German exploration and production player Wintershall will lower its capital expenditure in 2016.
In a statement on Thursday, the company said the planned capex for 2016 would be $1 billion, down from $1.4 billion spent in 2015.
“Volatility at low prices will continue in 2016. We cannot compensate for low oil and gas prices despite rising production. Hence, strict cost management, the reduction of investments, focused innovation and operational excellence are now crucial,” the company’s CEO Mario Mehren said.
In order to reduce spending, Wintershall plans to further optimize operating costs. Expenditure on exploration, development and technology, especially in countries with high costs, will be reduced, Wintershall said. The initiative will lead to a drop in the the number of exploration wells in 2016. The savings potential of the cost-cutting measures planned in 2016 is up to 200 million euros, the German E&P company said.
Wintershall’s oil and gas production rose 13 percent in 2015 to 153 million barrels of oil equivalent (boe), up from 136 million in 2014.
The higher volumes came primarily from Norway and the Achimgaz joint operation in Russia. The company said it would work to boost its output further, aiming to reach to 190 million boe in 2018, through the further development of the Achimgaz project in Siberia, the company’s Norwegian activities, as well as the Vega Pléyade gas project in Tierra del Fuego off the coast of Argentina, which commenced production in February 2016.
Selected areas for investment
“Wintershall will do both in the coming years: save and invest. That is not a contradiction,” said Mehren, who took over as Chairman of the Board of Executive Directors of Wintershall in June 2015, after Rainer Seele moved to Austria’s OMV.
Germany’s largest, internationally active crude oil and natural gas producer, said it would keep investing in selected projects, especially in regions with favorable production conditions such as Argentina and Russia. The company plans to invest around 4.8 billion euros overall in the next five years in expanding its oil and gas activities.
“We will continue laying the foundations for our future production growth, invest in infrastructure, and above all efficiency. But we have to weigh up the investments very carefully,” the Wintershall CEO said.
The company said that due to its strategy, individual development projects such as the Norwegian oil field Skarfjell and expanding production from the Wingate field in the British North Sea will be postponed and further optimized; shale oil and gas projects in Argentina will be developed more slowly.
Planning for $40 a barrel
Mehren said that Wintershall’s plans for 2016 were based on an average oil price for Brent crude oil of $40 per barrel and an exchange rate of $1.10 per euro. “Average gas prices are likely to fall well below the level of 2015. We expect our production to be increased, but a significant fall in sales and EBIT before special items compared to 2015.”
Wintershall’s earnings after taxes and minority interests totaled slightly over one billion euros, down from 1.46 billion euros in 2014.
“Despite the major fall in the oil and gas prices compared to 2014, we once again proved Wintershall’s competitiveness and robustness in 2015,” Mehren, said