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    Companies to Cut Costs by 37% to Maintain Net Debt at 2014 Levels

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Summary

The effects of low prices will last for some years, as investment in new projects and exploration budgets will have an impact on production ‘well beyond 2015’.

by: Sergio

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Natural Gas & LNG News, , Security of Supply

Companies to Cut Costs by 37% to Maintain Net Debt at 2014 Levels

Majors, Independents and National Oil Companies (NOCs) are called to react to the fall in revenue, managing their debt and cutting the costs to potentially benefit from a possible flurry of M&A opportunities in the year ahead.

‘Financially strong players will put rationalisation programmes on hold but some companies will find themselves with little choice, unable to achieve the cuts in discretionary spend required to balance the books. Large-scale corporate consolidation is more likely than at any point since the late-1990s’ Wood Mackenzie wrote on Friday, adding that it expects companies to cut costs by 37% to maintain net debt at 2014 levels. 

As explained by Natural Gas Europe in a recent article, major players could take an active role to benefit of the current situation.  

Oil prices remain the main worry for the industry. This factor will define the extent of budget cuts.

‘Exploration budgets will fall sharply, although lower costs will be an offsetting factor.  But a big unknown is how much and for how long costs will fall – many companies will hold fire on expensive frontier drilling in anticipation that lower drilling and appraisal costs could materially improve full cycle economics’ Wood Mackenzie said.

Despite all the uncertainties, there is something sure. The effects of low prices will last for some years, as investment in new projects and exploration budgets will have an impact on production ‘well beyond 2015’.