The total capital and operational expenditure of oil and gas companies is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain around the $30 level, according to research by Rystad Energy.
The total capital and operational expenditure of oil and gas companies is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain around the $30 level, according to research by Rystad Energy.
If prices remain at $30 in both 2020 and 2021 due to a volume war, the biggest losers will be stimulation services (-40%) and seismic companies (-30%), it said.
This volume war, if it continues throughout 2020 and 2021, will lead to a massive wave of bankruptcies and consolidation in the service market, whose debt obligations are set to grow 27% into 2021. Companies with low leverage and with healthy order books will be able to steer through the storm,’ said Auden Martinsen head of oilfield research at Rystad.
There is, however, a hope that a deep downturn could finally complete the much-needed consolidation in the market and create a healthier supply chain when prices recover.
Finally, from the $191 billion worth of greenfield projects that were forecast to be sanctioned in 2020, the ones that will actually see the green light if oil prices average at $40 or less are below $100 billion.
If the price of Brent crude averages around $30 per barrel in 2020 total project sanctioning will be reduced to just $61 billion. Some $30 billion of the overall expenditure is tied to onshore projects and $31 billion to offshore.
At least nine of the world’s top planned exploration wells for 2020 are at risk of being suspended as a result of the combined effect on oil and gas activities of the Covid-19 virus and the oil price war.
The wells, located in Norway, Brazil, the Bahamas, Guyana, the US, Gambia and Namibia would target a combined 7 billion barrels of oil equivalents (boe).
They have been identified as at risk because of their commercial viability under the current price levels, shutdowns that affect the supplies of equipment components, operators’ prioritization among other targets and limitations in crew movements, among other reasons.
‘Given the prevailing global situation we now foresee that the cumulative discovered volumes by the end of the year could go even below the 2016 level of 8.9 billion boe, which was the decade’s lowest. This will solely depend upon how many key wildcat wells will still see a spinning drillbit in the coming months, as some of them could be either suspended or postponed,’ said Rystad Energy senior upstream analyst Palzor Shenga.
The first quarter of 2020 had already started on a low note, as explorers have only uncovered new volumes of around 2.5 billion boe. The 22 discoveries are evenly split between onshore and offshore regions, with gas representing just over half of the volumes. Volumes are down about 40% from the same period of 2019, and the number of discoveries has almost halved.
