US investments in mining and exploration fell by 35% in 2015. It’s the second-biggest annual decline, according to data from the U.S. Bureau of Economic Analysis since 1948. The major mining and exploration activity contributors are global oil and gas exploration companies. The mammoth fall in oil prices led to record capital expenditure cuts from oil and gas majors like Petroleo Brasileiro (PBR), Chevron (CVX), Statoil ASA (STO), CONSOL Energy (CNX), and ExxonMobil (XOM). These companies curbed the capex between $34 billion and $134 billion in 2014 and 2015. This will continue until 2017.
Lower investments in the oil and gas industry
Wood Mackenzie estimates that a total of $380 billion in capital spending is expected to be slashed by 68 existing oil and gas companies. The mammoth fall in oil and gas investments would curb oil production activity in the long term and support oil prices. Read the next two parts of the series to learn more about the OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC supply disruption and how it impacts oil prices.
The U.S. Energy Information Administration estimates that lower oil prices and lower investments could see US crude oil production fall by 7% in 2016. You can read more about US production and US rigs in the previous parts of the series.
Barclays estimates that investments into the oil and gas industry would fall by 15% in 2016. It fell by 23% in 2015. North American oil and gas companies are expected to cut their capital spending by 27% in 2016. However, Middle East oil and gas companies are expected to increase their capital spending in 2016. So, this suggests that Middle East oil producers are winning the battle.
Meanwhile, the current global oil inventories and wider contango market supported oil tankers like Teekay Tankers (TNK) and Tsakos Energy Navigation (TNP). The rise in inventories in land and sea also benefit oil and gas storage and transportation companies such as Williams Companies (WMB), Spectra Energy (SE), and Kinder Morgan (KMI).
The lowest oil prices in 12 years also negatively impact oil producers such as Hess (HES), Energy XXI (EXXI), and Halcon Resources (HK). ETFS like the United States Oil Fund (USO), the PowerShares DB Oil Fund (DBO), and the iPath S&P GSCI Crude Oil Total Return ETN (OIL) are also influenced by volatile oil prices.