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March 31, 2020

Over $50bn in capital expenditure cuts announced amid Covid-19 and oil price war

By GlobalData Energy

The uncontrollable nature of global oil prices that now sit on decade year lows has recently left the sector scrabbling to adjust. Controllable measures in the form of costs and investments have been slashed across the sector as non-essential projects face deferral, while workforces are being cut to the bone to stay afloat. Over $50bn in capital expenditure cuts has been announced to date for the oil sector, with more forecast throughout the year as major operators like Exxon Mobil and BP continue to review their 2020 plans.

Out of the companies tracked, Saudi Aramco, the largest oil company in the world, announced the most significant investment cut of $10bn, equating to approximately 27% of its initial budget for 2020. Major expenditure cuts could impact ongoing oil field expansion projects such as Zuluf and Marjan. US operators with shale acreage and Australian operators with upcoming large-scale LNG projects have taken the most drastic measures. For example, US operators such as Occidental Petroleum and EOG Resources have cut over 30% of forecast capital investment through reduced drilling activity and new project spend. Meanwhile, Australian operators Woodside Petroleum Ltd and Santos Ltd are deferring significant investment for the year as major domestic LNG projects, including Scarborough and Barossa, await improved investment conditions.

Regained market stability at sustainable levels is required to bring back delayed spending and investment confidence. In addition to deferred project investments, share buy backs, dividend payouts and general overhead costs have all come under review for 2020 with revisions downward. The types and severity of the cuts seen will differ depending on the stakeholder requirements. National oil companies will strive to protect obligated payments to the government, whilst maintaining production volumes, whereas independent oil companies will focus on strengthening their balance sheets and continuing to generate returns for investors.

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