Mid-sized oil producing companies are proving more resilient against weak oil prices than expected as they are able to slash more costs, allowing them to press ahead with projects that are set to add even more barrels to a global supply glut.
British-listed oil producer Tullow surprised analysts last week with a smaller-than-expected rise in debt to $4 billion, while rival Premier Oil, often cited as a takeover target as oil prices declined, announced the $120 million acquisition of E.ON’s UK oil and gas assets.
Part of the secret is small companies’ ability to shave substantial costs off their budgets and to make changes quickly to work more efficiently within their means.
Analysts at Barclays predict the global exploration and production spend to fall around 15 per cent this year if oil prices average $45-50 a barrel. Investments could fall nearly 20 per cent if prices average $40 a barrel, they said.
More than $200 billion worth of global oil and gas projects have already been scrapped and with oil prices close to 12-year lows more cancellations are on the horizon.
Tullow Oil, focused on its fields in Africa, said it can trim its capital investment programme by another $200 million this year if need be.
“We’re in pretty good shape to ride out the storm. This is not a storm anymore, this is reality,” Tullow Chief Executive Aidan Heavey told Reuters.
The oil producer said its flagship TEN oil project in Ghana was on track to deliver first oil between July and August, adding around 23,000 barrels of oil per day to the market this year.
North Sea-heavy oil producer Premier Oil, with a market capitalisation of around 97 million pounds ($140.29 million), showed just how confident it is in the current market environment by announcing a $120 million acquisition of E.ON’s British oil and gas assets.
Premier is able to finance the purchase using existing cashflow after it concluded the $120 million sale of its Norwegian business three weeks ago.