The fall in oil prices triggered by the Saudi Arabia-Russia price war and the COVID-19 global pandemic has resulted in a number of oil and gas companies readjusting their 2020 exploration and production programmes. US oil major ExxonMobil said in March it is looking to significantly reduce spending as a result of market conditions caused by the COVID-19 pandemic and commodity price decreases. But Norway-based Rystad Energy says it does not anticipate current market conditions will result in oil production off the coast of Guyana coming to a halt.
“Given that the FPSO is lease which accounts for almost 30-40% of the overall production costs, we do not see Exxon turning off the taps provided there are available export tankers and buyers in this over supplied market,” Schreiner Parker, Rystad Energy’s Vice President for Latin America and the Caribbean, told OilNOW.
New field developments
Parker said the uncertainty around crude prices could result in a cautious approach being taken to new field sanctioning over the next 12 to 18 months. He alluded to upcoming projects including Payara, Pacora and Hammerhead.
“Even though the breakeven price for these projects are only on the 30-40-dollar range, the uncertainty regarding the short-term and the long-term crude prices would prevent companies from rushing Final Investment Decisions (FID),” he said.
Capital discipline is absolutely the need of the hour, Parker pointed out, adding that Rystad Energy believes that Payara and Pacora FID could now be delayed into the second half of 2020.
Front End Engineering and Design work could also be delayed for FPSO orders due to the COVID-19 pandemic and uncertain market conditions. “This may put some down work pressure on service costs and operators may want to leverage that, so they may want to wait until those prices fall a little bit before they do the FEED studies,” he indicated.
On the other hand, once normalcy in the market begins to return, possibly by Q4 2020, Parker said there could be a flood in new developments, and this could potentially lead to an increase in FPSO demand. Contractors would then have several projects to choose from and this could send up the construction costs.
Rystad Energy expects to see operators scale down budgets which would have an immediate impact on new field exploration. “However, we believe that Exxon wouldn’t likely scale down activity in Guyana. The company already contracted five rigs with only one focusing on development drilling,” Parker stated.
Exxon has said that measures being implemented for COVID-19 could cause a disruption in its offshore operations. “Efforts are being made to limit the disruption of the coronavirus to our operations but given the global nature of our operations, travel restrictions have impacted our ability to move workers into Guyana and could impact our ability to maintain normal operations offshore,” Janelle Persaud, ExxonMobil Guyana Public and Government Affairs Advisor recently told OilNOW.
A notice from Guyana’s Maritime Administration Department published in the local press last week indicated that the Stena Carron drillship will be moved from the Yellowtail-2 well site to a staging area until May 11, signaling a slowdown in operations.
Darren Woods, Chairman and Chief Executive Officer of Exxon Mobil Corporation says the company has faced numerous market downturns throughout its long history and has experience operating in a sustained low-price environment.
“We are confident that we will manage through these challenging times by taking deliberate action to keep our people safe, our environment protected and our company strong,” Woods said in March.