Oil & Gas Companies Show “Strong Survival Reflex”

Published at 07:59AM - 28/07/16

According to Wood Mackenzie’s latest report on second quarter results across the oil and gas industry, companies are showing “a strong survival reflex”, with a tight management of their cash flow.

Most of the 56 companies reviewed have used deep cuts on their capital investment to survive, which has also produced a strong impact on their growth prospects.

“Balance sheet management is front of mind across the industry – cost containment and capital discipline are still the strident messages emanating from all companies. But strategies will need to shift away from survival mode and look to the future”, says Tom Ellacott, Senior Vice President of Corporate Research at Wood Mackenzie.

Oil & Gas Companies Show “Strong Survival Reflex”

According to the research, these 56 companies will achieve cash flow neutrality at an average oil price of around $50 a barrel of Brent over this year.

“This is some achievement given the majority needed over US$90 a barrel in 2014,” Ellacott stated.

He explained that the companies have cut their exploration and production spending for the year by 49% on average, or US$230 billion (£175.34 billion), compared to 2014 levels.

Additionally, the research states that the annual growth rate has fallen and US independents were the most affected group, with the most severe cutbacks.

Oil Firms Starting to Adapt to Price Environment

According to Wood Mackenzie, only four companies are expected to grow at double-digit rates between 2015 and 2020, with Swedish explorer Lundin Petroleum topping the list.

In contrast, nearly 30 companies will be producing less in 2020 than they were in 2015.

“Oil and gas companies’ investment strategies are now starting to adapt to the new price environment. Some have seized the moment with counter-cyclical moves that have repositioned portfolios lower down the cost curve,” Ellacott explained.

According to the CEO, “smarter capital allocations and efforts to rework projects to reduce costs are also starting to pay off”, but many projects could face uncertainty, especially in the deep water sector.

To read the report, Click Here.