Oil Prices Responsible for Cancelled Gulf Projects, Layoffs

Sunday, 15th February 2015
Oil Prices Responsible for Cancelled Gulf Projects, Layoffs

Projects worth around $200 billion (Dh734.47 billion) were cancelled globally in the last three months due to falling oil prices, an oil and gas expert told Gulf News.

Christophe de Mahieu, a partner in Dubai-based Bain and Company said a lot of companies are either cancelling projects or temporarily stopping work due to the slide in oil prices.

“Drilling activity in the US is dropping like a stone. The contracts are interrupted and drilling companies have stopped drilling because of the cash flow situation.

“National oil companies in the region, for example Qatar Petroleum and Shell, have cancelled a major petrochemical project. Aramco has also put on hold or cancelled a number of projects to cut their capital expenditure programme.”

De Mahieu who has more than 25 years of experience in the industry has been long-term adviser to many leading institutions and corporations in the Middle East for more than 10 years.

He worked extensively in key sectors including oil and gas, mining, metals, chemicals and private equity and was a manager of Exxon Corporation.

He said it is difficult to predict where the oil prices are heading in the next six months but said the trend will lead to spending cuts and greater discipline. “It will put a lot of pressure on oil service companies to get their prices down. They will look at potential mergers, specially midsize and small companies.”

Due to fall in prices, companies are resorting to reducing operating expenses by 10 to 15% by laying off people. “This is happening right now in oilfield services companies and also in drilling companies around the world.”

Oil prices have been plunging since the middle of last year. From $115 in June, they have gone down to around $50 last month. Weak demand and a production glut from non-Opec (Organisation of Petroleum Exporting Countries) members have been cited as the main reasons for the slide in oil prices.

Opec countries led by Saudi Arabia have refused to cut output to halt the price slide despite pressure from member countries like Iran and Venezuela.

“We can the understand the logic of what Opec is trying to do, to protect and maintain market share and to restate that Opec and GCC [Gulf Cooperation Council] is the natural owner of the oil industry in terms of leading it.”

“I think Opec policy, all the ministers have been saying is that for the time being, they don’t see any reason to meet. They will leave the market to balance itself on supply-demand point of view. They will not give away on market share.”

On Abu Dhabi oil concessions, he said Adnoc (Abu Dhabi National Oil Company) is looking at different options between keeping the existing players like Total, BP and potentially opening the concessions to new players especially from Asia as a lot of oil produced is consumed in Asia. “I think it’s a very well run professional and logical process that comes to a conclusion pretty soon.”

Adnoc awarded 10% stake to French energy company Total to develop 15 onshore oilfields two weeks ago. It is yet to take a decision in awarding other contracts.

A number of companies are in the fray including Royal Dutch Shell, BP, Occidental Petroleum from the US, Statoil from Norway, China National Petroleum Corporation (CNPC), Japan’s Inpex, South Korea’s Korea National Oil Corporation and Italy’s ENI.

Source: Gulf News

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