At the height of its fury, the oil-market collapse over the past two years squeezed drillers harder than any previous downturn, creating an unprecedented financial crisis for oil drillers. Scores of North American oil companies have gone bankrupt in its wake.
FuelFix.com reports that even after the industry cut hundreds of billions in spending, the average oil company still only collects $26 for each barrel they sell at today’s oil prices, and that money disappears after cash costs.
In February, when U.S. oil prices fell to a 13-year low of $26 a barrel, drillers couldn’t generate any cash selling oil—and they still had to pay off their debts. The difference between the price of a barrel of oil and the cost to get it out of the ground had never been slimmer, an oil specialist said on Wednesday at the Offshore Technology Conference in Houston.
“This is, in historical context, extraordinary,” said Lars Eirik Nicolaisen, a partner at consultancy Rystad Energy in Oslo, Norway. “When you compare this to history, it makes some of the setbacks that we’ve put behind us in 2009 and the early 2000s look like a walk in the park.”
The oil industry has pulled back on spending more than in any previous downturn, with 2015 outlays down $220 billion last year and another 21% this year. Around the world, oil fields naturally decline around 10% to 12%. Nicolaisen said the question is why global oil production hasn’t fallen sharply enough to correct the world’s oil glut by now.
It’s because even though the industry has mothballed billions in oil projects, they’re still spending money to pump oil from deep-water installations and other projects that were approved years ago. In 2013 alone, oil companies sanctioned projects with 18 billion barrels in reserves.
In isolation, those previously approved projects added 1.7 million barrels a day to the world’s oil production last year and would add another 1.7 million this year—and another 5.8 million from 2017 through the end of the decade.
