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Wood Mackenzie: How has the price crash changed the upstream sector?

The oil price crash has wiped $1.6 trillion off the valuation of the global upstream industry, according to an analysis from Wood Mackenzie.

“This figure captures the impact of Wood Mackenzie’s downgraded long-term Brent price assumption – now $50/bbl (2020 terms), rather than the previous $60/bbl – and much more,” Andrew Pearson, Vice President, Upstream, said. “Which regions and players have been hit hardest? What measures have been taken to survive?”

Since the crash:

  • Global upstream development spend for 2020 is 30% lower than the firm’s pre-crash view. North America is hit hardest, along with Africa and Asia. These regions may never recover to pre-crash levels;
  • Only nine major FIDs are expected in 2020 versus the pre-crash view of around 50 new project approvals;
  • OPEC+ oil production cuts and market-driven shut-ins reshape near-term supply outlook;
  • Valuations for oil sands and heavy oil hit hardest in percentage terms – down more than 50% – but more than $1 trillion was wiped off conventional onshore and offshore projects;
  • More than 40% of future projects now generate an IRR of less than 15%; and
  • Tight oil and heavy oil cash flows suffer the most, but overall resilience has improved since the last downturn.
According to Wood Mackenzie, CAPEX is down 39% from its pre-crash view.

“The oil price crash and the market uncertainty it caused has affected all regions, all operators and all resource themes,” Fraser McKay, Vice President, Upstream, said. “In early March, Wood Mackenzie anticipated the industry’s response would be rapid and decisive. It has been.”

“Tough calls have been made, despite a lack of clarity how the COVID-19 pandemic will have on oil and gas demand, both in terms of depth and duration,” Mr McKay added.

“To date, cuts to expenditure have largely been in line with our expectations,” Mr Pearson said. “New project spend has stagnated and output has been curtailed, most notably among OPEC+ participants and in the US tight oil sector.”

“We have also reacted quickly to reflect the latest view in our global upstream dataset, analysis and tools. Our Lens Upstream outlook evolved as the price plummeted, culminating in the data here,” he added.

US Lower 48

  • Operators have put tight oil flexibility to the test, quickly dropping rigs and deferring completions. 2020 CAPEX is down 39% from Wood Mackenzie’s pre-crash view, primarily in the Permian basin.
  • Record low prices and near-full storage tanks forced some operators to shut-in production. Despite big oil production losses, the Permian leads the recovery with 85% of supply growth through 2025. Moreover, falling associated gas volumes may lead to higher gas prices.

US Gulf of Mexico

  • Already lean and nimble after the last crash, the US Gulf of Mexico is better prepared to weather the downturn this time. The region is resilient at low oil prices and more than 80% of oil production has a short-run marginal cost of $10/bbl Brent.
  • The US Gulf of Mexico remains afloat, but budget cuts have still been swift. Some fields have been shut in because of unprecedented low oil prices. Investment, exploration and FIDs have all seen major recalibrations.

Latin America

  • In relative terms, the region has made the biggest cuts to 2020 capital spending globally. NOCs have made the biggest cuts, mostly by deferring rather than canceling projects, with Brazil’s pre-salt bearing the brunt of deferrals.
  • Reduced exploration budgets provide some flexibility in difficult times, but exploration is still vital for future growth – Wood Mackenzie is forecasting a return to previous levels of activity and investment in the region in 2021.


  • There is no hiding how sensitive Canada’s oil sands sector is to pricing – expected cash flows have fallen by more than $32 billion from Wood Mackenzie’s pre-crash view. Gas plays in Alberta and British Columbia are also exposed to the downturn, but not nearly to the same extent.
  • Upstream investment is set to fall by more than $8 billion in 2020. With Canada having never fully recovered from the 2015 downturn, 2020 capital spending is now expected to be nearly 80% lower than 2013 levels.


  • 2020 budgets have been slashed, production has been shut in and nearly all drilling activity has been suspended. Almost $3 billion of investment has been lost between 2020 to 2022.
  • This year’s exploration season has come to a halt, with 50% of wells deferred and several pre-FID projects now delayed.

The North Sea

  • Operators have moved quickly to rein in spend. 2020 budgets have been slashed, with FIDs deferred, infill drilling campaigns cancelled and most discretionary spend withheld.
  • Production will suffer an immediate drop, partly down to Norway’s production cuts. In the longer term, output depends on FID approvals. The North Sea project pipeline remains plentiful, but operators will be looking for more clarity on the market situation before moving ahead with new developments.

Continental Europe

  • Capital expenditure is down 35% in 2020-23 versus Wood Mackenzie’s pre-crash view. Even tougher decisions are still to come on pre-FID projects, from offshore Netherlands to the Black Sea and Cyprus.
  • Continental Europe’s upstream sector was already in transition and beset by above-ground challenges – from environmental to regulatory. Its future is now more uncertain than ever.

Russia and Caspian

  • OPEC+ oil cuts – enforced since May – have reshaped the near-term liquids outlook, with high compliance expected from Russia, Kazakhstan and Azerbaijan.
  • Capital expenditure is down 17% ($18 billion) in 2020-21, in US dollar terms, versus Wood Mackenzie’s pre-crash view. While OPEC+ production cuts reduce drilling activity, currency depreciation, the coronavirus pandemic and project deferrals also drive down CAPEX in US dollar terms.


  • Upstream spend in 2020 is down $14 billion versus Wood Mackenzie’s pre-crash view. No resource theme is immune, but CAPEX cuts and deferrals are particularly severe in deepwater (West Africa) and LNG (Senegal/Mauritania and Mozambique).
  • FIDs targeted in the next 18 months are down from 22 to three, and upstream value in Africa is down one-third ($200 billion).

The Middle East

  • There will be a sharp drop in imminent FIDs and 2020 capital expenditure will be $16 billion lower than Wood Mackenzie’s pre-crash view.
  • In total, Wood Mackenzie has removed $50 billion of investment (2020 terms) from its outlook for 2020-25 because of project delays and cost-efficiency measures. However, deep investment cuts do not offset the valuation impact of lower production (OPEC+ cuts) and oil prices.

Asia Pacific

  • Despite the region’s growing focus on gas, it does not escape unscathed. Over $60 billion of spend has been cut over the next five years. Virtually all projects are hit, with deferred pre-FID LNG projects in Australia, lower NOC spending in South East and Southern Asia, and major CAPEX cuts across much of China’s onshore assets.
  • Even with the deep investment cuts companies have announced, most are unable to offset the valuation impact of a lower oil price outlook.

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