The coronavirus (COVID-19) pandemic has been called a once in a 100-year event. In the first three months of 2020, the global reduction in energy demand triggered by the spread of COVID-19 and a dispute between Saudi Arabia and Russia over proposed production cuts resulted in the collapse of oil prices, which has decimated the value of Australian and international oil and gas companies. This has forced companies to cut spending by deferring growth projects and shedding jobs. Woodside Petroleum has deferred its Scarborough, Pluto Train 2 and Browse gas projects in Western Australia, while Santos has delayed approval of its Barossa to backfill Darwin LNG Project in northern Australia and its LNG expansion plans in Papua New Guinea (PNG) have stalled. In response to COVID-19, governments have also implemented travel bans, which has restricted the movement of workers and required a reduction in the number of people working at onshore and offshore sites.

The energy sector has been especially hard hit by COVID-19 concerns and their impact on oil demand. Many oil and gas companies listed on the Australian Securities Exchange (ASX) such as Woodside Petroleum, Santos, Origin Energy, Oil Search and BHP have lost a significant portion of their value in the March quarter 2020 (Fig 1). In response to the volatile market, oil and gas companies have reduced capital expenditure by deferring major growth projects, putting the sale of assets on hold and job cuts. (Table 1).

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Woodside is an Australian oil and gas company listed on the ASX with its headquarters in Perth, Western Australia. In response to the decline in oil prices due to COVID-19, Woodside announced in March it has reduced its forecast 2020 total expenditure by 50% to approximately US$2.4 billion, including about US$100 million in operating cost cuts.[1] Woodside’s previous investment expenditure guidance for 2020 was US$4.1 billion – US$4.4 billion.[2]

Furthermore, Woodside’s LNG projects are underpinned by long-term supply contracts linked to the oil price. Woodside operator of the North West Shelf and Pluto LNG projects in Western Australia said the full impact of lower oil prices will not be realised until late in the second quarter of 2020 due to the lag between the oil price and the realised LNG price.

Meanwhile, final investment decisions on the company’s growth projects Scarborough, Pluto Train 2 and Browse have been delayed. Woodside said it was continuing to progress other already approved projects including the Sangomar Oil Project in Senegal, and the Pyxis and Julimar-Brunello Phase 2 gas projects off Western Australia. Woodside also deferred major maintenance work at two LNG trains at the Karratha gas plant and reduced the scope of the life extension project at the plant.

Additionally, Woodside said it has been preparing its business for COVID-19 since January and has reduced the number of workers at offshore platforms in order to comply with health and government advice.[3]

Santos is an Australian oil and gas exploration and production company listed on the ASX and headquartered in Adelaide, South Australia. In March, Santos announced it was reducing its capital expenditure by 38%, or US$550 million in 2020 in response to the collapse in the oil price.[4] Santos’ previous guidance for 2020 capital expenditure was US$1.45 billion.[5] The company’s discretionary spending and exploration have been deferred and forecast major capital expenditure has been cut by US$350 million, mostly on the deferral of the Barossa backfill to Darwin LNG Project and the stalled LNG expansion in PNG.

Santos will also cut production costs by US$50 million in 2020, with a target set to reduce the oil price at which operations break even to US$25/bbl. Moreover, Santos will cut 150 contractor jobs and close its offices from April 6 to 24. Around 500 staff will also take annual leave or long service leave during the closure period.

Origin Energy is an integrated energy company with exploration, production and power generation operations. The company is listed on the ASX with its headquarters in Sydney, New South Wales (NSW). In March, Origin announced it had suspended exploration activities at its Beetaloo Sub-basin shale Kyalla Project in the Northern Territory and reduced workers at the field to a minimum in response to the COVID-19 crisis.*⁶ The company now expects the work on the Kyalla 117 well to occur in the first half of the financial year 2021 (FY2021) and the drilling of the Velkerri Flank in the second half of FY2021.[6]

