Oil Price Reflections
Companies providing services to the oil sector, accelerate cost reductions due to the reduction of investment in the industry against the background of lower commodity prices, writes Wall Street Journal. The pursuit of cost savings leads to small details such as the use of white instead of yellow paint underwater equipment because it is cheaper.
Companies are forced to take a lot of more drastic measures. French engineering group Technip for example, announced that it cuts 6,000 jobs. Industry, providing services and equipment for oil projects, has been under pressure due to declining investment in the sector under pressure from low prices, which fell to below $ 50 a barrel - more than twice less than in the summer of 2014. Besides cuts tens of thousands of workers this year were announced and several large mergers like this worth 35 billion. US dollars between Halliburton and Baker Hughes.
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The business of these companies include the provision of probes, ships and other equipment research and production, carrying out geological surveys and others. Their main customers - groups such as BP, Exxon Mobil and Royal Dutch Shell, dramatically shrinking the number of projects for oil and gas.
The largest service company for the oil sector, Schlumberger reported a collapse in revenue for the third quarter by 33% compared to the same period last year. Profit for the period decreased by almost half. Halliburton, whose merger with Baker Hughes will be completed in December, comes at a loss for the past quarter. The company management of energy projects Amec Foster Wheeler issued a warning for the drop in profit and manufacturer of pumps and valves Weir Group announced layoffs of 400 employees.
Oil producers shrink costs by over 200 billion. Dollars this year and next year and the expected situation for the companies in the chain only to deteriorate. Wood Mackenzie analysts expect only 10 new oil projects worldwide to obtain the necessary investment in 2016. This will affect the entire service sector, which has the capacity to support 40 to 50 new energy projects annually.
"This is a huge drop. The primary reaction of industry services is to enter into survival mode - shrinking their profit margins, competitive bidding for new business and shrinking capacity," said James Webb, analyst at Wood Mackenzie.
The companies focus their efforts and to standardize equipment specifications and procedures, which are often unique to each project. Individual players in the sector is also trying to work together to save money. In some cases, lowering the cost may be enough to persuade oil companies to resume suspended projects. But some analysts noted that contraction of costs through standardization carries risks of lower efficiency in production.