Oil companies go ahead with output cuts

• DOI: http://doi.org/10.1111/oet.12802
• Published date: 01 June 2020
• Date: 01 June 2020

LOOKING AHEAD

Oil companies go ahead with output cuts

The world's private oil companies are cutting output

alongside OPEC-plus NOCs due to low crude prices and

reduced demand related to the global coronavirus

pandemic—both as part of the OPEC-plus deal and for

logistical and commercial reasons.

Following the price slump in April and 9.7 mn bpd

OPEC-plus deal that also assumed several million bpd of

non-OPEC-plus cuts, many oil companies have indeed

moved forward with reductions. The bulk of the non-

OPEC-plus cuts have been in North America, with poten-

tially up to 4.8 mn bpd shut in across the continent,

according to Energy Intelligence Group, although with

recent price rises there are questions over how long this

will hold.

At least 550 000 bpd of shut-ins have come from the

major oil sands operations of Athabasca Oil Sands,

Cenovus, Conoco, Exxon Mobil, Husky, and Suncor, and

this looks likely to stay offline at least until oil prices are

re-established above $40/bbl. The biggest cuts in the US

shale sector have been among independents, with both

high margin wells shut in for better times and low mar-

gin ones for good—which has already knocked about

1.5-2 mn bpd off US output—while rig numbers plunged

to 339 rigs at the end of May (the lowest since July 2016).

Majors are also cutting shale output, including

ExxonMobil, which expects to cut its Permian flows by

100 000 bpd (28%) in Q2 this year as part of global cuts of

10% or 400 000 boe/d, through shut-ins and curtailments

of newer, promising wells to preserve their higher flow

rates for when prices recover, according to CEO Darren

Woods. Chevron plans to cut US output by about

150 000 bpd in the US onshore, which is about half its

planned 200 000 to 300 000 boe/d cuts for May, with fur-

ther volume reductions to come, CEO Mike Wirth said

during a Q1 earnings call. Most of the onshore cuts will

come from the Permian Basin, where production in Q1

was 580 000 boe/d, up 13% on Q4, and up significantly

from 420 000 bpd last year. The cuts will mean the com-

pany is unlikely to meet its output goal of 900 000 bpd

from the Permian by year-end 2023.

ConocoPhillips increased its reductions from 225 000 bpd

in April to 265 000 bpd in May, all of it in North

American onshore (including 100 000 bpd from the

Surmont oil sands project in Canada). June's cuts will be

even steeper, totaling 460 000 bpd, including 260 000 bpd

in the Lower 48 states, 100 000 bpd from Surmont, and

100 000 bpd in Alaska, ConocoPhillips said at its Q1 earn-

ings call. The company may be obliged to cut elsewhere

as well, due to OPEC-plus restrictions. However, more

recently, ConocoPhillips says the reopening of the US

West Coast will guide its Alaska curtailments given the

two markets' tight linkage.

1|OPEC-PLUS CONSTRAINT

Outside the United States, Chevron's curtailed production

is almost all related to the OPEC-plus production cut

agreements, although there could also be some impact

from the virus itself. For example, the Chevron-operated

Tengiz oil field is under threat from closure because

dozens of workers have been infected by the coronavirus,

according to the Kazakh Government, which is making it

easier for the country to meet its 390 000 b/d reduction

commitment under the OPEC-plus deal. Almost

950 workers at the 500 000 bpd operation have tested

positive.

Shell says its oil and gas output could slump by over

30% in the second quarter, with about 40% of that related

to OPEC-plus cuts and the remainder for economic or

logistical reasons as a result of the oil price/demand

downturn. Production from its main upstream division is

expected to be between 1.75 and 2.25 mn boe/d in the

second quarter, down from 2.71 mn boe/d in the first

quarter this year. In addition, LNG-focused gas produc-

tion is expected to be 840 000-890 000 boe/d, down from

955 000 boe/d in Q1. However, the cuts are only expected

to be short-term.

BP and Total could also suffer from the widespread

OPEC-plus cuts in the Mideast Gulf and elsewhere, with

major positions in Iraq, Angola, UAE, Oman, Algeria,

Azerbaijan, Nigeria, and other OPEC-plus group mem-

bers, along with other majors, although in the long run

these volumes should bounce back. Japan's biggest pro-

ducer, Inpex, says it does not plan to cut after a 16% rise

in output in the first quarter to 612 900 boe/d, but its

stakes in Abu Dhabi's onshore and offshore oil fields,

means it will have to take on some cuts in Q2. In Nor-

way, Equinor has had to cut in line with the country's

400 000 bpd commitment, along with other producers.

DOI: 10.1111/oet.12802

8© 2020 John Wiley & Sons Ltd Oil and Energy Trends. 2020;45:8–9.wileyonlinelibrary.com/journal/oet