Page 14 - NorthAmOil Week 01 2021

NorthAmOil COMMENTARY NorthAmOil

Group. (This scheme eventually failed, when
Klesch was unable to provide assurances about
its timeline for the deal.) Additionally, it caused
Brazil to postpone licensing rounds – though
this may not have had much impact on the
country’s finances in the end, as previous bid-
ding rounds in late 2019 had failed to draw as
much interest as anticipated.

Middle East: Feast or famine?
Countries in the Middle East, home to oil
reserves with some of the world’s lowest produc-
tion costs and some of the governments most
reliant on hydrocarbon revenues, by and large
tried to stick to their guns in 2020 despite the
impact of the COVID-19 pandemic.
OPEC’s de facto leader and swing producer
Saudi Arabia was – unsurprisingly – the key increasingly falling out of favour since the last
player. Saudi crude production fluctuated oil price downturn started in 2014. This can be
wildly, reaching an all-time, single-day record attributed partly to the high cost of developing
of 12.1mn barrels per day (bpd) in April, as it new oil sands projects and partly to mounting
engaged with Russia in an ill-timed race to the concerns over their environmental impact.
bottom for oil prices. These factors, among others, had compelled a
Output plummeted just a few weeks later as number of companies to exit the oil sands over
Riyadh sought to bring about stability to the recent years and had resulted in a collapse in
market following the dual crises of overpro- the sanctioning of new projects. Indeed, Teck
duction and COVID-19’s impact on demand. Resources withdrew its application to build the
State oil firm Saudi Aramco saw output fall to Frontier oil sands mine in February 2020, before
7.5-8.0mn bpd in the second quarter as it sought oil prices started to crash in March.
to stem the financial bleeding and comply These existing challenges were exacerbated by
with OPEC+ cuts. The firm cut its capital pro- the brief oil price war between Saudi Arabia and
gramme by roughly $12bn, company sources Russia last year, which was swiftly followed by
told MEOG. the COVID-19 pandemic. These events brought
Despite its best efforts to ringfence ambi- prices to new lows and even forced West Texas
tious expansion projects, including the $110bn Intermediate (WTI) to go negative briefly in
Jafurah unconventional gas project announced April for the first time.
in the first quarter, Aramco has uncharacter- Canadian producers – like others around the
istically cancelled a string of maintenance and world – responded by shutting in some of their
production efforts, notably those at Berri and output. And even as production returned over
Marjan, turning instead to projects targeting the course of the year, nearly 16% of leading pro-
marginal increases. ducer Alberta’s output remained offline as of late
While Aramco has built untold wealth for October 2020.
Saudi from the export of oil, it now finds itself This resulted in Alberta announcing that
beholden to its late 2019 promise to pay a $75bn it would end its mandatory oil output curtail-
per year dividend to shareholders for the first ments, which had been in place before the pan-
five years following its initial public offering demic in a bid to prop up regional crude prices, As a result
(IPO). Having failed during the first three quar- earlier than previously planned, in early Decem-
ters of the year to come close to covering this ber 2020. Additionally, Canada’s congested oil of these
outlay, Aramco has returned to the debt mar- pipeline network was offered some breathing developments,
ket and has spent much of the year considering space thanks to the drop-off in production.
ways to monetise midstream and downstream In the US, meanwhile, shale drillers have certain OPEC
assets, in much the same way that Abu Dhabi become known for being quick to respond to oil
National Oil Co. (ADNOC) has done with great price signals. A number of producers immedi- members have
success. ately announced in March that they were scal-
With this in mind, it is unsurprising that ing back production once it was clear that a new said they no
Saudi Energy Minister Prince Abdulaziz bin oil price collapse was underway. Similarly to longer view
Salman told his OPEC+ counterparts on Jan- Canadian producers, US shale operators were
uary 4: “Now as we see light at the end of the gradually restoring curtailed oil output to the US shale as a
tunnel, we must avoid at all costs the temptation market later in the year, but US production is
to slacken off our cause. Do not put at risk all we nonetheless expected to be lower in 2020 than significant threat.
have achieved for an instant illusionary benefit.” it was in 2019.
As a result of these developments, certain
North America: Oil price vulnerability OPEC members have said they no longer view
The US and Canada were both hit hard by the US shale as a significant threat. Shale producers,
collapse in oil prices in 2020, though it played out conversely, will be following OPEC+ talks with
in different ways across the two countries. concern, as every decision will likely affect their
In Canada, the oil sands industry had been future drilling plans.™

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