In April, Origin said its FY2020 capital expenditure is likely to be 5%-10% lower than prior guidance of $530 million-$580 million, excluding the Australia Pacific LNG (APLNG Project). The company is targeting a 25%-30% cut in capital spending in FY2021. In its Integrated Gas division, Origin said it's targeting a $300 million-$400 million cut to APLNG upstream capital expenditure in FY2021 compared with guidance for the prior year. This would be driven by a reduction in development activity as well as less exploration and appraisal work.[7]

Origin, a major Australian energy retailer, will offer extensions to energy bills for customers impacted by the COVID-19 crisis. The company’s non-essential workforce, which is most of it, is working remotely and it is managing shifts and rosters for essential staff to reduce contact between staff and is conducting additional health screenings. The company, chief executive officer Frank Calabria said, has plenty of access to fuels including gas, coal and LPG and is looking to minimise planned maintenance.[8]

Oil Search is a Papua New Guinea focused oil and gas company listed on the ASX with its headquarters in Port Moresby, PNG. In March, Oil Search announced it would cut spending by about 40% and suspended its process to sell a 15% stake in its Alaska Oil Project as a result of the decline in oil prices. The company has either suspended or deferred all discretionary activities, except those required to maintain oil and gas operations in PNG. Oil Search has interests in the Elk-Antelope and P’nyang gas fields associated with the stalled LNG expansion in PNG. Oil Search said it is continuing talks on the planned LNG expansion, but work on the development will slow.

The company’s investment expenditure in 2020 will be reduced from US$710 million - US$845 million to between US$440 million - US$530 million, while forecast capital expenditure from April 2020 has been reduced from US$400 million – US$500 million to between US$200 million - US$300 million.[9]

Additionally, the company announced it has cut 100 jobs from its Sydney and Anchorage offices, while senior management and the board will have their salary cut by 20% for the next six months.[10]

BHP listed on both the ASX and London Stock Exchange is a mining, metals and petroleum company headquartered in Melbourne, Victoria. BHP has a non-operated interest in the Scarborough Gas Project, which has pushed back approval from 2020 to 2021. The company has also reduced the number of people at mine sites and other operational facilities to critical employees and contractors only. However, instead of job losses, BHP has announced it will hire 1,500 additional people on six month contracts to support its workforce operating in Australia.[11]

The next wave of Australian LNG project proposals involves backfill and brownfield expansion of existing LNG infrastructure. The Pluto Train 2 expansion and the Browse, Scarborough, Barossa and Crux backfill projects targeting final investment decisions in 2020 and 2021, have all been deferred due to the volatile market conditions. In Papua New Guinea, a three-train LNG expansion plan at the existing PNG LNG Project site has also stalled. Furthermore, the process to sell down stakes in growth projects by Oil Search in Alaska and by Santos and Woodside in Australia have been delayed.

1. Ownership Darwin LNG and Bayu-Undan post ConocoPhillips sale: Santos (operator) 68.4%; INPEX 11.4%; Eni 11%; Tokyo Timor Sea Resources 9.2%. Ownership Darwin LNG and Bayu-Undan post SK E&S buy in: Santos (operator) 43.4%; SK E&S 25%; INPEX 11.4%; Eni 11%; Tokyo Timor Sea Resources 9.2%.
2. Ownership Barossa post ConocoPhillips sale: Santos (operator) 62.5% and SK E&S 37.5%.

Source: Company Websites & Announcements

The 3.7 million tonnes per annum (mtpa) single train Darwin LNG plant processes gas from the Bayu-Undan field located in the Timor Sea. The Barossa gas field is the main candidate to backfill the Darwin LNG plant when Bayu-Undan ceases production around 2022. A final investment decision on the US$4.7 billion Barossa backfill to Darwin LNG Project was expected in the second quarter of 2020. However, Santos has deferred the Barossa Gas Project due to the collapse in oil prices along with a delay in the completion of Santos’ US$1.39 billion acquisition of ConocoPhillips’ northern Australia assets. Santos expects to complete the acquisition in the first half of 2020 rather than the previous date of the first quarter of 2020. Santos has a conditional agreement to sell 25% interests in Bayu-Undan and Darwin LNG to SK E&S for US$390 million. However, the sale to SK E&S is conditional on Santos’ completion of the acquisition of ConocoPhillips’ assets in northern Australia.[12] Santos has also signed a Letter of Intent (LOI) to sell a 12.5% interest in Barossa to JERA, which is subject to the completion of the acquisition of ConocoPhillips’ assets.

