The Sun (Malaysia)

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

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