Exploration and production companies have been hesitating to engage in greenfield projects amid the current market downturn, resulting in the lowest offshore project commitment since 1998, according to Norwegian analysts Rystad Energy.
Only US$43 billion are estimated to be committed this year, which is over 75% less than the average volumes sanctioned from 2011 to 2014, says Rystad.
In terms of the number of projects, only around 50 projects are expected to proceed, a number that historically has been threefold. Lower commitments were last seen in 1998, when oil prices plummeted by more than 40% and E&P companies committed to only $38 billion worth of projects.
Due to order intake reduction, oilfield service companies have cut almost 30% of their workforce since the beginning of the downturn, as their quarterly revenue declined by 12% on average over the last six quarters.
“The size of the workforce cut is as large as four companies similar to Schlumberger combined,” says Audun Martinsen, VP Oilfield Service Research at Rystad Energy. “E&P companies should begin to worry as there may not be enough service capacity when the market recovers and investments start to rise. The current size of the service industry is not adequate to provide deliveries on all the potential projects that E&P companies like to initiate over the next years once oil prices rise.”