Oil and gas exploration and production companies, or E&Ps, are slated to lose a staggering $1 trillion in revenues in 2020, according to analysis by research firm Rystad Energy.
The E&P industry, which includes oil majors, made $2.47 trillion in revenues globally last year, the firm says. But this year it’s projected to
bring in $1.47 trillion, reflecting a 40% decline year-on-year. It comes as the coronavirus pandemic and ensuing lockdowns cripple demand and force companies to slash spending and cancel projects.
Before the virus began to hit economies, Rystad projected E&P revenues for 2020 to reach $2.35 trillion. Returns for 2021 are now also projected lower, at $1.79 trillion compared to a forecast of $2.52 trillion before the pandemic.
The slashed revenues, a similar story for most industries amid the worst economic downturn since the Great Depression, have clearly manifested themselves in the industry’s equity market position. The energy sector is shrinking so dramatically that it’s become the second-
smallest group in the whole S&P index. The industry now represents just 3% of the index, compared to 15% a decade ago and 30% in 1980. The International Energy Agency predicts a record demand loss of 9.3 million barrels per day (bpd) in 2020, as all but essential businesses across many major economies are forced to remain closed and millions of residents shelter in place for an indefinite period of time. Air travel has dropped by 95% in the U.S. year-on-year, a reflection of the global travel industry as a whole.
The price of global oil benchmark Brent crude is down more than 60% year-to-date to its lowest in more than 20 years, and this month saw an oil futures contract turn negative for the first time in history as the world runs out of storage space, forcing producers to take rigs offline and shut in production.
Exxon is cutting its capital spending globally by 30%. Exxon CEO Darren Woods expects oil demand to fall by between 25% and 30% in the immediate term. Chevron, BP, Shell and Saudi Aramco are among other major producers that have announced spending cuts of between 20% and 25% in their operations globally. As an industry, oil companies have so far slashed $54 billion in planned spending, Reuters reported this month.
U.S. shale, with higher production costs than many foreign competitors, is the largest contributor to this so far, with rigs and projects dropping like flies. The Energy Information Administration reported that U.S. production has now plunged by 1 million bpd, pumping 12.1 million bpd last week compared to a record 13.1 million bpd in mid-March.
“This year might be marked by the lowest project sanctioning activity since the 1950s in terms of total sanctioned investments, dropping to $110 billion, or less than one-quarter of the 2019 level, with most of the projects being deferred,” Rystad wrote.