Mar 31 | 2020
(Africa) Cost Reductions of ‘Around 33 Percent’
Capital expenditure in the African upstream sector is expected to face massive falls this year, as plunging oil prices and the Covid-19 pandemic cut explorers appetite for risk.
Figures from research consultancy Wood Mackenzie suggest that capital expenditure could drop by about 33 percent in 2020 as producers target considerable cuts to operating costs.
“The coronavirus pandemic presents a growing problem. Africa’s upstream sector is reliant on lengthy and complex supply chains across many countries, providing transmission pathways for the virus. Production remains intact for now, but as more restrictions are added on the movement of people and equipment, the harder it will become for producers to maintain production. Day-to-day business continuity is becoming increasingly difficult, and the fear is that some projects may eventually grind to a halt,” said Gail Anderson, from Wood Mackenzie’s Africa upstream team.
Contract Renegotiation
With oil prices slumping to record lows, producers around the world are scrambling for safety, with many riskier projects being abandoned, leaving breakbulk operators with reduced revenue streams.
“Operators will again seek to renegotiate contracts downwards – although there is less wriggle room than before – and defer any advanced contracts that have not yet been signed off,” Davis added.
While Wood Mackenzie forecast that African oil production would remain more resilient, it warned that any spread of the virus into field operations would limit the ability of producers to market their crude, creating “further downside risk in 2020.”
Security Risks
For operators in West Africa, downside risks have been exacerbated by worsening security, according to a group of Industry organizations, supported by government and military organizations, which has published new guidelines for shipping.
“Due to the regrettable lack of efficient law enforcement especially in Eastern Gulf of Guinea, this consolidated antipiracy guidance is a must-read for seafarers operating within reach of Nigerian pirates” said Angus Frew, secretary general of BIMCO.
The Best Management Practices guidelines were formulated and published by a consortium consisting of BIMCO, Intercargo, Intertanko, International Chamber of Shipping and the Oil Companies International Marine Forum.
