The intrinsic uncertainty surrounding the duration of beleaguered global oil and gas demand and low oil prices has led to varied responses from exploration and production (E&P) companies in Australia for coping with the current economic climate.

The analysis of the impact on the top E&P companies in Australia reveals that domestically focused operators are positioned at the lowest risk to the short-term impact of Covid-19 and weakened oil prices, thanks to shelter from external market dynamics and robust reserve lives.

GlobalData upstream impact scorecard

Due to its domestic market-focused portfolio, Cooper Energy has less exposure to the current external market volatility compared to its peers. Gas prices in Australia have dropped in the first quarter as international gas prices reacted to suppressed demand.

However, with winter approaching and an easing of lockdown restrictions announced, prices could rise again as demand picks up. Contrary to the optimistic outlook for the domestic market, larger Australian E&P companies such as Woodside Petroleum and Santos Limited have a stronger dependence on exports, primarily liquefied natural gas (LNG) to the Asian market.

Both companies have tried to mitigate the associated impact by deferring FIDs on major LNG projects in recent months. The $11bn Scarborough project and $4.7bn Barossa were both expected to take FID this year but have seen delays until at least 2021. The second wave of Australian LNG has been stalled and current conditions are negatively affecting those relying on the liquefied gas exports for primary revenue.

For BHP, the reserve replacement ratio (RRR) and reserves life is concerning, standing out as the lowest in the peer group, partially due to the sale of major onshore US assets in 2018. Cooper Energy excelled in reserve life due to sanctioning of the Sole gas field. BHP consistently has had the highest exploration expenses over three years. However, exploration across the group was lower in 2019, reflecting poor exploration performance – a trend that will likely continue in 2020 under the current climate.

The deferral of LNG-focused projects as a response to Covid-19 has had harsh short-term effects. Woodside, Santos and BHP are looking to improve future production via offshore gas fields that have seen delays. However, Santos said they intend to go ahead with one of their other projects, the Dorado field, regardless of the current climate due to the robust economics. If the field proceeds as planned, the company will go from Australia’s third-largest producer to top place by 2024, albeit only retaining the position for one year.

The Asian LNG glut has led prices to record lows and those companies relying on a stable LNG market are at elevated risk to Covid-19 impact. Despite a significant fall in domestic Australian gas prices, those operating domestically are sheltered from external market dynamics and could benefit from increased demand and easing of lockdowns, coming into the winter months.