The oil-price plunge is set to force energy companies to slash capital spending in North America, Europe and Asia this year, investment bank Evercore IS said on Tuesday.
However, investment would continue to rise in Africa and the Middle East as producers in those areas seek to boost long-term output in the flooded global oil market.
Evercore estimated that oil companies would cut spending on exploration and production globally this year by between 10 and 15 percent, and by between 25 and 30 percent in North America.
“To sum it up, a sharp recession is coming to the global oilfield,” Evercore oilfield services analyst James West said, after surveying 300 global oil and gas companies on their spending plans for this year.
The report shows the impact of the steep drop in oil prices.
US oil prices on Tuesday closed at US$47.93, down from nearly US$107 in June. The London benchmark, Brent crude, has fallen from US$115 a barrel to less than US$52 on Tuesday.
The oil-price crash is also beginning to reverberate across other industries.
US Steel plans to lay off hundreds of workers due to lower petroleum industry demand for pipes, a union source said on Tuesday.
About 750 workers are expected to lose their jobs, according to US media.
Evercore said the oil industry is contending with lower cashflow and a lack of access to capital.
Independents are especially vulnerable.
As a result, companies are cutting back especially in high-cost Arctic drilling and in Canadian oil sands projects, as well as on some US shale ventures.
Arctic projects require oil prices of between US$115 and US$122 a barrel to break even, while Canadian oil sands and deepwater developments can require US$90 a barrel.
Many US shale developments can withstand a somewhat lower price, but Evercore said a sustained fall to US$60 a barrel or below would force companies to curtail operations.
Evercore also expects capital spending in Europe to fall by 20 percent due to cuts in the North Sea. It projects more modest declines in spending in Asia and Latin America.
Investment in Russia would be trimmed by 10 percent or more due to lower prices, as well as international sanctions on Russia, the report said.
However, Middle East capital spending is expected to rise 15 percent, with Saudi Arabia proceeding with a number of high-cost natural gas projects and Kuwait working to boost its crude output to 4 million barrels a day in 2020, from about 3 million now. African spending would rise by 6 percent this year, thanks to strong investment in Angola and Algeria, the report said.
The Evercore report showed a sector grappling with uncertainty at how low oil prices would fall and for how long.
Companies in the sector based their capital budgets on an average price this year of US$78 a barrel, implying the industry expects a rally in crude prices later this year.
However, Societe Generale on Tuesday slashed its earnings estimates for oil services companies, predicting that “the oversupply situation will pressure the oilfield environment well into 2016.”
Oil-services companies Halliburton (minus-0.9 percent), Schlumberger (minus-2.1 percent) and Weatherford International (minus-0.7 percent) continued to drop on Tuesday in parallel with crude prices.
Evercore’s projections were based on replies to a survey on company spending plans that was begun in November last year, when the US price was still above US$70 a barrel. Survey responses showed this year’s capital spending declining by 11 percent in North American and 2.1 percent in international markets.
However, West said that because oil prices have continued to sink since the survey was launched, its numbers “grossly” underestimate the scale of likely spending cuts.
On Dec. 15 last year, companies revised down their capital spending plans by an average of 38 percent.
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