700 billion dollars oil investment to be scrapped – Goldman Sachs predicts

Offshore oil rig
Source; DollarPhotoClub

$700 billion’s worth of planned E&D capital spending may need to be scrapped because of extra oil production from U.S. shale – Goldman Sachs predicts.

Goldman Sachs’ head of European energy research Michele della Vigna told Wall Street Journal on Friday that according to the company’s estimates the big discoveries of shale oil in recent years have added around 66 billion barrels of crude oil resources. At its peak, that could add 8 million barrels per day to daily output.

This production should meet the oil demand in the coming years. Consequently, big, costly projects will lose out to smaller and more agile shale developments. Goldman Sachs predicts that new projects that require oil prices to be above $80-85 per barrel to break even ought to be delayed or cancelled.

This is likely to affect some of the deep-water and heavy oil projects. In terms of geography, countries that are likely to be most affected include Angola, Nigeria, Canada.

Michele della Vigna predicts that companies will pursue cost cutting, scrapping the least economically efficient projects, which will lead to cost deflation, to their benefit, and at the cost of the oil services margins. In terms of oil services – that is companies which provide services to the petroleum exploration and production industry but do not typically produce petroleum themselves – the ones with the highest operational leverage will be affected the most, that is; seismic, drilling, and offshore construction.

As for the winners – those are likely to be companies with best roster of low-cost investments: Goldman’s top picks include BG Group, Sinopec, Santos and Afren.

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