Oil price crash: deep cuts in upstream investment Report

Insight 17 March 2020

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Report summary

The upstream oil and gas sector faces unprecedented uncertainty. It is clear oil companies must act quickly. We expect cuts to discretionary investment to be immediate and deep. Global spend could fall by more than 25% year-on-year. Large new projects will be put on hold and short-cycle discretionary investment will be dialled back to the bare minimum. Spend on projects under development and onstream will also be targeted. Exploration will be trimmed; operating costs and G&A will be under intense scrutiny. Only the lowest-cost producers with the strongest finances will be in a position to make meaningful discretionary investments.

Executive summary
Massive cuts are on the way, but things are different to 2015-16
Huge capital efficiency gains since the last downturn
- The industry has not underinvested
- The rig count will take time to fall
- Base investment outside the Lower 48 is also under scrutiny
FIDs at new projects will fall back to 2014-16 levels
- Advantaged deepwater and strategic LNG will remain on the table
- Projects with financially stretched operators and/or weaker economics will flounder
Already lean exploration budgets will be cut even further
- Costs will be sticky in 2020
- But 2021 could be far more brutal
- Only the very bullish will be looking for countercyclical opportunities
If operators are hurting, the supply chain will hurt more