By Sebastine Obasi
The Coronavirus (COVID-19) is taking toll on the global oil industry capital expenditure, CAPEX, for exploration and production, E&P, companies as recent report indicates is expected to drop by up to $100 billion in 2020, about 17 percent below 2019 levels, under Rystad Energy’s updated base case scenario of $34/per barrel (pb) in 2020 and $44/pb in 2021.
E&P CAPEX in 2019 reached $546 billion, according to Rystad Energy estimates, having slightly recovered from a two-year slump in 2015 and 2016 before diving to around $510 billion from 2014’s historical high of $880 billion.
According to the analyst’s data, the expected decline this year will make 2020’s CAPEX volumes, estimated at about $450 billion, the lowest in 13 years. Its estimates before the COVID-19 pandemic had indicated E&P would remain flat year-on-year.
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In the month of April, when the Organisation of Petroleum Exporting Countries, OPEC+ producers are expected to flood the market with additional oil, Brent prices are now at nearly $25/pb and is likely to decline even further.
In a low case scenario, where Brent averages $25 in 2020, global investments may plunge to around $380 billion this year, falling to almost $300 billion in 2021, a 14-year and a 15-year low respectively.
Rystad Energy’s upstream analyst, Olga Savenkova, said: “As companies are now losing solid oil market ground for a second time in recent years, it will be far more challenging to act quickly and reach the same high level of investment revision without taking a heavy toll on E&P’s performance.
“The estimated cost cuts will be mainly achieved by lower activity within US shale, delays to projects that are yet to reach the final investment decision stage, deferred exploration activity, and cost cuts within development and production for conventional assets”, Rystad Energy stated.