Drilling Activity to Rebound in 2016, Says Wood Mackenzie

The oil and gas industry is cutting its 2015 exploration budget by 30%, Wood Mackenzie wrote on Thursday, adding that drilling activity in 2016 is set to recover given a simultaneous 33% decrease in exploration costs.

“Over this decade, inflation has more than offset price gains and left much of the industry struggling to create value. Now that prices have fallen sharply, this problem has become acute. In the short term, many explorers will react by simply spending less. But what they really need is lower costs” Andrew Latham, VP Exploration Research for Wood Mackenzie, commented. 

In the report ‘Upstream cost delation: how much could costs of exploration fall?”, the consultancy group wrote that there are four components leading to such a result. 

‘Like for like costs will decline by 19%; simplification of activities could save 5%; efficiency improvements will save another 5%; and US dollar strength will save 4% overall’ reads the note. 

This leads to lower drilling activity in 2015, waiting for lower costs in 2016. 

‘Whilst overall well numbers will dip this year, we expect recovery in 2016 as many explorers seize their chance to drill at lower cost.’