Under Rystad Energy’s updated base case scenario of $34 per barrel in 2020 and $44 per barrel in 2021, global capital expenditure for exploration & production firms is expected to drop by up to $100 billion this year, about 17% versus 2019 levels.
Energy intelligence firm Rystad Energy said on Monday that the E&P capex in 2019 had reached $546 billion having slightly recovered from a two-year slump in 2015 and 2016 before diving to around $510 billion from 2014’s historical high of $880 billion.
According to Rystad’s data, the 2020’s capex volumes will drop to an estimated $450 billion, the lowest in 13 years. Estimates before the coronavirus epidemic had indicated E&P would remain flat year-on-year.
As April approaches, when OPEC+ producers are expected to flood the market with even more additional oil, Brent prices are at nearly $25 per barrel and are likely to decline even further.
In a low case scenario, where Brent averages $25 in 2020, global investments may plunge to around $380 billion this year, falling to almost $300 billion in 2021, a 14-year and a 15-year low respectively.
Rystad Energy’s upstream analyst, Olga Savenkova , said: “As companies are now losing solid oil market ground for the second time in recent years, it will be far more challenging to act quickly and reach the same high level of investment revision without taking a heavy toll on E&P’s performance”.
The intelligence firm added that the estimated cost cuts would be mainly achieved by lower activity within U.S. shale, delays to projects that were yet to reach the final investment decision (FID) stage, deferred exploration activity, and cost cuts within development and production for conventional assets.
U.S. shale players are expected to reduce their investments by about 30 per cent year-on-year, as the most flexible of the supply segments in terms of cost reduction. Rystad expects that these measures will be quickly reflected in the oil market supply, with shale oil supply growth set to slow down in 2020.
Among the world’s largest oil companies, Saudi Aramco is slashing its upstream capital expenditure by 20 per cent to protect its balance sheet amid declining oil prices. Despite the turbulent oil market, Rystad believes that the company will go ahead with strategically important projects, having one of the lowest costs per barrel within the industry.
ExxonMobil is also considering at least a 20 per cent investment cut, but these plans have not yet been finalized. Considering the company’s underperformance, even deeper cuts may be required to meet most of its important operational targets. The oil major posted weak numbers for the fourth quarter of 2019, announced $20 billion worth of divestments planned for 2020, and maintains big ambitions for exploration and development in Guyana.
Shell also embraced a 20 per cent total cut strategy, but Rystad expects upstream budgets will only see reductions of about 14 per cent. The company is also committed to a divestment program of more than $10 billion worth of assets, which could prove challenging to conduct in the current market.
BP also announced potential plans for a 20 per cent cost reduction. Even though the company holds a geographically diverse and resilient portfolio, its $15 billion asset-sale target might not be accomplished, Rystad concluded.