French oil and gas company Total will cut spending on ageing North Sea fields and on U.S. shale production after the recent plunge in oil prices, its chief executive said on Wednesday.
Speaking at a panel session at the World Economic Forum in Davos, Switzerland, Patrick Pouyanne said he expected oil prices to remain low in the first half of 2015 after falling almost 60 percent since June to below $50 a barrel.
Pouyanne told the Financial Times on Tuesday that Total planned to reduce capital spending by 10 percent this year from 2014’s $26 billion and was also looking at imposing a hiring freeze for 2015.
Total’s spending in the North Sea, home to the benchmark Brent crude oil, will be reduced as profitability from fields there has worsened, Pouyanne said on Wednesday.
A Total spokeswoman later said that the group’s UK unit will reduce contractor costs by 10 percent in 2015 and this will translate into an unspecified cut in contracted staff in the region.
U.S. shale oil and gas production, which has surged in recent years, causing a large build in global oil supplies, will also be curtailed.
“We have fields on the U.S. East Coast and my instructions have been pretty clear — we will limit investments,” Pouyanne told the panel. “I can come back in one year when prices come back.”
While many shale fields were profitable at oil prices of $70 a barrel, current low prices could lead to efficiencies that will reduce production costs below $50 per barrel, he added.
Total has two joint ventures with U.S. group Chesapeake Energy, one to drill for shale gas in the Utica basin in Ohio along with another partner, EnerVest, and another one in the Barnett Shale basin in Texas.
Total joins a raft of international oil companies, including BP and ConocoPhillips, that have slashed 2015 budgets due to lower oil prices.
Pouyanne nevertheless warned lower investment in new production could store up problems.
“There is a natural decline of five percent a year from existing fields around the world. That means by 2030 more than half of the existing global oil production will disappear. There is an enormous amount of money that needs to be invested to get another 50 million barrels per day of new production.”
“The cycle will come back and higher prices will come back,” he predicted.
Total may also abandon a search for oil and gas off Cyprus after failing to discover tangible signs of reserves, the island’s energy minister said on Wednesday.
Speaking on French TV, Pouyanne said Total had increased security in several Muslim countries in the wake of the Islamist militant attacks in Paris two weeks ago that claimed 17 victims.
He said Total had been threatened specifically in Yemen, where it has a liquefied natural gas (LNG) plant.
“We have deployed Yemen state military in order to protect our facilities,” he told Public broadcaster France 2.