As operators continue to face uncertainty in the face of COVID-19 and a low-price oil environment, a range of survival strategies have been employed in the short term.
These include halting non-essential activities; adopting furlough or layoff strategies; slowing output; expanding storage capacities; refining sales and purchase agreements; and utilising financial hedging instruments to market their crude.
In the long term, however, COVID-19 will necessitate a reassessment of project development plans, many of which carry operating costs incompatible with a $25-barrel price.
French major Total and Italian multinational Eni have implemented the most substantial reductions in capital expenditure.
This is evidenced in reducing their respective investment in production and exploration projects in 2020 by 25%.
So far, only a few delays of small-scale projects have been encountered.
In Angola, Total has suspended development of its short-cycle satellite field projects, located near the operator’s large offshore installations.
In Mozambique, ExxonMobil has indefinitely delayed its final investment decision (FID) on its natural gas project in the Rovuma basin.
The risk of project delays or cancellations represents a challenge to oil and gas newcomers who sought to monetise large discoveries within the next few years, such as Uganda, Senegal, Mauritania and Mozambique.
This is also a challenge to existing producers such as Angola, Nigeria and Angola – which have been seeking to offset declining production of mature fields through new development projects.
In Uganda, FID taken by Total for the Tilenga project has been postponed until 2022, although initially planned for the end of 2019.
According to independent energy research and business intelligence company Rystad Energy, “the start-up dates of most major hydrocarbon developments are projected to be postponed by between one and three years”.