May 5, 2020

The Oil And Gas Situation: Bleak In The U.S., Surprisingly Positive In Latin America

The Oil And Gas Situation: Bleak In The U.S., Surprisingly Positive In Latin America


Forbes


How bad is the situation for the oil and gas industry in the U.S. right now? Let’s take a look at some compelling recent data points:

Source: Forbes

  • On Friday, ExxonMobil posted its first quarterly loss since 1999.
  • On Thursday, Royal Dutch Shell cut its dividend for the first time since the 1940s.
  • In it’s most recent weekly rig county update, Enverus reports that “As of April 29, the number of active rigs in the Permian is down 49% YOY. The Anadarko is down 86% and Eagle Ford 77%.” Overall, the company’s tally of the U.S. rig count has been cut in half since January 1.
  • Rystad Energy estimates that global oil and gas capital budgets are expected to be cut by $100 billion during 2020, a number that could rise to $150 billion if low oil prices persist into 2021.
  • Over the weekend, Warren Buffett characterized his $10 billion infusion of cash into Oxy last year, which facilitated that company’s $55 billion takeover of Anadarko Petroleum, as a “mistake,” saying that “if you’re an Oxy shareholder or a shareholder in any oil producing company, you join me in having made a mistake so far in terms of where oil prices went. And who knows where they go in the future?”

So, the situation for the industry in the U.S. is dire, and isn’t likely to improve significantly any time before the third quarter of this year.

Interestingly, though, the industry’s prospects in Latin America appear to be holding up quite well. This is especially true in the tiny country of Guyana, where a three-company consortium led by ExxonMobil, and including non-operating partners Hess Corp. and CNOOC has spent the last several years discovering and developing a major oil find in the Stabroek Block in that country’s offshore waters.

Where Exxon announced major production curtailments in the U.S. and spending reductions targeting its operations in the Permian Basin and Mozambique, the Stabroek consortium has announced no cutbacks related to the four drill ships that continue to explore for more oil reserves in what is already an 8 billion barrel discovery area. The Guyanese government recently reported it deposited its first royalty check in the amount of $4.9 million into its Natural Resources Fund. That payment relates to initial production from the Liza Phase 1 project, which kicked off at the first of the year and will ramp up to 120,000 barrels of oil per day in the coming months.

Anticipation around Stabroek is so high in the industry itself that a recent round of bidding for a contract to market the government’s share of production from the development attracted bids from more than 30 companies. Bidders included Royal Dutch Shell, Gunvor, Vitol, Petrobras, Lukoil, Equinor, ExxonMobil itself and many more of the largest trading companies on earth.

The Consortium has also continued its expansive social investment and capacity-building program in Guyana itself, most recently with an injection of $60 million in Guyanese dollars to assist with COVID-19 relief efforts. Those investments included $10 million to the Salvation Army, $10 million to Rotary Guyana targeting the procurement of medical supplies, and $40 million to the country’s Ministry of Public Health to help fund quarantine facilities, food, sanitation items and equipment.

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