Lockdown bites oil, gas output

KARACHI: Country’s oil and gas production for the second half of FY20 is expected to decline significantly due to COVID-19-pushed lockdown, which might result in reduced exploration spending, analysts said on Thursday.

Arsalan Soomro, managing director KASB Securities, a brokerage house, said reduced production would impact exploration and production (E&Ps) companies in a double whammy; slashing prices and shrinking volumes at the same time.

“However, decline in volumes is a temporary phenomenon, while the price cuts are a sustainable trend nowadays. Therefore, the profitability will be hurt in short- and long-term. The capital expenditure plans would also be curtailed given the lesser attractive prices,” Soomro said.

For the quarter ended March 30, 2020, oil production is likely to record a fall of 10 percent amidst lower intake of crude by refineries. “This is largely due to fall in demand owing to countrywide lockdown amidst Covid-19 outbreak and supply chain disruptions. During 9MFY20, oil production is expected to decline by 9.4 percent to 22.3 million barrels or 81.2k barrels per day (bpd),” Shankar Talreja at brokerage Topline Securities said.

The latest petroleum products sales figures reveal a decline of 31 percent in March primarily due to slowdown in economic activities as a result of lockdown. “With the lockdown extended till the end of April 2020, the consumption of petroleum products is expected to decline further,” an analyst at BIPL Securities noted in a comment.

Gas production, during the quarter ended March 30, is likely to contract by 5 percent due to their association with oil production, closure of Sindh based industries and lower demand by energy sector mainly generation companies. “During 9MFY20, gas production is likely to come down by 7 percent to 3.67k mmcfd,” Talreja added.

“It is important to note that because of Covid-19 outbreak, oil and gas production has declined 35 percent and 17 percent, respectively, during first two weeks of lockdown (March 23 to April 7),” a Topline Securities report noted. The slump in oil demand has led to the closure of National Refinery Limited (NRL) and Byco Petroleum Pakistan, and the government directed oil marketing companies (OMCs) and oil refineries to cancel orders for import of petrol and crude oil respectively.