Originally Posted by
Chris Pochari
https://ibb.co/b535q5 Yes it is "that simple" it's not theoretical physics, if an oil company spends $70 per barrel extracting oil but the market rate is $40 it aint gonna work. A macro economics course will explain that. Offshore rig utilization is at all time low,
https://ibb.co/iAXn3Q Oil exploration and discover is also at an all time low, when the price is low companies will not commit the capital for new projects.
Love it - the 17 year old telling the senior manager of an oil and gas company, who has been in the business in various roles for more than twice as long as you have been on earth, how his business works! Go for it.....
As was explained, the 'rigs' you are referencing are used for exploration and have nothing to do with production. However, when they are used to explore new fields the success rates are eye wateringly low and so any exploration campaign represents a huge financial gamble. Even when successful the time to production is measured in years and, for very extreme parts of the world, even decades. Take Prelude as an example.
Cutting exploration during a low oil price environment is a quick and easy way to cut overall costs, but it cannot be sustained as reserves have to be replenished at some point. In fact, as was pointed out, the low rig costs actually present an opportunity to go exploring basins that previously were considered too expensive and I know, for a fact, that some companies are discussing basins that 18 months ago would have been dismissed out of hand.
The other side of the coin is that for large integrated energy companies, this low price environment means a boost to their downstream businesses as the cost of their raw product is proportionately lower than any reductions in the price of the products they sell. In many cases this side of the business is 'propping up' the company in this period.
So, no, as TM said; "it's not that simple"!