Drilling Activity to Rebound in 2016 after Exploration Cuts this Year
Drilling activity across the global oil and gas industry could return to 2014 levels next year, according to a new report from research firm Wood Mackenzie.
Wood Mac said Thursday that although the oil and gas industry is currently responding to the low oil price environment, with exploration budget cuts in 2015 expected to average 30 percent, drilling activity in 2016 is set to recover as many explorers seize their chance to drill at lower costs.
In its report "Upstream Cost Deflation: How Much Could Costs of Exploration Fall?", Wood Mackenzie noted that the industry is now addressing a longstanding cost inflation issue.
Dr. Andre Latham, VP Exploration Research for Wood Mackenzie, said:
"Rising costs are not a new problem for explorers. Over this decade, inflation has more than offset price gains and left much of the industry struggling to create value. Now that prices have fallen sharply, this problem has become acute. In the short term, many explorers will react by simply spending less. But what they really need is lower costs."
Wood Mackenzie estimates that exploration deflation will average 33 percent by 2016, with like-for-like costs falling by 19 percent.
"Only about half of these gains will be enjoyed during 2015 as contracts unwind and operators take time to adopt new practices. We expect the full benefit during 2016, unless oil prices recover quickly. Deflation at this rate could allow any companies that hold spending flat into 2016 to fund 50 percent more exploration versus 2014. Even those with cuts of around the average 30 percent may see their 2016 activity bounce back to 2014 levels," Dr. Latham added.
Several oil and gas firms have announced cuts to their exploration budgets for 2015. Thursday saw French oil firm Maurel and Prom announce that it has cut its exploration budget by 60 percent.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- ITEM Club: More Jobs Losses Expected in NE Scotland due to Oil Slump
- Shell Q&A: What Makes an Ideal Employer in Oil, Gas?
- Shell Takes First Place in Rigzone's Inaugural Ideal Employer Survey
- UK Government 'Must Recommit' to Oil, Gas Sector in Autumn Statement
- UK Government Gives Go-Ahead for Fracking in NW England
- ExxonMobil Racks Up Discoveries in Guyana Block Eyed by Chevron
- Oil Market Sentiment Has Improved Significantly
- EU, US Eye Collaboration on Nuclear Materials
- EU Electricity Export to Ukraine Up 94 Percent in Two Years
- China Coal Output Falls for First Time since Government Ordered More
- USA Driving Activity to Increase to All-Time Highs
- BP Pulse Buys One of Europe's Largest Truck Stops
- UK CCUS Plans Outdated: Think Tank
- TC Energy to Sell Prince Rupert Gas Pipeline Project to First Nation
- I Squared Eyes Full Ownership of Europe Gas Storage Firm
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- Rystad Looks at the Buzz Around White Hydrogen
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension