Japan's Inpex slashes 2020 expenditures by almost a third on low oil prices

Tokyo — Japan's largest upstream company Inpex on Tuesday said it has slashed its overall development, exploration and other expenditures by almost a third to Yen 219 billion ($2.04 billion) for 2020 as a result of the sharp drop in oil prices amid plummeting petroleum demand due to the COVID-19 pandemic.

Inpex's revised expenditure is down 27.2% from its earlier plan of Yen 301 billion for its fiscal year ending December 31, with its capital expenditures for development, accounting for over 20% of the reduction and exploration investments dropping more than 40%, a company spokesman said.

Inpex added it is currently re-evaluating its assets and may record impairment losses on some assets mainly consisting of producing projects, depending on the outlook of crude oil prices and project plan reviews.

Inpex, however, did not update its annual oil and gas production outlook of 608,000 boe/d for 2020.

In its latest 2020 outlook, Inpex set its income basis with a Brent crude price of $40.40/b for the first half and $30/b for Q2, down from its February 12 forecast of $60/b for both Q1 and Q2 this year.

Based on this revision, Inpex's net profit will plunge 50% from the earlier forecast to Yen 35 billion on Yen 408 billion of revenue, down 32.7% from the projection for H1. Its annual net profit is expected to dive further by 93.1% from the earlier forecast to Yen 10 billion for the full fiscal year, over a 41% decline against the revenue projection to Yen 710 billion.

INCREASED OUTPUT

For the January-March quarter, Inpex produced 612,900 b/d of oil equivalent, up 16% from a year earlier, driven by increased output from including Australia's Ichthys LNG project and Abu Dhabi oil fields, the spokesman said.

Inpex is the operator of the Ichthys project, which involves piping gas from the offshore Ichthys field in the Browse Basin in northwestern Australia over 890 km (552 miles) to the onshore 8.9 million mt/year LNG plant near Darwin.

Inpex said in February that the Ichthys LNG project plans to ship around 36 cargoes of offshore condensate in 2020, up 24% from 2019, and plans to ship up to 24 cargoes of plant condensate in 2020, up from 19 in 2019.

Inpex has stakes in Abu Dhabi's onshore and offshore oil fields, including the Upper Zakum and Lower Zakum offshore fields.

The Upper Zakum field, the world's second largest offshore field with a production capacity of about 650,000 b/d, was supposed to be ramped up to 750,000 b/d this year. State-owned Abu Dhabi National Oil Co. holds a 60% stake in the concession with ExxonMobil owning a 28% stake and Inpex the remainder.

Inpex is also tasked with the ramp up in production capacity at the offshore Lower Zakum field as the asset leader from 300,000 b/d to 450,000 b/d. The Lower Zakum concession area includes the China National Petroleum Corp., an Indian consortium, led by ONGC Videsh, Italy's Eni and France's Total. ADNOC retains a majority 60% stake in the concession.

ABU DHABI OUTPUT

Abu Dhabi's production hike was among the drivers boosting Japan's UAE crude imports in March, a source familiar with the matter said, adding that the increased output had led equity lifters to take extra barrels.

ADNOC, which pumps most of the UAE's oil, declined to comment.

The UAE produced 3.45 million b/d in March, above its old OPEC+ quota of 3.01 million b/d, according to S&P Global Platts OPEC survey for that month.

Several OPEC+ members flouted their quotas in March after the breakdown of talks earlier that month when Russia and Saudi Arabia failed to agree on extending and deepening production cuts beyond March.

Under the new agreement that kicked in in May, the UAE will produce around 2.45 million b/d in May, down from a record 4.1 million b/d in April.

The UAE in June will cut an extra 100,000 b/d from its output, on top of its OPEC+ commitments, joining Saudi Arabia with its 1 million b/d extra cut and Kuwait's 80,000 b/d additional curb for their outputs next month.

The UAE was Japan's largest crude supplier for the second consecutive month in March, when the Asian consumer raised its crude imports by 71.8% year on year to 1.21 million b/d, according to the Ministry of Economy, Trade and Industry data.

The UAE crude imports in March were boosted by increased intake of Murban and Upper Zakum, both of which more than doubled year on year to 479,719 b/d and 250,046 b/d, respectively. Das crude imports from the UAE jumped 25.4% year on year to 385,381 b/d in March.

(Updates with details throughout.)