Sliding price prompts oil companies to drill down into new cost saving options

Sliding price prompts oil companies to drill down into

Anthony Lobo, UK Head of Oil & Gas at KPMG comments on the steps oil companies could take to offset the impact of the falling oil price.

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Anthony Lobo, UK Head of Oil & Gas at KPMG comments on the steps oil companies could take to offset the impact of the falling oil price:

"The continued slide in the oil price means that slashing exploration costs and discretionary capital expenditure may no longer be enough to cover company overheads and committed capital expenditure."

"Recent data1 suggests that  two-thirds of international oil companies need at least US$90 a barrel to cover exploration spends and dividend distributions, so today's price will leave many of those in the boardrooms scratching their heads on how to reduce expenditure even further and whether they can maintain dividends without increasing borrowings."

"Companies are beginning to scrape the bottom of the barrel for quick cost savings solutions, and we could now see dividend payments coming under closer scrutiny. Funding dividends through borrowings might be a potential option, as operating cash flows may no longer cover them. However with the possibility of the lower oil price continuing for the foreseeable future, companies will need to think carefully on whether this is a sustainable solution."

- ENDS -

 

Notes to Editors:

Note 1: Source: Brent price required to retain current net debt levels 2015 -2016, WoodMac Global Energy Forum report, 13.11.14 (chart available on request)

 

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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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