According to an impact analysis from Rystad Energy, E&P companies are likely to reduce project sanctioning by up to US$131 billion, or about 68% y/y, as they batten down the hatches to weather the storm.
In 2019 total onshore and offshore project sanctioning reached some US$192 billion. At the outset of this year, Rystad Energy forecast that projects representing about US$190 billion worth of investments would be sanctioned this year. Recent developments, however, have spawned a major revision to that estimate.
If price of Brent crude averages around US$30/bbl in 2020, which we see as an increasingly likely scenario, we estimate that total project sanctioning will be reduced to just US$61 billion. Some US$30 billion of the overall expenditure is tied to onshore projects and US$31 billion to offshore.
“Upstream players will have to take a close look at their cost levels and investment plans to counter the financial impact of lower prices and demand. Companies have already started reducing their annual capital spending for 2020,” says Audun Martinsen, Rystad Energy’s Head of Energy Service Research.
In a US$40/bbl price scenario, which is getting more distant by the day, total sanctioning would still be heavily slashed y/y, with Rystad Energy estimating a collective sum of US$82 billion, representing a decline of 57%.
In North America, multi-billion dollar oil projects, including LLOG-operated Shenandoah Phase 1 and the Shell-operated Whale development, could face short-term delays in the offshore sector due to low oil prices, while in the onshore sector operators are expected to wait for the situation to stabilise before committing to new projects.
Project sanctioning schedules are expected to face delays of several months – even for those with breakeven requirements of less than US$40/bbl, let alone those with higher costs – as most oil companies will prefer to wait for the spread of Covid-19 to slow down and for the market to start to recover.
Still, one of the major projects this is expected to get sanctioned this year is ExxonMobil’s Greater Liza development off Guyana, which encompasses the Payara and Pacora discoveries.