Oil and gas companies are expected to curtail their spending by about 30% this year, prompting widespread speculation that the industry is headed for a dramatic slowdown, FuelFix.com reports.
But according to a new study released today by energy analyst firm Wood Mackenzie, as companies pull back on spending, they are also forcing down bloated exploration costs, which could spur an uptick in drilling in the coming months.
“They will definitely be spending less, but that money will go further,” says Andrew Latham, vice president of exploration at Wood Mackenzie.
The number of wells will fall this year, but drilling should recover by next year as oil companies “seize their chance to drill at lower cost,” the report notes. Wood Mackenzie expects exploration costs to fall by one-third, correcting a long-standing inflation problem and allowing drillers to stretch their dollars further in the oil patch.
Service costs have been a “thorny issue for years,” Latham says, prompting the industry to look for ways to drill as efficiently as possible. Falling prices will “further focus minds and push operators to squeeze harder,” he predicts.
“It’s not just that you’re getting a rig for a lower day rate, but you’re drilling a simpler rig and getting that rig from a nearer location than you would have in an overheated market,” Latham says.
Even though capital expenditures have been cut, drilling could bounce back to 2014 levels, the report says.
