for many oil exploration firms. In other words, removing the oil cost too much for some to generate a profit. The same companies have also been forced to lay off employees to offset the ripple effect from the change in oil prices. Swift Worldwide Resources, a well-known staffing firm has recently reported more than 120,000 jobs have been lost in the industry to date.

Related: Schlumberger cuts 11,000 more jobs; bringing total to 20,000 for the year

Although drilling and CapEx budgets have been cut, the supply of oil in the US is plentiful. According to the oil research firm Genscape, 471 million barrels are in storage facilities presently, compared to the previous peak of 400 million barrels reached last April.


Oilcutbacks


Oil companies are banking on the decrease in drilling activity to stabilize the market and to make higher profits from the oil currently in storage. Since it also cost the firms money as the crude sits in these facilities.

Companies such as Houston-based Apache Corporation (NYSE: APA) have deferred completion of new wells in shale plays until the market stabilizes, and prices rise again. According to Genscape, Anadarko, Apache, EOG, Cabot, Chesapeake, and SM Energy all have announced deferral of 845 well completions. The firm estimates this represents about 373 million barrels a day of oil production.

WTI has risen about 17 percent since the beginning of April, showing signs of a rebound as a result of drilling cutbacks.

The Organization of the Petroleum Exporting Countries (OPEC) has stated they are not cutting back and continues to add to the world’s surplus. According to a survey by Cowen and Co. of 476 companies, international firms are expected to boost spending on exploration this year by 4 percent to $41.7 billion.

Related: OPEC’s secretary-general says oil prices may rise to US$200 a barrel

Expect both benchmarks to continue fluctuating between $50 and $60 something dollars a barrel for at least the rest of the year.


FeaturedInsidersWebLarge

Be the first to comment on "Oil industry: Where’s the biggest cutbacks?"

Leave a comment

Your email address will not be published.


*