Smaller E&Ps Gain Ground As Oil Majors Back Off

June 30:

Crude oil’s plunge is leaving drilling rigs idle from Africa to Latin America as the world’s biggest energy companies curtail spending and stall projects. Their smaller rivals are seizing the opportunity to gain ground, Bloomberg said June 30.

Sound Oil Plc, a Mediterranean producer one-500th the size of Eni SpA, will start exploring fields in Morocco and Italy toward the end of 2015 and early 2016, while Cairn Energy Plc and Savannah Petroleum Plc plan wells in West Africa.

“Large companies have dividend and debt burdens to be taken into account when oil prices decline and their response time is slower,” Sound Oil Chief Executive Officer James Parsons said. “Smaller explorers are quick to use the opportunity of declining costs and increasing availability of rigs.”

Drilling fees have dropped by about half in the past year, prompting junior oil companies to lock in contracts before rates rebound. While smaller fields can be profitable for a $100 million producer, they’re of little interest to larger rivals that need a higher rate of return in a lackluster crude market.

Rig costs typically react to oil with a lag of about six months, so today’s contracts reflect prices that sank to almost a seven-year low in January, forcing major producers to defer almost $200 billion of “megaprojects.” By steering clear of costly developments such as oil sands and deep-water deposits, the juniors can profit from current prices at about $60 a barrel.

Source: http://www.oilandgasinvestor.com/smaller-eps-gain-ground-oil-majors-back-805151?

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