Oil giants’ production cuts come to 1m bpd as they post massive write-downs

Men rest near oil rigs on a beach in Baku. Top oil companies have slashed oil production rates as the coronavirus pandemic caused a drastic fall in fuel prices. (AFP)
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Updated 10 August 2020

Oil giants’ production cuts come to 1m bpd as they post massive write-downs

  • Crude output worldwide dropped sharply after the market crashed in April

LONDON: The world’s five largest oil companies collectively cut the value of their assets by nearly $50 billion in the second quarter, and slashed production rates as the coronavirus pandemic caused a drastic fall in fuel prices and demand.

The dramatic reductions in asset valuations and decline in output show the depth of the pain in the second quarter. Fuel demand at one point was down by more than 30 percent worldwide.

Several executives said they took massive write-downs because they expect demand to remain impaired for several more quarters as people travel less and use less fuel due to the ongoing global pandemic.

Of those five companies, only Exxon Mobil did not book sizeable impairments. But an ongoing reevaluation of its plans could lead to a “significant portion” of its assets being impaired, it reported, and signal the elimination of 20 percent or 4.4 billion barrels of its oil and gas reserves.

By contrast, BP took a $17 billion hit. It said it plans to recenter its spending in coming years around renewables and less on oil and natural gas.

Weak demand means oil producers must revisit business plans, said Lee Maginniss, managing director at consultants Alarez & Marsal. He said the goal should be to pump only what generates cash in excess of overhead costs.

“It’s low-cost production mode through the end of 2021 for sure, and to 2022 to the extent there are new development plans being contemplated,” Maginniss said.

London-based BP has previously said it plans to cut its overall output by roughly 1 million barrels of oil equivalent (BOEPD) by the end of 2030 from its current 3.6 million BOEPD.

Of the five, Exxon is the largest producer, with daily output of 3.64 million BOEPD, but its production dropped 408,000 BOEPD between the first and second quarters. The five majors, which include Chevron Corp, Royal Dutch Shell and Total SA, also cut capital expenditures by a combined $25 billion between the quarters.

Crude output worldwide dropped sharply after the market crashed in April. The Organization of the Petroleum Exporting Countries agreed to cut output by nearly 10 million barrels a day to balance out supply and demand in the market.


Indonesia turns focus to energy security and renewables amid pandemic

Updated 24 November 2020

Indonesia turns focus to energy security and renewables amid pandemic

  • Govt. aims to use of opportunity presented by COVID-19 outbreak to make transition

JAKARTA: The fallout from the coronavirus pandemic has presented Indonesia with the opportunity to work toward energy security and switch from conventional to renewable sources, officials have said.

“Indonesia has made various breakthroughs such as making use of biodiesel B30,” Foreign Minister Retno Marsudi said during an online press conference on Sunday, quoting President Joko Widodo’s address during the G20 Summit.

“(We) will be conducting tests on green diesel D100 from palm oil – which will absorb 1 million tons of palm oil produced by farmers – and also install rooftop solar power plants in hundreds of thousands of households,” he added.

Widodo also made a reference to data from the World Economic Forum on the massive potential of the green economy, which could generate up to $10.1 trillion and create 395 million new jobs by 2030.

Earlier this month on Nov. 4, energy and mineral resources minister Arifin Tasrif said that the current difficulties posed by the pandemic had spurred Indonesia to accelerate the energy transition, by developing renewable energy, ensure efficiency and work toward maintaining energy security for lasting energy independence.

Energy security and its steady supply were some of the top concerns voiced by Tasrif during the G20 energy ministers’ meeting in September.

“COVID-19 has created an economic crisis and shrunk energy demands. All G20 members must work together to ensure that the energy market is stabilized and maintain supply affordability. These are a top priority for Indonesia,” Tasrif said at the meeting.

He also lauded Saudi Arabia, the summit host, for pushing ahead with the 4Rs issue – Reduce, Reuse, Recycle, Remove – in the circular carbon economy (CCE) concept, which was endorsed by the energy ministers after their meetings.

Tasrif said the issue was an “important part of reintroducing the role of biofuel and hydrogen in the CCE platform,” and in line with Indonesia’s adoption of the mandatory use of biodiesel – containing 30 percent palm oil and known as B30 – from January this year, specifically in the transport, power plant, industrial and commercial sectors.

Indonesia, the world’s largest palm oil producer, has set a target to use 23 percent of renewable energy by 2025 and 50 percent by 2050, as part of its national energy mix plan.

The government has listed provisions for renewable energy and its conservation among its seven priority programs for next year and allocated 16.7 billion rupiahs ($1.2 million) for environmental preservation efforts in the 2021 budget.

“Our state budget is very much pro-green ... The government is already on the right track with the implementation of energy transition policy,” Arif Budimanta, a special presidential staff on economic affairs, said during an online discussion recently.

He added that President Joko Widodo had been very “hands-on” with the implementation of the energy transition policy and was directly supervising the progress of the policy.

Government officials claimed that the adoption of B30’s mandatory use – the first in the world – has been successful.

However, its target this year had reduced from the initial 9.5 million kilolitres to 8.3 million kilolitres, with 6 million kilolitres realized so far.

Mandatory use is expected to reduce carbon dioxide emissions by 16.9 million tons.

“The switch to a biodiesel program, which has been in place since 2015, has been able to replace almost 25 million liters of imported fossil fuel by June this year, and we have been able to save foreign exchange spending by roughly equivalent of 127 trillion rupiahs,” Eddy Abdurrachman, head of the Palm Oil Plantation Fund Management Agency said during a recent webinar.

Static tests on diesel engines for 1,000 hours of use of the biodiesel blend are underway at the Energy and Mineral Resources Ministry’s research and development lab.

The head of the research and development agency, Dadan Kusdiana, said on Aug. 26 that scientists had managed to conduct studies on the lab’s engine test bench after the COVID-19 outbreak restricted them from testing on the roads.

“We expect to wrap up the tests by the end of the year,” Kusdiana said.