With energy companies tightening their purse strings, the investment in the US mining and exploration fell 35 percent in 2015. The drop in oil prices is forcing oil companies to slash investment budgets and costs. Several mining companies are applying for bankruptcy protection.
The new US economic data from the US Bureau of Economic Analysis reveals that spending on wells and mines dropped to $87.7 billion in 2015, a 35 percent drop from investment of $135 billion in 2014. Several oil and gas producers are cutting down their budgets. Majority of oil producers have shelved the large exploration projects and trimmed thousands of jobs following the steep fall in revenues.
International Business Times reports that US oil prices fell during the past three quarters over the 20 months from $100 a barrel in June 2014 to $28 a barrel on Wednesday (10 February 2016). The oil supplies in the US and global markets are increasing, while demand for petroleum is less than the expected levels. It's estimated the cancellation of projects are valuing $380 billion by oil and gas companies.
Jeff Barron, an industry economist at the US Energy Information Administration in Washington, said: "Companies are very, very reluctant to spend, because they see the macro situation of just too many barrels out on the market. It's not a very ripe time for them to try and generate returns."
According to a report from US Energy Information Administration (IEA), the US mining and exploration segments also include natural gas, coal and other minerals. Mining and exploration investment dropped from $135 billion in 2014 to $87.7 billion in 2015. The drop in investment growth is more than any other segment of non-residential investment. The mining and exploration is a small subset of total private fixed investment and grew only four percent in 2015 to $2.7 trillion. Low commodity prices remain a significant factor in US firms' investment decisions.
The investment drop of 35 percent is considered to be the second largest ever since 1948, according to BEA. Previous largest drop in investments was recorded during 1985-86, when investment fell 41 percent due to the same reason i.e. oil price drop.
The investment in the US mining the exploration sector crossed $120 billion mark in 2012. The investment pace continued further until 2014. The drop in oil prices since mid 2014, drove the investment downwards. It recorded a steep fall in 2015, according to State Journal. The US gross domestic product (GDP) rose 2.4 percent in 2015 as same as in 2014, says BEA.
The US coal companies too reducing their investment owing to drop in prices. The weaker demand and rising debt burden are forcing coal companies to cut down on costs. Arch Coal and Alpha Natural Resources are filing for bankruptcy protection, Peabody Energy Corp, the world's largest private sector coal company, suffered loss of over 98 percent in its value since February 2015.
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