Oil price will take two years to bounce back, SapuraKencana predicts

Oil price has slumped to an 11-year low before bouncing back this week, after Saudi Arabia, the world’s number one oil producer, cut its diplomatic ties with Iran, the world’s fifth. ― File pic
Oil price has slumped to an 11-year low before bouncing back this week, after Saudi Arabia, the world’s number one oil producer, cut its diplomatic ties with Iran, the world’s fifth. ― File pic

KUALA LUMPUR, Jan 5 ― SapuraKencana, one of Asia’s oil and gas services giants, has warned that the slump in oil price will remain for “another 15 months at least, maybe up to 24”.

The Kuala Lumpur-based firm also warned of a downturn that could be worse than in the 1980s, as other major companies implement extreme cost-cutting measures to protect their dividend payouts.

“The outlook for oil prices has come down to a new datum point and everyone’s got to accept that…  Everyone’s got to rebase their expectations,” its chief executive Shahril Shamsuddin told business news Financial Times (FT).

Oil price has slumped to an 11-year low before bouncing back this week, after Saudi Arabia, the world’s number one oil producer, cut its diplomatic ties with Iran, the world’s fifth.

According to FT, the slump was previously triggered by an increase of US oil stockpile from its shale operations, Organisation of the Petroleum Exporting Countries’ (Opec) abandoned its output limits, and weaker than expected demand from China.

Bloomberg reported today that crude oil trades at US$37 per barrel, as the oil glut outweighs concerns over increased political tensions between Saudi and Iran.

SapuraKencana, which supplies world’s largest oil exploration and production groups, also pointed out that the cost-cutting measures have left Malaysia’s fabrication yards “empty”, while others had to operate at half their capacities.

“They go in and cut, cut, cut… so the guys lowest on the totem pole, the contractors, they’ve got to reduce costs,” Shahril said, referring to “supermajor” firms.

This, he said, was in contrast with the excessive investment in new capacity by the oilfield services industry during the crude oil price boom, which had included drilling rigs and equipment, pipe-laying vessels and construction yards.

“Oil companies were making a lot of money and so were the oil service providers and because there was so much money to be made, people were pricing themselves at synthetically high prices,” he said.

In a previous FT report in September, energy consultants Wood Mackenzie estimated that more than US$200 billion (RM870 billion) worth of oil and gas projects have been shelved, partly due to falling oil prices.

According FT,  SapuraKencana is the world’s biggest supplier of tender rigs — semi-submersible barges that support the main drilling platform in exploration fields, while Shahril himself was dubbed “Lord of the Rigs” by Forbes magazine in 2014.

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