BAKU, Azerbaijan, Oct.26
By Leman Zeynalova – Trend:
Investment in fuel supply continues to be hit hardest, with upstream oil and gas spending set to decline by 35 percent in 2020, Trend reports citing the International Energy Agency (IEA).
“This somewhat weaker outlook stems from cuts of around 45 percent by shale companies in the United States, which have experienced a surge of bankruptcies, layoffs and shut-ins, as well as a 50 percent jump in financing costs. These conditions have set the stage for consolidation of businesses in the hands of fewer, better capitalized players, typified by the recent merger announcements between Chevron and Noble Energy and Devon Energy and WPX.
“Investment by oil and gas majors is down by around one quarter. Despite manageable borrowing costs, the extra hits to revenue from lower prices and demand, together with investor pressure, are forcing a focus on high value projects with relatively quick cash flow benefits. National oil companies, who comprise 55 percent of production, have sharply cut investment, but on average less than the overall decline.
“Spending is better supported in producer economies with some financial buffers, such as Saudi Arabia and Russia (where companies benefit from currency depreciation and flexible taxation) compared with those, for example in Africa, that are under more budgetary strain from heavy reliance on hydrocarbon revenues. However, financial pressures have prompted even some relatively strong players to turn to new funding strategies, such as Adnoc’s USD 10 billion sale of its stake in its gas pipelines business.
“Some oil and gas companies are responding to such pressures by stepping up diversification efforts, guided by new long-term emissions goals. While these vary in scope and ambition, several European majors have increased capital guidance for low-carbon projects. Investment commitments are most visible in renewable power, where USD 3.5 billion of final investment decisions (FIDs) have been taken by oil and gas companies in 2020, two-thirds higher than their capital spend outside of core areas in 2019,” reads the IEA report.
---
Follow the author on Twitter: @Lyaman_Zeyn