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Summary
- Iraq and Nigeria have agreed to cooperate in production cut decision and adhere to the “Declaration of Cooperation”.
- With the U.S stockpile depletion along with the decline in global production, the crude oil price has managed to cross $40/barrel level in the international market from its all-time low of $12/barrel in April.
- OPEC+ cut their production output by 10 million barrels per day in the month of June & July
On 17 September 2020, OPEC and its allies reinforced the need to meet the production cut compliance as crude oil continues to be under pressure. The group intends to reduce the volatility in the International crude market.
Further, the group is closely watching how Iran, Nigeria and UAE are adhering to their commitments to make up for the over production of oil during May through July. .
The big slash in production by 10 million barrels per day is one of the largest production adjustments done by the oil industry since its existence.
Also read: North America To Reach 10Mbpd of Production Cut Along With OPEC
Russia reduced its production by 1.94 million barrels per day in June from the level of 11.48 million barrels per day. For the month of July, Russia produced 9.48 million barrels per day.
How “Declaration of Cooperation” is bringing rejoice to ASX listed companies
The ASX listed companies were performing well, given the conditions, during Q1 and Q2 and have increased their production significantly. Australia is a net importer of crude oil. Many Australian Upstream companies have acquired assets oversees and has ensured energy security for the country. But the fall in crude oil prices has also impaired their overseas operations.
Crude Oil production data in Australia
Woodside Petroleum Limited (ASX:WPL): The company has exploration interests in Australia, Myanmar, Congo, Peru, Ireland, Morocco and Bulgaria. The company plays an important role in acquiring assets overseas and increasing Australian Energy Security. Woodside produced its first oil on August 25, 2020, from the Greater Enfield Project with an estimated cost of U.S $1.9 Billion.
Some of the Major Projects of the companies are
- Wheatstone Project
- North West Shelf Project
- Sangomer Field, Senegal
- Myanmar – Mulitple Blocks
- Timor-Leaste
- Kitimat Project, Canada
Work on many of the projects was halted and postponed due to low crude oil prices. The Greater Enfield Project is a deep offshore project. The cost of production per barrel of oil is not justifiable at the current market price. Age of easy oil is gone, and now companies have to invest more to get 1 barrel of oil.
Woodside reported a net loss of U.S $ 4.06 billion after taxes in its half-yearly report. The loss is attributed to the low crude oil prices which hampered the revenue and also led to the operational loss. The company’s loss is significantly affected by non-cash impairment losses.
On 18 September 2020, WPL closed the day’s trade at $18.280, down 0.32%. Market capitalistion was noted at $17.5 billion.
Santos Limited (ASX:STO): Tepid crude oil market had impact on the company’s operations. The company had reported its half yearly results in August 2020, the revenue was down by 16% at U.S $1,668 million as compared to pcp. It reported a loss of U.S. $289 million as against a profit of U.S $ 388 million in pcp, a drop of 174%.
The loss was largely on account of non-cash impairment due to the revised oil price projections. In July, the company announced that it expects to recognize a non-cash impairment charge in the range of U.S $ 700-800 million due to low crude oil prices. Given the conditions, the company decelerated an interim dividend of U.S $2.1 cents, which was at the lower end of the target payout range.
However despite the headwinds, the company managed to deliver record production and sales volumes and expects the second half to be even stronger. The company managed to successfully complete ConocoPhillips acquisition with a reduced upfront purchase price.
On the cash flow front the company managed to report U.S $ 431 million in free cash flow for the first half, down by 32% as compared to pcp. The company lowered the free cash flow break even oil price and targets to hit below U.S $25 per barrel this year.
Watch: Santos’ revenue down as gas prices get hit | ASX Market Update
On 18 September 2020, STO stock closed the day’s trade at $5.220 down 0.38% as compared to previous closing price. The market capitalisation was noted at $10.92 billion.
