Is Oil, Gas Capital Spending Really on the Wane?

OMV Finds More Gas, Condensate Onshore Pakistan

Third quarter results from European oilfield services companies have lent some support to the view that the oil and gas industry is changing tack and cutting back on capital expenditure – particularly in upstream activities such as exploration – in order to boost profits.

In October, Norwegian seismic survey firms TGS-NOPEC Geophysical Company and Petroleum Geo-Services (PGS) both reported that oil and gas companies were committing less funding to capex. Exploration companies cutting back on investment, in an attempt to improve profits and save cash for dividend payments to investors, was blamed for TGS lowering its full-year revenue guidance for the second time in three months.

Meanwhile, PGS CEO Jon Erik Reinhardsen commented in his company’s third-quarter results:

"From our clients we have experienced increased focus on preserving their dividend capacity, which has impacted on their seismic spending. Customer caution on spending lessens the likelihood of seeing the normal seasonal 4Q increase for multi-client sales."

Then, in mid-November, fellow Norwegian seismic firm Dolphin Geophysical AS said that the seismic survey sector will continue to slow over the coming quarter and that any recovery would be unlikely before 2Q 2014.

Away from the seismic survey firms, at the end of October the CEO of French oilfield services firm Technip S.A. warned that he is seeing a more strict "discipline" from the firm's oil and gas clients when it comes to capital spending. However, he added that he thought this discipline would be applied to investments in the downstream with the investment environment for exploration and production expected to remain "very positive".

There are also signs from European oil majors themselves that a stronger emphasis on dividends is emerging while capital spending is getting tighter. For example, BP plc revealed in its third quarter results at the end of October that it would be keeping a lid on capital spending during 2014, issuing guidance that it would spend between $24 and $25 billion on capex instead of the $24 to $27 billion it had previously indicated. At the same time it raised its quarterly dividend by more than 5 percent.


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A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com

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