Exploration and production to slump by £80bn, claims energy firm

Capital expenditure (capex) on global oil and gas exploration and production (E&P) will slump by around £80 billion, or 17%, this year, according to Norwegian consultancy Rystad Energy.

The firm’s “updated base case scenario” assumes an average of $34 per barrel in 2020 and $44 in 2021.

E&P capex reached £433.7bn last year, having recovered slightly from a two-year slump in 2015 and 2016, and then dived to an annual figure of £405.2bn.

This is compared with 2014’s historical high of around £700bn.

Olga Savenkova, upstream analyst, Rystad, said: “According to our data, the expected decline this year will make 2020’s capex volumes, estimated at about $450bn (£357.5bn), the lowest in 13 years.

“Our estimates before the coronavirus epidemic had indicated E&P would remain flat year-on-year.

“As April approaches, whenOpec+producers (14 members and 10 non-members of the Opec producers’ cartel) are expected to flood the market with even more additional oil, Brent prices are now at around $25 per barrel and are likely to decline even further.

“In a low-case scenario, where Brent averages $25 in 2020, global investments may plunge to around $380bn (£301.8bn) this year, falling to almost $300bn (£238.2bn) in 2021, a 14-year and 15-year low respectively.”

Ms Savenkova added: “As companies are now losing solid oil market ground for a second time in recent years, it will be far more challenging to act quickly and reach the same high level of investment revision without taking a heavy toll on E&P’s performance.

“The estimated cost cuts will be mainly achieved by lower activity within US shale, delays to projects that are yet to reach the final investment decision stage, deferred exploration activity, and cost cuts within development and production for conventional assets.”