— This is the script of CNBC's news report for China's CCTV on December 22, Monday.
Prices have dropped more than 40 percent from a peak of around $110 a barrel in June, hurt by weak global demand and supply glut.
Sri Jegarajah spoke to a panel of guests on PowerPlay: The Future of Energy, and asked them how sharply exploration budgets will be pared back, given the collapse in oil prices.
[Peter Parry, Global Head, Oil & Gas Practice, Bain & Company] "Paring back from the peaks of 2013 are going to be a feature of the coming year I think, you will see people getting a little bit more focused on what you're doing in exploration, maybe you'll see 10 or 15% coming out of the budget. The frontiers will be less accessible at high cost, but we'll see people spending a lot more time and attention on applying existing technologies to conventional core areas."
[John Boardman, Vice Chairman, RISC Advisory] "Sri, the other factor to bear in mind in response to your question is a lot of exploration in the short term is not discretionary, there are work program commitment under PSCs, under permits which are issued by governments that the companies have already committed to under 2015. Rig contracts are being signed, and that's the majority of explorations that take place. So it's only the discretionary exploration expenditure that is vulnerable"
[Peter Parry, Global Head, Oil & Gas Practice, Bain & Company] "One area, sorry, just to interject a second (Sri: please) is where the industry that is certainly going to be squeezed in the coming years is the services sector. The services sector has been responsibile (John: absolutely) for lion share of if we like technological investment, particularly upstream in the last 5-6 years, we see the big service sector companies, the innovators and the small services companies, that without doubt will see less capital following towards it in the next couple of years, so again we may see that 15-20% reduction in investment there"
[Raoul Jacquand, Executive VP, CGG] "I can indeed comment on that since my company is indeed in the services sector. So it's true, we're faced with a big challenge (Sri: How badly are things being squeezed now) Well, he (looking at Peter) mentioned the numbers, we're looking at double digits, the type of reduction for the coming year, hopefully not more than that. For us, the response to this is to potentially allow our customers to explore smarter. They are not going to explore more, we're going to explore smarter. I think that one metric that is important for all of us to know about is the recovery rates, the existing reservior is still 30-40% type of numbers, that's fairly low (Sri: that's on a global basis?) yeah on a global basis (Sri: we're not just talking about North America) no, no very general metric, so 1 percent extra in terms of enhancing the recovery rate will probably give you several years, if not a decade more of production. so this is what I mean about exploring smarter, taking advantage of your existing reserves. This comes at the cost of the technology you need to apply, but we're not therefore talking about breakthrough technology in the frontier space, but in really making more of your existing assets."