By: Dylan Sikes - AllPennyStocks.com News

Monday, May 25, 2015

The sharp pullback in oil prices has forced integrated oil & gas producers, as well as independent oil & gas companies to significantly reduce their capital spending. In April, Oil & Gas Journal noted in a report that spending on U.S. projects will drop 26.8% in 2015 to a total of $261.99 billion. The decline in spending could be even higher though as the Oil & Gas Journal’s forecast includes spending outlays for refining and marketing, pipelines and other categories. These segments have not been hit as hard by the oil price decline as producers.

For U.S. exploration and production, capital spending in 2015 is expected to be $203.24 billion, which is down 32% from 2014. According to Oil & Gas Journal, the last time investment in oil and gas projects was this low was in 2010 following the global economic recession.

The reduced capital spending is bad news for oilfield services firms. However, their outlook is better than those of oil & gas producers. This is because their fortunes depend not so much on oil prices but more on capital spending from oil & gas producers. Of course, lower oil prices will have an impact indirectly but unlike oil & gas producers, who will face margin pressure due to lower prices, oilfield services will feel the impact only when there is further reduction in capital spending.

The impact of reduced capital spending was felt by Matrrix Energy Technologies Inc. (TSX-Venture:MXX), a Canada-based company engaged in providing horizontal and directional services for the oil & gas industry in western Canada and vertical well monitoring and performance drilling services for the oil & gas industry in the Permian basin in the U.S.

MXX said that for the quarter ended March 31, 2015, it saw a significant decline in drilling and motor rental activity in both Canada and the U.S. The company cited reduced capital spending as the reason for this decline. However, MXX noted that it remains in a strong financial position.

Commenting on the first quarter, Richard Ryan, President of Matrrix Energy, said that the results were reflective of a severe downturn in drilling activity for the industry, catalyzed by the drop in commodity prices that occurred in the last half of 2014. Ryan said that the company’s high concentration of revenue from a small list of clients led to a disproportionate decrease in activity for it. However, he added that the company’s response to cost control was swift. Mid-way through trading on this quiet Monday, shares of MXX are up over 4% on the news.

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