Oil majors scramble to cut costs as crude almost halves in six months

Oil prices are on course for their largest annual slide since 2008, capping another dire year for commodities, as crude fell again yesterday to hover at close to half its level of six months ago.
Brent crude’s 49 per cent plummet since June – alongside a near halving of iron ore prices and sharp drops in coal and copper – has helped drag the Bloomberg Commodity index down 15.6 per cent in 2014 to a five-year low.
While the international benchmark’s price plunge could prove a major boon for the global economy, it has thrown big oil exporters such as Russia and Venezuela into disarray and forced oil companies to re-examine their investment plans and look for ways to reduce costs.
In a sign of how oil majors are scrambling to make savings, BP, Royal Dutch Shell, Total and Chevron have all ordered sharp cuts in the rates paid to contractors on North Sea projects.The groups are cutting up to 15 per cent of the pay of thousands of self- employed oil and gas workers in the region. US-based Chevron told employment agencies that it would reduce rates from January 1 “to better align with industry benchmarks and manage cost pressures”, while BP confirmed it had agreed to cut the wages of 450 workers by up to 15 per cent from the new year.
A senior oil executive said that the drop in crude was “an opportunity” to lower exploration costs globally by renegotiating contracts with providers such as drilling companies. “Exploration is the easiest activity to reduce,” he said.
Industry analysts believe that the North Sea will be targeted as energy groups curb spending on development. Although investment in new projects recently hit record levels, leading to several years of inflation-beating pay increases, UK oil and gas output has declined and exploration has been poor. Soaring costs and a complicated tax system have made smaller, more mature fields a riskier bet.
Analysts say there are few signs the sell-off – due to rising supplies of high-quality oil from the US and weak demand in Europe and Asia – has ended. Fears of a supply glut in 2015 outweigh lower production from countries such as Libya, where an expanding civil conflict has dented output. Yesterday, Brent fell to a five-year low of less than $57 a barrel before recovering slightly in late London trade to $57.31.
In the past, Opec, which pumps more than a third of the world’s oil, has cut output in response to lower prices, such as during the 2008 financial crisis. But at the cartel’s meeting in Vienna last month, members held output steady at 30m barrels a day, sending prices into a tailspin. Saudi Arabia, the cartel’s de facto leader, has said it will not cut production irrespective of price levels, “be it $40, $30 or $20 per barrel”, a policy shift that will have far-reaching implications for the global energy industry.
Culled from FT