Oil price plunge hits upstream spending

EIA

By Courtney Pearson

March 30, 2015

UPSTREAM investment by international oil and gas majors fell by 12 per cent in the last quarter of 2014 due to the falling oil price, the US Energy Information Administration (EIA) revealed.

Combining reports from 23 global oil and natural gas producers, the EIA found upstream spending had totalled US$77 billion in the December quarter – a US$10 billion drop from the same quarter of 2013.

Nearly all four quarters record declines in spending, bringing full year 2014 upstream capital expenditure to US$297 billion – 6 per cent less than 2013.

“Much more so than midstream and downstream investments dealing with the refining, distribution, and sale of oil and natural gas, spending in the upstream segment tends to correlate with changes in crude oil prices, because prices are a significant factor in any project’s potential rate of return,” the EIA said.

Average crude prices were 30 per cent lower in the last quarter of 2014 than the same time the previous year, likely contributing to the delay or cancellation of some projects.

The EIA urged companies to consider the oil price before spending on upstream projects.

“As oil prices and upstream investment spending fall, reduced demand for rigs and other oilfield services will tend to reduce the price of those services,” the administration said.

“Lower costs for oil services can make upstream investment more attractive and partially offset the effect of reduced upstream budgets on the level of upstream activity.”