Liberal leaders say they have a plan for a new, more effective anti-Trump resistance    Stampedes at Christmas charity events kill 67 people in Nigeria    A man's suicide leads to clamor around India's dowry law    Slovak PM meets Putin in surprise Moscow visit    Environment minister inaugurates Yanbu Grain Handling Terminal    Saudi deputy FM meets Sudan's Sovereign Council chief in Port Sudan    Kuwait, India to elevate bilateral relations to strategic partnership Sheikh Mishal awards Mubarak Al-Kabir Medal to Modi    MoH to penalize 5 health practitioners for professional violations    Al-Samaani: Saudi Arabia to work soon on a comprehensive review of the legal system    Arabian Gulf Cup begins with dramatic draws and a breathtaking ceremony in Kuwait    GACA report: 928 complaints filed by passengers against airlines in November    Riyadh Season 5 draws record number of over 12 million visitors    Fury vs. Usyk: Anticipation builds ahead of Riyadh's boxing showdown    Saudi Arabia to compete in 2025 and 2027 CONCACAF Gold Cup tournaments    Marianne Jean-Baptiste on Oscars buzz for playing 'difficult' woman    PDC collaboration with MEDLOG Saudi to introduce new cold storage facilities in King Abdullah Port Investment of SR300 million to enhance logistics capabilities in Saudi Arabia    Al Shabab announces departure of coach Vítor Pereira    My kids saw my pain on set, says Angelina Jolie    Legendary Indian tabla player Zakir Hussain dies at 73    Eminem sets Riyadh ablaze with unforgettable debut at MDLBEAST Soundstorm    Order vs. Morality: Lessons from New York's 1977 Blackout    India puts blockbuster Pakistani film on hold    The Vikings and the Islamic world    Filipino pilgrim's incredible evolution from an enemy of Islam to its staunch advocate    Exotic Taif Roses Simulation Performed at Taif Rose Festival    Asian shares mixed Tuesday    Weather Forecast for Tuesday    Saudi Tourism Authority Participates in Arabian Travel Market Exhibition in Dubai    Minister of Industry Announces 50 Investment Opportunities Worth over SAR 96 Billion in Machinery, Equipment Sector    HRH Crown Prince Offers Condolences to Crown Prince of Kuwait on Death of Sheikh Fawaz Salman Abdullah Al-Ali Al-Malek Al-Sabah    HRH Crown Prince Congratulates Santiago Peña on Winning Presidential Election in Paraguay    SDAIA Launches 1st Phase of 'Elevate Program' to Train 1,000 Women on Data, AI    41 Saudi Citizens and 171 Others from Brotherly and Friendly Countries Arrive in Saudi Arabia from Sudan    Saudi Arabia Hosts 1st Meeting of Arab Authorities Controlling Medicines    General Directorate of Narcotics Control Foils Attempt to Smuggle over 5 Million Amphetamine Pills    NAVI Javelins Crowned as Champions of Women's Counter-Strike: Global Offensive (CS:GO) Competitions    Saudi Karate Team Wins Four Medals in World Youth League Championship    Third Edition of FIFA Forward Program Kicks off in Riyadh    Evacuated from Sudan, 187 Nationals from Several Countries Arrive in Jeddah    SPA Documents Thajjud Prayer at Prophet's Mosque in Madinah    SFDA Recommends to Test Blood Sugar at Home Two or Three Hours after Meals    SFDA Offers Various Recommendations for Safe Food Frying    SFDA Provides Five Tips for Using Home Blood Pressure Monitor    SFDA: Instant Soup Contains Large Amounts of Salt    Mawani: New shipping service to connect Jubail Commercial Port to 11 global ports    Custodian of the Two Holy Mosques Delivers Speech to Pilgrims, Citizens, Residents and Muslims around the World    Sheikh Al-Issa in Arafah's Sermon: Allaah Blessed You by Making It Easy for You to Carry out This Obligation. Thus, Ensure Following the Guidance of Your Prophet    Custodian of the Two Holy Mosques addresses citizens and all Muslims on the occasion of the Holy month of Ramadan    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



