- Explorers and producers cut $250 billion in spending this year
- Industry must replace 34 billion barrels of oil every year
Reduced spending by oil explorers will lead to a global shortage of crude within the next few years, according to industry consultant Rystad Energy.
While the world’s exploration and production companies need to replace 34 billion barrels of oil every year to meet consumption needs, the companies made investment decisions that will result in only about 8 billion barrels in 2015, Rystad said in a report released Wednesday.
Exploration and production spending around the world fell by $250 billion this year and is expected to drop another $70 billion in 2016, according to the report. Those spending cuts are reducing the profits of the world’s largest oil services companies. Halliburton Co. said Wednesday at the Wells Fargo energy conference in New York that margins outside the U.S. and Canada are expected to be lower next year.
"Clearly the pain will continue," Christian Garcia, acting chief financial officer at Halliburton, told investors at the conference. Once oil stabilizes "at any price," then producer activity and service pricing can get more stable, leading to improved margins for the company, Garcia said.
The industry has idled more than 1,000 rigs and gutted more than 250,000 jobs to cope with oil prices that have fallen by more than half since 2014. Oil services, drilling and supply companies are bearing the brunt of the downturn, having accounted for more than three quarters of the layoffs, according to industry consultant Graves & Co.
Halliburton said its North American drilling activity will be better than expected in the fourth quarter while its well-completion work is shaping up worse. All together, stronger fourth quarter margins in North America are seen as offsetting international margins that may be weaker than earlier forecast, Garcia said.