Rig utilization in Southeast Asia set for decline, Rystad’s analysis shows

Southeast Asia’s rig market, which was poised for growth in 2020, is now set for a decline. Several oil companies have already made significant cuts to their 2020 capex budgets due to the impact of the Covid-19 pandemic and the ongoing oil price war, a Rystad Energy’s analysis shows.

A jack-up rig; Author: SP Mac

According to Rystad Energy, E&Ps in Southeast Asia have been very cautious by locking in rigs on long-term contacts, making it unlikely that options will be exercised.

Rystad sees that if no new contracts are signed and no options are exercised for the remainder of 2020, utilization will drop by 54% in the region from March to December. This translates to an 18% year-on-year drop from 2019 levels.

Of the options in the regional market for 2020, 40% are for work with Petronas. Therefore, market development this year will be quite dependent on the volume of options that Petronas decides to exercise.

Petronas is proactively striving to keep operations running as smoothly as possible, and rigs with local crews might not be greatly inhibited. However, after the recently announced two-week extension of the lockdown in Malaysia, several rigs operating in the country are expected to gear down activity in the next few weeks due to crew timeout.

Most of the planned drilling programs in Southeast Asia this year are comprised of brownfield work, and Rystad expects operators to reduce their drilling budgets most within the infill drilling segment.

“On a slightly more positive note, existing rig contracts probably face less danger of being terminated in Southeast Asia – where national oil companies tend to support the national drilling contractor – than in other regional markets. That is not to say there won’t be any contract terminations, but we expect the intensity to be lower than it is globally,“ said Rystad Energy’s senior oilfield service analyst, Jo Friedmann.



Looking at activity in the coming year, lower oil prices are expected to slow sanctioning activity in the region, meaning less demand for drilling and completion services, as well as for offshore oilfield services in general. During the previous downturn, the pace of sanctioning long-cycle deepwater projects slowed, and Rystad expects this trend to be repeated.

New deepwater projects currently under evaluation by operators in Southeast Asia are likely to face delays, though there hasn’t been any direct communication from operators yet to this effect. The Limbayong project in Malaysia, Abadi in Indonesia, Shew Yee Htun in block A6 in Myanmar, and the Kelidang Cluster in Brunei, are all considered to be at risk in the current oil price environment.

“The oilfield service industry is now far more fragile than it was in 2014. The expected reduction in activity will, in all likelihood, translate into lower prices – and this will probably happen sooner rather than later, “ added Friedmann.

Reports suggest that operators are asking service companies for a 20% to 25% reduction in pricing globally, a trend Rystad expects to see in Southeast Asia as well. Should the oil price and virus issues persist for six months or more, we could again see a race to the bottom, with rig rates plummeting towards operational expenditure levels.

For players in the Southeast Asian well services segment, unit prices have not grown as quickly in recent years as they have for drilling contractors, and therefore a smaller price drop is expected.


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Project sanctions take the hit as Woodside halves spending plans

Australian energy giant Woodside has made a decision to reduce its total expenditure for 2020 by 50% as a response to the uncertainty in the global environment. As a result, final investment decisions for several projects will be impacted. 

Source: Woodside

The current uncertain global investment environment arising from the spread of COVID-19, combined with an oversupply of crude oil and LNG, has led to a significant decline in prices, requiring decisive and swift action.

Woodside said on Friday it is taking a prudent approach to cash flow management, given the considerable uncertainty in the near-term investment environment and the magnitude of forward capital investment decisions.

Key features of Woodside’s response include changes to Woodside’s 2020 work plan resulting in an approximately 50% reduction in forecast 2020 total expenditure and review of all non-committed activities supporting Woodside’s growth activities resulting in an approximately 60% reduction in Woodside’s 2020 guided investment expenditure.

Furthermore, Woodside’s response includes deferral of targeted final investment decisions (FID) for Scarborough, Pluto Train 2, and Browse projects.

The company said it is continuing to progress capital investments in Sangomar Field Development Phase 1 (Sangomar), Pyxis Hub, and Julimar-Brunello Phase 2.

Woodside’s production guidance remains unchanged at 97 – 103 MMboe.

According to the companty, the full impact of lower oil price will not be realized until late 2Q 2020 due to the lag between the oil price and the realized LNG price.

