Dwindling oil prices take their toll on energy industry

Plummeting oil prices are beginning to take a toll on the energy industry, prompting oil producers to slash capital and employments in an attempt to cut costs.

Anglo-Australian energy giant, BHP Billiton is cutting its shale oil production and reducing the number of rigs it operates onshore in the US by 40 percent while French oil and gas giant, Total plans to reduce its group-wide capital spending by 10 percent this year under an accelerated cost-cutting plan.

Total is the latest of the oil and gas giants to signal further cuts as they look to shore up cash flow and protect dividend payouts. This move comes as thousands of more job cuts were recently announced, with oilfield services provider, Baker Hughes being acquired by Halliburton saying it would lay off 7,000 employees.

Global crude oil prices have plunged by nearly 60 percent since June to just under $49 a barrel as a result of weaker growth in crude oil demand, boom in US shale production and OPEC’s decision to maintain output.

“In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in onshore US business by approximately 40 percent by the end of the financial year,” said BHP.

This will reduce the number of rigs BHP operates onshore in the US to 16, down from 26.

Total on the other hand, is looking at imposing a group-wide hiring freeze for 2015 as its capital expenditure is now expected to fall $2bn – $3bn from last year’s total of $26bn.

Patrick Pouyanne, CEO and President of Total, in a Financial Times interview, said Total would press ahead with a restructuring of loss making refineries in Europe. These would include cuts to exploration and development in the UK region of the North Sea.

ConocoPhillips has also announced a 20 percent reduction in capital spending for 2015, while BP has taken a $1bn restructuring charge to pay for Job losses.

Noting that many of BHP’s peers were also cutting rig numbers at their shale oil operations in the US, Glyn Lawcock, UBS analyst, said: “I would expect this to have an impact on production. In the case of BHP we expect impact to financial year 2016 production, but not necessarily financial year 2015 production given rigs will come off line towards the end of 2015”.

Oil and gas giants have however, made it clear they will pass on the effects of the plunge in oil prices to oil services companies – including groups such as Schlumberger, which last week announced plans to axe 9,000 jobs.

Plummeting oil prices has been bad news for much of Nigeria, which runs its economy largely on oil. Africa’s largest economy, Nigeria, has faced a tumultuous period with elections due in February, at a time when state revenues, more than 70 per cent of which come from oil, have halved.

Brent, the global benchmark which compares with Nigeria’s Bonny Light crude, traded at $50.06 whereas WTI traded at $48.66 a barrel as of 02:46p.m Thursday.

Dan Ojabo