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The economic downturn and the gloomy forecasts of the GDP and the oil and gas demand are adversely affecting investment in the sector. Investments in the oil and gas industry have been deferred or scaled down since the recession took hold. The drop in the price is having a negative effect on the revenues in the oil and gas industry. The fall in prices but an absence of a corresponding decrease in construction and material costs has resulted in the tightening of the cash flows of the oil and gas companies. Due to the economic environment and a projected lower demand, prices in the future are expected to be considerably lower than in 2008. As a result, the companies have downgraded their projected cash flows affecting the capital expenditure plans in 2009. Most of the surviving companies are reducing their originally planned investment budgets by postponing planned and proposed projects.
Global Exploration and Production, Market Size and Growth
Securing project finance has become harder due to less liquidity and increased risk aversion among lenders. Project finance is a critical area in the oil and gas industry. Project finance is the preferred form of raising capital for huge and risky projects in the refining, LNG and pipeline industry. Reduced liquidity among the financiers and increased risk aversion has resulted in decreased project financing. Almost all of the major E&P companies are cutting back on their earlier proposed capital expenditure plans for 2009. Most of the super major IOC’s are planning to keep their 2009 capex plans equal to their 2008 capex plans. The Russian companies such as Gazprom and Lukoil have drastically cut down their 2009 capital expenditure which in a way reflects the state of Russian economy. The smaller independent E&P companies have significantly reduced their capex plans for 2009.
This latest Exploration and Production data and analysis was taken from the research report "Global Financial Credit Crunch: Will it lead to a Global Oil and Gas Supply Crunch?"  published by GlobalData – for more information on this report, Click Here

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