Across the world, oil and gas companies are implementing spending cuts for the rest of the year, in reaction to the plunge in oil prices. All of which is triggered by the coronavirus pandemic and subsequent price war between top producers Russia and Saudi Arabia.
Prices have taken a nosedive since the virus broke out in China late last year with the international benchmark Brent crude falling to $24 a barrel this week, its lowest level in nearly two decades. Meanwhile, United States crude (and Brent) have both collapsed about 40 percent in the last two weeks since talks between OPEC and its allies, led by Russia, broke down, leading Saudi Arabia to ramp up supply.
In response to the price collapse, North American oil and gas producers have cut capital spending by about 30 percent on average, Reuters data shows, while several firms across other regions have revealed similar plans.
Oil major Chevron Corporation, whose organic capital expenditure guidance was put at $20 billion for the year, said it will trim spending and lower oil output in the near term. American counterpart Exxon Mobil also plans to make significant cuts to spending after previously budgeting $30 billion to $33 billion for projects in 2020.
Kosmos Energy, a United States-based upstream oil company, suspended its dividend and said it aimed to reduce 2020 capital spending by 30 percent with a view to becoming cash-flow neutral with an oil price of $35.
Britain-headquartered producers BP and Tullow Oil are also following suit by reducing capital and operational spending. Tullow plans to cut its investment budget by almost a third to $350 million this year and reduce exploration spending by about half to $75 million. Premier Oil, an independent UK oil company with gas and oil interests in Britain, Asia, Africa and Mexico, said it had identified at least $100 million in potential savings on its 2020 capital spending plans.
Germany’s largest crude oil and natural gas provider, Wintershall Dea, said it would cut investment for 2020 by one fifth to $1.32 billion-$1.65 billion (1.2 billion-1.5 billion euros) and suspend its dividend indefinitely. While Australia’s second-largest independent producer, Santos, is reviewing all its capital spending plans and freeze new hiring.
Norwegian energy company Equinor, which has projects in more than 30 countries, said it was reviewing its capital and exploration spending plans. DNO, also from Norway, plans to cut its 2020 budget by 30 percent or $300 million and in addition reduce its dividend for the first half of the year while the Kurdistan-focused Gulf Keystone has suspended some of its drilling activities in the northern Iraqi region.
State-run Saudi Aramco has said it will cut capital spending for 2020 to between $25 billion and $30 billion, from $32.8 billion last year. And in Papua New Guinea, Oil Search has cut its 2020 investment by 38 percent and reduced capital spending by 44 percent.
In a rebound from its recent decline, U.S. oil prices jumped as much as 24 percent on Thursday and rose over $1 on Friday after President Donald Trump hinted he may intervene in the price war between Saudi Arabia and Russia at an “appropriate time.” Brent crude gained nearly 14 percent to $28.26 a barrel yesterday, and rose further by 57 cents, or 2 percent, to $29.04 per barrel this morning.
