Market Data
June 1, 2020
SMU Energy Analysis for May
Written by Brett Linton
The U.S. Energy Information Administration (EIA) reports that exploration and development expenditures are likely to drop significantly this year. Global expenditures related to oil and gas E&D increased $42 billion (13 percent) in 2019, totaling $361 billion, according to the aggregate financial reports for 102 publicly traded oil companies. Additions to these companies’ collective proved reserves totaled 18 billion barrels of oil equivalent (BOE), consistent with the 2010-18 annual average additions. As a result of the price declines since the beginning of 2020, however, global proved reserves will likely be revised significantly downward this year. Therefore, E&D expenditures also will likely see big declines–as will demand for oil country tubular goods and line pipe.
Collective E&D expenditures for the 102 companies polled by EIA averaged $20/BOE in 2010-19, an average ratio of 26 percent to Brent crude oil spot prices during that period. In its May Short-Term Energy Outlook, EIA forecasts Brent crude oil prices will average $34 per barrel in 2020. If realized, these price levels imply E&D expenditures per BOE could fall by half, to about $10/BOE in 2020, depending on how much spending is actually reduced. Many companies have already announced budget cuts.
