Low oil price hits $200 billion in mega-projects
16/06/2015 15:34
* Ernst and Young say more project delays likely
* Say at least 24 projects worth more than $1 bln put on ice
By Ron Bousso
LONDON, June 16 (Reuters) - Deepwater oil projects and
complex gas facilities worth around $200 billion have been
cancelled or put on hold worldwide in recent months due to the
sharp drop in oil prices over the past year, consultancy Ernst
and Young said on Tuesday.
Further project cuts and delays are likely as the industry
braces for an extended period of lower oil prices as a result of
a supply glut.
"The mind set in the industry at the moment is that prices
are unlikely to be bouncing up materially in the near term," the
consultancy's Andy Brogan said in a presentation. "There is an
expectation that volatility is with us for a reasonable period
of time to come and companies need to cope with that."
The delays in multi-billion dollar projects that can take up
to 10 years to develop, and needed to support rising global
demand for energy, could create a shortage in the future.
International companies have responded rapidly to the near
halving of oil prices since last June, slashing tens of billions
of dollars in capital spending in order to boost their balance
sheets and maintain dividend payouts to investors.
"A total of $200 billion of oil and gas projects have been
deferred or cancelled," said Brogan, global oil and gas
transactions leader at Ernst and Young.
"Portfolios reviews are happening more frequently and
probably with more rigour," Brogan told the World National Oil
Companies Congress. "There isn't anywhere for projects to hide."
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Graphic: Deferred and cancelled mega-projects: http://link.reuters.com/nub94w
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The main 24 mega projects that have been put on ice or
scrapped are spread across the globe, according to EY.
For oil, many of the projects are complex, deepwater fields
in the Gulf of Mexico, the North Sea, West Africa and Southeast
Asia with budgets of up to $20 billion.
Among the most expensive are liquefied natural gas
facilities such as the Arrow liquefied natural gas (LNG) project
in Australia, operated by Royal Dutch Shell's RDSa.L and
PetroChina 601857.SS and BG Group's BG.L Prince Rupert LNG
project in Canada.
Though often just as expensive, most oil mega-projects
benefit from the advantage of returning value within 3 to 4
years from first investment, compared with up to 12 years for
LNG projects, Brogan said.
"We have seen IOCs (international oil companies) already go
through one rigorous review of their portfolio. We are now
seeing them turning their attention to see how flexibility can
be embedded in their portfolios and businesses"
(Editing by William Hardy)
((ron.bousso@thomsonreuters.com; +44)(0)(2075422161; Reuters
Messaging: ron.bousso.reuters.com@reuters.net))
Keywords: OIL DELAYS/