Oil price is expected to be volatile at least in the near-term. To reduce exposure to the potential further downside and increase revenue certainty, Woodside has hedged 11.85 million barrels of oil between April and December 2020 at an average price of $33.47 per barrel.

Expenditures halved 

Woodside’s 2020 work plan has been reviewed and non-essential activities have been cancelled or deferred.

Total expenditure in 2020 is forecast to reduce by approximately 50% to approximately $2.4 billion. This includes an approximately $100 million reduction in operating expenditure and an approximately 60% reduction in investment expenditure to $1.7 – 1.9 billion.

Future external spend has been minimized by reallocating required activities to internal Woodside resources.

Employee numbers have been frozen but graduate hiring will continue, Woodside noted.

Some of the impacts of this reduced expenditure are deferral of most proposed exploration activities, although some seismic acquisition will continue, reducing overall exploration expenditure by approximately 50% to $75 million.

Woodside said that the FID for Scarborough and Pluto Train 2 would be delayed to 2021 and the FID for the Browse would also be delayed.

Finalization of commercial agreements and regulatory approvals will continue for Scarborough, Pluto Train 2, and Browse and there will be some ongoing engineering work in preparation for final investment decisions.

Work on the Sangomar Phase 1 development started in early in 2020 and Woodside said it is taking early action to proactively manage the emerging impacts of COVID-19 on the supply chain and project schedule.

“We are working with contractors, the Government of Senegal and our joint venture partners to evaluate options to reduce total cost and near-term spend whilst protecting the overall value of the investment,” Woodside said.

As a result of these changes, Woodside’s investment expenditure guidance for 2020 is now $1.7 – 1.9 billion.


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OMV joins line of oil and gas operators making budget cuts for 2020

Joining other oil and gas operators in actions to safeguard their businesses amid coronavirus crisis and the oil price war, Austrian oil and gas company OMV has decided to reduce its investments in 2020 by 20 percent, cut costs by around $217 million, and delay acquisition projects.

Source: OMV

The global spread of the coronavirus has abruptly transformed people’s lives and significantly worsened the economic environment. OMV said on Thursday that it is responding to this situation with targeted measures to safeguard the company’s economic stability and the secure supply of energy.

Rainer Seele, Chairman of the Executive Board and CEO of OMV: “We made provisions for every employee to work from home parallel to the national exit restrictions in movement. Employees who are critical to the business or supply security are the only ones working in the field and they are subject to stringent safety and hygiene standards – to protect them and to protect all of our partners and customers”.

At the same time, OMV said it is implementing targeted measures to safeguard the company’s financial strength. In this context, the executive board has approved an action plan of more than EUR 4 billion ($4.4B) for the year 2020.

This includes a reduction of around EUR 500 million ($547.7M) in organic investments to below EUR 2 billion ($2.19B) in 2020. This is a reduction of more than 20% compared with the originally planned investments of EUR 2.4 billion ($2.6B) for 2020.

It also includes cutting costs by around EUR 200 million ($216.5M) compared to 2019 (opex and exploration expenditures).

Furthermore, OMV’s measures include payment of the purchase price for the additional 39% share in Borealis in two tranches, whereby more than EUR 2 billion ($2.2B) will not be due until the end of 2021. The effective closing date of this transaction is unaffected.

Finally, it includes postponing investment and acquisition projects totaling EUR 1.5 billion ($1.6B), in particular the interest in Achimov 4/5 in Russia.

“These measures will safeguard OMV’s ability to act in this challenging situation. Specially established task forces are monitoring developments very closely in order to make any necessary strategic adjustments at the right time”, said Rainer Seele.


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Coronavirus spread pushes Bahamas well drilling to October

London-listed oil company Bahamas Petroleum Company (BPC) has further pushed back the drilling of its first exploration well in The Bahamas, the Perseverance #1.


BPC said on Wednesday that the delay was a result of the “massive, unprecedented, and adverse impact of the spread of the COVID-19 virus.”

According to the company, drilling operations planned for the May/June 2020 timeframe can no longer be assured and are rescheduled to October 2020 onwards.

Cost-effective drilling can best be delivered by ensuring continuous operations throughout the entire period of the 45 – 60 day drill plan uninterrupted.

