Offshore oil and gas now feeling the pain of low prices
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Break out your jerry cans and fill up at your local servo, oil prices have sunk to an 18-year low with the West Texas Intermediate benchmark in the US testing the waters below $US20 per barrel earlier this week before re-emerging from those levels.
Or perhaps wait a couple of weeks before the low crude oil price actually filters down to the petrol pump price.
What is clear though is that the ongoing war over market share between Saudi Arabia and Russia is not doing other producers – particularly tight oil and offshore players – any favours at all.
However, there might be some relief coming, with Reuters reporting that US President Donald Trump and his Russian counterpart Vladimir Putin have agreed to getting their respective energy officials together for a discussion.
A deal might trim the glut of oil that has flooded the market and hopefully allow prices to build back up again, but the damage might already have been done to the offshore sector, which saw exploration expenditure in Australia fall from circa $1.2bn in 2013 to the $200m mark since 2016.
There are a number of reasons including oil prices that only broke past the $US70 per barrel mark for a time in 2018, higher day rates and the shift towards deeper, more remote waters.
And the industry responded adroitly, reducing breakeven levels from a monstrous $US100 per barrel to $US50 per barrel or less, according to Wood Mackenzie.
However, the double whammy of COVID-19 impacting on oil demand and the Saudi-Russia stoush have taken prices well below those levels, leaving Rystad Energy analysts to suggest that up to 20 per cent of offshore workers could lose their jobs while staffing cuts may remain in place until mid-2021.
Australian liquefied natural gas giant Woodside Petroleum (ASX:WPL) has deferred final investment decisions for its Scarborough and Browse gas developments, both of which are located offshore.
It has also deferred most proposed exploration activities, reducing its overall expenditure by about 50 per cent to $75m.
Karoon Energy (ASX:KAR) is continuing to complete the regulatory and commercial processes associated with the proposed acquisition of the Baúna oil field in Brazil’s Santos Basin from Petrobras, though it has to provide guidance on when it will complete the transaction.
The company said that while it was aware of current financial market conditions, Baúna is a quality asset that it would continue to work towards acquiring on acceptable terms for shareholders.
Baúna produced about 19,000 barrels of oil per day during 2019 and is expected to be cash flow positive even at current oil prices.
Carnarvon Petroleum (ASX:CVN) and its operating partner Santos (ASX:STO) have deferred a planned seismic acquisition over their breakthrough Dorado oil discovery in the North West Shelf offshore Western Australia.
The company added that while work on refining prospects for exploration drilling was continuing, the drilling of these wells in 2021 would be dependent on improving market conditions.
Work is also continuing on the engineering and pre-front end engineering and design work.
The services sector has also being affected, with MMA Offshore (ASX:MRM) saying last month that while its operating performance in the third quarter of the 2020 financial year was consistent with its guidance, the recent events had led it to withdraw its earnings guidance.
It added that the uncertainty meant that it was unable to provide an estimate of the potential impact of both COVID-19 and the oil price decline or to provide any guidance with respect to the outlook for future financial years.
There is still some way to go before oil prices recover and the COVID-19 pandemic starts to ease off but the face of Australia’s offshore sector