E&P CAPEX in 2019 reached US$546 billion according to Rystad Energy estimates, having slightly recovered from a 2-year slump in 2015 and 2016 before diving to around US$510 billion from 2014’s historical high of US$880 billion.
According to Rystad's data the expected decline this year will make 2020’s CAPEX volumes, estimated at about US$450 billion, the lowest in 13 years. Rystad's 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 now at nearly US$25/bbl and are likely to decline even further.
In a low case scenario, where Brent averages US$25 in 2020, global investments may plunge to around US$380 billion this year, falling to almost US$300 billion in 2021, a 14-year and a 15-year low respectively.
“As companies are now losing solid oil market ground for a 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,“ said Rystad Energy’s upstream analyst Olga Savenkova.
The estimated cost cuts will be mainly achieved by lower activity within US shale, delays to projects that are yet to reach the final investment decision (FID) stage, deferred exploration activity, and cost cuts within development and production for conventional assets.
As the most flexible of the supply segments in terms of cost reduction, US shale players are expected to reduce their investments by about 30% y/y. 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, global leader Saudi Aramco is slashing its upstream CAPEX by 20% to protect its balance sheet amid declining oil prices. Despite the turbulent oil market, Rystad still expects the company to 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% investment cut, but these plans have not yet been finalised. Considering the company’s underperformance, even deeper cuts may be required to meet most of its important operational targets; it posted weak numbers for 4Q19, announced US$20 billion worth of divestments planned for 2020, and maintains big ambitions for exploration and development in Guyana.
Shell will also embrace a 20% total cut strategy, but Rystad expects that upstream budgets will only see reductions of about 14%. The company is also committed to a divestment programme of more than US$10 billion worth of assets, which could prove challenging to conduct in the current market.
BP has also announced potential plans for a 20% cost reduction. Even though the company holds a geographically diverse and resilient portfolio, Rystad believes its US$15 billion asset-sale target might not be accomplished.
Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/30032020/global-ep-capex-to-reach-13-year-low-in-2020-predicts-rystad-energy/
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