By Benoit Faucon and Sarah McFarlane
The world's largest energy companies are negotiating production
cuts with oil-rich nations ahead of Friday's deadline for OPEC and
the Group of 20 countries to sharply reduce output -- reductions
that will limit these firms' options for coping with the
Earlier in April, Saudi Arabia and Russia ended a price war and
joined forces with the Organization of the Petroleum Exporting
Countries and other oil-producing nations, agreeing to cut global
output by 13% or about 13 million barrels a day. Big oil companies
that produce in these countries, including BP PLC, Chevron Corp.,
Occidental Petroleum Corp. and Royal Dutch Shell PLC, will have to
shoulder some of those cuts.
Nigeria has reached out to Chevron and Shell, according to
Nigerian oil officials. Oman has ordered Occidental to reduce its
production at each of its fields by a total of 58,000 barrels a
BP has been asked to reduce production in locations including
the Middle East, Angola and Azerbaijan. The company said it hasn't
fully shut production at any of its businesses, but was looking at
how specific fields and exports would be affected.
"We are working through that level of detail right now -- and of
course the first of May [the deadline for countries' production
cuts] is approaching very, very quickly," BP Chief Executive
Bernard Looney said Tuesday.
He added that Russia was taking steps to reduce output in line
with the deal. BP has a 20% stake in Russia's top producer, Rosneft
The oil-reduction pledge follows a 50% decline in crude prices
over the last eight weeks, resulting from the combined impact of
the Saudi-Russia price war and a collapse in demand amid the
BP, the first oil major to report quarterly earnings for this
year, said its debt had increased and signaled a negative outlook
for the April-June period, underscoring the early impact of the
rout on the industry.
Shell said Thursday it expected its oil and gas production to
fall to between 1.75 million and 2.25 million barrels of oil
equivalent a day in the second quarter from 2.7 million barrels a
day in the first quarter. The company said it saw 40% of the drop
resulting from the OPEC-led cuts.
CEO Ben van Beurden said Shell had been "approached by
counterparties -- national oil companies, governments -- who in the
OPEC-plus setting have committed to curtailments." He said the
company must navigate between demands from these governments and
the need to respect antitrust provisions.
Algeria, the United Arab Emirates and Kazakhstan have also
reached out to foreign oil companies regarding plans to reduce
production, officials in these countries and other people familiar
with the matter said this week. Chevron, Eni SpA, Occidental, Shell
and France's Total SA are among the companies operating in these
nations, including through joint ventures.
Norway said late Wednesday it would curtail production by
250,000 barrels a day in June -- the first country outside the
OPEC-plus alliance to announce compulsory curbs. The decision is
set to affect Equinor ASA -- the Scandinavian country's national
oil champion -- along with Total, Shell and ConocoPhillips.
Chevron said its 50%-owned venture in Kazakhstan,
Tengizchevroil, "continues to produce according to the business
plan." In Nigeria, the U.S. company said it was working with its
partners to "explore ways of reducing costs and adjusting
Eni, Occidental and Total declined to comment.
Nigeria reduced its output by 417,000 barrels a day in April,
ahead of the pact's start date, and some wells have shut, said the
West African country's oil minister, Timipre Sylva.
American companies are being forced to shut down wells in costly
shale reservoirs in the U.S. where they have focused in recent
About 27% of Occidental's output is outside the U.S., while
around 15% of Chevron's oil-equivalent production in 2019 occurred
in the OPEC members of Angola, Nigeria, the Republic of Congo and
Venezuela. The company also has substantial exposure to
European oil companies are even more exposed. About half of the
annual barrels BP pumps come from Africa and Asia -- where most
major producing-countries have joined the 23-nation OPEC-plus
alliance. Italy's Eni and Total derive 75% and 68% of their oil
production, respectively, from these two continents.
While the OPEC-plus effort may put a floor under plummeting oil
prices, it also means some companies will have to make cuts in
addition to those planned. Last week, Eni said the move could add
more curbs to its already downgraded production plans for this
Price collapses often prompt energy companies to cut output from
locations where production costs are highest. Suncor Energy Inc.
and Total, for instance, recently cut production at their jointly
held Canadian oil sands mine in northern Alberta.
OPEC members, where production costs are among the lowest in the
world, aren't necessarily where they would choose to cut back.
"If you happen to be in the Middle East, unfortunately that is
lower-cost oil production that you may be forced to shut by the
government," said Irene Himona, managing director for oil-and-gas
equity research at Société Générale.
--Summer Said contributed to this article.
Write to Benoit Faucon at email@example.com and Sarah
McFarlane at firstname.lastname@example.org
(END) Dow Jones Newswires
April 30, 2020 11:38 ET (15:38 GMT)
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