The end of the natural gas storage injection season was marked Nov. 20, 2015, with a new record for natural gas storage of slightly more than 113 Bcm (4 Tcf). With El Niño disrupting usual weather patterns, the warmer winter will likely end with a record amount of natural gas still in storage when the next injection season begins.

At the end of December 2015, total U.S. crude inventories were at 487.4 MMbbl, slightly below the record level of 490.9 MMbbl set in April 2015. Storage in Cushing, Okla., set a new record of 63 MMbbl, which was 800,000 bbl above the previous record reached in April 2015.

Supplies of natural gas and crude oil are outdistancing demand. Uncertainty in the Middle East and continued maximum production by Saudi Arabia exacerbate the problem.

In its 34th annual study of oil and gas companies’ E&P capex issued Jan. 4, 2016, Cowen & Co. concluded, “the sharp declines in 2015 E&P spending will continue in 2016 both in North America and internationally. This will result in the largest two-year declines in spending since we began our survey [in 1982].”

Cowen’s “Original E&P Spending Survey” estimated that “2015 global E&P capital expenditures will fall by 17% in 2016 to $447 billion. We would caution that the average price that these budgets are based upon is $48.50 per barrel WTI [West Texas Intermediate]. With current prices in the mid-$30 per barrel area and futures prices in the low $40s, there is downside risk in these budgets.”

This year’s survey was based on interviews of 450 companies, one of the largest surveys ever. The 185 companies surveyed in the U.S. plan to decrease upstream capex by 24% to $89.6 billion. In Canada, the 103 companies that were surveyed are budgeting a 22% decline.

“The cuts in U.S. E&P spending are broad-based and driven by reduced cash flows and uncertain economics,” said Jim Crandell, senior research analyst covering oilfi eld services and offshore drilling at Cowen.

Marc Bianchi, an analyst covering oilfi eld services at Cowen, said that under a 24% decline in spending, this “scenario would result in a year-end 2016 rig count of about 660 vs. 685 today and an average 2016 rig count of 666—down by 29% vs. calendar 2015. The difference is increased capex per rig.

“We expect international E&P spending will decline by less in 2016 than North American spending. The outlook varies considerably by region, with companies based in Russia (-1%) and the Middle East (+1%) holding up well, and Latin America (-27%), Asia-Pacifi c (-21%), Africa (-18%) and Europe (-17%) being the weakest regions,” he continued.

Companies that can navigate these rough seas will reap the benefi ts when the tide turns.

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