The ongoing price crash triggered by the coronavirus and the oil war has in many ways hammered investments into upcoming African, Latin American and Asian plays
As the United States, Russia and Saudi Arabia figure out how to transform an every-man-for-himself-styled competition into a triumvirate of leading oil producers, smaller producers and nations who were just about to embark upon the oil-producing journey have been dragged into some very serious soul-searching. Upstream licensing might be one of less talked about, yet still very palpable and manifest consequences of the ongoing price crash – the 2014-2015 price drop has in many ways hammered investments into African or Latin American plays and what seemed like a gradual warming of interest in 2018-2019 will now be eroded by the Saudi-US-Russian triangle of conflict.
Africa. From what can be judged at this point, most of Africa’s licensing rounds will be delayed into 2021 or farther – this will bite Angola especially, having pinned a lot of hope into rejuvenating offshore exploration backed by more business-friendly terms and a leaner Sonangol. Senegal has delayed its 2020 licensing round by 3 months already, until end-September 2020, yet given the nature of financing problems that some drillers in offshore Senegal experience, one can safely assume that if Dakar wants to have a reasonably successful licensing round it would delay into 2021. South Sudan intended to offer 14 oil blocks in its 1st self-organized licensing round, yet the Ministry of Petroleum has already informed potential investors that the round is off for an unspecified time period due to the adverse market conditions.
African governments will also be compelled to withhold legislation initially aimed at increased the government’s hydrocarbon revenue take or simply tightening upstream terms and conditions. Nigeria’s Petroleum Industry Bill (PIB), the initial purpose of which was to increase government revenues on the back of soaring budget necessities, now seems to be very likely to be postponed from its initial mid-2020 passing into late this year or even later. Evidently, not all new legislative moves can be perceived as negative for business – any delay in the privatization of the Angolan NOC Sonangol, rumoured to have been planned for 2020, is simultaneously bad for the leanness-advocating Angolan government of Joao Lourenço and international majors willing to invest there.
Latin America. Seven Latin American countries have planned licensing rounds for 2020 – Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Guyana and Uruguay. With breakeven costs for Neuquén shale or Colombia’s Middle Magdalena Basin hovering around 30-40 USD per barrel, i.e. higher than currently Argentinian Medanito or Colombian Vasconia is valued on the market, most of the above countries would be ill-advised not to make allowances for the current market situation. Guyana’s flagship deepwater project, the Exxon-operated Liza field, boasted breakeven levels of some 35 USD per barrel, hence it might make sense for the Guyanese government to wait a little and postpone the 2nd licensing round, originally set an unspecified date in H2 2020.
Brazil stands out among all Latin American countries planning to have a licensing round in 2020 – after the painful fiasco of Round 6 last year, the country wanted to bounce back with Round 17 (128 shallow water and deepwater blocks under a concession contract model) and the 7th pre-salt Round (PSC deals for 3 blocks in the Campos and Santos basins). These are all endangered under current circumstances. Petrobras takes the low oil price environment seriously, being the first major NOC to unilaterally cut production by 100kbpd and cutting its 2020 investment by a third. Venezuela did not plan any upstream offerings this year, yet it is certainly suffering the most in Latin America – it has been selling its production lower than the 11 USD per barrel lifting costs, aggravating the dire situation the Maduro government has been in.
Asia. If one is to look at analysts’ forecasts solely, Asia will be the region that has witnessed the least CAPEX cuts among the major oil-producing continents. Yet behind the shiny façade, an unsavory truth might be lurking around – namely, that many Southeast Asian NOCs are mandated by their respective governments to continue operating as if nothing had happened. Malaysia’s 2020 bid round has remained intact and PETRONAS is expected to move on with projects that would satiate the needs of Malaysia LNG irrespective of losses. Other majors like Pertamina or PTTEP are not in the position to drastically cut their commitments, if not for anything than for the sole reason of not having that many final investment decisions on the table. Myanmar has so far failed to communicate its strategy – it intended to hold its next bidding round (18 onshore and 15 offshore blocks) this year, having put forward a draft petroleum bill to grant all future E&P issues a legal basis.
India will be one of the main losers of the corona virus-induced panic as it had planned 3 licensing rounds for 2020. Now it is compelled to delay (for the second time already) the deadline of Round 5, all the while merging Rounds 6 and 7 into one. Generally, the prospects are somewhat dire – in the last (pre-price-crash) Open Acreage Licensing Policy it was the state-owned ONGC that walked away with all the blocks on offer, it seems difficult to believe that long-sought majors would join the game now. Australia will most likely see delays in project reaching the commission stage – for instance, one of its most ambitious projects in the North Western Shelf, Dorado, has a breakeven price of some 35 USD per barrel so it might make sense to delay its start-up. Needless to say several LNG-bound projects like Barossa, Scarborough or Browse seem a bit counter-intuitive to launch now.