BAKU, Azerbaijan, June 30
By Leman Zeynalova – Trend:
Oil markets are expected to be under supplied in 2021, which will support higher oil prices and encourage increased investment across the board, Trend reports with reference to Fitch Solutions company.
“However, we caution that the prospect of a second wave of Covid-19 striking key markets, the potential for an abrupt end to OPEC+ production cuts and an extended global recession could see capex lower than currently forecast,” reads the report released by Fitch Solutions.
“The North American, European and African market segments will see the biggest declines capex in 2020 as the low oil prices impact new investment the heaviest. Independent oil and gas producers in the US slashed 2020 capex plans by over 41 percent compared to 2019 amid the collapse in oil prices. The bulk of US cuts will come for the shale plays which have seen a dramatic drop in drilling and active rigs as prices fell well below shut-in prices in April. The pullback in capex will be more abrupt than in other regions, due to the higher leverage employed by US firms,” said the company.
The report shows that excessive debt and a lack of profitability are forcing the bulk of Independents to pare back new drilling and reduce expenditures as a matter of urgency in order to preserve cash.
“Despite their best efforts to reduce expenditures, several firms are facing bankruptcy as a result. Canadian producers have also reduced capex in light of low oil prices and we estimate a 2020 contraction of 35 percent from 2019 levels. If oil prices rally beyond our forecast range of $40/bbl, then this could unlock additional investment in the region to support higher output. The Sub-Saharan Africa region’s capex is expected to slump by 29 percent in 2020, marking a significant turnaround from our expectations at the start of the year of 16 percent growth,” said Fitch Solutions.
The company warns that Covid-19 related impacts are resulting in delays to several of the major LNG projects in Sub-Saharan Africa.
“These LNG export facilities will be the largest segments of investment in 2020 at nearly $5 billion, or 30 percent of the total spent in the region. Regional oil producing leaders Nigeria and Angola will see investment declines as commitments to OPEC+ production cuts limit the prospects of production growth in the near term,” reads the report.
The company expects that European-focused oil and gas companies will face a tough year and it expects them to post a 27 percent decline in capex for 2020. “Short-cycle investments are being deferred and exploration costs are being cut to adjust to lower oil prices. The region’s higher development and operating costs put new investment at a disadvantage in comparison to other lower cost regions.”
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