National and regional shutdowns are impacting the ability of drilling rigs and other mission-critical equipment to get properly prepared and certified for drilling due to travel bans and border closures. Also, The Bahamas declared a state of emergency with a curfew in place on March 17.

This is further compounded given the need to take into account the timing of the traditional hurricane season in The Bahamas which happens between July and mid-October.

“The Board has thus concluded that if the company was to continue to seek to commence drilling in the first half of 2020, there would be an unacceptable level of risk to the company’s ability to operate continuously, responsibly, safely, and within currently established guidelines, timelines and, as a consequence, budgets.

“Accordingly, the company has determined to postpone drilling operations until mid-October 2020 onwards, being after the expected peak in the COVID-19 response, and also after the peak risk period for hurricanes in The Bahamas,” BPC stated.

BPC added that the impact of the response to the spread of the coronavirus, both globally and in The Bahamas, also constituted a force majeure event under the terms of the company’s licenses. Due to that fact, BPC expects to receive a corresponding extension to the current term of the licenses from the Government of The Bahamas.

Simon Potter, CEO of BPC, said: “Given the ever-evolving adverse impact of the response to the spread of the Covid-19 virus – which is changing daily and is affecting everyone and all enterprises, around the globe – it has become clear to us that if we continue to push forward with drilling in the first half of 2020, safe and responsible operations would be compromised.

“Shareholders should be encouraged, however, that we are in a strong position to resume drilling activities toward the end of 2020, compared to where we were just a year ago. The company has cash reserves, and financial backers intent on flexibly supporting the company.

“We also have an approved environmental authorization from the Government of The Bahamas, farm-in discussions remain on foot, and the current crisis is presenting a number of interesting alternative opportunities for us.

“The spread of the Covid-19 virus represents a global threat to our collective way of life, and we all have to face reality over the coming months – which in the case of our company means pausing our drilling plans for a time, as hard as that may be. We hope that all of our shareholders, stakeholders, employees, and contractors take care, and stay safe and well in this extremely difficult time for all.”

No change in cost estimate

BPC said that the cost estimate for the Perseverance #1 well was in the range of $25 – $30 million, with potential contingencies for up to an extra $5 million. The company does not anticipate the cost estimate to change due to the rescheduled start of operations.

All previously agreed financial elements would see total funding availability of around $45 million, and issuance of approximately 1.6 to 1.8 billion new shares of BPC.

As a result of the global COVID-19 crisis, a large number of international drilling programs were canceled or postponed, and a large number of rig contractors are revisiting their work programs.

This is expected to have knock-on effects on rig availability and potentially lower rig pricing in the revised drilling window. BPC is already revisiting discussions with a range of contractors for securing a suitable drilling rig for the revised drilling window.

Furthermore, the company will continue to assess options for a farm-out or similar transaction in the coming months, and stated that a number of interested parties, including oil and gas majors and supermajors, have indicated that they would wish for discussions to continue regardless of the coronavirus global crisis and the recent decline in global oil prices.

BPC is also evaluating some potentially value-creating alternative strategic options presented to the company in light of the global COVID-19 crisis.


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Prosafe to claim full contract value after EnQuest cancels rig mobilization

Following EnQuest’s cancellation of mobilization of the Prosafe-owned Safe Zephyrus accommodation rig in the North Sea, Prosafe has said it will claim the full value of the contract. 

Safe Zephyrus; Source: Prosafe

Prosafe on Monday provided an update on its ongoing operations and contracts in light of COVID-19 and the oil price crash.

According to the update, the Safe Concordia flotel is on location and dayrate, although client personnel has been demobilized. The Safe Concordia is under a contract with Equinor in Brazil.

Further, both Safe Notos and Safe Eurus flotels have been disconnected and client personnel demobilized. Both accommodation rigs are on a 95% stand-by dayrate.

The Safe Notos has been operating on a three-year and 222-day contract for Petrobras in Brazil since December 7, 2016.

The Safe Eurus is also under a contract with the Brazilian Petrobras. Awarded in May 2019, the three-year firm contract started in 4Q 2019.

Finally, the Safe Zephyrus rig was ready to mobilize from Averøy in Norway to support the Thistle project for a 21-day firm period, but was instructed by client on March 20 not to mobilize.

Prosafe said it would claim full contract value, ca. $2 million.

