The business consequences of Covid-19 and subsequent oil markets turmoil have far-reaching implications for the upstream oil and gas business. By analysing a number of metrics across an oil and gas peer group it is possible to scale the associated impact and rank each company accordingly.

The European majors have global operational footprints and are currently taking drastic actions to safeguard company finances and be well-positioned for when the market stabilises.

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GlobalData Upstream Impact Scorecard

Each company metric considered will be impacted by the outbreak of Covid-19 and weakened commodity prices. As a consequence of lower oil and gas prices, upstream cash flows will suffer. Under a low case oil price scenario of $34/barrel the majority of the peer group will experience negative post-tax cash flow for the year.

For exploration, only Total and Eni successfully replaced produced reserves for the fiscal year 2019 and Shell has been unable to replace produced reserves since 2016. Therefore, pullbacks in exploration spend for 2020 and potentially 2021 will likely have severe implications for company reserve lives in the near term.

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Furthermore, as the current epicentre of the Covid-19 pandemic and suffering unsustainably low oil prices, the US is feeling the full force of the 2020 market volatility. Both BP and Repsol have over 15% of their forecast 2020 production in Lower 48 assets, and as a result, are the most highly exposed within the group.

The Upstream Impact Scorecard reveals that under current business conditions, Repsol has a highly exposed upstream business. This is due to a large footprint in the US onshore shale business, strongly leveraged finances in 2019 and weak cash flow under current oil prices.

For Repsol, a comparably poor recent exploration performance and declining production outlook mean that project deferrals and exploration pullbacks for this year will hit the company hard over the near term. The highest-ranked company in the peer group and deemed the lowest impact is Total. Total’s upstream business can remain robust under the current situation due to strong reserve life, successful exploration performance, manageable financial leverage and limited exposure to the US onshore shale business.

Each of the European majors has a significant downstream business that can support a weakened upstream performance in low oil price periods. However, Covid-19 has resulted in demand destruction for refined petroleum products and companies, therefore, cannot rely on support from the downstream business as heavily as in previous downturns.