The oil price slump has sent the oil and natural gas sectors into survival mode as these sectors have had to lower their spending and put projects on hold, global energy consultancy firm Wood Mackenzie said in a recent report.
Crude oil prices fell last week to their lowest levels in nearly 17 years as the coronavirus spread keeps global oil consumption low. Saudi Arabia and Russia's preparations to ramp up oil production levels, after they failed on March 6 to curb the output of OPEC+, were also a big contribution factor in the fall.
The report urged oil companies to act quickly as "the upstream oil and gas sector faces unprecedented uncertainty."
Even if OPEC+ returns to the table in the following months and comes to a new agreement, coronavirus-related weak macroeconomic environment have "irreversibly changed the perception of risk," according to the report.
WoodMackenzie said if oil and gas companies make "immediate and deep" cuts to their investments, than their expenditure could decrease by more than 25% year-on-year.
The consultancy firm recommended three options to make these cuts to improve their chances of survival at low prices.
1. Focus on increasing efficiencies to extract the same or similar amount of production with lower investment.
2. Defer sanctioning the final investment decision of new projects.
3. Focus on reducing activity levels and costs in some parts of businesses, including short-cycle investment, exploration and operating costs.
"Large new projects will be put on hold and short-cycle discretionary investment will be dialed back to the bare minimum ... Exploration will be trimmed; operating and other fixed costs face intense scrutiny," the report explained.
WoodMackenzie concluded that only low-cost producers with strong finances would be in a position to make meaningful discretionary investments.
By Ovunc Kutlu