Despite efforts to cut costs, the petroleum industry can’t make money on $1.5 trillion in pending investments on conventional and North American shale drilling projects with $50-per-barrel oil, energy research firm Wood Mackenzie estimates.
FuelFix.com reports that Wood Mackenzie says in a new report, released Sunday, that even though oil producers are aiming to squeeze out 20% to 30% of their project costs through discounts on equipment and oil field services, costs will likely come down by about 10% to 15%, on average.
Oil companies have invested $220 billion less than Wood Mackenzie had initially estimated for this year and next year, with 46 projects deferred after the oil-market crash since the summer of 2014. The estimated $1.5 trillion in oil projects represent prospects that drillers haven’t yet sanctioned for investments.
With oil at $50 a barrel, “this spend is very much at risk,” says James Webb, Wood Mackenzie upstream research manager, in a written statement. “A prolonged period of low oil prices over a number of years is likely needed to bring about profound, structural changes to industry costs.”
But Wood Mackenzie believes prices will start a recovery in 2017, likely pushing costs toward levels before the oil price slump.
