Is the E&P industry prepared for a post Covid-19 world?
At the time of writing there are more cars on the road than for many a week and most of them still run on petrol. Lockdown, it seems, is finally being eased in different parts of the world and for the moment at least the oil price has responded positively. From a low of $20 a barrel – not to mention the negative territory of paying for storage – the Brent oil price has risen back up to over $30 and big oil can at least break even.
A Marcellus shale gas drilling operation in rural northern Pennsylvania. © Georgesheldon/Dreamstime.com
So where do we go from here? One bright spot is that in contrast to governments around the world who failed to stockpile enough PPE for dealing with the virus, oil companies are for the most part more streamlined, downturn-prepared beasts than they were just a few years back. Even in the North Sea, for example, the slump before this one in 2014 brought the bare break-even price for a project down from over $30 a barrel to just $15. We are not talking about Saudi Arabia here, but most oil companies have just about been able to hold their own.
One problem though, as we enter another round of slimming and trimming, is the nature of oil and its associated infrastructure as a physical asset. Not only is it a physical challenge to shut down and re-open a well but there is also the question of which wells should close in the bad times and what is the cost of closure versus the cost of keeping a well open when the price is low. In the US, for example, low volume onshore wells, known as stripper wells, are the first candidates for shut-in. The cost of shutting down one of these wells ranges between $20,000 and $40,000 a well and even when the price of oil falls below the cash break-even price it can still be cheaper to keep the loss-making well ticking over for some time rather than close it.
Like so many of us in these lockdown days it seems that OPEC+ oil ministers got together via Zoom (what else!?) over Easter to agree their latest 10 MMbpd production cut. If Russian and others keep the faith and lockdown does indeed come to end with, who knows, a viable vaccine that much closer, we could be in for a more sustainable oil recovery. Jobs are going, dividends are being cut and all but the juiciest projects, for the moment at least, could find themselves on the backburner.
No pain, no gain, may well be the mantra, once more.
Articles from GEO ExPro’s FlowBack Column
Recent articles written for GEO ExPro’s FlowBack Column by oil and gas industry writer, Nick Cottam.
The Africa Factor: Africa’s Cleaner Energy Mix
Nick Cottam
While oil will continue to have a role in Africa for the foreseeable future, both in production and consumption, natural gas can and should have a bright future as part of Africa’s cleaner energy mix.
This article appeared in Vol. 17, No. 1 – 2020
A Chance for the Oil & Gas Industry to Regroup
Nick Cottam
Covid-19 is having an huge impact across many industries, including the oil, gas and energy sector – but are there any positives to the situation
This article appeared in Vol. 17, No. 2 – 2020
