06/06/2009
LONDON, June 5 (Reuters) - Oil prices need to be higher, costs lower and credit easier to revive exploration and development of oil and gas projects that have been hit hard by global economic downturn, industry officials said this week.
Oil and gas industry executives told Reuters Global Energy Summit that most of the oil majors, such as France's Total, continued to invest in future oil and gas output despite severe recession across much of the globe.
But many smaller upstream companies, the petroleum services sector and firms in costlier regions of the world, had been hard hit by recession, lack of finance and a collapse in oil prices.
Oil prices have rallied sharply over the last three months and were not far below $70 per barrel on Friday near seven-month highs, but they are still less than half their level in July last year when they hit all-time highs above $147.
Many oil companies see $70-$75 per barrel as the minimum price needed to revive investment in their industry.
"You need to have at least a $70 price to review your projects," OPEC Secretary General Abdullah al-Badri said.
He said members of the Organization of the Petroleum Exporting Countries had put on hold 35 projects because of poor economics during the period of weak oil prices.
"When we see the price recover for six months or so, then OPEC member countries will look at these projects and start to reactivate them," he told the Reuters Energy Summit in London.
"$75 PER BARREL PLUS"
Aidan Heavey, chief executive officer of Tullow Oil, Europe's largest independent oil explorer by market value, agreed. "To get proper investment back into the oil industry, you do need $75 per barrel plus."
"There is a lot of pressure on our peers," Heavey said. "There is a serious lack of money in the industry."
The International Energy Agency, adviser to industrialised countries, has said the fall in investment could leave markets vulnerable when energy demand eventually revives.
Total said it based its projects on oil at $80 a barrel, but to allow for a range of price outcomes, it also looked at the implications of oil at $60 and $100.
Jean-Jacques Mosconi, the company's head of strategy and planning, said big oil companies were doing their best to carry on with long-term investment, but said smaller firms had more issues with finance. "When you are BP or Total, it's easier to get credit than if you are an independent company."
For independent operators, the picture looks tough.
The outlook for the oilfield service industry this year is much worse than expected as companies are hit hard by the steep decline in drilling, especially onshore in the United States, according to consulting firm Spears & Associates Inc.
The number of rigs drilling for oil and gas has fallen to a 6-1/2 year low. There has also been a sharp drop in the number of wells that are readied for production and discounts are growing as exploration companies press for price breaks.
The global recession has cut into industrial demand and supplies of crude and gas have swelled, depressing prices.
"We haven't gone through the downturn long enough for things to get really brutal," Richard Spears, vice president of consulting firm Spears and Associates, said on Thursday at the Reuters Global Energy Summit in Houston.
Revenue for the large global oilfield service companies, which include Schlumberger Ltd and Halliburton Co, will decline 20 percent in 2009, Spears said.
Apache Corp Chief Executive Steve Farris said oil and gas producers needed costs to drop further before they invested in new projects.
Even with the recent rally in oil prices, weak demand would keep energy prices soft for several months, Farris said in Houston. "A lot of people tend to think we've bottomed out. I tend to think otherwise," Farris said.
"We're very early in the downturn of our industry."
