Oil and gas producers' belt-tightening in the face of falling oil prices is driving billions of dollars of project cancellations and cost cutting: that may ultimately be good news for upstream dealmaking.

Tullow Oil plc, on Thursday, Jan. 15, said it would slash its 2015 exploration budget to $200 million, down from $1 billion at the start of last year. The move came as the company announced a $2.2 billion pretax writedown and said it was pondering a further $500 million of writedowns to account for plunging oil prices.

Tullow wrote down "virtually everything" that it felt was not commercial at $50 a barrel, CEO Aidan Heavey told the Wall Street Journal, in comments confirmed by a spokesman.

A day earlier, Qatar Petroleum and Royal Dutch Shell plc scrapped plans to build a $6.5 billion petrochemical plant in Qatar. On the same day Premier Oil plc, which operates in the U.K. North Sea and Asia, said it would cut spending on new oil fields by 40% to $600 million and delayed a final decision on its $2 billion Sea Lion project near the Falkland Islands in the South Atlantic.

"Companies are reassessing how they use their balance sheets," said Banco Santander SA oil analyst Jason Kenney. "Shell dropped, or probably shelved, the Qatar plant, which makes sense given that there is little market for its output. That will free cash to invest upstream."

Falling oil prices have triggered reviews of capital spending across the industry, leading to project cancellations and delays. The prices of Brent crude and West Texas crude hovered around $49 a barrel on Thursday, up from lows of close to $45 a barrel earlier this week but still down about 60% in the past six months and less than half the average price of about $110 in the three years to 2013.

Two-thirds of the international oil companies require a Brent crude price of $90 per barrel to break even in 2015 and 2016, according to a recent report by analysts at Wood Mackenzie Ltd. "We expect this to flow through to falling deal valuations and the emergence of a true buyers' market," they noted.

Well-capitalized oil companies may use the sharp falls in oil prices to restock reserves once oil price volatility settles. Smaller producers with valuable oil field stakes in the lower 48, the name given to the contiguous states of the U.S.A, are likely to emerge as distressed targets, according to Kenney

"Acreage in the lower 48 is not owned on a use-it-or-lose-it basis," said Kenney. "Bigger oil companies will be looking at buying companies at low valuations and then banking their acreage for use later."

Cost cutting has been felt upstream as well as downstream. Nowhere has that been more evident than in the North Sea, where deep waters make new projects expensive and where decades of drilling have emptied many fields of all but the hardest to reach oil.

Norway's oil regulator the Norwegian Petroleum Directorate, said on Thursday that it expected investment in Norwegian projects to fall 15% in 2015 from 172 billion Norwegian kroner ($22.5 bilion) in 2014. Cuts are likely to persist until 2018, it said, claiming that there would be further annual declines of about 8% in 2016 and 2017. Upstream spending in the U.K. North Sea could decline to around $10 billion in 2016, just over half its 2014 levels, according to Wood Mackenzie.

Falling gas prices have had a similar effect on more expensive gas producers. In Canada "the commodity collapse has the industry in full retreat," analysts at Tudor, Pickering, Holt & Co. noted on Thursday. "On average, E&Ps have announced [an] about 40% reduction in capex year-on-year in 2015."

The upshot is that Canadian gas, until recently tipped to flood over the boarder into the U.S,, will arrive at a bare trickle in 2015, Tudor, Pickering, Holt analysts claimed.

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