 "Give incentives to boost investments: Upstream oil firms")
Upstream exploration and production capex is likely to fall 23 per cent year on year (y-o-y) globally in 2016, according to JP Morgan's global E&P Capex Survey.
Upstream oil and gas operations identify deposits, drill wells and recover raw materials from underground. This sector also includes related services, such as rig operations, feasibility studies, machinery rental and extraction chemical supply.
"This compounds the 21 per cent decline in 2015, which implies that 2016 will be 60 per cent of 2014 peak levels. In contrast, the short-lived 2008/09 oil price crash generated a 15 per cent decline in capex in 2009, with a rebound of plus 12 per cent in 2010," said J.P.Morgan.
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Regionally in 2016, US Independent exploration and productions plan the largest cuts (-53 per cent y-o-y) while managing an oil production decline of just 9 per cent, which will have a modest impact on oil market tightness.
The survey estimates MENA (Middle East and North Africa) region as the most resilient with cuts of only -10 per cent likely in 2016.
"We remain cautious on the oil services sector, with more adjustments to 2016/17 consensus likely. However, some relatively safe patches of value do exist in our view," the survey states.
The survey added that in the Asian region, China oils have indicated more severe capex cuts this year with oil prices around current levels and we forecast capex down and only limited signs of opex adjustment.
"We see continued pressure on oil service backlogs and earnings for China OFS names. State-owned companies (SOEs) are likely to continue cost-cutting and promoting in-house oil service divisions this year. We have a cautious view on Anton Oil, COSL and Honghua,with risks that non-SOE names go into bankruptcy," the survey added.
In India, state-own Oil and Natural Gas Corporation (ONGC) is said to have cut its capex by 26 per cent from $6157 million to $4553 million.
The oil price fall from $100 per barrel in 2014 to an average of $54 per barrel across 2015, means a price delta of $50 per barrel. Applied to 96 million metric barrels of oil per day of production, it implies $1,700 billion less revenue for the industry and resource owners, from crude oil alone. "Of course the net cash flow impact on oil companies is a small proportion of this figure, due to fiscal regimes and so forth, but even that amount is still staggering," J.P. Morgan added.
Yet 2015 capex budgets fell by just 21 per cent overall from 2014 levels, which is equivalent to only a $150-170 billion cut in capex globally.
