EIA said in
its Financial Review of the Global Oil and Natural Gas Industry 2015, that
asset impairments occur when a company lowers the estimated value of a property
to reflect current market value, which may result from loss of production
potential or declining oil prices.
Royal Dutch
Shell and France’s Total had delayed multibillion-dollar offshore oil projects
in West Africa as part of efforts to rein in costs and shore up cash flow
following the collapse in crude prices.
Specifically,
in Nigeria, Shell is said to have postponed until next year a final investment
decision on the offshore Bonga South West project in Nigeria, which it is
estimated will require $12 billion of spending. Total, for its part, has
delayed a final investment decision on Zinia 2, an offshore satellite of
Angola’s Pazflor field.
Brent crude
prices fell yesterday, after hitting 2016 highs in the previous session, as the
impact of unplanned supply disruptions of about 800,000 barrels per day in
Nigeria was unable to sustain the rise due to improved supply from other
countries.
International
Brent crude futures were trading at $49.11 a barrel at 1135 GMT, which is 17
cents below its last settlement while U.S. West Texas Intermediate (WTI) crude
futures was flat at $48.31 a barrel as at yesterday. It said that companies
were able to raise about $100 billion by selling assets and accessing capital
markets to supplement the decline in cash flow.
The U.S.
agency said that capital expenditure and cash flow fell $152 billion and $192
billion respectively, the largest year-over-year change in the 2007 to 2015
period.
It stated: “The companies did not add as many reserves as they produced.
The reserve replacement ratio measures the amount of reserves a company added
compared to the amount it produced that year. A reserve replacement ratio above
100 per cent means it discovered more reserves that year than it produced,
adding to its resource base and future potential production. Downward revisions
in proved reserves partially offset new discoveries for liquids and natural
gas.
“Asset
write-downs reduced profits and the amount of proved reserves; proved liquids
reserves declined for the first time since 2008. Production increased largely
because of investment from past projects. Companies were able to access cash from
capital markets and asset sales in the face of declining cash from operations.
Capital expenditure fell below 2009 levels, and 2016 spending is likely to
decline again.”
It noted in
another in its International Energy Outlook that in response to low oil prices,
which have reduced expectations of future revenue (and thus expected profits),
capital expenditures for investment in future production potential have been
delayed or cancelled.
EIA noted,
however, that many OPEC and non-OPEC large capital investment projects
scheduled to be completed over the next several years will continue as planned.
It expects
investment to continue slowing to a point at which producers (outside of tight
oil plays), which provide over 90 per cent of world crude and lease condensate
supply will be unable to respond quickly to future growth in demand for
liquids.
“As
a result, prices are expected to return to the range of $80 per barrel within
the next decade. If supply growth slows as a result of underinvestment, a sustained
period of higher prices may be required to induce additional capital back into
the market. Even then, long project timelines will delay the re-entry of some
production from non-contiguous resources into the market”, it said. (Guardian)
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