Houston Chronicle – Global spending on oil and gas drilling this year is forecast to fall to the lowest level in 15 years, a new report said.
Energy companies are expected to spend $383 billion this year on drilling and pumping for oil and gas, a 29 percent decline from the $539 billion spent last year. This year’s upstream investment is lower than the bottom of the last oil bust, and is expected to remain flat into 2021, according to Rystad Energy, a Norwegian research firm.
“As the impact will be more severe than in the previous downturn, companies are fiercely defending shareholder value and pivoting towards more conservative spending strategies in the near-term,” said Olga Savenkova, Rystad Energy’s upstream analyst. “As the global upstream sector contends with low prices, falling demand, and fluctuating exchange rates, every dollar cut will strike directly to the bone.”
Rystad expects shale oil investments will take the biggest hit, forecast to fall more than 50 percent to $67.3 billion this year. Oil sands investments will follow with a decline of 44 percent to $5.1 billion. Other onshore investments are forecast to fall by 23 percent to $182.4 billion this year.
On the other hand, offshore spending is expected to be least affected by the latest oil bust, according to Rystad. Deepwater spending is estimated to fall by nearly 16 percent to $69 billion this year while offshore shelf spending is expected to fall by 14 percent to $59.5 billion.
Global upstream spending was already expected to fall by up to $100 billion this year as oil and gas producers continued to tighten their belts in the aftermath of the 2014-16 oil bust. However, as crude prices plunged to record lows during the coronavirus pandemic, operators were forced to cut even deeper, Rystad said.
Although the current drop in upstream investment is similar to what happened during the last bust, industry spending is falling from a lower peak to a deeper trough, Rystad said. During the 2014-16 downturn, drilling investment fell 27 percent, but virtually no wells were shut down and energy companies focused their cuts on supply chain and unnecessary expenses.
During this current downturn, energy companies have closed, or shut in existing wells, and slashed spending on drilling new wells, making it difficult to replace declining production in the future, Rystad said. About 125 oil exploration and production companies have announced spending cuts totaling $100 billion this year.