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    Capex and rig count have both come down hard says BOA Merrill Lynch

    News // October 22, 2015

    Global oil and gas capex has come down hard, says Bank of America Merrill Lynch in the latest issue of its Global Energy Weekly.

    "Spot and forward Brent prices have come down hard in recent quarters, turning the oil industry upside down. Companies are in the process of adapting their activity to this new normal, not only for existing assets by reducing their operating costs but also for future output by trimming capex," said BOA Merrill Lynch.

    "Drilling and completion spending, a major component of overall capex in the upstream industry, has dropped 28 per cent year-on-year since its 2014 peak, and we expect another 5 per cent annual decline next year.

    "On a country-by-country basis, the US and Canada have tightened their belts most and account for 75 per cent of the 2015 drop. When looking at drilling and completion spending outside North America, we find an average drop of just 13 per cent in 2015, but see an additional cut of 8 per cent in 2016.

    "Similarly, the drop in the rig count has been most pronounced in North America, with drilling activity falling by 62 per cent from its peak in the past year. Outside North America, where supply is less price elastic, we find a peak-to-through drop of 18 per cent in the past year. For now, we estimate that oil field decline rates in non-OPEC have accelerated from 4.2 pe cent last year to 4.8 per cent this year and are now in line with the levels observed in 2008.

    "Credit quality in the energy space is also deteriorating at a fast rate, leading to sharp cuts in midstream investment and oil services spending."

    BOA Merrill Lynhc also noted that shale production costs in the US have fallen by about 11 per cent from 2014 to the second quarter of 2015, offsetting some of the capex reduction, and shale producers are still delivering some efficiency improvements.

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