Oil exploration up in the air as prices tumble

LONDON: The coronavirus pandemic that has slammed oil demand and prices is forcing energy majors to tighten their belts on exploration, even if finding new deposits remain essential to their existence.

While the sector is increasingly diversifying into greener energies such as electricity and wind power, its core business remains oil and gas.

“Questions abound over whether it is still profitable to look for oil given subdued demand growth prospects and a low-price environment,” Stephen Brennock, analyst at oil brokers PVM, told AFP.

“The answer seems not, judging by the recent spate of massive hydrocarbon asset writedowns. Set against this backdrop, I don’t expect a rebound in drilling in the medium term.

“Instead, oil majors will be forced to beef up their green energy portfolios in order to survive,” Brennock said.

Compared to pre-virus plans, the energy sector has slashed exploration projects in UK North Sea waters by 70% and by 30% off the coast of Norway, according to research group Westwood.

US oil giant ExxonMobil has cut its total exploration plans by 30%, or an investment reduction of US$10 billion (RM41.6 billion). European rivals ENI, BP and Equinor have carried out similar moves, which have in turn hurt subcontractors.

In the US, over 30 oil exploration and production companies have this year filed for bankruptcy, according to Texan law firm Haynes & Boone.

If oil prices remain stuck around the current US$40 per barrel level, a further 150 such companies could be lost by 2022, estimates research group Rystad Energy.

“Drilling programmes will be hampered in the near term, in particular in US shale areas but also elsewhere, because of immediate cost-cutting measures,” said JBC Energy analyst Raphaela Hein. “In the past, we have seen that massive capital expenditure cuts to majors’ budgets did not really impact their future production.

“As such, we think that they will continue to look for new fields – maybe to a slightly lesser extent... and keep production within their longterm plans. – AFP