Oil industry’s spending in 2020 still seen as bleak
Forecasts continue to point to hard times for the oil and gas industry even as the rising price of crude offered hope that the pandemic’s stranglehold on production would ease.
Spending on oil and gas drilling this year, for example, is expected to fall to $383 billion, the lowest level in 15 years and a 29 percent decline when compared with 2019, according to a report from Rystad Energy, a Norwegian research company.
“As the impact will be more severe than in the previous downturn, companies are fiercely defending shareholder value and pivoting towards more conservative spending strategies in the near term,” said Olga Savenkova, Rystad Energy’s upstream analyst. “As the global upstream sector contends with low prices, falling demand and fluctuating exchange rates, every dollar cut will strike directly to the bone.”
The industry remains in the grips of the oil crash that began in January with the onset of the coronavirus pandemic and a historic decline in demand for crude. The price of West Texas Intermediate, the U.S. benchmark, declined from about $60 at the start of the year into negative territory in April, and producers
slashed spending and output amid the global glut of oil. WTI rose to over $39 during the past month as demand increased slightly, but it reversed course in recent days, settling Thursday at $36.34.
Texas could feel the brunt of the ongoing belt-tightening, according go Rystad,
which said investment in shale fields will fall more than 50 percent to $67.3 billion this year. Oil sands spending will follow with a decline of 44 percent to $5.1 billion. Other onshore investments are forecast to fall by 23 percent to $182.4 billion this year.
On the other hand, offshore spending is expected to be least affected by the latest oil bust, according to Rystad. Deep-water spending
is estimated to fall by nearly 16 percent to $69 billion this year, while offshore shelf spending is expected to fall by 14 percent to $59.5 billion.
The sharp cutbacks among oil producers will trickle down to pipeline and storage tank operators, who are expected to see earnings before income tax, depreciation and amortization fall by 5 percent this year, according to New York credit
rating company Moody’s.
Moody’s downgraded its outlook for the midstream sector, which includes pipeline and storage terminal operators, to negative from stable. The rating marks the first time that the company has given a negative outlook for the midstream sector.
“Although midstream cash flow is largely insulated from the full brunt of commodity price and volumetric instability, the rapid pace and the magnitude of production declines have finally spilled into the midstream sector, compromising its aggregate credit quality,” Moody’s said.
The midstream sector has put plans for several new pipeline projects on hold, but earnings largely had been insulated from the downturn as oil companies sought to use pipelines to move and store crude until higher prices return.