To remind, Prosafe was earlier in March awarded a contract to provide accommodation in support of EnQuest’s redundant subsea tank removal and safe re-habitation of the Thistle Alpha platform in the UK North Sea.

However, as the situation with the coronavirus as well as the oil price crash developed, EnQuest said last week it would not re-start production at the Heather and Thistle/Deveron fields.

Namely, as a response to the current market situation, EnQuest decided to reduce its costs. For 2020, the company is targeting base operating expenditure savings of c.$150 million, which would lower operating costs by c.30% to c.$375 million.

Offshore Energy Today Staff


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OKEA to postpone all sanction decisions for drilling and seismic programs

As a result of an unprecedented combination of a global pandemic coupled with a dramatic fall in oil prices, Norwegian oil and gas company OKEA will postpone all project sanction decisions and, where possible, further cancel sanctioned plans.

Draugen platform; Source: OKEA

OKEA said on Friday that its board of directors and the management team have been working closely together over the past weeks to assess and understand the impacts of this on the business, and to put a series of mitigations in place that will ensure the company is able to withstand the current market conditions for an extended period of time.

OKEA stated it is in a very strong financial position. Currently, the company has a significant cash reserve of NOK 1.2 billion and its operated Draugen field, which provides a substantial proportion of the company’s revenues, has low lifting costs of less than 20 $/bbl. It will therefore remain a positive contributor to the company even at current oil prices. The next OKEA Draugen lifting is scheduled for May and this has been hedged just below 50 $/bbl.

The OKEA01 Bond was successfully refinanced and in 4Q 2019 and replaced by a new facility, OKEA03. This means that the company does not face any bond maturities until 2023 or refinancing requirements in the short term and has enough cash available to withstand a sustained period of low oil prices.

However, in a continuing low oil price scenario certain bond covenants may temporarily become in technical breach. The company said it is monitoring this closely and is prepared to take necessary actions going forward if required.

Importantly, the company does not have any RBL facilities which could be at risk of redetermination.

In addition to this, the company noted it has substantial flexibility to reduce expenditure through focused cost reduction measures, together with the deferral of non-essential activities into 2021 or beyond.

Deferrals & cancellations

The company also said it will postpone all project sanction decisions, such as drilling or seismic programs.

OKEA will further cancel sanctioned plans where possible and as agreed with joint venture partners. These measures will result in reductions to previously planned exploration expenditure of around 90% for the rest of the year.

The Yme project remains on schedule and OKEA is working closely with the operator, Repsol, and the other JV partners to understand and mitigate the impact that restrictions (particularly travel restrictions) caused by the COVID -19 pandemic may have on the project. The project is still on schedule for first oil in second half of 2020.

The company has put in place a series of measures designed to protect our employees and to ensure full continuity on OKEA operated projects, particularly at the Draugen field.

“Our staff are now predominantly working from home and minimising social contact, and we have also stopped all business travel. On Draugen, we have introduced a policy that increases time spent offshore and reduced offshore manning levels from 70 to 37. We closely monitor the health of offshore staff and are taking measures to ensure that anyone who has been (or may have been) in contact with someone infected with the virus does not travel offshore,” OKEA said.

OKEA has always believed that consolidation of small-medium sized players on the Norwegian Shelf is inevitable and the current situation is likely to accelerate that. OKEA believes it is in a strong position to take advantage of any opportunities that may arise and will continue to seek out new inorganic growth opportunities.


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Bristow adapts three helicopters for transporting coronavirus cases

Offshore helicopter operator Bristow has configured three of its helicopters for transporting coronavirus cases. 

Source: Bristow

Bristow Helicopters has repatriated offshore workers in the oil and gas industry with suspected cases of the novel coronavirus – COVID-19 – using three specially-configured former search and rescue aircraft, the company said on Thursday.

Three suspected COVID-19 cases have been flown from offshore installations in the North Sea since Wednesday, March 18, in one of the dedicated aircraft, introduced to support the industry’s response to the pandemic and not for use for general crew change flight activities.

Alan Corbett, Senior Vice President for Bristow’s Europe, Africa, Middle East and Asia area, said: “The safety, health and welfare of our workforce, customers and the public we support around the world is of the utmost importance to Bristow, which is why we moved quickly to develop a solution for transporting those suspected of contracting the virus.”

