PERTH (miningweekly.com) – Oil and gas producer Oil Search has cut its capital expenditure for 2020 from between $710-million and $845-million, to between $440-million and $530-million on the back of global market volatility.

The company told shareholders on Wednesday that forecast capital expenditure going forward from April has been reduced from between $400-million and $500-million, to between $200-million and $300-million.

Apart from work programmes required to ensure ongoing reliable and safe operations, all discretionary activities that had not yet commenced, have been suspended or deferred, Oil Search said.

Where possible, some projects that have already been started have also been suspended.

However, the company has retained its production guidance for 2020 of between 27.5-million and 29.5-million barrels of oil equivalent.

“The recent dramatic fall in oil prices below $40/bl due to the impact of Covid-19 on oil demand, combined with concerns about material increases in oil production following the recent failed OPEC meeting on further production cuts, has led to a major drop in oil and gas company share prices. It is unclear how long these events and the consequent oil price and share market volatility will last,” said Oil Search MD Keiran Wulff.

“While Oil Search is fortunate to have world-class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty.

“We have consequently implemented a halt in all discretionary spend, which will reduce capital expenditure significantly in 2020. While its premature to forecast budgets for 2021, if lower oil prices persist, Oil Search will focus on protecting the value of our core assets and limiting any other activities.

“We are also well advanced in preparations to rapidly reduce our operating and corporate costs, for immediate implementation.”

Wulff said on Wednesday that the company had also stayed abreast of the possible impact of the Covid-19 on operations, and has established a task force which has prepared business continuity and emergency response plans to manage the impact of the virus on the Oil Search workforce, operations and workplace environments.

“The early systematic preparation for managing the impact of Covid-19 on our business and the measures we are now implementing to minimise capital spend, operating costs and corporate expenses, will assist the company with the financial flexibility to ride through a potentially extended period of global disruption and enhance Oil Search’s resilience in a lower oil price environment.”