E&P Notes (April 2020)

Abstract

E&P Notes Historic Oil Glut May Linger for Years Stephen Rassenfoss, JPT Emerging Technology Editor Editor’s Note: The global repercussions of COVID-19 and the oil price drop in mid-March continue to have far-reaching effects on the market, operators, and services companies. This month, JPT editors deliver in-depth E&P market and activity updates. To stay updated, visit the JPT website (www.spe.org/jpt), and sign up to receive JPT’s weekly newsletter (http://go.spe.org/jpt_newsletter) and JPT’s monthly Unconventional Insights newsletter ("http://go.spe.org/JPT_Unconventionals_Newsletter)"http://go.spe.org/JPT_Unconventionals_Newsletter). Price crashes caused by supply gluts have been happening since oil production began, but the latest one is growing to epic proportions. “There has been a dizzying drop in world oil demand and a dramatic pivot in Saudi oil production policy. If this situation persists amidst a recession, it points to the possible buildup of the most extreme global oil supply surplus ever recorded,” said Jim Burkhard, vice president and head of oil markets for IHS Markit. The firm’s estimates of overproduction could range from 4 million B/D to 10 million B/D from February to May 2020, which is in line with a trend of growing oversupply estimates from oil industry observers, who say low prices will be long-lasting. E&P Spending Cuts Spur Requests for Reduced OFS Fees Judy Feder, Technology Editor Fallout for the oil and gas industry from COVID-19 and the production volume war that began when Russia walked away from the suggested OPEC+ deal and Saudi Arabia started flooding the market with oil has been rapid and severe. And, it looks as if US shale will be the hardest hit. The total capital and operational expenditure of exploration and production (E&P) companies is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain at a $30 level, according to a recent Rystad Energy impact analysis. The shale industry would carry the biggest burden of this supply shock by taking as much as $65 billion of the $100-billion 2020 spending reduction expected globally. And, it may get worse. According to Rystad, if no agreement is reached during the next scheduled OPEC+ meeting in June, E&P companies are likely to slash capital and operational budgets to make up for significantly lower cash flows that are expected this year and next.