For the first time in years, oil companies are cutting their exploration and production costs. Analysts believe it’s because they expect oil prices to fall, reducing the profit incentive to find new oil deposits.
Newspaper Dagens Næringsliv reports that brokerage firm SEB Enskilda has learned that a long list of international oil firms are trimming their oil exploration and production operations.
SEB Enskilda interviewed leaders of 25 oil and gas companies including BP, Exxon and Shell. Even though oil prices have doubled in the past year, the companies are cutting investment in oil and gas exploration by around 10 percent over the next year.
It’s the first time in at least a decade that such cuts are planned. In recent years, investment in oil and gas exploration has risen an average 14 percent a year, according to the brokerage firm.
“Uncertainty is plaguing the companies,” said analyst Terje Fatnes. “Many had hoped the oil companies would boost investment when oil prices went over USD 70 again, but that’s not our impression.”
Fatnes predicts a cut of around 5 percent in 2010 and doesn’t expect any recovery until sometime in 2011.
SEB Enskilda also reports that the predicted long-term price for oil has fallen from USD 68 a barrel to USD 57.
The predictions worry Norway’s large offshore industry, not least shipyards that cater to offshore oil exploration projects. “This isn’t good for our branch,” Roy Inge Nilsen, a union leader at Bergen Group Rosenberg in Stavanger, told Dagens Nææringsliv .
Nilsen said around 300 operators and 320 engineers and others are currently employed at Rosenberg. That’s considered just “a handful” compared to the 3,000 employed in earlier boom times. He fears the entire oil service sector will suffer this autumn and winter.