Major Oil and Gas Exploration/Production Expenditures Headed for Drastic Downturn

According to a definitive study of global oil and gas 2015 capital expenditures, a 17% drop to $571 billion is in the cards, cites Cowen & Company's annual study of 476 oil and gas companies. This projection is based on the West Texas Intermediate price average for the year.

This represents the third largest capital downturn since 1985, when a one-third oil and gas capitalization plunge cut reached a low of $10 per barrel. The caveat that Cowen issued when making these projections, formulates that prices skidding below $50 per barrel, as 2015 begins, could generate ever greater capital cuts as the year wears on.

Geographically speaking, international exploration, and E&P spending will tend to hold up even in face of further oil price deterioration early in 2015. But a sustained downturn in the $50 world-based Brent crude price average could generate E&P cuts that may challenge the 1986 33% expenditure plunge.

Probably holding up best are capital expenditures in the Middle East, where limited capital increases will emit from Abu Dhabi National Oil Co., Kuwait Oil Co., Saudi Aramco, and Qatar Petroleum. They must protect the capitalization of their only dominant product — oil.

The global super majors, such as Conoco Phillips, Exxon Mobil, BP, and Shell Oil are estimated to be reducing their spending levels down between nine and 15%, partly due to a continuation of liquid natural gas projects, that are expected to be readied for worldwide distribution.

Although Eagle Ford, Permian, and Bakken shales are expected to hold up strongly, a 20% spending drop could feature an equal spending downturn in rig counts of 550 units from the fourth quarter average.

According to Cowen & Co., the U.S. companies with the biggest anticipated budget cuts in 2015 are the Sandridge complex, at 63%, Whiting Petroleum, with 41%, and Continental Resources Inc. are anticipating a 40% downturn.

Canadian oil companies, which are almost totally relying on oil-sands development from Alberta Province, are estimating a 25% capital spending decline. Encana Corp. Is foretelling a 47% cut from 2014, while Husky Energy, Inc. Is expecting a budget cut of 37%. A major drop-off in oil sands is inevitable, which may make the XL oil pipeline project a less critical development as it wends its way to President Barack Obama's desk.

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