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Oil industry players axe capital budgets

The devastating effects of the coronavirus have taken a terrific toll on many local and international firms with their financials dipping in the second quarter of this year.

The huge drop in crude oil demand resulted in the international price of oil dipping to less than $15 a barrel, forcing many of the International Oil Companies (IOC) to shut in and review downward their oil exploration and production budgets for this year.

Royal Dutch Shell posted a loss of $18.4billion in the second quarter of this year, compared to a profit of $3.5billion in the same period of 2019.

Shell, according to the reports, warned that the outlook for oil demand continued to be uncertain, saying it had cut its exploration drilling plans for this year from 77 wells to just 22.

Shell had slashed its capital spending budget for the year in March from around $25billion to $20billion, it said.

The American oil giant, ExxonMobil, had also reported its biggest-ever quarterly loss of $1.1billion and confirmed plans to make deeper spending cuts.

According to the report, the oil firm suffered a loss of $610million in the first quarter of the year, and slashed capital spending by 30 per cent this year to about $23billion.

It is not different for another American oil giant, Chevron Corporation, which posted its worst quarterly loss of $8.3billion in the second quarter of this year in at least three decades and warned that the pandemic wreaking havoc on the energy markets might continue to drag on earnings.

“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman/Chief Executive Officer, Michael Wirth, reportedly said.

The local oil players are shielded from the distress in the sector as one of the major indigenous independent oil companies in Nigeria, Seplat Petroleum Development Company Plc, posted a loss of $145.3million in the first half of this year, compared to a profit of $120.4million in the same period last year.

“The sharp drop in oil prices and demand may slow down the speed with which indigenous producers pursue the aspiration to ramp up production to about 50 per cent of Nigeria’s daily oil and gas production,” the Managing Director/CEO, ND Western Limited, an indigenous operator, Mr. Eberechukwu Oji, said.

It would be recalled that in last December, many oil and gas projects valued at $58.4billion in the country faced an uncertain future as the IOCs failed to sanction them several years after they were announced.

The collapse in oil prices and demand caused by the coronavirus pandemic and the price war between Saudi Arabia and Russia has compounded the challenges facing the projects.

Before the pandemic, industry experts had warned that the delay in having in place the Petroleum Industry Bill and the regulatory and security challenges in the country had put a damper on the IOCs’ appetite to take final investment decisions (FID) on the projects.