The oil and gas sector in the Americas region has been severely impacted by the global Covid-19 pandemic and associated muted crude demand. All countries in the region had to cut production and capital expenditure (capex) in response to the Covid-19 crisis, but the degree of impact and response varies significantly among countries in the North and South Americas. As a result of the Covid-19 pandemic, crude oil production in the Americas is estimated to drop by overall 5% or 1.2 million barrels per day (mmbd) compared to 2019, with 66%, approximately 800 thousand barrels per day (mbd) cut in the United States.
The countries’ response is highly dependent on its specific current economic state, such as the level of liberalisation, competitiveness of the fiscal regime and number of independent players. On average over 80% of production in Mexico, Ecuador, Venezuela and Colombia is operated by national oil companies. Also, these countries have very few projects in FID and pre-FID stages, which means their future production growth is most likely to show a negative trend in the next 5-7 years. All these factors together with steeply declining production from mature fields suggest that in a market rebound with limited capex and strapped financing getting new projects online would be difficult.
Table 1 – Americas’ countries comparison by operational and business climate-related metrics
* Production decline from already producing fields with first oil before 2019
** Percentage of 2019 crude oil and natural gas production, not operated by national oil companies
*** Percentage of total peak production rate from pre-FID/FID projects to the current production in the country
Credit: GlobalData Oil and Gas Intelligence Centre
Domestic crude oil production in the United States continues to show an overall slight decline on a weekly basis but the largest cuts appear to be over. Shale operators in the US can always react to high enough prices to start drilling more wells. Crude oil production in Canada is estimated to drop by almost 600 mbd compared to 2019 and reach 3.6 mmbd in 2020. Oil sands projects account for more than half of the total production in the country and on average require a break-even price of US$42 per barrel (bbl) of oil. Mexican oil production has been following a long-term downward trend even prior to the pandemic escalation and oil price decrease in 2020. Production from currently active projects will drop by 32%, or almost 550 mbd, by 2025, while future projects will add only 350 mbd by that time.
Venezuela is expected to have the largest production drop in the region due to accumulating large crude inventory. Crude production in 2020 is estimated at 450 mbd, which is a 26% drop from 2019 production in Venezuela. On the other hand, Brazil has one of the most liberalised oil and gas sectors in Latin America, and its high-return pre-salt resources have attracted many international investors. Brazil slowed down the production growth due to the crisis but there is still an 8.6% growth expected compared to 2019. In Guyana, even with prices falling, it is unlikely that the projects currently under development will be stalled. Two out of four projects in Guyana, Liza Phase 1 and Liza Phase 2 are well on track in their initial production and development phases respectively. Next to be developed Payara might be pushed back by 6-12 months, but the consortium is ready to go ahead with the development as soon as government grants all the required approvals.