The single train Pluto LNG Project has a capacity of 4.9mtpa. Woodside is operator of both the Pluto LNG Project and the proposed US$11.4 billion Scarborough Gas Project in Western Australia. The development involves the gas from the Scarborough field being processed through a second train at the Pluto LNG facility. A final investment decision was targeted for 2020, but has been deferred to 2021 by operator Woodside.[13]The Pluto Train 2 expansion is 100% owned by Woodside. In the Scarborough Gas Project, Woodside owns 73.5% with partner BHP holding the remaining 26.5%. Woodside has plans reduce its interest to around 50% in the upstream Scarborough and the downstream Pluto Train 2 projects, but the sales process is on hold due to volatile market conditions.

The five LNG trains at the North West Shelf Project have a combined capacity of 16.9mtpa. The project will require additional gas to maintain production at full capacity from the early 2020s. The Browse gas fields are expected to be used as backfill for the North West Shelf plant. The development plan for Browse involves a 900 kilometre pipeline to the North West Shelf plant. However, Woodside announced that the Browse development’s final investment decision targeted for 2021 has been delayed and did not provide a new approval date target.[14]

Woodside is operator of both the Browse and North West Shelf joint ventures, but several other parties are involved that do not have interests in both projects, complicating the negotiations. Woodside, BHP, BP, Chevron Corporation, Shell, MIMI (Mitsui-Mitsubishi Joint Venture) are partners in the North West Shelf Joint Venture. Meanwhile, Shell, BP, MIMI and PetroChina are partners with Woodside in the Browse Joint Venture.

In November 2018, the North West Shelf Joint Venture signed non-binding preliminary agreements to process third-party gas at the Karratha Gas Plant. The Karratha Gas Plant would take gas from both the Woodside-operated Browse Joint Venture and Chevron’s wholly owned Clio-Acme fields. However, an agreement has not yet been finalised on the terms for processing Browse gas through the North West Shelf.

The Prelude floating LNG (FLNG) Project located offshore Western Australia commenced production in December 2018. The first LNG cargo was shipped in June 2019. The Prelude vessel has a capacity of 3.6mtpa of LNG, 1.3mtpa of condensate and 400,000 tonnes per annum of LPG. The nearby Crux gas and condensate field is the leading backfill candidate for Prelude. However, Shell and its Joint Venture partners decided to delay the final investment decision targeted in 2020 "due to the global economic downturn, including the sharp drop in oil price, declining markets and uncertainties with regard to the COVID-19 pandemic," a spokeswoman said in a statement emailed to Reuters, adding that Shell remained committed to developing Crux.[15] Shell has not released an official announcement on the Crux deferral.

Meanwhile, Shell is still working to restore production at Prelude and has not provided a time frame on when it expected the facility to resume at full capacity. Shell took the decision to shut the vessel down in February 2020, and reduce its crew. The facility's backup power generation had failed and there were issues with amenities on board.[16]

Shell is operator of Prelude along with partners INPEX, Korea Gas Corporation (KOGAS) and CPC. The Crux gas and condensate field is also operated by Shell with partners Seven Group and Osaka Gas.

1. The PNG Government equity stake in the PNG LNG Project is 19.6% (Kumul Petroleum Holdings Limited and Mineral Resources Development Company).
2. Kumul Petroleum Holdings Limited (Kumul) is PNG’s national oil and gas company, which exercised its full equity entitlement of 22.5%.
3. In May 2019, Santos signed a binding letter of intent to acquire an interest in Petroleum Retention Licence (PRL) 3, which contains the P’nyang gas field. Following the completion of the farm-in, the PRL 3 Joint Venture participants will be ExxonMobil (operator 36.86%), Oil Search (36.86%), JX Nippon (11.96%) and Santos (14.32%).