According to Bristow, each of the Sikorsky S92 helicopters being deployed has undergone specific modifications to ensure the necessary separation is provided between flight crew, an on-board medic travelling with each flight to provide passenger monitoring support, and passengers with suspected COVID-19.

As the aircraft are purpose fit for a search and rescue role, they have a different seating configuration to crew change helicopters, ensuring appropriate separation can be maintained between those on-board.

Numerous preventive barriers are also installed including protective curtains separating the cockpit from the passenger area and airflow systems, while specific entrance and exit points are provided for each of the flight crew, paramedic and passenger to further ensure required distance is maintained.

Each aircraft undergoes a full decontamination process after every flight, assisted by the rugged waterproof seating and a fully waterproof floor which is included in their search and rescue role configuration.

Matt Rhodes, director UK and Turkmenistan Oil & Gas at Bristow Helicopters, said: “The successful introduction of these dedicated aircraft for suspected COVID-19 cases is a key indication of Bristow’s commitment to supporting the energy industry in what are extremely challenging circumstances.

“This service has been established with approval from the CAA, and the support of Oil and Gas UK, our client base and the relevant health authorities – and we remain in continuous dialogue with those organisations.

“Having completed two repatriation flights on behalf of clients in the UKCS, we are pleased to be able to confirm we now have three dedicated aircraft available to companies across the energy sector.

“We are now exploring further options for other parts of the UK, and other industries, as the national response to the coronavirus outbreak gathers pace.”


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Current market challenges not preventing Dorado partners to push for FEED

Australia’s Santos and Carnarvon Petroleum are progressing as planned with the development of the Dorado project, located offshore Australia, despite recent challenges in the market. The partners are focusing on starting the project FEED as planned. 

Dorado field illustration; Source: Santos

The giant Dorado development is located in permit WA-437-P. Santos is the operator and holds an 80% interest and Carnarvon is its partner with the remaining 20% interest.

Carnarvon said on  Monday that its strategy had intentionally targeted projects that have the potential to produce in low-cost environments and thereby absorb extreme economic events such as we’re experiencing at present, namely, a dramatic global response to the spread of the COVID-19 virus and to the fall in oil prices.

The sheer size and nature of the Dorado field means that it is a strong and robust project which is expected to produce at globally competitive capital and operating costs per barrel, Carnarvon said.

Entering FEED

On the Dorado field work, the Carnarvon team is working closely with the operator on a variety of components that are required to formerly enter the Front End Engineering and Design (FEED) phase. At this time there is nothing preventing the beginning of FEED nor its ongoing work throughout this and next year. This is a priority for Carnarvon and the recent global events have not affected this position, the company noted.

The exploration prospects around Dorado, such as Pavo and Apus, are looking attractive on the new Keraduren 3D seismic data. There are also new prospects showing up on the 3D seismic data.

Carnarvon is of the view that the current spot prices for oil do not represent longer term prices expected to be realized in ‘normal’ market conditions.

Carnarvon said: “The company has considered this situation carefully, particularly having regard to when the business expects first production from Dorado, and is confident that it makes sense to proceed with the businesses’ plans unchanged.”

Carnarvon’s Managing Director and Chief Executive Officer, Adrian Cook, said: “We have experienced market volatility in the past, such as with oil prices falling in 2015. During those times we also carefully assessed the situation and felt confident to remain active, working through the uncertainty and volatility that was present at the time.

“Taking this considered approach put the company in an incredibly strong position that resulted in the discovery of the Dorado field in 2018. We have once again taken the time to carefully assess market conditions. Our strong conviction is that the COVID-19 virus issue and low oil prices will be resolved in time. We are of the view that the most appropriate course of action at the current time is to continue to focus on the delivery of our plans, and that includes supporting the operator in advancing the Dorado development.

“Importantly, through careful management, we are in a position to proceed with our plans because of the very strong financial position of the Company. At 31 December 2019 we reported cash of $119 million. Since this time, we have been very prudent with our outlays and we will have more than enough financial resources available to cover our 2020 expenditure. Based on our current forecasts, we will also have more than enough to reach the Final Investment Decision for the Dorado liquids development.”

