The GlobalData Upstream Impact Scorecard considers a number of factors that determine a company’s upstream business impact from Covid-19 and weakened oil prices in comparison to oil and gas industry peers. The oil and gas peer group consists of Husky Energy Inc, Cenovus Energy Inc, Suncor Energy Inc, ConocoPhillips, Chevron Corporation, Exxon Mobil Corporation, and some companies are found to be in a better position to withstand the current market volatility.

The companies with the lowest impact on upstream business among the North American integrated oil and gas operators are Exxon Mobil and Chevron Corporations. Each of these companies has operations in more than 20 countries, which provides flexibility in re-balancing capital and operating expenditure across the assets. Exxon Mobil and Chevron Corporations also have low debt-to-equity ratio and robust cash flow in response to low oil prices, which makes their business most likely to respond well to the current crisis.

Figure 1 – Upstream Impact Scorecard for North American integrated oil and gas operators

Note: the Upstream Impact Scorecard determines a company’s upstream business exposure, associated risks to the short-term impact of Covid-19 and weakened oil prices. It ranks the highest negative impact with 1.

Source: GlobalData Upstream Analytics

An oversupply of US Lower 48 light production coupled with limitations in the storage capacity in Cushing, Oklahoma, have put continuous downward pressure on West Texas Intermediate (WTI) prices during the last two months. This situation forced companies with a larger presence in the US shale developments to significantly reduce rig count and capital spend to mitigate the negative impact of low oil prices. Similarly, operators focusing on producing heavy crudes in Canada are highly vulnerable as the main pricing benchmark, West Canadian Select (WCS), showed high volatility in the lower crude demand environment. This has also resulted in a cut of approximately one million barrels per day in the province of Alberta.

Companies with large exposure to oil sands production in Canada are considered most vulnerable in the low oil price scenario. Husky Energy Inc and Cenovus Energy Inc announced more than 43% capital expenditure cuts each in response to low oil prices caused by Covid-19 pandemic. The companies’ upstream business ranks as one of the most impacted by low oil prices in the selected sample due to high debt-to-equity ratio, oil sands-dominant portfolio and the lack of geographical diversification of their operations.

Despite the fact that Exxon Mobil Corporation, Chevron Corporation and Conoco Phillips have significant footprint both in the US Lower 48 and Canada, where development activities have been slowed down, their exposure to assets with conventional production, their experience in offshore basins and the wide geographical diversification of their portfolios offer these operators a better chance in re-allocating their adjusted expenditure budgets.

However, exposure to OPEC+ countries could present significant risks to operators. While operators have to comply with the agreed production restrictions, this may not necessarily be in line with their original development plans and budget allocation strategy.

Figure 2 – US Lower 48 and oil sands production exposure for North American integrated oil and gas operators