Oil majors deepen 2020 spending cuts, lower oil, gas output forecast
With many oil majors suffering huge losses in the first quarter as a result of the effect of the coronavirus pandemic, operators are beginning to look in the direction of lower operating expenses and output forecast.
Indeed, the output cuts are driven by an unprecedented drop in oil consumption due to coronavirus-related movement restrictions that have led to a surge in supplies and a collapse in crude prices to levels not seen in more than two decades.
The cumulative output for Exxon Mobil, Chevron, Royal Dutch Shell, BP and Total will drop to the lowest since at least 2003, based on Refinitiv data.
Total, on Tuesday, announced a deepening of capital spending cuts and a likely 5% reduction in its upstream oil and gas output in 2020 from its previous forecast, while also highlighting a 50% reduction in its refinery utilization and products sales since mid-March.
In a first-quarter results statement, reflecting the global health crisis and meltdown in markets following coronavirus pandemic, Total said it now expects its 2020 oil and gas output to be in a range of 2.95 million – 3.0 million b/d of oil equivalent, down from actual production of 3.01 million boe/d in 2019 and a forecast in February of 2% growth this year.
The production decrease would reflect output curbs by the OPEC+ group as well as voluntary output cuts in Canada and ongoing difficulties in Libya, it said.
It also deepened a cut in organic capital expenditure to 25%, down from 20% announced in March, saying net investments would be under $14 billion this year.
In the downstream segment, Europe’s largest refiner said its refinery throughput and sales had been running at 50% below normal since mid-March, “with uncertainty about the timing of a return to normal.” It forecast its refinery throughput levels would be in a range of 70%-75% for the full year, down from 84% last year.
CEO Patrick Pouyanne said: “The Group is facing exceptional circumstances,” as the COVID-19 health crisis is affecting the world economy and creating major uncertainties.
BP said it will reduce its U.S. shale oil output by 70,000 barrels of oil equivalent per day (boepd) in 2020, around 14% lower than its 2019 output of 499,000 boepd.
Shell Chief Financial Officer Jessica Uhl said that in some cases the production cuts are due to logistical problems such as lack of storage.
Exxon and Chevron are slamming the brakes on oil output, with plans for combined global shut-ins of 800,000 barrels per day in response to plunging crude prices.
Exxon lost $610 million in the first quarter, down from a profit of $2.4 billion a year earlier. Worse, the period only included a few weeks of oil prices at catastrophically low levels. As a result, the second quarter is bound to lead dramatically worse numbers.
On its earnings call with investors and analysts, Exxon’s CEO noted the extreme uncertainty in the oil market, but aside from spending cuts and a slowdown on operations, the company’s long-term plans remain mostly unaltered.