$20 oil will not devastate UK production, but it is not a pretty picture
Published in The Saudi Gazette on 18 - 04 - 2020

With the reality that Brent oil prices are scratching closer and closer to $20 per barrel, shut-ins are already happening around the world. Even if prices reach this threshold, the UK will avoid shut-ins and exploration is likely to continue in 2020, although cash flow and project sanctioning will suffer, a Rystad Energy impact analysis shows.
If Brent drops to $20 per barrel, 30,000 barrels of oil equivalent per day (boepd) of production will fall short of covering short-run marginal costs, which puts these assets at risk of an early shut-in.
This may not actually happen since most operators will want to keep facilities running even at a loss and get the profit back when oil prices recover, assuming that it is cheaper to run the facility at a loss than to shut it down and restart it later.
The situation is more worrisome when it comes to discoveries and companies' ability to proceed with final investment decisions (FIDs) on new projects. If we look at breakeven oil prices for unsanctioned discoveries in the UK, at $30 per barrel only 34% of unsanctioned volumes are commercial, and at $20 per barrel, none are financially viable.
"As a result, we expect sanctioning activity to be low in the current price environment, not only because of the breakeven price of the projects but also because operators will tend to be cautious over the scale and pace of future capital spending commitments," said Sonya Boodoo, Rystad Energy's vice president in upstream research.
Exploration is also likely to take a significant hit. Activity rebounded significantly last year from record lows in 2018, and operators had previously indicated that activity would fall back in 2020 but still remains at a moderate level.
Now the sentiment from many of the North Sea players is that exploration activity is likely to be deferred where possible, though this will affect 2021 more than 2020 as most of this year's wells already have contracted rigs.
Only two of the planned 2020 wells did not have assigned rigs, and these were recently confirmed as deferred: Cairn-operated Jaws and Ithaca-operated Folta.
Some of the wells with contracted rigs could also be delayed if the operators can find alternative work for the rigs, but we expect this to be minimal and a result it is the activity planned for 2021 that will bear the brunt of exploration expenditure deferral.
Another casualty for UK players will be cash flow. Under our base case scenario assumption (average oil price of $34 per barrel in 2020 and $44 in 2021) we expect overall UK upstream activity to be cash-negative in 2020 with free cash flow at -$1.3 billion. If the oil price drops to around $20 per barrel, we will see a more severe situation with cash flow at about -$3.4 billion.
Many of the UKCS players have already revised their investment guiding for 2020, so this level of cash flow already includes companies' cost cuts. However, if the situation doesn't show any sign of improvement, UK players of all sizes will be forced to make even deeper cuts.
The UKCS Merger and Acquisition market may therefore struggle with access to financing due to growing decarbonization sentiments and price uncertainty.
We doubt that in this circumstance, a new wave of private equity money will arrive this time around. Previously announced divestment plans will be also affected by the new downturn as most of the earlier sales plans have now been deferred.
Since UKCS direct tax payments correlate strongly with the companies' cash flow, government petroleum revenue for this year is expected to be around zero or even negative, meaning that there may be tax refunds.
As a part of a COVID-19 business support package, medium-sized UK companies get access to government-backed loans: companies with an annual turnover of between $55 million and $610 million can apply for loans of up to $30 million from banks with an 80% government guarantee. This will come in handy to maintain operational activity for companies with cash-thin positions and high debt.
"UK players already stretched their limits and accumulated losses in the previous market downturn, so they now have very limited opportunity to absorb further reductions. A favorable tax regime and competitive operational costs for producing assets will sustain short-term production," Boodoo said.
However, a shortage of available cash and limited opportunities to fund projects through mergers and acquisitions will make it challenging for UK players to sustain production levels in the medium term due to extreme caution towards long-term investment commitments in the current market environment, she concluded. — Rystad Energy


Clic here to read the story from its source.