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Oil exploration in the air as prices fall
(Agence France-Presse) – October 4, 2020 – 2:09 pm
LONDON – The coronavirus pandemic that has hit demand and oil prices is forcing big energy companies to tighten their belts on exploration, even if finding new deposits remains essential to their existence.
While the sector is increasingly diversifying towards greener energies such as electricity and wind power, its core business remains oil and gas.
“Questions abound as to whether it is still profitable to pursue oil given the moderate outlook for demand growth and a low price environment,” Stephen Brennock, an analyst at oil brokerages PVM, told AFP.
“The answer seems no, judging by the recent wave of massive write-offs of hydrocarbon assets.
“In this context, I do not expect a pickup in drilling in the medium term.
“Instead, Big Oil will be forced to beef up their green energy portfolios to survive,” Brennock said.
Trimmed projects
Compared to pre-virus plans, the energy sector has cut exploration projects in the UK’s North Sea waters by 70 per cent and 30 per cent off the coast of Norway, according to the group of Westwood inquiry.
US oil giant ExxonMobil has cut its total exploration plans by 30 percent, or a reduction in investment of $ 10 billion (8.4 billion euros).
European rivals ENI, BP and Equinor have carried out similar moves, which in turn have hurt subcontractors, including French oil services group CGG, which expects revenue to fall 40 percent this year.
In the United States, more than 30 oil exploration and production companies have filed for bankruptcy this year, according to the Texas law firm Haynes & Boone.
If oil prices remain stagnant around the current level of $ 40 a barrel, another 150 such companies could be lost by 2022, estimates research group Rystad Energy.
“Drilling programs will be hampered in the short term, particularly in the shale areas of the US but also elsewhere, due to immediate cost-cutting measures,” said Raphaela Hein, analyst at JBC Energy.
“In the past, we have seen that massive capital spending cuts in the budgets of large companies did not really affect their future production.
“As such, we believe they will continue to pursue new fields, perhaps to a lesser degree … and keep production within their long-term plans.
“Of course this will help ensure their survival,” he added.
However, Hein said the Arctic projects appeared “economically unviable.”
This despite the vast area being predicted to have 13 percent of the world’s oil reserves and 30 percent of its undiscovered natural gas.
In July, Russia’s Gazprom Neft and Anglo-Dutch giant Shell announced a partnership to explore the Arctic.
‘Markets don’t believe’
While oil prices rebounded strongly after briefly turning negative in the early days of the coronavirus pandemic, the world’s major oil contracts, Brent North Sea and West Texas Intermediate, have been unable to capitalize on those gains, and the week last year they fell sharply to less than $ 40.
“Markets right now don’t think there is a future for oil,” said SEB analyst Bjarne Schieldrop.
“For how long we will have reduced drilling depends on the price of oil,” he added.
Still, the administration of US President Donald Trump approved drilling for oil and gas at the Alaska Arctic National Wildlife Refuge in August, infuriating environmentalists in the process.
While the oil price crisis makes such projects unlikely, “political will may still triumph,” said Hein of JBC Energy.
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