Portugal's Galp trims 2020 production growth forecast to 10%

Barcelona — Galp, Portugal's largest oil and gas company, said July 27 it expects upstream production growth of 10% for the full year 2020, down from a previously forecast 13% to 17% increase after oil prices and downstream demand were impacted by the COVID-19 pandemic.

The output increase would mean annual working interest production of around 136,500 b/d of oil equivalent for the second half of 2020, following working interest production of 131,400 boe/d in the first half.

The company said that its upstream operations were only marginally impacted in the second quarter, with two Brazilian FPSO stoppages related to COVID-19, and that it has resumed its ramp-ups and also started production at the Atapu South FPSO at the end of June, which can deliver around 2,550 boe/d net to Galp once ramped up fully.

Prior to the COVID-19 outbreak, Galp was forecasting a 13% to 17% increase in upstream output in 2020 on the back of a ramp-up in Berbigao-Sururu, Brazil and the startup of Atapu 1. It suspended its guidance for the year in April.

However, it has pulled back on upstream capital investment and rescheduled development plans as it aims to keep production costs below $3/b to fit its revised oil price scenario.

The company has cut its Brent oil price outlook to $40/b for 2020 from a previous $65/b and is assuming a contango, or increase in price, of $5/b per year through to 2025.

Galp previously said that the lion's share of its capex cuts would correspond to Mozambique (where it has stakes in the ExxonMobil-led Rovuma and Eni-led Coral LNG projects), while it would also expect some unspecified reductions in Brazil and Iberia.

For the first half of the year, Galp successfully met its capex reduction target with Eur280 million invested (66% in the upstream) in the period.

It announced in April it would cut back its capital expenditure in 2020 and 2021 from Eur1.2 billion per year to around Eur600 million per year due to the twin impacts of the oil price decline and COVID-19 restrictions on the economy.

DOWNSTREAM DECLINE

In the downstream, measures related to COVID-19 hit both the company's sales volumes and its refinery operations, as demand dried up and inventories increased.

The impact of the pandemic was seen in its downstream sales, where it reported a 43% year-on-year drop in oil product sales in Q2 2020 to 2.4 million mt and a 47% drop in natural gas sales to 11.7 TWh.

With weaker demand and high inventories, the company curtailed operations at both it Portuguese refineries during the quarter, with the fuel plant at the 110,000 b/d Matosinhos plant still halted at the end of Q2.

Refinery throughput for the second quarter was down 49% year on year at 13.4 million boe, equivalent to a 45% utilization rate, or around half of the company's pre-COVID estimate of a 90% rate for the full year.

The refining margin also sunk 39% year on year to $1.80/b in Q2, compared to a previously assumed $4-$5/b for 2020 through 2022.