It is worth mentioning that Santos’ preferred concept for the Dorado project is an FPSO and wellhead platform development. In the initial phase, Santos plans for oil and condensate development followed by future phase of gas export.


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Rystad: With OPEC+ ready to unleash extra barrels, oil prices could fall into low $20s

Oil prices could fall into the low $20s for the global market to rebalance, as Rystad Energy expects an increase in global supplies in the next three months. OPEC+ countries are locked and loaded to add between 1.5 million and 2.5 million barrels per day (bpd), which Rystad estimates is their realistic short-term capability.

Illustration. Author: SP Mac

After the breakdown in OPEC+ negotiations and subsequent oil price free-fall, Saudi Arabia and the UAE have both signaled their intention to flood the market with additional oil production starting next month, Rystad said in a report released on Wednesday.

“Without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand,” said Espen Erlingsen, Rystad Energy’s Head of Upstream Research.

Rystad Energy estimates that global liquids demand was reduced by around 4 million bpd in February, primarily driven by the coronavirus. Over the next months, demand might be weakened by between 2 million to 4 million bpd due to the virus, Rystad said.

The cost of supply curves can be a good barometer to gauge how the market will react to various scenarios, says Erlingsen. Rystad Energy has updated its estimates of the short-run marginal (SRM) cost for the global liquids market.

For conventional fields, the SRM only includes transportation costs, effects of gross taxes and price differentials to Brent. All other costs, such as production cost and investments, are excluded, as Rystad Energy believes that these costs will not affect production levels from producing fields in the short term.

For tight oil assets, producing wells include the same costs as conventional fields, while the drilled uncompleted wells (DUC wells) also include the costs for completing the wells. For not yet drilled tight oil wells, both drilling and completion costs are included.

The shape of this curve is rather flat, as the SRM for the majority of the oil fields is below $5 per barrel. In fact, around 92 million bpd of production has an SRM below $5 per barrel. Total production with an SRM cost above $15 per barrel is around 4 million bpd.

Rystad Energy estimates that the total demand for liquids will be around 100 million bpd in June 2020, assuming no coronavirus impact.

The cost of supply curve moves to the right if OPEC+ increases production. The equilibrium price moves from around $25 per barrel (no additional OPEC+ supply) to $19 per barrel in the modest 1.5 million bpd increase scenario and $14 per barrel in the large 2 million bpd increase scenario.

If demand weakens by 2 million bpd in June (total demand of 98 million bpd), the equilibrium oil price moves from around $19 per barrel to around $11 per barrel in the modest OPEC+ increase scenario. If demand weakens by 4 million bpd in June (total demand of 96 million bpd), the equilibrium oil price moves down to around $9 per barrel in the modest OPEC+ increase scenario.


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Talos cancels analyst and investor event over coronavirus fears

Houston-based oil and gas company Talos Energy has decided to cancel its analyst and investor event, which was set to be held later this week in New York, over coronavirus fears. 

Illustration. Source: Talos

Talos announced on Monday that it was cancelling its Analyst and Investor Event previously scheduled for March 12, 2020, in New York City due to health and safety concerns for the potential spread of COVID-19 and the associated state of emergency declaration in New York.

The company said it was evaluating potential alternative future dates for the event.

“At Talos, the health and safety of our employees, the communities we operate in and all of our stakeholders is paramount. We apologize for any inconvenience the postponement may cause, but believe it is the best and most prudent decision for everyone concerned,” Talos said.

Talos will hold its regularly-scheduled earnings conference call on Thursday, March 12, 2020 at 10:00 AM Eastern Time.

Talos is not the only company to take measures of precaution over the coronavirus outbreak. It is also worth reminding that Italy’s Saipem in late February advised its employees to stay at home. Saipem has also canceled and reduced to the minimum all missions to and from the risk areas abroad.

The coronavirus outbreak has had a negative impact on the global oil demand pushing OPEC to recommend even deeper oil production cuts after a meeting in Vienna last week.

However, as reported by Reuters last Friday, Russia refused to support deeper oil cuts to cope with the outbreak of coronavirus and OPEC responded by removing all limits on its own production.

As a result, CNN reported on Monday, oil prices suffered a historic collapse overnight after Saudi Arabia shocked the market by launching a price war against onetime ally Russia.

Offshore Energy Today Staff


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