Wood Mac: High costs of drilling not abnormal

Energy consultant group expects industry to adjust easily in new oil markets.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |   March 26, 2015 at 8:06 AM
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HOUSTON, March 26 (UPI) -- Spending on oil and gas exploration is dropping off as oil prices remain depressed, but the industry may respond by doing more with less, Wood Mackenzie finds.

A report published Thursday by the energy consultant group finds the oil and gas industry as a whole is on pace to cut budgets for exploration by an average 30 percent. The report finds the industry has been working to address drilling costs already and exploration costs are expected to decline by next year.

"Rising costs are not a new problem for explorers," Andrew Latham, an exploration research director and one of the report's authors, said in a statement.

A brief published this week by the U.S. Energy Information Administration finds spending on exploration and production during the fourth quarter of 2014 was down 12 percent year-on-year. The number of rigs exploring for or producing oil and gas in North Dakota dropped below 100 for the first time in five years.

In January, when the rig count in the oil-rich state was around 150, oil production dropped off 2.5 percent from the all-time high reported in December.

Oil prices are about 50 percent less than they were in June 2014, leading to spending cuts.

"Those that hold exploration spending flat or make only modest cuts could yet achieve 'more with less'," the report finds.

EIA in its report said that, because of the long lead times in the upstream side of the energy sector, the impact of spending cuts may not be felt immediately. If forecasts are accurate, EIA said oil production in the United States, whose output is pushing oil markets toward the supply side, should be close to a 40-year high.

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