French oil and gas company Total would cut spending on ageing North Sea fields and on US shale production after the recent plunge in oil prices, its chief executive said yesterday.
Speaking at a panel session at the World Economic Forum in Davos, Switzerland, Patrick Pouyanne said he expected oil prices to remain low in the first half of this year after falling almost 60 percent since June to below $50 (R578) a barrel.
Pouyanne told the Financial Times on Tuesday that Total planned to reduce capital spending by 10 percent this year from last year’s $26 billion and was also looking at imposing a hiring freeze.
Pouyanne said Total’s spending in the North Sea, home to the benchmark Brent crude oil, would be reduced as profitability from fields there had worsened.
US shale oil and gas production, which has surged in recent years, causing a large build in global oil supplies, will also be curtailed.
"We have fields on the US East Coast and my instructions have been pretty clear – we will limit investments,” Pouyanne told the panel. "I can come back in one year when prices come back.”
He said while many shale fields were profitable at oil prices of $70 a barrel, current low prices could lead to efficiencies that would reduce production costs below $50 a barrel. Total has two joint ventures with US group Chesapeake Energy, one to drill for shale gas in the Utica Basin in Ohio along with another partner, EnerVest, and another one in the Barnett Shale Basin in Texas.
Total joins a raft of international oil companies, including BP and ConocoPhillips, that have slashed 2015 budgets due to lower oil prices. Pouyanne nevertheless warned lower investment in new production could store up problems.
"There is a natural decline of 5 percent a year from existing fields around the world. That means by 2030 more than half of the existing global oil production will disappear. There is an enormous amount of money that needs to be invested to get another 50 million barrels per day of new production.
"The cycle will come back and higher prices will come back,” he predicted.
Total may also abandon a search for oil and gas off Cyprus after failing to discover tangible signs of reserves, the island’s energy minister said.
Pouyanne said Total had
increased security in several Muslim countries in the wake of the
Islamist militant attacks in Paris two weeks ago that claimed 17
victims.
(Reuters)
