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Impact on industry spending?
Black Crude Week likely to have little effect on oil company budgets in Alaska Steve Sutherlin Petroleum News
As oil prices continue to stagger under the twin threat of a supply glut from Russia and Saudi Arabia, on top of a blow to demand caused by the coronavirus, Alaskans might legitimately be concerned about the future of investment by oil companies in Alaska.
While a number of shale-drilling companies in the Lower 48 have rushed to assure investors that capital spending will be quickly slashed, Alaska operators must employ a longer time frame to survive the vicissitudes and rewards of drilling in arctic regions.
As of press time, no major operators have announced any changes in spending due to recent prices, nor would they be expected to, as spending decisions are made far in advance based on long-term estimates of prices over the life of producing assets. Short term price swings won’t normally rock the boat.
As reported in the March 8 issue of Petroleum News, Alaska is of increasing importance to ConocoPhillips and the company’s divestitures elsewhere, as well as its investments for the future in Alaska are looking increasingly wise in the current environment. On March 11, J.P. Morgan reiterated its “buy” rating on the company’s stock.
Oil Search as well is placing a high priority on its Alaska operations as the Papua New Guinea government balks on talks about expanding LNG production there. The state of Alaska has made - and hopefully will continue to make - Oil Search feel welcome in Alaska. The geology under Oil Search leases has certainly been friendly.
ExxonMobil is notoriously long-term focused, and with its size and balance sheet, price crashes represent an opportunity to add reserves on the cheap by acquisition, while providing an opportunity for windfalls on the refining and chemical side of the company.
Rumor has it that Exxon is looking at new opportunities in Alaska.
Hilcorp, as a private company, is harder to handicap. Its bid to buy BP’s assets in Alaska along with a robust exploration program in Cook Inlet require a large commitment of capital to Alaska, just as production income may be squeezed in the state and elsewhere.
Credit rating agencies Moody’s Investors Service and Standard & Poor’s were keeping a watch on Hilcorp before the recent price crash, in anticipation that its debt levels could double from the BP acquisition alone.
Fortunately Hilcorp is a lean operator, and it is the largest privately owned oil and natural gas producer in the United States.
As for smaller non-integrated companies, low prices are a large pain, which could well compound the challenges brought by the end of the state’s tax credit purchase program.
Hope springs eternal in the oil patch It doesn’t appear that Saudi Arabia can afford ultra low prices for long, being that it subsidizes the health and wealth of its population, and it also has persuaded many of its well heeled citizens to invest in the stock of its national oil company, Saudi ARAMCO. That stock is down more than 20% since the IPO Dec. 11.
Russia is highly dependent on oil, and while Russians have historically survived suffering, many citizens more recently have become accustomed to more comfortable living.
There is a possibility that President Donald Trump will take advantage of his relationship with Russian President Vladimir Putin and Saudi Arabia Crown Prince Mohammed bin Salman to negotiate a deal to end the oil price war.
Some analysts think Trump could play a key role in a settlement, although if U.S. producers will not consider cutting production, it may be difficult for Trump to play cards at that table.
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