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The aftermath of OPEC production cuts – what does it look like?

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The aftermath of OPEC production cuts – what does it look like?

We’re two and a half weeks into the new year and it already appears to be a tumultuous dawn for the energy industry. After the meeting on November 30, promises were made by OPEC members to cut down production levels starting on January 1, with the agreed assistance of non-OPEC countries such as Russia and Kazakhstan. So how do production levels stand at the moment?


OPEC member production updates


Saudi Arabia is on top of its promised production cut levels, as its energy minister said that the country has already exceeded its target level of cuts. The Kingdom agreed to cut 486,000bpd starting from January 1st and has asserted that it would maintain this number for the next six months. Saudi officials are confident about not needing to extend the cuts beyond the 6-month mark, as they have already significantly reduced their output. Another nation that has exceeded its promised levels is Kuwait, which has imposed a cut of 133,000pbd.


Iraq has reduced its exports by 170,000bpd and was planning to further impose a cut of 40,000bpd this week, according to the country’s oil minister. Of all the countries, Iraq has been encountering difficulties in adhering to cut its agreed level of around 210,000bpd and declared that it would increase exports from its main port in Basra.


One main reason is the fact that Baghdad has numerous contracts with foreign oil drillers. Part of the terms dictate that if production is cut for “reasons beyond the drillers’ control”, the government has to compensate the drillers. As the company is in an unfortunate financial position on account of conflicts and low oil prices, it might be unable to compensate these companies with a production cut in place. Adding to the pressure is OPEC’s compliance panel, scheduled to meet on January 21st and 22nd to assess the initial round of production cuts.


Non-OPEC member updates


In recent reports from Russia and Kazakhstan, the two countries claim to have either fulfilled or entirely surpassed their committed levels for production cuts. Taken within the spectrum of the cuts agreed in Vienna in November 2016, this means that the production cuts by non-OPEC members makes up more than a quarter of the total amount of pledges by the big oil producers.  
Russian officials have declared that the country’s production level declined by close to 130,000bpd last week, which means a 100% increase over the 50,000 bpd goal it set last year.

The energy minister of Kazahkstan reported that the country has fulfilled the amount it promised in Vienna, a cut of 20,000bpd this month. It bears mention that this small cut comes on the heels of the launch of the Kashagan oil field, which is slated to increase production by 40,000bpd in the second half of the year.


However, taking both Russia and Kazahkstan’s cuts into account, this comes to 27% of the overall production cut promised by both OPEC and non-OPEC members.


What’s happening at home?

The EIA has released a report that projects a US production increase of 9 million bpd, which will rise by an additional 3% in 2018. Most of this is forecast to come from the Gulf of Mexico.

During the market downturn seen in 2016, energy companies have settled into a groove of doing more with less or with what they have. In a report by consulting group Wood Mackenzie, this trend is more concentrated in local shale basins. Increasing efficiency has been the prevailing mindset across the energy supply chain, especially with oil drillers who have managed to increase well completion rates by up to 30%.


Deep-water drillers will likely come to life in 2017, according to the Wood Mackenzie report, on further long-term investment that can bolster both the productivity and longevity of offshore operators.

The trend to expand on existing infrastructure is seeping throughout the industry, as the drive seems to be on long-term investments that are designed to cut costs in the short term and improve margins in the long term. The Wood Mackenzie report also anticipates O&G investment to record growth during 1Q2017.


What’s my takeaway?

With crude prices still hovering around the $50-mark, it is safe to assume that the drive towards the improvement of current assets is the wisest path forward. There are a lot of conversations around the topic of energy automation, which will be covered in more detail at the Wellsite Automation conference happening from January 24-25th.

We will be there to talk shop about the latest GE developments in O&G automation. Come talk to us and speak  with our company reps to find out more about what you can do to improve and enhance your operations to function at optimum levels of profitability.

For more information, click here!







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