Projects which have not yet reached their pre-Final Investment Decision stage and representing approximately US $127 billion of global industry greenfield investment in 2015 are at risk of deferral, according to industry analyst Wood Mackenzie.

It also added in a latest report that in the exploration sector, mature, lower-risk plays will draw spend away from higher-cost, higher-risk frontiers.

The downbeat outlook for both offshore and onshore projects from WoodMac is one of a number from investment banks and consultants in recent weeks that have done little to spread Christmas cheer to those working in the upstream sector.

The analyst went on to point out that if Brent remains at around $60 per barrel in 2015: “Operators in an intensive development phase have the least optionality to respond,” according to Fraser McKay, Principal Analyst for Corporate Analysis. “Most other International Oil Companies (IOCs) have flexibility to rein in spend to keep finances on an even keel. But shareholder dividends and distributions are likely to be a significant part of the spend cuts for some companies.”

The collapse in oil prices is also throttling the M&A market as deals underway are being shelved, with would-be buyers melting away. Hopeful sellers will not get the offers they would have expected just a few months ago. According to WoodMac, M&A will not recover until a new ‘consensus’ emerges – typically at least three to six months from the point that prices stabilise.

There is an upside of sorts, of course. The analyst points out that uncertainty and corporate distress create opportunities for companies with the appetite and capacity to take advantage. Luke Parker, Principal Analyst for WoodMac’s M&A analysis notes: “Weak oil prices through 2015 will ratchet up the pressure on the most financially stretched in the sector. Expect to see falling deal valuations and the emergence of a true buyers’ market.”

Other items it flags up of note include:

• At $60/bbl only three out of the top 40 IOCs generate sufficient free cash flow to cover their spend, including distributions. Some independents have already cut 2015 discretionary spend, indicating $70-75/bbl assumptions.

• Spend would need to be cut by $170 billion or 37% year-on-year at $60/bbl to keep net debt flat.

• Market liquidity is likely to fall – distressed sellers and other opportunities will emerge for cash-rich buyers.

• Large-scale corporate consolidation may be closer than it has been at any point since the late 1990s.

Offshore