French oil giant Total has announced that it will reduce group-wide capital spending by 10 per cent this year and impose a group-wide hiring freeze for 2015. In effect, capital spending for the company is now expected to fall $2bn-$3bn from last year’s total of $26bn.
The changes, spurred by the sliding oil prices, where announced at the World Economic Forum in Davos, Switzerland, by Total’s new chief executive; Patrick Pouyanne. The planned cuts are expected to hit exploration and development in the UK region of the North Sea, Canada’s oil sands and mature fields in west African states such as Gabon and Congo.
The measures will also curtail the prolific U.S. shale gas and oil production, which in part caused the current energy price slide.
“We have fields on the U.S. East Coast and my instructions have been pretty clear – we will limit investments,” Pouyanne told the panel. “I can come back in one year when prices come back.”
Commenting on the current oil price drop, Mr Pouyanne said in an interview with The Financial Times that the majors, the world’s biggest energy companies, could emerge as “the winners” from the market turmoil because they have greater flexibility to respond by using strong balance sheets to borrow more while interest rates were at historic lows.
He warned, however, that cutting investment in new production could backfire in time: “There is a natural decline of five percent a year from existing fields around the world. That means by 2030 more than half of the existing global oil production will disappear. There is an enormous amount of money that needs to be invested to get another 50 million barrels per day of new production.”
“The cycle will come back and higher prices will come back,” he predicted.
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