As oil prices drop, the biggest oil and gas companies may be the ones that suffer the most. While smaller companies may find it easier to start and stop work as the market fluctuates, the largest companies will likely have a difficulty adjusting.
In addition, companies are also cutting their exploration budgets, which will significantly affect their future drilling prospects. Hopefully, as the renewable energy markets take off, companies like Exxon may finally see the writing on the wall and switch their business focus to alternatives in order to remain relevant in the energy industry.
Companies like Shell, Exxon, BP and Chevron thrive when in charge of large, complicated projects like offshore drilling. Smaller companies find it difficult to find funding for the infrastructure and extra manpower that these jobs require. With the rise of shale drilling, however, smaller entities can match the price and performance of the biggest oil and gas companies, and so they are at an advantage.
Exploration funding is also being dropped as the oil prices go down, falling from $50 billion a few years ago to $25 billion in 2016. Since deepwater and offshore projects take years to develop, and exploration can be a slow, trial-and-error process, that will limit future opportunities to drill for years to come. During that time, the renewables market will undoubtedly make many technological advances and will also likely come down significantly in price.
With Shell abandoning Arctic offshore drilling, and auctions of drilling permits in the Gulf of Mexico generating far less interest than expected, things look grim for the biggest oil and gas companies. As James Stafford reports in Business Insider, just last week, Brazil’s auction for offshore drilling spots in the Atlantic ocean received no bids from BP, Royal Dutch, Statoil, or Exxon despite the fact that they were all registered.
