The major producers and those that are funding exploration developments with free cash flow most likely will be the least affected by the current financial market turmoil, but the smaller independents are probably reviewing their investment plans to decide where to cut back, Douglas-Westwood Ltd. said in a report Monday.

Many of the big major oil and natural gas developments worldwide “seem to be moving forward largely unaffected,” said the UK-based consultancy. However, the independents and marginal field developers “are more likely to be impacted. Some cutbacks in exploration efforts and review of development plans is likely.”

Douglas-Westwood joined a growing chorus that expects to see more cutbacks across the energy sector in the months ahead (see Daily GPI, Oct. 27; Oct. 20). Several North American-based energy companies in recent days have announced plans to cut back on their exploration and development projects for at least the short term (see Daily GPI, Oct. 22). Among others, Chesapeake Energy Corp. slashed its spending through 2010, and CEO Aubrey McClendon said last week that he expects the industry to lay down 300-500 gas rigs in the coming year (see Daily GPI, Nov. 3).

An “important force” in driving energy prices will continue to be OPEC, noted the Douglas-Westwood team. However, “fundamental supply constraints will not disappear. Decline of oil production from existing fields is a major challenge, and continued investment in the sector is vital if we are to avoid another ‘supply crunch’ and price spike in the short term.

“In the longer term, our views are unchanged, and global oil supply limits are likely to be tested again during the next decade.”

For the majors, the credit crunch probably have a limited impact because the largest integrated companies are conservative spenders that focus on large-scale developments, the consultants noted. Mid-tier international oil companies (IOC), however, may face “possible exploration cuts,” and they might have to review their investment plans because their access to cash and to bank loans may be more limited.

Facing the biggest financial hurdles will be the independents and national oil companies (NOC), noted Douglas-Westwood.

Independents take more chances and many times undertake marginal developments, which requires “much heavier dependence on external finance.” For those reasons, they may have to cut back on exploration and delay their investment plans, said the consultancy. For NOCs, the “availability of credit for project finance may force a review of their investment plans in some cases.”

One area unlikely to suffer from a lack of exploration dollars is the deepwater, Douglas-Westwood said. The deepwater is a “higher-cost development” region that is “typically led by major IOCs that are funding from cash flow.” That means the projects will be “less reliant on external finance.”

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