taking a drilling

Cheap oil is wreaking havoc with the best-laid plans of all these companies

Everyone’s re-setting the dial as commodity prices go through the floor.

drugs-in-the-oil-patch Martha Irvine / AP/Press Association Images Martha Irvine / AP/Press Association Images / AP/Press Association Images

OIL COMPANIES ARE being forced to shed staff, shelve exploration plans and take big hits to their balance sheets in the new era of cheap prices.

While consumers are starting to see the benefits at the pump of a global oil glut as prices hit a six-year low this week, the change has been wreaking havoc on the forecasts of companies producing the black stuff.

Davy analyst Job Langbroek said oil companies were “re-setting the dial” on their predictions after the sudden fall in prices since late last year.

Tullow Oil, the exploration firm started in Co Carlow but now run from London, today announced another $200 million (€170 million) cut in its budget for new projects after already taking the razor to its spending plans last year.

The company still predicts it will turn a solid profit when it delivers its full 2014 results, but it was expecting to write off $2.2 billion (€1.9 billion) for exploration costs and goodwill after the “dramatic fall” in the oil price.

Chief executive Aidan Heavey said the company had already taken steps to adapt to “a challenging time for (the) sector”, although it had the benefit of low-cost production and exploration in Africa.

The firm has licenses for the southern North Sea, Norway and Greenland, among other territories, but has been stepping back from Europe to focus on the bigger cash cows in Uganda, Ghana, Kenya and Ethiopia.

It has been tipped to start cutting staff soon to shore up its bottom line with cheap oil flooding the market and driving prices through the floor.

Oil prices International Energy Agency International Energy Agency

BP jobs on the block

Meanwhile, one of the world’s biggest oil companies, BP, said it was cutting 300 jobs linked to its North Sea wells with most of the roles to go from onshore operations.

Some 200 permanent staff and 100 contractors were going as it responded to “toughening market conditions”.

Irish oil and gas producer Petroceltic also cut its 2015 production forecasts today and announced it was backing away from some exploration plans.

But it said low commodity prices were expected to have a “relatively limited impact” on its income as the vast bulk of its output this year would be sold at fixed prices or under other, favourable terms.

Most of its production is currently in Egypt where it has also been spending millions developing new wells.

Petroceltic A map of Petroceltic's operations Petroceltic Petroceltic

Re-setting the dial

Langbroek told that Petroceltic was “relatively insulated” from falling prices for now, but gas prices would eventually catch up with oil.

“The single biggest issue (for oil companies) is the balance sheet and surviving through this period of low prices,” he said.

I think everybody is re-setting the dial – the change in prices has been so quick that everyone is still trying to figure out what the long-term, future prices is going to be.”

Originally published at 11.40am

READ: Oil prices tumbled AGAIN today – its lowest level in six years >

READ: Aer Lingus reaps the spoils of a global oil glut as passengers pay sky-high fuel levies >

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