The recent fall in oil prices, down to 31 $, may have a devastating effect on the Overall oilfield services (OFS), according to Rystad Energy.
The total capital and operational expenditure of exploration and production companies (E&Ps) is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain on a $30 level, Rystad Energy continues.
The reason for this drop is mainly attributed to Russia’s decision to walk away from the suggested OPEC+ deal This again affects the service industry, already troubled by the new coronavirus. Also, Saudi Arabia started to flood the market with oil.
Rystad Energy believes that this will likely be a volume war until the next scheduled OPEC+ meeting in June. If no agreement is reached then, Rystad Energy foresees that E&P companies are likely to slash capital and operational budgets to make up for significantly lower cash flows that are expected this year and the next.
Rystad Energy says that OFS purchases, previously expected to remain flat year-on-year, are now forecasted to drop by 8% this year if oil averages $40 per barrel and by 15% in a $30 per barrel scenario.
“Now the E&Ps will turn every stone and cancel every single non-revenue-generating activity”, says Audun Martinsen, Rystad Energy’s Head of Oilfield Service Research.
Rystad Energy finally says that of the $191 billion worth of greenfield projects that were forecast to be sanctioned in 2020, the ones that will actually see the green light if oil prices average at $40 or less are below $100 billion. The impact is distributed across regions and resource types.