Company finances below US$40/bbl: back in survival mode Report

Insight 10 March 2020

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Report summary

On 9 March oil prices collapsed 30% to US$31/bbl before recovering to US$38/bbl. We analyse the impact of sustained prices at this level on our Corporate Service coverage. Cash burn of this scale would trigger the survival response once again. Oil and gas companies would launch a new wave of brutal cost cutting. Discretionary spend will be slashed, including buybacks and exploration. Companies with flat rather than earnings-linked dividend policies may quickly resort to scrip (share-based) distributions, to limit the impact on cash reserves. If boards perceive the risk of low oil prices stretching out for multiple quarters, action may be taken to reduce absolute distribution levels.

What's included:

Key messages – the impact of lower prices in 2020
What are the options to free up capital?
Chart: ‘Oil price war’ market reaction - share price performance
Chart: Upstream cash flow by peer group
Chart: Corporate cash flow breakevens by peer group
Chart: Corporate cash flow breakevens
Chart: 2020 cash burn at low-price scenario
Chart: Gearing ratio vs cash flow breakeven
Plus supporting data pack

Companies analysed include: Apache, BP, Cenovus, Chesapeake, Chevron, CNOOC, CNRL, Concho, ConocoPhillips, Continental, Devon, Diamondback, Ecopetrol, Encana, Eni, EOG, Equinor, ExxonMobil, Frontera, Gazprom, Hess, Husky, INPEX, Kosmos, LUKOIL, Lundin, Marathon, Murphy, Noble, Occidental, Oil Search, OMV, ONGC, Petrobras, PetroChina, PETRONAS, Pioneer, Premier, PTTEP, Range, Repsol, Rosneft, Santos, Shell, Sinopec, Suncor, Total, Tullow, Woodside,YPF