The world’s biggest oil and gas companies are slashing capital spending this year following a collapse in oil prices driven by a slump in demand because of coronavirus and a price war between the Saudi Arabia and Russia.
Cuts already announced by five major oil companies, including Saudi Aramco and Royal Dutch Shell, come to a combined $19bn, or a drop of 18 per cent from their initial spending plans of $106bn, according to Reuters.
A global energy firm, Wood Mackenzie, noted recently that the coronavirus outbreak had derailed the alliance between the Organisation of Petroleum Exporting Countries and its partners, thrown the oil market into turmoil, and sent the oil and gas sector into free-fall-all setting in motion a chain of events that led to the steepest price drop in 30 years.
“If prices do not rebound quickly, we’ll see a significant impact on currently producing fields and future supply,” it said.
Norway’s Equinor said on Wednesday that it would cut capital expenditure by some $2bn while Chevron said on Tuesday it would slash its capex this year by $4bn.
Others such as the US giant Exxon Mobil Corporation and Britain’s BP have said they will cut capital expenditure but haven’t given specific figures as yet.
Oil prices have slumped 60 per cent since January to below $30 a barrel. Brent crude was down 1.7 per cent at $26.70 per barrel on Wednesday as faltering fuel demand outweighed a massive pending US economic stimulus package.
Investors also say that if the current crisis is prolonged, the spending cuts announced by major oil companies may not be enough to let them maintain dividends without adding to their already elevated levels of debt.
The combined debt of Chevron, Total, BP, Exxon Mobil and Royal Dutch Shell stood at $231bn at the end of in 2019, just shy of the $235bn hit in 2016 when oil prices also tumbled below $30 a barrel.