Petroliam Nasional Bhd (Petronas) president and group CEO Datuk Wan Zulkiflee Wan Ariffin has announced that there will only be 14 oil rig counts by the end of the year, down from 39 last year.
The slash reflects the challenges gripping the oil and gas industry, which includes falling crude oil price.
Globally, the rig count, considered a proxy for industry activity, has fallen sharply since last June.
Essentially, oil and gas exploration companies have been slashing their capital expenditure budgets and idling exploration activities such as rigs, which are no longer viable amid this low crude oil price environment.
Some reports suggest that the rig count globally has fallen by about 60% since the oil price slide last June.
It has been reported that internationl oil companies (IOCs) such as BP, Royal Dutch Shell, Chevron, Norway’s Statoil and Australia’s Woodside Petroleum have collectively shelved some US$200bil of their planned capital expenditure on projects due to the slumping oil prices.
Ironically though, production of oil is at record highs, with the US production alone at an 80-year-high, according to Wan Zulkiflee, at last Friday’s announcement of Petronas second quarter results for FY2015. He said that this was a situation of “chronic oversupply” and that “the confluence of events” did not support a high crude price position for the rest of the year.
On a question regarding the viability of its deep sea exploration activities in the current low oil price environment, Petronas CEO of Upstream, Datuk Wee Yiaw Hin, said that due to the high cost of deep-sea exploration, it was facing a lot of challenges now.
“But it is not that simple as a case of high cost versus low price (of oil). There are many factors to consider. If it’s a large exploration activity, then the unit cost would reduce and that would enhance the viability of the project. Some of our deep-sea projects may still go ahead, depending on the size of the discovery and other factors,” Wee said.
Petronas’ move to idle its rigs would help to save billions of ringgit in operating costs, considering that the cost of running an oil rig can range from US$60,000 to US$500,000 per day.
It was also timely for Petronas to idle these rights in light of the current weak ringgit environment, said an industry observer.
The oil price slide has resulted in profits from Petronas’ upstream business falling a whopping 57% year-on-year from RM32.4bil to RM14bil for the first half ended June 30, 2015.
On reports that IOCs may be pulling out or ending their work on production sharing contracts in Malaysia, Wan Zulkiflee said those questions would be better directed to the IOCs.