Source: Company Websites & Announcements

In PNG, plans for an LNG expansion project comprising of three LNG export trains at the existing PNG LNG plant site near Port Moresby have stalled. Two of the 2.7mtpa trains would process gas from the TOTAL operated Papua LNG Project’s Elk-Antelope fields, while the third 2.7mtpa train would be supplied by the existing ExxonMobil operated PNG LNG fields and the P’nyang field. The Papua LNG and P’nyang projects would double PNG’s LNG production, which was 8.5 million tonnes in 2019.

However, Santos and Oil Search have cut expenditure on activities in PNG in response to volatile market conditions due to COVID-19. Additionally, the PNG Government stopped negotiations on the P’nyang Gas Agreement in January 2020, because of operator ExxonMobil’s unacceptable demands.[17] In September 2019, the PNG Government validated the Papua LNG Gas Agreement signed in April 2019 by the previous government led by former Prime Minister Peter O’Neil. However, the new Prime Minister James Marape has made it clear that new developments should have more favourable terms for the state than previous projects.

Unfortunately, the proponents of the Papua LNG and P’nyang joint ventures will not proceed to the front end engineering and design (FEED) phase for LNG expansion until the P’nyang Gas Agreement is complete.[18] Initially, the project was targeting a final investment decision  in 2020 with first gas in 2024, but the project has stalled. Oil Search said the joint ventures could move into the FEED phase if an agreement on P’nyang is reached.

In Australia, biosecurity measures and travel restrictions are in place to help prevent the spread of COVID-19. Australia has closed its borders and Prime Minister Scott Morrison announced a ban on Australians travelling overseas from March 25 under the Biosecurity Act 2015.[19] Meanwhile, returning Australians are subject to a mandatory quarantine period of 14 days at their first Australian destination.

The government also said Australians must avoid all non-essential domestic travel with States and Territories closing their borders. Anyone travelling interstate is required to self-isolate for 14 days at their destination.

All States and Territories except New South Wales (NSW), Victoria and the Australian Capital Territory (ACT) have imposed strict border control restrictions (Table 4). More restrictions are predicted due to the evolving nature of the global COVID-19 crisis that will further limit movement around the country.

Oil and gas producers must ensure their offshore fields and onshore plant sites remain operational to ensure security of supply for domestic and overseas customers in the new COVID-19 regime restricting overseas and interstate travel. Oil and gas workers, along with miners in Western Australia have been impacted by the government's ban on travel. Some companies have temporarily relocated fly-in fly-out (FIFO) workers in order to maintain operations.

In order to adhere to the new government regulations oil and gas companies like Woodside have implemented new roasters for FIFO workers.

Woodside said it will implement a temporary roster for operational workforce of 2 weeks isolation, 4 weeks on and 2 weeks rest in response to COVID-19 and to comply with current travel restrictions.[20]Woodside is also preparing accommodation options for employees interstate to temporarily relocate to Western Australia.

In PNG, the government declared a state of emergency for 14 days in response to COVID-19 with Oil Search making preparations to ensure essential production personnel were in place before the country went into lockdown.[21] International flights into PNG were grounded as of March 23, while all domestic flights in the country came to halt on March 24.

Oil Search managing director Dr. Keiran Wulff said the company is well prepared for the crisis, having established a task force to ensure the business continues to function in the event of an outbreak in PNG.[22] The company has suspended all discretionary activities, including acquisition of seismic and development drilling, and demobilising non-essential staff from the field.  As a precautionary measure, business-essential personnel have been isolated to ensure safe and uninterrupted production from its operations. ExxonMobil, operator of the PNG LNG Project, has advised it is implementing similar measures, according to Oil Search

The spread of COVID-19 and a dispute between nations over oil production resulted in a significant decline in oil prices. This has led to a dramatic fall in the value of oil and gas companies in Australia and internationally with several companies announcing large spending cuts including the deferral of major growth projects and asset sales as well as job losses.  Additionally, the movement of FIFO workers has been impacted by government border control restrictions with further restrictions expected. It is unclear how long these restrictions will remain in place and with no end in sight to the COVID-19 pandemic the impact on the energy sector is ongoing.

Footnotes

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（この報告は2020年4月20日時点のものです）