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Oil Companies Cut Upstream Expenditure by $100bn in Five Years

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  • Oil Companies Cut Upstream Expenditure by $100bn in Five Years

Capital expenditure (Capex) in the oil and gas industry in sub-Saharan Africa has been cut by $100 billion over the next five years, according to Wood Mackenzie’s latest report on upstream activity in the region.

The new report revealed that deepwater has suffered the deepest Capex cuts due to its high breakeven price relative to other sectors and identified Nigeria and Angola as having endured the worst of these cuts.

As a result, Wood Mackenzie predicted that sub-Saharan African liquids production will decline to 2.6 million barrels a day by 2030, from 4.8 million barrels a day presently.

While acknowledging that the giant Owowo discovery made by ExxonMobil in deepwater Nigeria shows the quality of resources Sub-Saharan Africa still has to offer but added that the major oil companies that heavily invested in Sub-Saharan Africa account for the bulk of the capex cuts.

For operators with deep pockets, the report identified Mozambique, Angola and Nigeria as leaders in upstream mergers and acquisitions (M&A) opportunities.

The report however noted that the M&A market has slowed down as buyers and sellers are unable to align on asset values due to oil price volatility.

According to the report, “deal activity may see an uptick if prices remain low for longer, as companies opt to divest non-core assets.”

Wood Mackenzie further revealed that exploration cuts will contribute to 46 per cent oil production decline by 2030, adding that governments in Sub-Saharan Africa need to revive the industry with attractive fiscal terms.

The report described East Africa’s emergence as a major global gas region as the industry’s biggest recent success in Sub-Saharan Africa Speaking on the report, the Senior Research Manager for Sub-Saharan Africa at Wood Mackenzie, Mr. Femi Oso stated that exploration cuts in the region would lead to long-term slump in crude oil production.

“Exploration cuts in the region will also contribute to a longer-term production slump as explorers have shied away from greenfield prospects, in favour of appraising known discoveries. However, the confirmation of the giant Owowo discovery in deepwater Nigeria shows the quality of resources that Sub-Saharan Africa still has to offer,” Oso added.

Wood Mackenzie expects a slow recovery for exploration, adding that operators will benefit from cost deflation and will improve efficiency through streamlining project design.

“Governments in Sub-Saharan Africa need to revive the upstream oil and gas industry by offering attractive fiscal terms rather than look to increase state revenues in the current climate,” Oso added.

Wood Mackenzie described East Africa’s emergence as a gas region of global importance as the biggest upstream success story in Sub-Saharan Africa.

“With over 168 trillion cubic feet of gas found and limited regional demand, East Africa is on track to become a major global LNG supplier and various export projects are awaiting final investment decision,” said the report.

According to Wood Mackenzie’s research, Mozambique and Tanzania gas project economics are resilient and will “transform the global LNG market”.

“Mozambique and Tanzania’s LNG projects have remained relatively unscathed by cuts and will be timed to align with global LNG demand growth to achieve a better price,” Oso said.

“The projects will appeal to buyers looking to diversify their portfolios and BP has already committed to offtake all volumes from Eni’s Coral FLNG,” he added.

“The expected increase in gas production in Sub-Saharan Africa, from 6 billion cubic feet a day (bcfd) currently to 13 bcfd next decade, is very good news for the region,” Oso explained.

The report acknowledged that onshore LNG plants remain the preferred way to monetise gas, although liquefaction via third-party-owned floating liquefied natural gas (FLNG) vessels is emerging as a simpler and less expensive alternative.

“Floating storage regasification units (FSRU) and piped gas supply to the power sector will play an increasingly important role in the longer term as domestic markets develop from their very low base. An FSRU is a floating LNG import terminal,” Wood Mackenzie added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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