The Organization of the Petroleum Exporting Countries in its April Monthly Oil Market Report (MOMR) predicted global investment for exploration and production (E&P) companies would drop remarkably in 2020. Under a scenario with oil prices of about $34/barrel, analysts said E&P investments would drop by 17%, or about $93 billion to $450 billion in 2020, the lowest in 13 years. If average Brent fell further to $25/barrel, global E&P investments would fall to as low as $380 billion this year and plunge further to nearly $300 billion next year. E&P investments were expected to remain stagnant this year, before the COVID-19 pandemic.
Upstream spending is forecast to decrease by 15% to 20% this year, representing a decline of $80 billion to $100 billion in investments compared to last year. To help their financial amid market turmoil, many E&P firms have already reviewed their investment plans, with others expected to follow suit soon. A study by a research firm showed that 20 out of 43 surveyed oil companies, including nearly all major producers, have expressed plans to cut their 2020 capex.
ExxonMobil is considering cutting investment by at least 20%, although it has not yet finalized these plans. Shell will also slash spending by 20% in 2020, but it will reportedly cut upstream budgets by only about 14%. BP has also announced plans to reduce cost by 20%. BP aims at raising $15 billion through assets divestment. However, it might not be achievable as low oil prices make the deal less attractive. Investment banks, financial institutes, and consulting companies are expecting producers to deepen their budget cuts to meet most of its important operational goals.
The US shale producers combined have so far announced plans to slash their initial 2020 capital budgets by 32%. With billions of debt burdens, E&P companies are likely to slow down activity much faster than what they did in the previous downturn in 2015. Most shale producers cannot cover their operating costs with WTI prices below $30/barrel. Guided upstream spending in Canada has also plunged since mid-March and is on course to a more than 30% year-on-year drop.
On April 9 and 12 2020, OPEC+ held meetings to discuss the impact and demand destruction related to the COVID-19 pandemic. The meetings decided to shed 9.7 million bpd off their oil output in May and June. The reduction will be eased to 7.7 million bpd until the end of 2020. Non-OPEC producers participating in the deal will likely contribute to 2 million bpd of reduction.
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Published on April 17, 2020 5:04 PM (GMT+8)Last Updated on April 17, 2020 5:04 PM (GMT+8)
