BAKU, Azerbaijan, April 29
By Leman Zeynalova – Trend:
Global exploration and production (E&P) revenues are now forecasted to fall by about $1 trillion in 2020, a drop of 40 percent to $1.47 trillion from last year’s $2.47 trillion, Trend reports citing Rystad Energy.
Before the Covid-19 pandemic, Rystad Energy expected total E&P revenues to reach $2.35 trillion in 2020 and $2.52 trillion in 2021. Now 2021 revenues are also projected lower, at $1.79 trillion.
“Companies’ cash flow is also set to plunge. For 2020 we estimate free cash flow for the E&P sector will shrink to $141 billion, or one-third of what it was in 2019. This is based on our base-case oil price scenario of $34 per barrel in 2020 and $44 per barrel in 2021, so there is a considerable downside risk if the current low-level prices persist,” Rystad Energy said in its report.
Rystad Energy’s upstream analyst Olga Savenkova pointed out that this drop not only undermines the companies’ solidity and reduces money available for investments and dividends, but also significantly cuts government tax revenue.
The capex cuts will have a particularly strong impact on discoveries and companies’ ability to proceed with final investment decisions (FIDs) on new projects, according to the company.
“This year might be marked by the lowest project sanctioning activity since the 1950s in terms of total sanctioned investments, dropping to $110 billion, or less than one-quarter of the 2019 level, with most of the projects being deferred,” reads the report.
“An operator may need several years to bring a deferred project back on track as more strict economic requirements are applied for a new FID. Facing the threat of prolonged low oil prices, stakeholders are likely to lower projects’ breakeven price requirement, which was already on average below $35 per barrel even before the crisis. This will send many developments on a long-lasting cost optimization journey,” said Rystad Energy.
The report shows that in contrast to the previous downturn, this time the situation is complicated by the distressed position of many service companies.
“The oilfield service sector already made substantial improvements in the supply chain with significant cost reductions back in 2015–2016, and operators cannot rely on a repeat performance a second time around.”
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