From Kazakhstan and Azerbaijan to Nigeria and Angola, oil majors are haggling with national governments over how to share out deep production cuts that add to their pain from low oil prices and depressed fuel sales because of the coronavirus pandemic.
Oil majors have traditionally escaped big cuts in OPEC nations, such as Nigeria, and have never experienced curbs in countries outside the OPEC club, such as Kazakhstan, where they are protected by special clauses agreed with governments.
But those production sharing agreements (PSA) are being laid aside following a pact between the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to cut production by 23% to bolster prices as coronavirus lockdowns reduce global energy demand by a third.
Such unprecedented output reductions, effective from May 1, are impossible in most nations without the help of majors. Azerbaijan has already asked its BP-led group to cut offshore output, and Kazakhstan was close to a deal with majors to reduce their production as well, sources familiar with the matter said.
“We do expect to see volumes reduce in the second quarter because of the OPEC+ agreement,” BP’s Chief Executive Bernard Looney told a conference call on Tuesday, as the London-based company reported a plunge in profit and a spike in debt.
During the last oil price crash in 2014-2016, integrated majors, such as BP, suffered a decline in earnings from their upstream or oil production units, but were saved by strong downstream results as consumers profited from cheap fuels.
In Nigeria, Shell and other majors are also holding talks with national oil firm NNPC on reducing onshore and offshore production, according to seven trading sources.
“Nigeria and other West African exporters have no choice now but to cut down on shipments,” one trading source said citing poor demand and loss-making prices.
Shell and Total will have to share the burden of the 285,000-bpd cut by Oman while Iraq is still talking to majors, such as Exxon and BP, on the exact split of its 1 million bpd cut.
Beyond OPEC+, more than 600,000 bpd of cuts have already been announced in the United States, some 300,000 bpd in Canada and 200,000 bpd in Brazil – areas where majors are also active.