Sustaining profitability with low oil prices
The Digital Oilfield
The oil industry is no stranger to volatile oil prices but we are currently looking at levels of $ 60/ bbl or potentially lower and this will definitely threaten the profitability of many operations. The chart below shows the variation of WTI ( West Texas Intermediate) crude over the last few years and it demonstrates that we have not seen $ 60 oil since late 2008.
So how did the upstream industry respond back in 2008?
The quick answer is that it hunkered down: projects were cancelled, production and exploration were cut severely, petroleum revenue taxes declined significantly and many staff in operator, service and supporting companies left the industry through redundancy or early retirements. In short, the industry felt extremely sorry for itself. The big question is whether we are going to see the same response in 2015? Back then in 2008 the world economy was very different. In the early part of the year, the global demand for oil had been growing rapidly as countries such as China and India were evolving as major consumers and starting to add significantly to the traditional demand from well- developed countries. In the middle of 2008 the world oil market was thrown into financial chaos as many global economies fell into recession. There was suddenly a glut of oil as consumer demand plummeted. OPEC, which at the time controlled about 40% of global oil output, responded by implementing its deepest ever cut in supply but even this did not protect the price. There was just too much oil available compared to global consumption requirements.