The collapse in world oil demand and low prices are driving large spending cuts among oil companies around the world. The largest cuts in percentage terms so far are coming from North American E&P companies—oil and gas producing companies focused on the US and Canada. According to IHS Herold calculations, North American E&P companies plan to reduce spending in 2020 by 36% relative to 2019 levels.
This translates to a US$24.4 billion cut in 2020 compared to last year. International oil companies are also cutting spending significantly, by 20% to 30%, with a substantial part for some coming from their operations in the US.
Unlike other countries, the US government cannot mandate cutbacks. But market economics and logistical constraints are mandating the cutbacks reflected in the “Big Cut” in company spending.
The key conclusions from the assessment are:
- Much lower spending points to significant declines in US crude oil production. IHS currently estimate US crude oil production will fall 2.9 million bpd by the end of 2020 compared to 1Q20. Canada, whose main producing province of Alberta already has constrained production via its curtailment policy, will also be impacted. Total investment in the Canadian oilsands will be the lowest in 15 years.
- Nearly all companies are reducing spending—including some by more than 50%. Of the 44 North America E&Ps that have made public spending announcements, 41 are cutting relative to 2019 levels. This year would mark the second consecutive year of lower spending. In 2018 North American E&P spending was US$87 billion.
- All other company categories are also cutting spending, but not as much as North American E&Ps. International oil companies and national oil companies are cutting spending by 24% in 2020.
Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/13042020/ihs-markit-predicts-36-spending-cut-for-north-american-ep-companies-in-2020/
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