Oil firms scaling back their drilling investment over the next few years will be forced to up spend again as supplies dwindle, a leading industry figure has warned.
Major explorers such as Shell have announced cuts investment plans over the last few weeks as they look to protect cash flow as rising costs and stagnating energy prices erode profit.
But Rune Magnus Lundetrae, chief financial officer at offshore drilling giants Seadrill, has warned that short-term savings will need to be followed by heavy reinvestment as enhanced oil recovery and hard-to-reach prospects become more significant.
“They can wait a couple of years and not suffer too much,” said Lundestrae.
“But if they wait too long, they will lose competence, they’ll lose half a generation of engineers like they did in the 90s, and they’ll struggle to show positive reserve replacement.”
While Seadrill says it will not order any more new rigs for 2016 delivery, the firm is not planning to shut any of its existing rigs plan to shut any rigs, Lundetrae said, declining to estimate by how much rates could fall before recovering. It can “live with” day rates falling by $50,000, he said.
Seadrill warned last month that market growth would be slower than expected. Fred Olsen Energy finance boss Ivar Brandvold also sees the industry stalling.
“The world will need oil,” Brandvold said.
“We need to see sustainable energy prices, and they will need to rise.”
He added the firm expected the rig market to consolidate for a “couple of years” before another rise activity rises again at a less dramatic rate than previously.