Oil and gas exploration and production (E&P) companies around the world are set to see their total annual revenues plunge by a whopping US$1 trillion this year, due to the coronavirus pandemic and its effect on global oil demand and prices, Rystad Energy said in an analysis this week.
E&P revenues are set to plummet by around US$1 trillion in 2020, a drop of 40 percent, and stand at just to US$1.47 trillion this year, compared to last year’s combined annual revenues of US$2.47 trillion, according to the independent energy research firm.
Before the pandemic, Rystad Energy was forecasting annual E&P revenues at US$2.35 trillion this year and US$2.52 trillion in 2021.
The research firm also slashed its projections for total E&P revenues for 2021 —to US$1.79 trillion.
The current extraordinary times for the oil industry will also result in shrinking cash flows for E&P companies. Total free cash flow is now seen at US$141 billion for 2020, which would be just one-third of the free cash flow oil and gas E&P firms generated in 2019. Rystad’s estimates for cash flows are based on a base-case oil price scenario of $34 a barrel in 2020 and $44 per barrel in 2021, “so there is a considerable downside risk if the current low-level prices persist.”
“This drop not only undermines the companies’ solidity and reduces money available for investments and dividends, but also significantly cuts government tax revenue. It will be challenging for petro-states such as Russia and many Middle Eastern countries to sustain their budgets,” Rystad Energy’s upstream analyst Olga Savenkova said.
The pandemic is already wreaking havoc on the finances of the world’s top oil exporter, Saudi Arabia.
Oil majors, who began reporting Q1 earnings this week, are also being hit hard by the demand and oil price crash in the pandemic, with Shell announcing today its first dividend cut since World War II.
By Tsvetana Paraskova for Oilprice.com
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A new working paper from the National Bureau of Economic Research says that US GDP could contract by 11% in the fourth quarter of 2020, year-on-year while the European Union’s economy is projected to shrink by 3.8% this year. Therefore, a loss of $1 trillion in global oil production revenues is no exception. The global oil industry is projected to earn $1.47 trillion this year compared with last years’ $2.47 trillion.The projection for 2021 is $1.79 trillion.
If anything, the outbreak with its destructive power of both the global economy and the global oil market has proven irrevocably how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and vice versa.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London