Italian Oil Major Eni, reported a 94percent drop- in first- quarter profit and cut its production forecast giving a clue to what investors, shareholder’s and industry experts should expect from its Nigerian counterparts.
Oil producers are under immense pressure as the coronavirus decimates demand and drives prices to levels never seen before.
Unlike the oil majors with a huge balance sheet, some of the most overleveraged or conservatively manage Nigerian oil companies will not survive the current price collapse which might remain low throughout Q2 2020.
Eni said it will cut CAPEX by 30percent lower than the initial targets, and anticipates further reductions of 30percent35percent lower than original plans in 2021.
Eni’s CAPEX cuts will be focused in the exploration and production segment with the “rephasing” of some projects. However, the projects are “expected to resume quickly once market fundamentals improve, thus recovering any lost production volumes,” it said.
Also, Eni’s operating profit was down by 44percent, compared to first quarter 2019 while net cash from operations including a cash draw at the working capital which normally features the first quarter due to seasonal factors in gas and other products consumption were also down by 54 percent.
In 2020, Eni is planning three oil and gas field startups along with seven FIDS, four of which are in the UAE. Mozambique’s giant Rovuma LNG development is also on the cards.
The company could also pare back drilling on the 2.5 billion boe of resources it is targeting with exploration wells over the next three years and slow its downstream projects.
Eni is not the only oil major lowering cost, Norway’s Equinor announced last week it will cut its quarterly dividend payment to shareholders by two- thirds, potentially paving the way for other oil majors to follow suit over the coming days.
Coronavirus-induced slump in demand has left millions of Nigeria’s bonny light crude unsold and prices as low as $12, which is way below current production cost, a development that means the liquidity of most local oil firms such as Seplat would be severely hit.
Seplat is targeting 2020 production capacity 57,000 bpd and capital expenditure of $100 million with a target of three new wells across its portfolio.
“The emergence of the COVID-19 pandemic in the first quarter of 2020, as well as pressure on oil prices in March, have placed a premium on solid financial management that focuses upon low-cost production, robust cash management,” Seplat admitted in its last financial statement.
“However the business is hedged against low oil prices and a significant proportion of our revenues now come from gas, which offers further protection from oil price volatility,” Seplat said.
