Big Oil Faces US$2 Trillion Cash Shortage – Deloitte

A report by consultancy Deloitte has revealed that the oil and gas industry may find itself unable to improve its reserves replacement rate and overall performance over the next five years due to a huge shortage of cash of as much as US$2 trillion.

Deloitte notes in the report that oil and gas exploration and production is a capital-intensive industry, and a lot is necessary to just stay afloat. With all the budget cuts that this industry has seen over the last two years, staying afloat has become challenging, not to mention any growth, said Deloitte vice chairman John England.

The report was based on a survey of integrated public and listed national companies as well as independent E&Ps and warned that things are not looking particularly good. The rate of well depletion is 7-9 percent annually for both traditional and shale wells, and spending at many of the companies surveyed has been cut to below the necessary minimum that would ensure that this depletion is being offset, England noted.

Findings in the area of capital spending are also grim. Outside the Middle East and North Africa, capex in the exploration and production business dropped by a quarter last year and is expected to fall by a further 27 percent this year.

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Debt maturing over this and the next four years totals US$590 billion, the report pointed out, and dividend payouts are estimated at around US$600 billion. In order to cope with these payments, E&Ps will need more than US$4 trillion, which they won’t have if oil prices don’t start rising above US$50 a barrel.

On a positive note, England noted the resiliency of the oil and gas industry, noting that as hard as it may be, it will survive the crisis, just as it has survived all the crises until now.

By Irina Slav for Oilprice.com

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